Q4 2023 CONMED Corporation Earnings Call

Yeah.

Speaker Change: Thank you for standing by before the conference call begins let me remind you that during this call management will be making comments and statements regarding its financial outlook its plans and objectives.

Speaker Change: Statements represent are forward looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws.

Speaker Change: Our caution that any such forward looking statements are not guarantees of future events performance or results. The company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under the forward looking information in today's press release.

Speaker Change: 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 non-GAAP or adjusted measurements. During this discussion while these figures are not a substitute for.

Speaker Change: Our 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.

Speaker Change: 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 adjustment items are specified in the reconciliation supporting the company's earnings releases posted on the company's website with these required in there.

Speaker Change: Smith's completed I will now turn the call over to Curt Hartman Con Meds chair of the board President and Chief Executive Officer for opening remarks, Mr. Hartman.

Curt R. Hartman: Thank you Jonathan good afternoon, and thank you for joining us for Con meds fourth quarter and full year 2023 earnings call.

Curt R. Hartman: With me on the call is Todd Garner Executive Vice President and Chief Financial Officer.

Curt R. Hartman: Today I'll provide a brief overview of the financial and operating performance for the fourth quarter and the full year. Todd will then provide a more detailed analysis of our financial performance and discuss our 2024 financial guidance. After that we'll open the call to your questions.

Todd W. Garner: Overall, I'm pleased with our fourth quarter results, which delivered record revenue for Calvert total sales for the fourth quarter were $327 million, representing a year over year increase of 30% as reported and an increase of 32% in constant currency. These.

Todd W. Garner: These growth rates are obviously aided by the fourth quarter of 2022 warehouse disruption, which impacted each part of our business differently in the fourth quarter of 2022.

Todd W. Garner: Fourth quarter earnings delivered GAAP net income of $33 1 million, an increase of 24% over net income of $26 6 million in the fourth quarter of 2022.

Todd W. Garner: Excluding special items that affected comparability, our adjusted net income was $33 2 million and our adjusted diluted net earnings per share was $1.06.

For the full year sales reached a new record of one point to four 5 billion, representing a year over year increase of 19% as reported and 21% in constant currency.

Todd W. Garner: 2023 was a year of balanced growth when you look at the full year growth rates across domestic and international general surgery, and orthopedics and single use and capital.

Todd W. Garner: My perspective is that this speaks to the underlying strength of the entire product portfolio that has been built strategically overtime.

Todd W. Garner: 2023, GAAP net income totaled $64 5 million compared to a net loss of $80 6 million in 2022.

Todd W. Garner: Excluding special items that affected comparability, our adjusted net income of $108 3 million increased 27% year over year and our adjusted diluted net earnings per share of $3 45 in.

Todd W. Garner: Increased 30% year over year.

Speaker Change: Looking back at 2023, I'm very proud of both the top and bottom line performance, which exceeded and finished at the top end of the original respective 2023 guidance.

Speaker Change: Early in the year, we quickly remediated the warehouse issues from late 2022, and I can confidently say, our global distribution strategy has never been clear our 2022 acquisitions performed well within the bounds now convert foot and ankle delivering double digit growth for the full year, while absorbing the growing pains of supplier integration.

Speaker Change: Leadership transitions, so common in private acquisitions.

Speaker Change: <unk> platform is a game changer and exceeded our expectations and as important as a great trajectory as we expand the market reach through sales channel expansion and geographic registrations.

Speaker Change: Overall, the entire portfolio was strong and in 2024, we expect the introduction of several new products across each of our businesses.

Speaker Change: Why I, usually reserved the financial detail analysis for Todd are proud of the team for driving our leverage ratio down to four one times as our increased focus on working capital and overall asset management continues to improve.

Speaker Change: In summary, 2023 was a great year for Calumet looking forward I could not be more confident in our prospects to continue to delivering top line growth and leveraged earnings growth driven by clinically differentiated solutions across our business. This stems from my confidence that we have a talented global team armed with an innovative high growth portfolio.

Speaker Change: <unk>, which was built through a disciplined combination of organic and inorganic development across both our general surgery and orthopedics categories. The.

Speaker Change: The strategic outlook for <unk> remains strong and this will benefit patients customers employees and shareholders in the quarters and years ahead with that I'll turn the call over to Todd who will provide a more detailed analysis of our financial performance and discuss our 2024 financial guidance Todd.

Todd W. Garner: Thank you Kurt.

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

Todd W. Garner: As usual we have included an investor deck on our website that summarizes the results of the quarter of the year and our updated guidance.

Todd W. Garner: For the fourth quarter of 2023, our total sales increased 31, 5%.

Todd W. Garner: As a reminder, during the fourth quarter of 'twenty, two we were dealing with our warehouse software implementation that affected our ability to ship product.

For Q4, our sales in the U S increased 33, 3% versus the prior year quarter and our international sales grew 29.0%.

Todd W. Garner: Worldwide Orthopedics revenue grew 19, 4% in the fourth quarter.

Todd W. Garner: In the U S. Orthopedic sales grew 6.0% and internationally orthopedic sales increased 29, 8%.

Todd W. Garner: As we talked about last quarter supply constraints in our domestic orthopedic business, including our MTF allograft tissue kept us from being on offense as much as we would like.

Todd W. Garner: The MTF supply returned to normal during the fourth quarter, and we expect to be able to move more fully to offense on the rest of the orthopedics portfolio by the end of Q1 2024.

Todd W. Garner: <unk> again delivered strong growth in the fourth quarter and has good momentum going into 2024.

Todd W. Garner: While we've previously referred to as into bonds, we will refer to as foot and ankle going forward as Kurt said, we are currently dealing with normal growing pains in this business, which caused Q4 to be below trend only growing in the mid I'm sorry in the high single digits.

Todd W. Garner: So it's still above market, but below what we're used to and what we expect.

Todd W. Garner: We continue to expect this business to outgrow the market and be a double digit grower for us in 2024.

Total worldwide General surgery revenue increased 41, 7% in the quarter.

Todd W. Garner: U S General surgery revenue grew 47, 6%, while internationally general surgery revenue increased 27, 8%.

Todd W. Garner: Obviously these elevated growth rates are aided by easy comps from the prior year, but we continue to see the same trend of strong growth from our leading products on this side of the business.

Todd W. Garner: For the full year of 2023, our total sales increased 29%, which represents 18, 4% growth on an organic basis.

Todd W. Garner: For the full year, our U S and international sales, both grew 29% versus the prior year, which is amazing from a balance perspective.

Todd W. Garner: Worldwide Orthopedics revenue increased 17, 7% for the full year of 2023.

Todd W. Garner: In the U S. Orthopedic sales grew 15, 2% and internationally orthopedic sales increased 19, 2%.

Todd W. Garner: Total worldwide General surgery revenue increased 23, 4% for the full year 2023.

Todd W. Garner: U S General surgery revenue grew 23, 4%, while internationally general surgery revenue increased 23, 5%.

Todd W. Garner: Now, let's move to the expense side of the income statement.

Todd W. Garner: We will discuss expenses and profitability in the fourth quarter and the year, excluding special items, which include charges for acquisitions and contingent consideration termination of a distributor agreements legal matters debt refinancing costs restructuring of software implementation costs amortization of intangible assets and amortization of deferred financing fees net of tax.

Todd W. Garner: <unk> gross margin for the fourth quarter was 56, 4%, which is a 50 basis point sequential improvement over Q3.

Todd W. Garner: And an increase of 220 basis points from the prior year quarter.

Todd W. Garner: So the product mix tailwind, we're counting on is real and working the challenges we had in Q4 in the U S orthopedic business affected gross margin.

We also made some process improvements in one of our plants that drove some period costs that we recognized in the quarter.

Yeah.

Todd W. Garner: For the full year adjusted gross margin was 55, 2% a decrease of 10 basis points from 2022.

Todd W. Garner: Margin improved sequentially throughout the year inflation experienced throughout 2022 was cycling through the P&L in the first half of 2023 offsetting the underlying favorable mix impact of the product portfolio.

Todd W. Garner: Research and development expense for the fourth quarter was four 3% of sales.

Todd W. Garner: 60 basis points lower than the prior year quarter for the full year 2023, R&D expense was four 2% of sales 30 basis points lower than 2022.

For the fourth quarter adjusted SG&A expenses were 36, 7% of sales.

Todd W. Garner: Leverage gained on our higher sales drove the 300 basis point improvement over the prior year quarter.

Todd W. Garner: So despite the gross margin headwinds, we delivered 15, 8% adjusted operating margin in Q4.

For the full year adjusted SG&A expenses were 37, 4% of sales a 140 basis points lower than in 2022.

Todd W. Garner: On an adjusted basis interest expense was $8.0 million in the fourth quarter and $33 7 million for the full year.

Todd W. Garner: The adjusted effective effective tax rate in Q4 was 24, 2% for the full year, our adjusted effective tax rate was 23.0%.

Fourth quarter GAAP net income was $33 1 million. This compares to GAAP net income of $26 6 million in Q4 of 2022.

Todd W. Garner: GAAP earnings per diluted share were $1 five this quarter compared to 86 cents a year ago.

Todd W. Garner: For the full year GAAP net income was $64 5 million compared to GAAP net loss of $8 6 million in 2022.

Todd W. Garner: GAAP earnings per diluted share were $2, <unk> and 2023 compared to GAAP net loss per diluted share of $2 68 and 2022.

Todd W. Garner: Excluding the impact of special items discussed earlier in the fourth quarter, we reported adjusted net income of $33 $2 million, an increase of 156, 5% compared to the fourth quarter of 2022.

Todd W. Garner: Our Q4 adjusted diluted earnings per share were $1 six.

Todd W. Garner: An increase of 152, 4% compared to the prior year quarter.

Operator: Thank you for standing by. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans, and objectives. These statements 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. The company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed in the 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.

Todd W. Garner: For the full year of 2023, we reported adjusted net income of $108 $3 million, an increase of 27, 4% compared to 2022.

Our full year adjusted diluted net earnings per share were $3 45.

Todd W. Garner: An increase of 32% compared to the prior year.

Todd W. Garner: Turning to the balance sheet.

Todd W. Garner: Our cash balance at the end of the year was $24 3 million compared to $35 million as of September 30th.

Todd W. Garner: Accounts receivable days as of December 30, <unk> were 67 days compared to 68 at the end of Q3.

Todd W. Garner: Inventory days at the at year end were 198 compared to 215 at September 30th.

Todd W. Garner: Long term debt at the end of the year was $903 $1 million versus $942 $2 million as of September 30th.

Todd W. Garner: Our leverage ratio on December 31 was four one times.

Operator: You will also hear management refer to non-GAAP or 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 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.

Todd W. Garner: Cash flow provided from operations in the quarter was $56 4 million compared to cash flow used for operations of $11 6 million in the fourth quarter of 2022.

Todd W. Garner: Cash flow provided from operations for the full year 2023 was $125 3 million compared to $33 4 million in 2022.

Todd W. Garner: Both Q4 and the full year, our all time records for this metric.

Todd W. Garner: Capital expenditures in the fourth quarter were $4 9 million compared to $5 $7 million a year ago for the full year capital expenditures were 19.0 million compared to $21 8 million in 2022.

Operator: These adjustment items are specified in the reconciliation supporting the company's earnings releases posted on the company's website. With these required announcements completed, I will now turn the call over to Curt Hartman, ConMed's Chair of the Board, President, and Chief Executive Officer, for opening remarks. Mr. Hartman.

Speaker Change: Now, let's turn to financial guidance.

Speaker Change: For the full year 2024, we expect revenue in the range of 1.34 billion and $1 $3 65 billion representing year over year growth of approximately 8% to 10%.

Curt R. Hartman: Thank you, Jonathan. Good afternoon, and thank you for joining us for CONMED's fourth quarter and full year 2023 earnings call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. Today, I'll provide a brief overview of the financial and operating performance for the fourth quarter and the full year. Todd will then provide a more detailed analysis of our financial performance and discuss our 2024 financial guidance. After that, we'll open the call to your questions.

Speaker Change: Q1, 2023 had the benefit of the backlog catch up from our 2022 warehouse issue.

Speaker Change: So the Q1 2024 growth rate, we estimate between three and 5%.

Speaker Change: Q1 also has one less selling day in the prior year.

Speaker Change: Q3, and Q4, both have one extra day. So the full year has one extra day over 2023.

Speaker Change: We believe the growth rates should accelerate as we move through the year Q2, maybe more like mid to high single digits as the ortho business ramps back up and then Q3 and Q4 performance should get us to that 8% to 10% for the full year.

Curt R. Hartman: Overall, I'm pleased with our fourth-quarter results, which delivered record revenue for ConMed. Total sales for the fourth quarter were $327 million, representing a year-over-year increase of 30 percent, as reported, and an increase of 32 percent in constant currency. These growth rates are obviously aided by the fourth quarter 2022 warehouse disruption, which impacted each part of our business differently in the fourth quarter of 2022. Fourth quarter earnings delivered a gap net income of $33.1 million, an increase of 24% over net income of $26.6 million in the fourth quarter of 2022. Excluding special items that affected comparability, our adjusted net income was $33.2 million, and our adjusted diluted net earnings per share was $1.06.

Speaker Change: Based on current rates, we expect currency to have an immaterial impact to 2024 growth rates on the top and bottom line.

Speaker Change: For the past seven months, we have attempted to allay concerns regarding a potential insufflator integrated with a new surgical robot.

Speaker Change: Beginning with a very detailed discussion of the clinical benefits and patent protection around our technology as part of our second quarter 2023 earnings call.

Speaker Change: To be clear, we continue to believe the impact on <unk> will be minimal but.

Speaker Change: But we don't think it is wise to have company guidance that ignores such a pervasive theoretical market overhang.

Curt R. Hartman: For the full year, sales reached a new record of $1.245 billion, representing a year-over-year increase of 19% as reported and 21% in constant currency. 2023 was a year of balanced growth when you look at the full year growth rates across domestic and international, General Surgery and Orthopedics, and Single-Use and CAP.

So we have elected to include in our guidance, what we believe to be a worst case estimate of what that impact could be.

Speaker Change: While we aren't going to share the specifics of our model I will tell you that our guidance allows for a conversion rate associated with placements of the new robot that is roughly half of what we have seen historically.

Curt R. Hartman: My perspective is that this speaks to the underlying strength of the entire product portfolio that has been built strategically over time. 2023 gap net income totaled $64.5 million compared to a net loss of $80.6 million in 2022. Excluding special items that affected comparability, our adjusted net income of $108.3 million increased 27% year over year, and our adjusted diluted net earnings per share of $3.45 increased 30% year over year. Looking back at 2023, I'm very proud of both the top and bottom line performance, which exceeded and finished at the top end of the original respective 2023 guidance. Early in the year, we quickly remedied the warehouse issues from late 2022, and I can confidently say our global distribution strategy has never been clearer.

As a reminder, <unk> has successfully treated millions of patients and has significant data showing 50% reduction in length of stay and other significant benefits.

Speaker Change: We believe surgeons value the clinical outcomes and associated data.

Speaker Change: And we'll want to see similar or better results from any new technology before making a change.

Finally to mitigate a theoretical slowdown in conversions, we would accelerate the shift of our resources and energy in favor of general laparoscopic cases.

Speaker Change: Turning to adjusted gross margin.

Speaker Change: The improving mix of the portfolio remains strong, which we think should drive between 100 and 150 basis points of margin expansion in 2024, that's gross margin expansion.

Speaker Change: This is a little slower than we envisioned for 2024, when we talked about it a year ago.

Curt R. Hartman: Our 2022 acquisitions performed well within the Bones, now ConMed Foot and Ankle, delivering double-digit growth for the full year while absorbing the growing pains of supplier integration and leadership transitions so common in private acquisitions. The BioBrace platform is a game changer and exceeded our expectations and, more importantly, has a great trajectory as we expand the market reach through sales channel expansion and geographic registration.

Speaker Change: We expected slow start in orthopedics and some improvements we still need to make in our manufacturing processes are contributing to that headwind, having said that it is still a very good gross margin story and it should build throughout the year.

Speaker Change: We expect Q1 to be about 100 basis points better than the prior year and by Q4, we expect to be providing about 150 basis points of improvement over the prior year.

Curt R. Hartman: Overall, the entire portfolio is strong, and in 2024, we expect the introduction of several new products across each of our businesses. And while I usually reserve the financial detail analysis for Todd, I'm proud of the team for driving our leverage ratio down to 4.1 times as our increased focus on working capital and overall asset management continues to improve. In summary, 2023 was a great year for Congress.

Speaker Change: So where does that put us on our quest to 60% gross margins by the end of 2025.

Speaker Change: If Q4 2024 is around 58%.

Speaker Change: And the mix and improvements should be accelerating we believe it is still possible to be around 60% by the end of 2025, if not we would expect to be on a strong trend and hit that milestone comfortably in 2026.

Curt R. Hartman: Looking forward, I could not be more confident in our prospects to continue delivering top-line growth and leveraged earnings growth driven by clinically differentiated solutions across our business. This stems from my confidence that we have a talented global team armed with an innovative, high-growth portfolio, which was built through a disciplined combination of organic and inorganic development across both our general surgery and orthopedics categories. The strategic outlook for ConMed remains strong, and this will benefit patients, customers, employees, and shareholders in the quarters and years ahead. With that, I'll turn the call over to Todd, who will provide a more detailed analysis of our financial performance and discuss our 2024 financial guidance. Todd?

Speaker Change: As a percentage of sales, we expect adjusted SG&A to improve between 60 and 80 basis points in 2024 for the full year.

Q1 will likely be at a similar rate to the prior year Q1, given our typical sales force expansions to start the year, but we expect to gain leverage as we move through the year.

Speaker Change: We expect full year R&D expense in 2024 to be between 4% and four 5% of sales we expect Q1 in the mid fours.

Speaker Change: Yeah.

Speaker Change: We expect adjusted interest expense to be between 33 and $34 million in 2024 keep in mind that we have $70 million of the 262, 5% converts that mature. This week those will be funded by our revolver. So expect interest expense for the first.

Todd W. Garner: Thank you, Curt. All the sales growth numbers I referenced today will be given in constant currency. The reconciliation to gap 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 and our updated guidance. For the fourth quarter of 2023, our total sales increased 31.5%. As a reminder, during the fourth quarter of 22, we were dealing with our warehouse software implementation that affected our ability to ship products. For Q4, our sales in the U.S. increased 33.3% versus the prior year quarter, and our international sales grew 29.0%. Worldwide orthopedics revenue grew 19.4% in the fourth quarter.

Two quarters of 2024 to be between $8 $5 million and $9.0 million per quarter.

Speaker Change: We expect the adjusted effective tax rate to be around 24, 5% in 2024.

Speaker Change: We expect adjusted EPS in 2024 to be between $4 30.

Speaker Change: And $4 40.

Speaker Change: Representing growth between 25% and 28%.

Speaker Change: Because gross margin is expected to build throughout the year and interest expense will be higher in the first half we expect adjusted EPS in Q1 to be between 72 and <unk> 75.

Todd W. Garner: In the U.S., orthopedic sales grew 6.0%, and internationally, orthopedic sales increased 29.8%. As we talked about last quarter, supply constraints in our domestic orthopedic business, including our MTF allograft tissue, kept us from being on offense as much as we would like. The MTF supply returned to normal during the fourth quarter, and we expect to be able to move more fully to offense on the rest of the orthopedics portfolio by the end of Q1. BioBrace again delivered strong growth in the fourth quarter and has good momentum going into 2024. What we've previously referred to as the interbones, we will refer to as the foot and ankle going forward.

Speaker Change: And we expect the first half to be between $1 65, and $1 71.

Speaker Change: We expect full year operating cash flow in 2024 to be between 145 and $155 million.

Speaker Change: With capital expenditures in the $20 million to $25 million range, putting free cash flow between $120 million and $135 million.

Speaker Change: We project adjusted EBITDA between $270 million and $280 million for 2024.

Given the heavier cash requirements in the beginning of the year, we expect our leverage ratio to stay relatively flat for the next six months and then drop into the low threes by the end of 2024.

Todd W. Garner: As Curt said, we are currently dealing with normal growing pains in this business, which caused Q4 to be below trend, only growing in the high single digits, so still above market, but below what we're used to and what we expect. We continue to expect this business to outgrow the market and be a double-digit grower for us in 2024. Total worldwide general surgery revenue increased 41.7% in the quarter.

As Kurt said, we are pleased with our record setting 2023 performance and are focused on delivering a strong 2024.

Speaker Change: We remain confident in our ability to deliver innovation to our customers, while driving above market growth and profitability over the long term and with that we'd like to open the call to your questions I will hand, it back to Jonathan.

Jonathan: Certainly ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone to remove yourself from the queue simply press Star. One again, we ask that you. Please limit yourself to one question and one follow up.

Todd W. Garner: U.S. general surgery revenue grew 47.6 percent, while international general surgery revenue increased 27.8 percent. Obviously, these elevated growth rates are aided by easy comps from the prior year, but we continue to see the same trend of strong growth from our leading products on this side of the business. For the full year of 2023, our total sales increased 20.9%, which represents 18.4% growth on an organic basis. For the full year, our U.S. and international sales both grew 20.9% versus the prior year, which is amazing from a balance perspective. Worldwide orthopedics revenue increased by 17.7% for the full year of 2023.

Jonathan: Our first question comes from the line of Rick Wise from Stifel. Your question. Please.

Rick Wise: Good afternoon, sorry about that.

Rick Wise: Okay.

Rick Wise: Let's start off.

Rick Wise: With.

Rick Wise: Maybe one big picture question my follow up will be.

Rick Wise: Something.

Rick Wise: Vic.

Vic: I appreciate it.

Vic: Extremely clearly some of the moving pieces and the timing.

Vic: What.

Vic: Do you think.

Vic: Todd how should we think about fourth quarter growth.

Todd W. Garner: In the U.S., orthopedic sales grew 15.2%, and internationally, orthopedic sales increased 19.2%. Total worldwide general surgery revenue increased 23.4% for the full year 2023. U.S. general surgery revenue grew 23.4%, while internationally, general surgery revenue increased 23.5%. Now, let's move to the expense side of the income statement. We will discuss expenses and profitability in the fourth quarter and the year, excluding special items, which include charges for acquisitions and contingent consideration, termination of distributor agreements, legal matters, debt refinancing costs, restructuring of software implementation costs, amortization of intangible assets, and amortization of deferred financing fees net of tax. Adjusted gross margin for the fourth quarter was 56.4%, which is a 50 basis point sequential improvement over Q3 and an increase of 220 basis points from the prior year quarter.

Vic: Hi.

Todd W. Garner: So, let's say on a normalized basis.

Todd W. Garner: Let's say, adding back.

Todd W. Garner: If allografts had been normal what kind of growth might we have seen.

Todd W. Garner: And maybe you can talk about your confidence in the timing of getting that back on track.

Speaker Change: And what im really trying to get out.

Speaker Change: We've heard from some other larger companies how the environment is improving.

Speaker Change: He is rebounding.

Speaker Change: Do you feel like Youre seeing that ex some of these moving pieces.

Speaker Change: Yes, So let me.

Speaker Change: I'll take that first part and maybe Kirk can chime in on.

Kirk: On that second part.

<unk>.

Kirk: It's really impossible, Rick to try and normalize what Q4 would be really not because of the allograft tissue that's a.

Kirk: That's a smaller issue right it affects margins because that's a 100% margin product is as we've talked about before.

Kirk: The what's hard about getting too.

Kirk: Normalized growth rate for Q4 is that Q4 'twenty to had that major disruption of our warehouse.

Todd W. Garner: So the product mix tailwind we're counting on is real and working. The challenges we had in Q4 in the U.S. orthopedic business affected gross margins. We also made some process improvements in one of our plants that drove some period costs that we recognized in the quarter. For the full year, adjusted gross margin was 55.2%, a decrease of 10 basis points from 2022. While margin improved sequentially throughout the year, inflation experienced throughout 2022 was cycling through the P&L in the first half of 2023, offsetting the underlying favorable mixed impact of the product portfolio. Research and development expense for the fourth quarter was 4.3% of sales.

Kirk: Software implementation and so.

It's just impossible to know what.

Kirk: A normal quarter would have been.

Kirk: A year ago, and so it's impossible to get to kind of what this Q4 is normalized because it is impossible to know so.

Kirk: We feel very good about the.

Kirk: All the growth drivers of our business as we talked about the ortho business has had.

Kirk: Lingering supply issues that are getting better every quarter, if they get a little better we're just not out of the woods yet.

Kirk: And.

Kirk: So and we think we're a few months still from getting out of the woods, there, where we can move back to offense. The way we want to be on that side of the business but.

Kirk: That's the beauty of diversification and balance that we talked about and so the total business remains healthy and headed in the right direction and when we can get all cylinders pumping like we'd like it will be even better.

Todd W. Garner: 60 basis points lower than the prior year quarter. For the full year 2023, R&D expense was 4.2% of sales, 30 basis points lower than 2022. For the fourth quarter, adjusted SG&A expenses were 36.7% of sales.

Kirk: Rick on the last part about the markets.

Kirk: Came a week or so ago from our global sales meeting leadership meetings.

Kirk: I would tell you our teams are pretty optimistic about the markets broadly.

Todd W. Garner: Leverage gained on the higher sales drove the 300 basis point improvement over the prior year quarter. So, despite the gross margin headwinds, we delivered 15.8% adjusted operating margin in Q4. For the full year, adjusted SG&A expenses were 37.4% of sales, 140 basis points lower than in 2020. On an adjusted basis, interest expense was $8.0 million in the fourth quarter and $33.7 million for the full year.

Kirk: That's across our categories of orthopedics and general surgeries, but also across our geographies.

Kirk: The higher concentration outside the U S. In most med tech companies.

Kirk: Having folks from the various maher.

Kirk: Markets in <unk>.

Kirk: Tenants and talking about what they're seeing and what their experience and we feel like health care generally speaking is pretty.

Kirk: Pretty solid right now.

Speaker Change: Yes, that's great.

Speaker Change: As a follow up.

Speaker Change: It sounds like a bio break in great shape.

Speaker Change: Talk to hold more about.

Todd W. Garner: The Adjusted Effective Tax Rate in Q4 was 24.2%. For the full year, our Adjusted Effective Tax Rate was 23.0%. Fourth Quarter Gap Net Income was $33.1 million. This compares to gap net income of $26.6 million in Q4 of 2022. Gap earnings per diluted share were $1.05 this quarter compared to $0.86 a year ago.

Speaker Change: The challenges are the.

Speaker Change: Near term.

Speaker Change: Issues affecting into bonds, our foot and ankle.

Speaker Change: That drove high single digit.

Speaker Change: Yes.

Speaker Change: So what happened and help us understand what you Dow.

Speaker Change: Dialed into that 'twenty, four guide and why does it get better and win.

Speaker Change: Thank you very much.

Speaker Change: Yes, I think the first part of that question I'll take and I'll, let Todd talk about guidance.

Okay.

Todd W. Garner: For the full year, gap net income was $64.5 million compared to a gap net loss of $80.6 million in 2022. Gap earnings per diluted share were $2.04 in 2023 compared to a gap net loss per diluted share of $2.68 in 2023. Excluding the impact of special items discussed earlier, in the fourth quarter, we reported adjusted net income of $33.2 million, an increase of 156.5% compared to the Our Q4 adjusted diluted earnings per share were $1.06, an increase of 152.4% compared to the prior year quarter. For the full year of 2023, we reported adjusted net income of $108.3 million, an increase of 27.4% compared to 2022. Our full-year adjusted diluted net earnings per share were $3.45, an increase of 30.2% compared to the prior year.

Todd W. Garner: You buy a private company you go through the integration steps putting them into your systems. Your processes that include supply chain.

Todd W. Garner: We're working hard on international registration. There is there is far more demand on the supply of the product.

Todd W. Garner: Out of the gates and working with that that new supplier base and trying to get them integrated into our systems and our processes.

Todd W. Garner: As is typically the case in smaller private companies or some evolution transition and disruption and really those are the things that slowed us down and we think Todd's earlier comment we think those things clear up here as we get through the first quarter and we get back on full stride as we get into second quarter. So.

Todd W. Garner: I don't think it's anything systemic I think it's all about integration and taken a private company put it into a public company's framework and trying to put those processes work the way they should.

Speaker Change: Yeah, and as far as guidance Rick.

Speaker Change: Definitely.

Speaker Change: Included in our guidance the assumption that that business grows double digits in 2024.

Speaker Change: As Curt said.

Speaker Change: We think this this hiccup is temporary it doesn't magically go away with the turning on the calendar, but we do think it's a sure.

Speaker Change: Short term pickup that we will get through and get this business back to double digits and we do think it will be done at double digits for the full year.

Todd W. Garner: Turning to the balance sheet, our cash balance at the end of the year was $24.3 million compared to $30.5 million as of September 30th. The accounts receivable days as of December 31st were 67 days compared to 68 at the end of Q3. Inventory days at year end were 198 compared to 215 on September 30th. Long-term debt at the end of the year was $903.1 million versus $942.2 million as of September 30th.

Speaker Change: Great. Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Robbie Marcus from J P.

Robbie Marcus: Your question please.

Robbie Marcus: Yeah. Thanks for taking the question.

Robbie Marcus: I wanted to follow up on Rex and I guess I'll ask it this way.

Robbie Marcus: Fourth quarter missed and margins were weak in 2024 is all predicated on improvement over the course of the year, although recognizing and includes a potential headwind for something that hasn't even happened yet with <unk>.

Todd W. Garner: Our leverage ratio on December 31st was 4.1 times. Cash flow provided from operations in the quarter was $56.4 million compared to cash flow used for operations of $11.6 million in the fourth quarter of 2022. Cash flow provided from operations for the full year, 2023, was $125.3 million, compared to $33.4 million in 2022. Both Q4 and the full year are all-time records for this metric. Capital expenditures in the fourth quarter were $4.9 million, compared to $5.7 million a year ago.

Speaker Change: So I guess.

Speaker Change: Lot of it is predicated on trust that the business will improve and I was just wondering if you could give us.

Speaker Change: <unk>.

Speaker Change: Any more concrete reasons to believe that.

Speaker Change: Growth could be in.

Essentially double digits towards the end of the year to get to the guidance range and why that.

Speaker Change: What the building blocks are that you have visibility to today versus just a bit of hope.

Speaker Change: Yes, Thanks Robbie.

Speaker Change: I think if we just raise our view a little bit other than just Q4 right.

Todd W. Garner: For the full year, capital expenditures were $19.0 million compared to $21.8 million in 2022. Now, let's turn to financial guidance. For the full year 2024, we expect revenue in the range of $1.34 billion and $1.365 billion, representing year-over-year growth of approximately 8 to 10 percent. Q1 2023 had the benefit of the backlog catch-up from our 2022 warehouse issue. So the Q1 2024 growth rate is estimated between 3 and 5%. However, Q1 also has one less selling day than the prior year. Q3 and Q4 both have one extra day, so the full year has one extra day over 2023.

Speaker Change: In Q2 and Q3, the last two quarters, we reported on the business was growing.

Robbie Marcus: The low double digits organically. So this is not our aspiration or a hope to us we know this portfolio can do it.

Robbie Marcus: We've identified the causes for this.

Robbie Marcus: Slower Q4 than we expected we do believe those are temporary we think we're doing all the right things and so it's not.

Robbie Marcus: Really the aberration as this is the hiccup that business is built to grow as we've guided.

Robbie Marcus: And I think we feel very comfortable.

Robbie Marcus: With the guidance we've provided today.

Robbie Marcus: Yeah.

Speaker Change: Got it.

Speaker Change: And as you think about just the M&A, you've done and where the leverage is right now how do you feel about your ability to continue to do M&A and your thoughts on the need for additional.

Todd W. Garner: We believe the growth rate should accelerate as we move through the year. Q2 may be more like mid to high single digits as the ortho business ramps back up, and then Q3 and Q4 performance should get us to that 8% to 10% for the full year. Based on current rates, we expect currency to have an immaterial impact on 2024 growth rates on the top and bottom line.

Speaker Change: Assets in the P&L, Thanks, a lot.

Speaker Change: We finished.

Speaker Change: Leverage ratio at four one which was better than we had expected based on some fine work on asset management.

Through the second half of the year.

We've said publicly we didn't give our business development teams time off.

Todd W. Garner: For the past seven months, we have attempted to allay concerns regarding a potential insufflator integrated with a new surgical robot, beginning with a very detailed discussion of the clinical benefits and patent protection around our technology as part of our second quarter 2023 earnings call. To be clear, we continue to believe the impact on air seal will be minimal, but we don't think it is wise to have company guidance that ignores such a pervasive theoretical market overhang. So we have elected to include in our guidance what we believe to be a worst-case estimate of what that impact could be. While we aren't going to share the specifics of our model, I will tell you that our guidance allows for a conversion rate associated with placements of the new robot that is roughly half of what we have seen historically.

Speaker Change: If a great asset came along we would take a very hard look at it and we we candidly continue to look at items. The bar is obviously much higher than with a little bit higher and market interest rates. The buyer becomes just that much higher.

I'm not sitting here today, feeling we need to do anything I really like the portfolio as I said in my scripted comments, both on general surgery and orthopedics.

Speaker Change: Some new products coming that are additive to the overall effort and I think our our teams on a global basis have plenty to say grace over in terms of talking to their customers about clinically differentiated offerings, but again med Tech 101, if a great asset came on the market and we thought it was a great fit and its going to contribute to the long term growth story, we would take a really hard look.

At it but not sitting here, saying, we need to do it not sitting here, saying.

Speaker Change: We have to do anything to change our outlook in change or deliver do something to deliver on the guidance. The guidance. We put out we feel very good good about and Thats based on the portfolio that we have with us today.

Todd W. Garner: As a reminder, AirSeal has successfully treated millions of patients and has significant data showing a 50% reduction in length of stay and other significant benefits. We believe surgeons value clinical outcomes and associated data and will want to see similar or better results from any new technology before making a change. Finally, to mitigate a theoretical slowdown in conversions, we would accelerate the shift of our resources and energy in favor of general laparoscopic cases.

Speaker Change: Great. Thanks for taking the questions.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And.

Speaker Change: Our next question comes from the line of Matthew O'brien from Piper Sandler Your question. Please.

Matthew Mishan: Afternoon. Thanks, so much for taking my questions.

Matthew Mishan: Todd when you were at our conference at the end of last year, you were talking about a double digit grower at <unk> and 'twenty four.

Todd W. Garner: Turning to Adjusted Gross Margin. The improving mix of the portfolio remains strong, which we think should drive between 100 and 150 basis points of margin expansion in 2024. That's gross margin expansion. This is a little slower than we envisioned for 2024 when we talked about it a year ago. The expected slow start in orthopedics and some improvements we still need to make in our manufacturing processes are contributing to that headwind.

Matthew Mishan: Backing off that a little bit here.

Speaker Change: Today, alright product, but I don't think it's supposed to be out until the end of the year and most likely will come earlier than that but.

Speaker Change: Is the lowering of a 100 basis points, maybe 150 versus what you were expecting entirely because of.

Speaker Change: This this hypothetical launch or are there other things in there specifically it looks like your capital business was a little bit slower than we were kind of anticipating down sequentially versus normal year to speak up.

Speaker Change: Is there something else going on too that's impacting the business just beyond Europe.

Speaker Change: Conservativism on.

Speaker Change: On <unk>.

Todd W. Garner: Having said that, it is still a very good gross margin story, and it should build throughout the year. We expect Q1 to be about 100 basis points better than the prior year, and by Q4, we expect to be providing about 150 basis points of improvement over the prior year. So where does that put us on our quest for 60% gross margins by the end of 2025? If Q4 2024 is around 58% and the mix and improvements should be accelerating, we believe it is still possible to be around 60% by the end of 2025. If not, we would expect to be on a strong trend and hit that milestone comfortably in 2026. As a percentage of sales, we expect adjusted SG&A to improve between 60 and 80 basis points in 2024 for the full year. Q1 will likely be at a similar rate to the prior year Q1, given our typical Salesforce expansions to start the year.

Speaker Change: No I mean, there's there's a few moving pieces here, but let me let me just clarify the record Youre right.

Speaker Change: Like we said Q2, and Q3, which were the quarters, we reported on going into your conference. We had delivered between 11 and 12% organic growth in both of those quarters.

Speaker Change: Those quarters had no odd comp.

Speaker Change: Not easy comps those were kind of normal comps and so that was very representative of what the engine is doing.

Speaker Change: We still obviously, we're guiding eight to 10.

Speaker Change: With as you put.

Speaker Change: Some conservative assumptions behind that.

Speaker Change: We feel very good about.

Speaker Change: The.

Speaker Change: The strength of this portfolio success here has always been defined as grow faster than your markets right.

Speaker Change: So double digits is kind of a milestone that we would all be very happy about.

Speaker Change: But it was we're growing faster than our markets, we're winning and I think eight to 10 is clearly faster than our markets even with those.

Todd W. Garner: But we expect to gain leverage as we move through the year. We expect full-year R&D expense in 2024 to be between 4% and 4.5% of sales. We expect Q1 to be in the mid-4s. We expect adjusted interest expense to be between $33 and $34 million in 2024.

Speaker Change: Kind of assumptions, which I think you've got them right. There is nothing more than what we've said, Matt and I think you've captured under the ortho business is in a little bit of a slow point, we've got to get that back to normal and so thats affecting the start of the year and we've been very generous I think.

Speaker Change: We've we've tried to lean into this narrative that's out there on our on our company and evaluation and we've tried to make this really a worst case scenario in relation to this competitive launch that that the market has worked up about so we <unk>.

Todd W. Garner: Keep in mind that we have $70 million of the 2.625% converts that mature this week. Those will be funded by our revolver, so expect interest expense for the first two quarters of 2024 to be between $8.5 million and $9.0 million per quarter. We expect the adjusted effective tax rate to be around 24.5% in 2024.

Speaker Change: <unk> ended the year or.

Speaker Change: Our assumptions are that it comes way before that and I think through again I'm not sharing the details of our model, but we've been as generous as we could.

Speaker Change: To be conservative in those assumptions and to build that and so.

Speaker Change: <unk>.

Todd W. Garner: We expect adjusted EPS in 2024 to be between $4.30 and $4.40, representing growth between 25% and 28%. Because gross margin is expected to build throughout the year and interest expense will be higher in the first half, we expect adjusted EPS in Q1 to be between $0.72 and $0.75, and we expect the first half to be between $1.65 and $1.71. We expect full-year operating cash flow in 2024 to be between $145 and $155 million, with capital expenditures in the $20 million to $25 million range, putting free cash flow between $120 million and $135 million.

Speaker Change: So having said all that I don't think any of that is inconsistent right we were growing double digits.

Speaker Change: Q4 was disappointing for the reasons, we told you.

Speaker Change: And.

Speaker Change: But the rest of the portfolio continues to be strong we're going to strengthen up that ortho side of the business.

Speaker Change: And get all cylinders humming.

Speaker Change: Okay, and then on the margin side of things again backing off here, a little bit too for the whole year.

Speaker Change: Q1 number is well below what I was expecting from a gross margin perspective. So maybe just talk about line of sight on improving that metric so dramatically throughout the course of this year and then I'll.

Speaker Change: I know you said approaching 60% next year, but that $2 50 number is.

Kind of visit number for me in my head.

Speaker Change: Is it another.

Speaker Change: There are situations, where it could be more like 250 next year.

Operator: We project adjusted EBITDA between $270 million and $280 million for 2024. Given the heavier cash requirements in the beginning of the year, we expect our leverage ratio to stay relatively flat for the next six months and then drop into the low threes by the end of 2024. As Curt said, we are pleased with our record-setting 2023 performance and are focused on delivering a strong 2024. We remain confident in our ability to deliver innovation to our customers while driving above-market growth and profitability over the long term. And with that, we'd like to open the call to your questions, and I'll hand it back to Jonathan. Ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. To remove yourself from the queue, simply press star 11 again.

Speaker Change: And I guess why not just go ahead and back off that number now what is it that you see in the business that we can't see that gets you there. Thank you.

Speaker Change: Yes.

Speaker Change: I think we've been very transparent with.

Speaker Change: With all of those assumptions so.

Speaker Change: There is always seasonality right I mean, we'd all love for Q1, we'd love for Q4 of the prior year to be the jumping off point and everything always be up into the right, but that's not how seasonality in margins work. So if you compare Q1 to Q1, we're guiding today to 100 basis points of improvement alright.

Speaker Change: I don't know how many companies are guiding that so.

Speaker Change: You are correct that it is lower than we thought 12 months ago 12 months ago.

Speaker Change: We said, we said 150 should be the expectation for 2024. This morning, we are saying 100 to 150 or I'm sorry. This afternoon.

Speaker Change: And it builds throughout the year because of these challenges we have on the ortho business and I'll just remind you. The ortho business is accretive to the company margins, especially the foot and ankle side of that business. It's in the eighties.

Rick Wise: We ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Rick Wise from Stiefel. Your question, please. Good afternoon.

Speaker Change: And we have to make some we hoped that our operations and manufacturing would make more progress in 'twenty three than we did so there is still more work to do there. So it is it is slower than a backing off a little bit of how we thought two.

Curt R. Hartman: Sorry about that. Let's start off with maybe one big picture question. My thought will be something specific. I appreciate, and you've laid it out extremely clearly, some of the moving pieces and the timing. Do you think, Todd, how should we think about fourth quarter growth on a normalized basis, let's say adding back, if allografts had been normal, what kind of growth might we have seen, and maybe you can talk about your confidence in the timing of getting that back on track. And what I'm really trying to get at here is we've heard from some other larger companies how the environment's improving, procedures rebounding, a lot of strength. Do you feel like you're seeing that X some of these moving pieces? Yeah, so let me, let me take that first part. And maybe Curt can chime in on that second part.

Speaker Change: 24 would look 12 months ago.

But we're still in the ballpark and as I said.

Speaker Change: If Q4 is going to be 150 bps better.

Speaker Change: Then that puts you at 58.

And so maybe we don't get all the way to 60 by the end of 2025, but we should be very close and easily get there.

Speaker Change: In the following quarters so.

Speaker Change: You are accurate that it is.

Speaker Change: <unk> back off a little bit of what we said, but not much is how I would frame it.

Speaker Change: Understood. Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Kristen Stewart from CL King Your question. Please.

Todd W. Garner: The It's really impossible, Rick, to try and normalize what Q4 would be really not because of the allograft issue. That's a smaller issue, right? It affects margins because that's a 100% margin product, as we've talked about before. What's hard about getting to a normalized growth rate for Q4 is that Q4-22 had the major disruption of our warehouse software implementation. And so it's just impossible to know what a normal quarter would have been a year ago.

Kristen Stewart: Hi, Thanks for taking the question.

Kristen Stewart: I just wanted to go back to <unk>, all not to beat a dead horse, but just to get a little bit better understanding of the exposure there to the business how much of your business today is tied to intuitive surgical and what was the conversion rate that I guess you are tracking at today and what gives you confidence that you're modeling.

Kristen Stewart: A worst case scenario going forward.

Todd W. Garner: And so it's impossible to get to kind of what this Q4 is normalized because it's impossible to know. You know, we feel very good about all the growth drivers of our business. As we talked about, the ortho business has had lingering supply issues that are getting better every quarter. They get a little better.

Speaker Change: Yes. Thank you Kristen <unk> is definitely not a dead horse.

Speaker Change: Unfortunately, the narrative of this competitive threat and I had a horse.

Speaker Change: I can tell you we have disclosed in the past that about we estimate that about 60% of our <unk> revenue is currently associated with intuitive surgical procedures. So we're at about 60% today.

Todd W. Garner: We're just not out of the woods yet, and so we think we're a few months still from getting out of the woods there where we can move back to offense the way we want to be on that side of the business. But, you know, that's the beauty of diversification and balance that we talked about. And so the total business remains healthy and headed in the right direction. And when we can get all cylinders pumping like we'd like, it'll be even better. And Rick on the last part about the markets.

Speaker Change: To be clear that doesn't mean, we're assuming 30% that's not the 50% cut while we're talking about is our historical trend.

Speaker Change: Of attachment of new conversions to the robot.

Speaker Change: That's what we're cutting half, we're not sharing that right with you today, but we shared the 50%.

Speaker Change: Reduction to try and demonstrate that we've taken this seriously we havent been dismissive of it frankly I think we've been very I think it's highly conservative I think it's I think it's unlikely that.

Curt R. Hartman: You know, we just came back from our global sales meeting and leadership meetings, and I would tell you our teams are pretty optimistic about the markets broadly. That's across our categories of orthopedics and general surgeries, but also across our geographies. We have a higher concentration outside the U.S. in most medtech companies, and having folks from the various markets in attendance and talking about what they're seeing and what they're experiencing, we feel like healthcare, generally speaking, is pretty, pretty solid right now. Yeah, that's great. Um, and just as a follow up, I mean, it sounds like it bar braces and is in great shape.

Speaker Change: That there's that much disruption in the in those new systems.

Speaker Change: But the market is clearly very concerned about it and we did not think it was wise or helpful to provide guidance that ignored it and.

Speaker Change: And so we've tried to be as generous as we thought was rational.

Curt R. Hartman: Um, talk to us a little more about, uh, the challenges or the near-term, uh, uh, issues affecting bones or foot and ankle that drove high single digits. Uh, so what happened, and help us understand what you dialed into the 24-guide and why it got better? And when?

Speaker Change: And kind of build that allowance in.

Speaker Change: But thats as much as I'm going to share with you about the details of that model.

Speaker Change: Okay, and I guess getting back to the gross margin of going close to 60% for 2025 is that also under the assumption of a worst case scenario of a 50% reduction.

Curt R. Hartman: Thank you very much. Yeah, I think the first part of that question I'll take and I'll let Todd talk about guidance. Then, you know, you buy a private company, you go through the integration steps, putting them into your systems, your processes, that includes the supply chain.

Speaker Change: As well or do you think if that okay. So you still think that I mean, we're not there with 90%.

Speaker Change: Yeah, we're not guiding to 2025 today, obviously, but that margin improvement story is very strong and is bigger than this issue I would tell you I'll give you a little more color into that model.

Curt R. Hartman: We're working hard on international registration. There's far more demand for the supply of the product out of the gates, and working with that new supplier base and trying to get them integrated into our systems and our processes. As is typically the case in smaller private companies, there's some evolution, transition, and disruption, and really those are the things that slowed us down. And we think, to Todd's earlier comment, we think those things will clear up here as we get through the first quarter, and we will get back on full stride as we get into the second quarter. So it's, I don't think it's anything systemic. I think it's all about integration and taking a private company, putting it into a public company's framework, and trying to let those processes work the way they should.

Speaker Change: Like I said, we've assumed that that's pretty disruptive to us out of the gates.

Speaker Change: Yeah.

Speaker Change: If that all plays out how how the narrative is on the street.

We also know that if that were to materialize.

Speaker Change: The non robotic procedures are 10 times, the robotic procedures right. So we would adjust.

Speaker Change: Energy resources away from robotic procedures and to non robotic procedures. If that theory were to materialize that takes time, obviously rates are longer sales cycles. So I would tell you that the disruption assumed in the model is bigger earn.

Speaker Change: Early than it is late because the longer we have to adjust.

And kind of change our sales focus.

Speaker Change: That's less disruptive to the overall business it is and.

Curt R. Hartman: Yeah, and as far as guidance is concerned, Rick, we definitely have included in our guidance the assumption that that business grows double digits in 2024. As Curt said, you know, we think this hiccup is temporary. It doesn't magically go away with the turning of the calendar.

Speaker Change: So the out years.

Speaker Change: I'm less worried about then.

Speaker Change: And then earlier from that perspective.

Speaker Change: Okay. That's helpful. Thanks very much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Vik Chopra from Wells Fargo. Your question. Please.

Todd W. Garner: But we do think it's a short-term hiccup that we will get through and get this business back to double digits. And we do think it'll be double digits for the full year. Great, thank you.

Vik Chopra: Hey, good afternoon, and thanks for taking the question.

Vik Chopra: Thanks for providing all the color on the guidance I'm just wondering if you can share.

Vik Chopra: And your guidance for the rest of the higher growth businesses.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Robbie Marcus from JPM. Your question, please. Yeah, thanks for taking the question. Wanted to follow up on Rex, and I guess I'll ask it this way.

Vik Chopra: Please.

Speaker Change: Yes, no change.

Speaker Change: We continue to expect.

Speaker Change: All of our high growth businesses to perform as they have been so again just to make everybody feel comfortable thats over 20% for <unk> and Buffalo.

Todd W. Garner: You know, the fourth quarter missed, and margins were. 24 is all predicated on, over the course of the year, although recognized, and Ercio. So I guess, you know, a lot of it is predicated on trust that, and I was just wondering if you could give us any more concrete reasons to believe that growth could be in the double digits, year to get to the guide, and Wyeth Atkins, what the building blocks are that you have today for a... Yeah, thanks, Robbie. Yeah, I think if we just raise our view a little bit other than just So this is not an aspiration or a hope for us. We know this portfolio can do it.

Speaker Change: At twice the market for foot and ankle side of the business and obviously <unk> is a.

Speaker Change: Geometric type of growth engine, so no change to how we view those those growth drivers.

Speaker Change: And I would just adding onto that point to the <unk>.

Speaker Change: Conference at the beginning of year, we put up slides.

Speaker Change: Talked about the percentage of portfolio that was growing double digit growing.

Speaker Change: Single digits or declining and if you just look at that mix, it's a pretty healthy portfolio.

Speaker Change: So that in and of itself underlies history of the business.

Speaker Change: Our portfolio is only getting stronger with new product introductions. So I feel really good about our portfolio not only the ones we've identified as high growth, but the rest of the portfolio and.

Todd W. Garner: We've identified the causes for this kind of slower Q4 than we expected, and we do believe those are temporary. We think we're doing all the right things. And so it's not, you know, really, the aberration. This is the hiccup.

Speaker Change: Our outlook.

Bob Thanks.

Speaker Change: Follow up I had on on bio grade, maybe just talk about your view on <unk>.

Todd W. Garner: The business is built to grow as we guide it, and I think we feel very comfortable with the guidance we've provided today.

Bob: Quickly that can grow in 2024 and <unk>.

Bob: Any thoughts you can share with respect to your approach to the market and competitive strategy. Thank you.

Curt R. Hartman: And as you think about just the M&A you've done and where the leverage is right now, how do you feel about, see it, the need for additional. You know, we've finished with a leverage ratio of 4.1, which was better than we had expected based on some fine work on asset management through the second half of the year. We've said publicly we didn't give our business development teams time off.

Bob: Well I mean, it's still.

Speaker Change: Early days for <unk> in the marketplace and for Con Ed.

Speaker Change: Had said this year it would be high single digits, and we exceeded that and we feel very good and part of my script was talking about sales channel expansion in that.

Curt R. Hartman: You know, if a great asset came along, we would take a very hard look at it, and we candidly continue to look at things. The bar is obviously much higher, and with a little bit higher end market interest rates, the bar becomes just that much higher. I'm not sitting here today feeling we need to do anything. I really like the portfolio, as I said in my scripted comments, both in general surgery and orthopedics. There are some new products coming that are additive to the overall effort, and I think our teams on a global basis have plenty to say grace over in terms of talking to their customers about clinically differentiated offerings. But again, MedTech 101, if a great asset came on the market and we thought it was a great fit and going to contribute to the long-term growth story, we'd take a really hard look at it. But not sitting here saying we need to do it, not sitting here saying we have to do anything to change our outlook and change or deliver, do something to deliver on the guidance.

That means geographic expansion as registrations and approvals come through which we've been working on since day, one but it also means leveraging.

Speaker Change: Our foot and ankle Salesforce, we have salesforce that.

Speaker Change: We didn't have really until right before we acquired <unk> and there is a clinical need in foot and ankle for a product like <unk> and <unk>.

Speaker Change: That sales team is <unk>.

Speaker Change: <unk> ramped up educated trained.

Speaker Change: And we feel very optimistic that that is a great channel for that product as well. So theres a theres a lot of growth drivers here are our core sports medicine channel for knee and shoulder and candidly other applications come by the Booth on Wednesday at Academy.

Speaker Change: And Youll see a lot of lot of surgeon presentations related to <unk>.

Speaker Change: <unk>.

Speaker Change: Our outlook on this is really excited because it's clinically differentiated it is second generation technology. It is game changing for patients and clinicians and I've said many times, it's the single most.

Curt R. Hartman: That's what we put out. We feel very good about it, and that's based on the portfolio that we have with us today. Great. Thanks.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew O'Brien from Piper Sandler. Your question, please. Afternoon, thanks so much for taking the questions.

Speaker Change: Contacted product that I have surgeons, reaching out to me expressing.

Speaker Change: Their pleasure with the product and how it is change patient outcomes. So we're very optimistic about <unk>.

Todd W. Garner: Um, you know, Todd, when you were at our conference at the end of last year, you were talking about a double-digit grower at ConMed in 24, you're backing off that a little bit here today for a product that I don't think is supposed to be out until the end of the year, but it probably will come earlier than that. But is the lowering of 100 basis points, maybe 150 versus what you're expecting? Michael Matson, Curt Hartman, Todd Garner, conservatism on, on, No, I mean, there's only a few moving pieces here.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question comes from the line of Mike Matson from Needham <unk> Company. Your question. Please.

Michael Stephen Matson: Yeah. Thanks, So just in the orthopedics business I guess I want to better understand what's happening.

Michael Stephen Matson: What happened with that.

Michael Stephen Matson: Tissue situations so.

Michael Stephen Matson: Obviously, there is some kind of direct impact there from the from the shortage can you maybe I don't know if you've disclosed before how big a part of the orthopedic sales come directly from themselves to that but then I was also wondering if there was there some kind of spill.

Todd W. Garner: But let me let you just clarify the record. You're right. Like we said, Q2 and Q3, which were the quarters we reported on going into your conference, we had delivered between 11 and 12 percent organic growth in both of those quarters. And those quarters had no odd comps. Those were not easy comps.

Michael Stephen Matson: Spillover effect, where by not having those products that maybe leads procedures.

Michael Stephen Matson: Other products that would've gotten sold for those cases.

Michael Stephen Matson: Yes, Mike I think and I'd go back to what we said last quarter, but but also what I think Todd had in his commentary the.

Michael Stephen Matson: The.

Michael Stephen Matson: Supply disruption and the MTF portfolio is a smaller part of our business had a bigger impact on margins because of the margin profile, what we highlighted in Q3 and what Scott.

Todd W. Garner: Those were kind of normal comps, and so that was very representative of what the engine was doing. We're still obviously guiding eight to ten with, as you put, you know, some conservative assumptions behind that. We feel very good about the strength of this portfolio. Success here has always been defined as growing faster than your markets, right? So double digits is kind of a milestone that we'd all be very happy about.

Michael Stephen Matson: Got better, but not as much as we had hoped.

Michael Stephen Matson: Just a general.

Michael Stephen Matson: Supplier challenge that was impacting a larger portion of our sports medicine.

Michael Stephen Matson: And our foot and ankle business foot and ankle a little bit different because thats more supplier integration, whereas the standard sports medicine business was more just supplier delays and disruptions.

Michael Stephen Matson: But candidly caught up to us.

Michael Stephen Matson: We thought we had been doing a pretty good job.

Michael Stephen Matson: Things were moving forward, we had some disruptions.

Todd W. Garner: But it was we're growing faster than our markets, and we're winning. And I think eight to 10 is clearly faster than our markets, even with those kind of assumptions, which I think you've got right. There's nothing more than what we've said, Matt, and I think you captured it. The ortho business is in a little bit of a slow point. We've got to get that back to normal.

Michael Stephen Matson: As you know in that business. If you don't have the product for the case, you can try to substitute or they find an alternative from a competitor. So we we just mis cases and that that was the bigger impact in the quarter that is improving as we exited the year, it's improving in the first quarter and we'll be back fully on offense as we get to Q2.

Todd W. Garner: And so that's affecting the start of the year. And, you know, we've been very generous. I think we've tried to lean into this narrative that's out there about our company and the valuation, and we've tried to make this really a worst-case scenario in relation to this competitive launch that the market is worked up about. So we, you know, you're saying end of the year. But our assumptions are that it comes way before that. And I think through, again, I'm not sharing the details of our model, but we've been as generous as we could to be conservative in those assumptions and to build that in. You know, having said all that, I don't think any of that is inconsistent, right?

Michael Stephen Matson: Broadly speaking in orthopedics.

Michael Stephen Matson: I wouldn't get.

Michael Stephen Matson: Hung up on the MTF portion of that that that as Todd said was more about the margin hit.

Michael Stephen Matson: The revenue hit was more in the general sports medicine side because of loss cases because of supply disruption.

Speaker Change: Okay got it sorry, I guess I heard supply issues that will continue going out with MTF thing, but okay and then.

Youre sure that Theres no other competitive issues in that business I mean, Stryker has launched a new camera and power pools, and we seem to be doing really well.

Speaker Change: I know thats capital, but.

Speaker Change: Or any other product launches from competitors that are hurting you.

Speaker Change: Well I mean, obviously sports medicine is one of the most competitive markets out there and it is a game of new product innovation.

Todd W. Garner: We were growing double digits. Q4 was disappointing for the reasons we told you, but the rest of the portfolio continues to be strong. We're going to strengthen that ortho side of the business, and Get All Cylinders Hummin. Okay.

Speaker Change: And I look at our portfolio and we've we've got new products in the knee. The shoulder. We've got <unk> that is a platform technology that.

Todd W. Garner: And then on the margin side of things, you know, again, backing off here a little bit too, for the full year, it's just, you know, the Q1 number is well below what I was expecting from a gross margin perspective. So, maybe just talk about the line of sight on improving that metric so dramatically throughout the course of this year. And then I know you said, you know, approaching 60% next year, but that 250 number is, was, was a, you know, kind of vivid number for me in my head. So, is it, is it another situation where it could be more like, hey, it's 200 to 250 next year? And I guess why not just go ahead and back off that number. Now, what is it that you see in the business that we can't see that they get you? Yeah, I mean, I think we've been very transparent with all of those assumptions. There's always seasonality, right? I mean, we'd all love for Q1, and we'd love for Q4 of the prior year to be the jumping off point, and everything to always be up and to the right, but that's not how seasonality and margins work.

Speaker Change: Candidly makes everything else look better in the portfolio. So are our team is on offense with new product introduction as much as anybody.

Speaker Change: And that's just been part of our plan and approach.

Speaker Change: So.

Speaker Change: I think the supply disruptions are bigger issue right now because when you have supply disruption. It keeps you from being on offense you got to take care of your existing customers, let alone to go after new customers.

Speaker Change: Yes, Okay got it thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question comes from the line of young Lee from Jefferies. Your question. Please.

Young Lee: Alright, great. Thanks for taking my question.

Young Lee: Again.

I appreciate you taking a more conservative approach to guidance ahead of the potential competitive launch.

Young Lee: I guess, if you were to pivot U S reps selling focus wondering how long with that process.

Young Lee: Well with the reps be doing differently.

Young Lee: Okay.

Young Lee: Yes.

Speaker Change: It's a theoretical question young, but I think the really short answer is if I'm a sales professional and I am used to sell in are still behind the wake of an intuitive surgical robot and for whatever reason I don't get that opportunity I still have a quota I still have a.

Todd W. Garner: So if you compare Q1 to Q1, we're guiding today to 100 basis points of improvement. I don't know how many companies are guiding that, but you are correct that it is lower than we thought 12 months ago. 12 months ago, we said 150 should be the expectation for 2024. This morning, we're saying 100 to 150, or, I'm sorry, this afternoon.

Speaker Change: Quota that.

Dictates, how much I'm paid and how much I make and if I know the opportunity means.

Speaker Change: Got it turned down the other hall and go into general Laparoscopic room and work on converting more customers is going to be a longer sales cycle. They get there really quick.

Todd W. Garner: And it builds throughout the year because of these challenges we have in the ortho business, and I'll just remind you, you know The ortho business is accretive to the company margins, especially the foot and ankle side of that business. It's in the 80s, And we have to make some we had hoped that our operations and manufacturing would make more progress in twenty-three than we did. So there's still more work to do there. So it is it is slower and a little bit back off from how we thought twenty twenty four would look twelve months ago, but we're still in the ballpark and, as I said, you know, if Q4 is going to be 150 bips better, then that puts you at 58. And so, you know, maybe we don't get all the way to 60 by the end of 2025, but we should be very close and easily get there, you know, in the following quarters.

Because if it hits it hits them in their paycheck, so they get there really fast.

Speaker Change: Trust that <unk> has been messaging this opportunity for a long time and you see that being.

Speaker Change: Being successful outside the U S, where there's less robots. It just the U S market has a lot more robots on it and it's it's a quick pathway that our team has.

Speaker Change: As learned and it's where surge of quest started back in 2008.

Speaker Change: I want to be very fair to that sales team, we have a great selling organization in advanced surgical.

Speaker Change: That business had a record year, it'll probably have another record year. This year, it's selling the entirety of the portfolio at selling Buffalo filter it selling air seal.

Speaker Change: Selling anchor tissue retrieval bags, it's selling manual instruments at selling energy and argon platforms.

Speaker Change: All to the core customer in general surgery and.

Speaker Change: We put the conservative guidance and I stood in front of our sales force.

Operator: So, you are accurate that it is a little bit of what we said, but not much is how I would frame it. Understood. Thank you. Thank you. One moment for our next question. And our next question comes from the line of Kristin Stewart from CL King.

Speaker Change: And asked them. This specifically question are you how are you feeling about your position with <unk> relative to any other competitive entrants in the marketplace.

Speaker Change: Not one of them is backing down so we're being conservative in our guidance to you inside the business. The team is full charge full speed and my expectations are very high for that business.

Kristin Stewart: Your question, please. Hi, thanks for taking the time to answer my question. I just wanted to go back to AirSeal, not to beat a dead horse, but just to get a little bit better understanding of the exposure there to the business. How much of your AirSeal business today is tied to intuitive surgical? And what was the conversion rate that I guess you were tracking at today? And what gives you confidence that you're modeling a worst-case scenario going forward? Yeah, thank you, Kristen. AirSeal is definitely not a dead horse.

Alright, I appreciate that.

Speaker Change: Maybe one more just on Smokey back legislation headwind 24.

Speaker Change: What are the key states coming online.

Speaker Change: The Q1 for 2025, and we should be focusing on also.

Todd W. Garner: And, and unfortunately, the narrative of this competitive thread is not a dead horse. But I can tell you, we have disclosed in the past that about 60% of our AirSeal revenue is currently associated with intuitive surgical procedures. So we're at about 60% today. To be clear, that doesn't mean we're assuming 30%. That's not 50%.

Speaker Change: Yes, I can't I can't break it out like that right I mean, we know who's has things in the works for example, we thought Texas.

Speaker Change: It might be the next state to sign something they did not get that done before their legislative session adjourned.

Speaker Change: So that will be hopefully taken up and their next session.

Todd W. Garner: What we're talking about is our historical trend of attaching new conversions to the robot. That's what we're cutting in half. We're not sharing that rate with you today, but we shared the 50 percent reduction to try and demonstrate that we've taken this seriously. We haven't been dismissive of it. Frankly, I think we've been very, I think it's highly conservative. I think it's unlikely that there will be that much disruption in those new systems, but the market is clearly very concerned about it, and we did not think it was wise or helpful to provide guidance that ignored it. And so we've tried to be as generous as we thought was rational and kind of build that allowance. But that's as much as I'm going to share with you about the details of that model. Okay, and I guess getting back to the gross margin of going close to 60% for 2025, is that also under the assumption of a worst-case scenario of a 50% reduction? Or do you think if that, okay, so you still think that you got there with the 50%?

Speaker Change: The other states that we show that have something in the works that could be close, our Massachusetts, Pennsylvania, West, Virginia, Virginia, North Carolina and Florida.

Speaker Change: So some pretty sizable states in there, but I can't tell you.

Speaker Change: By quarter, or who is going to be first in but.

Speaker Change: We we would not be surprised if those that I just named off.

Announce something in 2024, we also wouldn't be shocked if some of that drug out into 'twenty five as we've as we've experienced with others. So still still really good activity we've got.

Speaker Change: There really hasnt been there wasn't any states that announced since our last call, California was the last one that announced that the states that have announced something represent.

Speaker Change: 44% of the U S population.

Speaker Change: And so theres still good momentum and a lot of states.

Speaker Change: On deck, but I can't predict timing.

Todd W. Garner: Yeah, we're not guiding to 2025 today, obviously, but that margin improvement story is very strong and is bigger than this issue. I would tell you, I'll give you a little more color on that model.

Speaker Change: Alright, thank you.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Travis Steed from Bank of America. Your question. Please.

Todd W. Garner: Like I said, we've assumed that that's pretty disruptive to us out of the gate, you know, if that all plays out how the narrative is on the street. We also know that if that were to materialize, that non-robotic procedures are 10 times more expensive than robotic procedures, right? So we would adjust our energy resources away from robotic procedures and toward non-robotic procedures if that theory were to materialize.

Travis Steed: Hey, Thanks for taking the question just curious as intuitive started talking to their customers that if you guys have learned anything new on the design or if its still low pressure.

Travis Steed: I'm curious if you're still sticking with it being standard installation and if thats the key thing here.

Speaker Change: I've never heard them.

Speaker Change: Talk to their customers about it I haven't heard them talk about it on their earnings call.

Speaker Change: We talked to we have a lot of similar shared key opinion leaders.

Todd W. Garner: That takes time, obviously. It's a longer sales cycle. So I would tell you the disruption assumed in the model is bigger early than it is late, because the longer we have to adjust and kind of change our sales focus, that's less disruptive to the overall business it is. And so the later years, I'm less worried about than, you know, the early years from that perspective. Okay, that's helpful. Thanks very much.

So I think we have a pretty good view of what they're bringing to market, which we.

Speaker Change: Very specifically highlighted at the end of the second quarter earnings call.

Speaker Change: <unk>.

Speaker Change: We know they talk to their sales team about it at the sales meeting as was publicly reported by many but.

Speaker Change: We work very closely with intuitive with air seal in their training programs.

I do not believe there is anything in the marketplace or anything coming to the marketplace that is even.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Vic Chopra from Wells Fargo. Your question, please. Hey, good afternoon.

Speaker Change: In the same ZIP code as their sale.

Speaker Change: All in there.

Speaker Change: Can I not in there.

Speaker Change: I just wanted to be clear for those that are listening when Kurt says we know they talked about it to their sales force they talked about their new robot to the sales force.

Vic Chopra: And thanks for taking the question. So thanks for providing all the color on the guidance. I'm just wondering if you can share what's assumed in your guidance for the rest of the higher growth businesses. And then I had a follow-up question.

Speaker Change: If you listen to what they said publicly right.

Speaker Change: Yes.

Speaker Change: What they're focused on what what solutions this new product as opposed to address.

Todd W. Garner: Yeah, no change. Vic, we continue to expect all of our high growth businesses to perform as they have been. So again, just to make everybody feel comfortable, that's over 20% for AirSeal and Buffalo, twice the market for the foot and ankle side of the business. And obviously, BioRes is a geometric type of growth engine.

Speaker Change: There was no mention from intuitive about inflation. So this is not a new insufflator robot they're solving many other problems that are focused on I think it is safe to say that <unk> is not on their top 10 list of features of this robot.

Speaker Change: The shorts on Con Ed has made it about it and <unk> robot.

Curt R. Hartman: So no change to how we view those growth drivers. Yeah, and I would just add on to that point about the conference at the beginning of the year where we put up slides and talked about the percentage of the portfolio that was growing double digits, growing single digits, or declining. And if you just look at that mix, it's a pretty healthy portfolio. So that, in and of itself, underlies the history of the business.

Speaker Change: Intuitive has never framed it that way.

And Travis I want to correct something you said so the audience is not confused you said is still low pressure. It has never been low pressure. There is zero evidence anywhere that has low pressure that is an imagination.

Speaker Change: So there is no evidence that it is a low pressure device all of the evidence would suggest.

Speaker Change: If they do integrate into deflation it would indeed be what is referred to as standard installation like everything that exist on the market today, that's what all the evidence points to there is zero evidence to suggest that this product will compete clinically with <unk>.

Curt R. Hartman: Our portfolio is only getting stronger with new product introductions. So I feel really good about our portfolio, not only the ones we've identified as high growth but the rest of the portfolio and our outlook. Thanks.

Operator: And then, just to follow up on my comments about BioGrace, maybe just talk about your view of how quickly the product can grow in 2024 and any thoughts you can share with respect to your approach to the market and competitive strategy. Thank you. Well, I mean, it's still early days for Biobrace in the marketplace and for ConMed. And, you know, we had said this year it would be high single digits, and we exceeded that, and we feel very good.

Speaker Change: And the.

Speaker Change: The electronic world of people centered around images of.

Speaker Change: Two insufflator hooked up and Thats, how theyre going to get to low I've got news for you folks that stuff's been around for a long time.

Speaker Change:

Speaker Change: There is nothing in the market thats anywhere near <unk>.

Speaker Change: And has the volume of patients in the clinical studies behind it that <unk> has.

Speaker Change: So.

Speaker Change: There is no there is no one more anxious.

Curt R. Hartman: And part of my script was talking about sales channel expansion, and that means geographic expansion as registrations and approvals come through, which we've been working on since day one. But it also means leveraging our foot and ankle sales force. We have a sales force that, We didn't really have until, you know, right before we acquired BioBrace, and there's a clinical need in the foot and ankle for a product like BioBrace, and that sales team is being ramped up, educated, trained, and we feel very optimistic that that is a great channel for that product as well. So there's a lot of growth drivers here and our core sports medicine channel for knee and shoulder and, candidly, other applications come by our booth on Wednesday at Academy and you'll see a lot of surgeon presentations related to BioBrace, the. Our outlook on this is really exciting because it's clinically differentiated. It is a second generation technology.

Speaker Change: For the robotic company to get this device in the market.

Speaker Change: So we can demonstrate once and for all there.

There is no risk here to the <unk> franchise.

Speaker Change: Great. Thanks for that thorough answer Im sorry, Im sorry, Todd amendments spoke and the question I got it backwards.

Speaker Change: But the follow up question I wanted to ask was on the capital revenue in the quarter was a little light versus street expectations and I think the business is you talked about the weaknesses.

Speaker Change: And in Q4, where our more recurring revenue and not capital. So just with capital light in your mind in Q4, just curious if there's any any onetime things in the capital thing to talk about this quarter.

Speaker Change: Sitting in my Chair I did not think capital was light in the quarter.

Speaker Change: <unk>.

Speaker Change: I looked at our business in detail.

Speaker Change: Capital grew 44% 43, 8% in the quarter single use products grew 29, 2%.

Speaker Change: Now it is I will.

Speaker Change: The ortho business that is having the challenges right now is a higher capital business than the general surgery business.

Curt R. Hartman: It is game changing for patients and clinicians. And I've said many times, it's the single most contacted product that I have surgeons reaching out to me expressing their pleasure with the product and how it's changed patient outcomes. So, we're very optimistic about BioBrace. Thank you. One moment for our next question, and the next question comes from the line of Mike Matson from Niederman Company. Your question, please. Yeah, thanks. So just in the orthopedics business, I guess I want to better understand what's happening, or what happened with the tissue situation.

Speaker Change: 30% typically capital business.

Speaker Change: Overall, our capital growth was faster than our disposal.

Speaker Change: Okay. So some of the some of the challenges in Q4 and where in the capital side of the business.

Speaker Change: The ortho side.

Speaker Change: Yes, it's impacted by.

Speaker Change: Okay.

Speaker Change: Okay. That's a helpful clarification. Thank you.

Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Curt Hartman for any further remarks.

Curt R. Hartman: Thank you Jonathan and I just want to say, thank you to everybody today for your time and we look forward to speaking with you during our next earnings call. Thank you.

Curt R. Hartman: So, you know, obviously, there's some kind of direct impact there from the shortage. Maybe, I don't know if you've disclosed before how big a part of the orthopedic sales come directly from sales of that. But then, I was also wondering if there was some kind of spillover effect where, you know, by not having those products, you maybe lose procedures or lose, you know, other products that would have gotten sold in those cases? Yeah, Mike, I think, and I go back to what we said last quarter, but also, what I think Todd had in his commentary, the supply disruption in the MTF portfolio, as a smaller part of our business, had a bigger impact on margins because of the margin profile.

Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Curt R. Hartman: What we highlighted in Q3 and what got better, but not as much as we had hoped, was just a general supplier challenge that was impacting a larger portion of our sports medicine business and our foot and ankle business. The foot and ankle business is a little bit different because that's more supplier integration, whereas the standard sports medicine business was more just supplier delays and disruptions that candidly caught up to us. We thought we'd been doing a pretty good job, but as things were moving forward, we had some disruptions. As you know, in that business, if you don't have the product for the case, you can try a substitute, or they can find an alternative from a competitor.

Curt R. Hartman: So we just missed cases, and that was the bigger impact in the quarter. That is improving as we exit the year. It's improving in the first quarter, and we'll be back fully on offense as we get to Q2, broadly speaking, in orthopedics. So I wouldn't get hung up on the MTF portion of that. That, as Todd said, was more about the margin hit. The revenue hit was more on the general sports medicine side because of lost cases because of supply disruption.

Curt R. Hartman: Okay, I got it. Sorry, I guess when I heard about supply issues, I was confusing that with the NTF thing, but okay. And then just, you know, you're sure that there are no other, you know, competitive issues in that business. I mean, Stryker's launching new cameras and power tools, and they seem to be doing really well. I mean, I know that's capital, but, or, you know, any other product launches from competitors that are hurting you. Well, I mean, obviously, sports medicine is one of the most competitive markets out there, and it is a game of new product innovation, and I look at our portfolio, and we've got new products for the knee, the shoulder, we've got BioBrace that is a platform technology that just candidly makes everything else look better in the portfolio.

Curt R. Hartman: So our team is on offense with new product introductions as much as anybody, and that's just been part of our plan and approach. So I think the supply disruption is our bigger issue right now because when you have supply disruption, it keeps you from being on offense. You got to take care of your existing customers, let alone go after new customers.

Curt R. Hartman: Yeah, okay, got it. Thank you. Thank you, One Moment, for our next question. And our next question comes from the line of Young Lee from Jefferies. Your question, please. All right, great. Thanks for taking questions. I guess, you know, I appreciate you taking a more conservative approach.

Operator: I guess, you know, if you were to pivot the U.S. Reps selling folks, wondering how long that would go well with the reps. Yeah, it's... It's a theoretical question young, but I think that the really short answer is if I'm a sales professional and I'm used to selling an air seal behind the wake of an intuitive surgical robot and for whatever reason, I don't get that opportunity. I still have a quota. I still have a quarter that dictates how much I'm paid and how much I make.

Curt R. Hartman: And if I know the opportunity means I've got to turn down the other hall and go into the general laparoscopic room and work on converting more customers, it's going to be a longer sales cycle; they get there really quick because it hits them in their paycheck. So they get there really fast, trust that ConMed has been messaging this opportunity for a long time, and you see that being successful outside the U.S., where there are fewer robots. It's just the U.S. market has a lot more robots on it, and it's a quick pathway that our team has learned, and it's where SurgiQuest started back in 2008.

Curt R. Hartman: I want to be very fair to that sales team. We have a great selling organization in advanced surgical. That business had a record year. It'll probably have another record year this year, too.

Curt R. Hartman: It's selling the entirety of the portfolio. It's selling Buffalo Filter. It's selling AirSeal, selling anchor tissue retrieval bags, it's selling manual instruments, it's selling energy and argon platforms, all to the core customer in general surgery. We put the conservative guidance in, and I stood in front of our sales force and asked them this specific question: are you, you know, how are you feeling about your position with AirSeal relative to any other competitive entrants in the marketplace? And not one of them is backing down.

Curt R. Hartman: So we're being conservative in our guidance to you. Inside the business, the team is full charge, full speed, and my expectations are very high for that business. All right, I appreciate that. Maybe just one more.

Operator: Just on Smokey Vac legislation headwinds in 24, what are the key states coming online? What are the key ones for 2025 that we... and on. Yeah, I can't; I can't break it out like that.

Todd W. Garner: Yeah, right. We know who's got things in the works. For example, we thought Texas might be the next state to sign something.

Todd W. Garner: They did not get that done before their legislative session adjourned. So that'll be hopefully taken up in their next session. The other states that we show that have something in the works that could be close are Massachusetts, Pennsylvania, West Virginia, Virginia, North Carolina, and Florida. So some pretty sizable states in there. But I can't tell you by quarter or who's going to be first.

Todd W. Garner: But we would not be surprised if those that I just named off announced something in 2024. We also wouldn't be shocked if some of that drugged out in 2025, as we've experienced with others. So still really good activity. There weren't any states that announced since our last call. California was the last one that announced. But the states that have announced something represent 44% of the U.S. population.

Todd W. Garner: And so, you know, there's still good momentum in a lot of states on deck, but I can't predict time. All right, thank you. Thank you. Please take a moment for our next question. Our next question comes from the line of Travis Steve from Bank of America. Your question, please. Hey, thanks for taking the question. Just curious, as intuit started talking to their customers, if you guys have learned anything new about the design, or if it's still low pressure, and just curious, are you still sticking with it being a standard installation? And if that's the key thing here, I've never heard them talk to their customers about it.

Operator: I haven't heard them talk about it on their earnings call. We talked to them. We have a lot of similar shared key opinion leaders.

Todd W. Garner: And so I think we have a pretty good view of what they're bringing to market, which we very specifically highlighted at the end of the second quarter earnings call. We know they talked to their sales team about it at their sales meeting, as was publicly reported by many. We work very closely with Intuitive, with Airseal, and their training programs. I do not believe there's anything in the marketplace or anything coming to the marketplace that is even in the same zip code as AirSeal. And I'll end there. Can I not end there, Curt?

Todd W. Garner: I just want to be clear for those that are listening. When Curt says that we know they talked about it with their Salesforce, they talked about their new robot with the Salesforce. If you listen to what they said publicly, right?

Todd W. Garner: What they're focused on, and what solutions this new product is supposed to address. There was no mention from Intuitive about insufflation. So this is not a new insufflation robot. They're solving many other problems that are focused on. I think it is safe to say that insufflation is not on their top 10 list of features of this robot. However, the shorts on ConMed have made it about an insufflation robot. Intuitive has never framed it that way.

Todd W. Garner: And Travis, I want to correct something you said so that the audience is not confused. You said, "Is it still low pressure?" It has never been low pressure. There's zero evidence anywhere that it's low pressure. That is an imagination.

Todd W. Garner: So there is no evidence that it's a low pressure device. All the evidence would suggest that if they do integrate insufflation, it would indeed be what is referred to as standard insufflation, like everything that exists on the market today. That's what all the evidence points to.

Curt R. Hartman: There is zero evidence to suggest that this product will compete clinically with Airstream and the electronic world of people sending around images of Two insufflators hooked up, and that's how they're going to get to low. I've got news for you folks, that stuff's been around for a long time. There's nothing in the market that's anywhere near AirSeal and has the volume of patients and the clinical studies behind it that AirSeal has.

Curt R. Hartman: So we. There's no, there's no one more anxious for the Robotic Company to get this device in the market, so we can demonstrate once and for all that there is no risk here for the AirSeal franchise.

Travis Steve: Thanks for the thorough answer. Sorry, Todd, I may have misspoken in the question and got it backwards. But the follow-up question I wanted to ask was on capital revenue in the quarter. It was a little light versus street expectations.

Curt R. Hartman: And I think the businesses you talked about, the weaknesses, and in Q4, were more recurring revenue and not capital. So just, and with capital light in your mind in Q4, just curious if there's any one-time things and the capital thing to talk about this quarter. I'm sitting in my chair.

Curt R. Hartman: I did not think capital was light in the quarter. I looked at our business in detail. I mean, capital grew 44%, 43.8% in the quarter, single use products grew 29.2%. Now it is, I will say, the ortho business that is having the challenges right now is a higher capital business than the general surgery business. It's a kind of 30% typically capital business. But overall, our capital growth was faster than ours.

Curt R. Hartman: Okay, so some of the challenges in Q4 were on the capital side of the business, in terms of the ortho side. Yeah, they're impacted by... Okay. No, that's a helpful clarification. Thank you. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Curt Hartman for any further remarks. Thank you, Jonathan. And I just want to say thank you to everybody today for your time, and we look forward to speaking with you during our next earnings call. Thank you. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day! Please subscribe!