Q3 2024 CONMED Corp Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to Conmed Stored Quarter, fiscal 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question.
Speaker Change: During the session, you will need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: Before the conference call begins, let me remind you that during this call, management will be making comments and statements.
Speaker Change: Regarding its financial outlook, its plans and objectives.
Speaker Change: The statements represent the forward-looking statements that involve risk and uncertainties as those terms are defined under the federal security laws.
Speaker Change: Investors are caution that any such forward-looking statements are not guarantees of future events, performance or results.
Speaker Change: The company's actual results may differ materially from its current expectations.
Speaker Change: Please refer to the risk and other uncertainties disclosed under the forward-looking information in today's press release, as well as the company's SEC filings for more details on the risk and uncertainties that may cause actual results to differ materially.
Speaker Change: 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.
Speaker Change: You will also hear management referred to non-gap or adjusted measurements during this discussion.
Speaker Change: While these figures are not a substitute for a gap 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.
Speaker Change: A just-adnet 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.
Speaker Change: These addressing items are specified in the reconciliation supporting the company's earnings releases.
Speaker Change: posted to the company's website. With these required announcements completed, I will turn the call over to Curt Hartman, Carc Conmed, Chair of the Board, President and Chief Executive Officer for opening remarks. Mr. Hartman.
Curt Hartman: Thank you Josh, good afternoon and thank you for joining us for Con Med. 3rd quarter, 2024 earnings call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer and Pat Byer, our Chief Operator Officer.
Curt Hartman: Today I will share with you our third quarter results and commentary on the announced succession plan. Pat will touch on air seal in our manufacturing progress and Todd will cover the quarterly financials in our updated outlook.
Curt Hartman: will then open the call for your questions.
Curt Hartman: With that said, total sales for the quarter were $316.7 million, represented a year over year, increase of 4% as reported and 4.3% in constant currency.
Pat will later a draft address the specific impacts of the hurricanes.
Curt Hartman: and I want to offer my sincere appreciation to our employees, global operations and logistics team, and especially our facilities leader Ernesto Barnett, who for my tenure has run a world-class emergency preparedness and response plan.
Curt Hartman: We also acknowledge that many are still facing local hardships and our thoughts are with our impacted employees and those across the southeast impacted by the hurricanes.
Curt Hartman: from an earnings perspective during the third quarter, our Gapnid income total $49 million.
Curt Hartman: This comparison had income of 15.8 million in the third quarter of 2023.
Curt Hartman: The excluding special items that affected comparability are adjusted net income of $32.7 million increased 15% year over year and are adjusted the looted netterings per share of $1.5 increase 16.7% year over year.
Curt Hartman: Overall, our top line finished below our capabilities but we again had several areas of strong financial performance in the quarter to include adjusted EPS growth, cash flow, and our leverage ratio.
Curt Hartman: I remain confident in the setup for Conmed and our ability to return to accelerated top-line growth while continuing our leveraged earnings growth.
Next, I would like to offer some comments on the succession plan that we announced today.
Curt Hartman: Any comments here would be incomplete if I didn't start with an immense amount of appreciation for my wife and family who supported my substantial engagement in this industry over the last 34 years. They gave and I took far more that I can ever repay.
Curt Hartman: Further, I want to acknowledge an offer, a sincere thank you to both our current and former global employees without whom our progress and successes would not have been possible.
From a historical perspective, one key tenant of the philosophy I established when I took over the full-time CEO role. In November of 2014, was that our turnaround, and future success would be dependent on first getting the right people.
Curt Hartman: If we did that, then increased innovation, growth in revenue, and growth in profitability would follow.
Getting the right people means having a strong talent acquisition team, having a strong professional development program, and finally having a succession planning process across all levels of the company.
Heather Cohen, the company's recently retired long-term head of human resources. And one of the few executives I retained upon my arrival was instrumental in making those strategic initiatives a reality and deserves as much credit as anyone for the company's turnaround.
How there's effective work in these areas gave me the comfort to inform the board in February of 2023 of my desire to retire no later than the end of 2024.
This timeline allowed the board to utilize our succession planning framework and perform its principal role of evaluating the selecting the right CEO in a responsible time frame.
Curt Hartman: November will mark my 10th year in the full-time CEO role and I have a personal belief that 10 years is long enough.
Curt Hartman: Pat Bire was a very first person I hired after I joined Conment in 2014 and I'm very pleased with the board selected him to lead Conmet.
Curt Hartman: Pat brings a long tenure of Med Tech leadership at a track record of success in the industry. He is a tireless people first leader who also understands the importance of innovation, how to engage customers, and this role in the spotlight of the public markets.
Curt Hartman: Pat has my foreign door spent and I have the utmost confidence that he will bring fresh perspectives that will continue to advance the growth of conmed in the markets we serve.
I joined this industry 34 years ago and I have had a long and blessed journey which began with a dense small Medtech Company in Kalamazoo, Michigan.
Curt Hartman: I served to learn under some of the best leaders of this industry as ever had including John Brown, Rhinel and Boston most directly side-jonsons.
Curt Hartman: and I'm John Gray, for their investment in belief in me.
There are others like Brad Blatt who took the first chance on me by hiring me out of the military and very conscious of Kantian associates who has been a constant presence in my career.
I would also point to Sherry Burton or Entertainment Burton or Advisors who have been incredible thought partners for the Connid team over the past decade. Obviously there are many more co-workers, peers and customers who have been instrumental to my career and its success.
I am grateful for everyone who invested a me during my time in this industry.
Curt Hartman: The last ten years have been about respecting the past that created Conmed while ensuring we could compete in the future.
Curt Hartman: We are proud that no matter the issue we always made the right decisions that were in the best long-term interests of codenades.
Our execution has not always been flawless, but our strategy is well understood by our employees and investors and the foundation of the company is solid. This leadership team is capable of continuing our pursuit of building a world-class medical technology company that our owners are proud of.
Speaker Change: I look forward to supporting Pat and the entire management team both through this transition and in Conmed's continued success in the future.
Speaker Change: Finally, I want to directly thank Todd who's been an incredible addition since joining the team in January of 2018 and has been a true thought partner to me and our business leader since his arrival.
To close up my comments, I look forward to seeing continued progress from this exceptional team as the advanced arm mission under path leadership.
Curt Hartman: I'll now turn the call over to Pat who will provide a quick update on air seal in our supply chain. Todd will then provide a more detailed analysis of our Q3 financial performance and take you through our updated full year guidance. Pat.
Pat: Thanks Curt.
Speaker Change: When I joined Con Medin December of 2014, I was excited to join an organization with a passion for talent and engagement employees and a focus on delivering innovative clinical solutions to a participation care.
Those were the foundational stones on which Con Med was being built.
Under Curse Leadership, the operating pillar of delivering exception results also thrived.
Under his leadership over the past and years, condmet sales have grown more than 80%.
EPS has grown by approximately 240% and operating in cash flow has almost tripled. I have been a part of a great growth story and I am committed to continuing that story.
At the center of Conmed's mission is improving patient outcomes. My focus for the coming months will be to continue to connect with our customers and our employees while transitioning to this new opportunity. It is an honor for me to be announced as Conmed's next G5 Executive Officer.
I look forward to advancing combat commitment to excellence for customers, patients, employees and shareholders. I also want to personally thank Curt and the board for their trust and confidence.
Turning back to quarter, I appreciate the opportunity to share more information regarding our air seal and orthophobic businesses.
As it relates to air seal, I wanted to give some insights into what we are seeing in the field.
During the third quarter, US Capitol sales of air seal sought continued strong growth. We have not seen any flow down in air seal capital orders in the US. Nor have we seen any flow down in the demand for disposables.
We are continuing to monitor the locations where new robots are in use. As some of these robots are now moving past their initial trial periods.
We continue to see surgeons return to using air seal for precision clinical and deflation with the new robot especially in the longer and more complex procedures that we talked about last quarter.
We continue to believe this valid surgeon's preferences for air CEO for clinical in circulation and the associated results including short and length of stay reduced post-surgical pain and quicker post-operative recovery.
Now turning door to the PEDIFs, we took positive steps with our orthopedic business in the third quarter to improve our ability to grow and take market share.
We mentioned to you on last quarter's earnings call that our orthopedic businesses supply chain had improvements to make. We made progress on these fronts during the quarter and expect to continue that trend in the fourth quarter.
We remain focused and committed to getting our commercial teams in a position to win in the market.
At the end of the third quarter, we communicated that our largo facility, where many of our orthopedists products are manufactured, had suffered to manufacture these low-downs at the very end of the quarter as Hurricane Halenehead.
Pat: Approximately two weeks later, Hurricane Milton hit the Largo area, resulting in a shut down of our headquarters and manufacturing plant in Largo for four additional days.
While we worked to quickly reopen our facilities, it took several more days for attendance to fully ramp up as many of our employees were dealing with the impact that the hurricane had on their personal life.
Pat: Our facilities, whether it's storm without issue and most importantly, all of our employees were safe and accounted for.
with that. I'll turn the call over to Todd who will share more details with you on our third quarter results and our outlook. Thank you Pat and congratulations. I also want to thank Curt for his leadership and partnership and wish him well in retirement.
All sales growth numbers I reference today will be given in constant currency.
The reconciliation to got 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.
Pat: We did have one additional sales day in Q3, 2024 versus Q3, 2023
For the third quarter of 2024, our total sales increased 4.3%.
For Q3, our sales in the U.S. increased 7.4% versus the prior year of order, and our international sales grew 0.2%.
The third quarter of 2023 was very strong internationally growing 15.1%.
Worldwide Orthopedics grew 5.2% in the third quarter.
On the US, orthopedic sales increased 7.4% and internationally orthopedic sales grew 3.9%.
As Pat said, we remain focused on improving our service levels in the sports medicine space. The hurricane is affecting the southeast from part of the United States to lay that progress a bit at the end of September and for a longer period in early October.
Pat: Also about 35% of our US-foot-nankled business comes from the southeast region, which includes the states impacted by hurricanes, Alina, and Milton.
It's difficult to be too precise on the potential impact, but we know the procedures were rescheduled because of the storms. I'll talk more about that when I get into our financial guidance.
Pat: Total worldwide General Surgery Revenue increased 3.6% in the quarter.
U.S. General Surgery Revenue Group 7.4% while internationally General Surgery Revenue declined 5.0%.
The third quarter of 2023 was a very strong, for general surgery internationally, growing 23.8%.
Pat: Airfield continued the same trend of growth internationally, even against that high comparable.
As Pat mentioned in the U.S. air seal also continued to show strong growth in both disposable and capital revenues consistent with prior trends.
Just a note for next quarter, Q4 2023 was a very strong quarter for air seal globally and in the US with capital sales in the US above 60% growth.
Pat: Now let's move to the expense side of the income statement.
Pat: We will discuss expenses and profitability in a third quarter, excluding special items, which include charges for acquisitions and contingent consideration, legal matters, amortization and intangible assets, and amortization of deferred financing fees net of tax.
The Jester Gross margin for the third quarter was 56.5%. An increase of 60 basis points compared to the prior year quarter.
Research and Development Expansor, the third quarter was 4.3% of sales, 20 basis points higher than the prior year quarter.
3rd quarter adjusted SG and AXpenses were 37.2% of sales, 50 basis points lower than the prior year quarter.
and Justin Basis, interested expanse with $7.8 million in the third quarter.
The Adjusted Effective Tax Rate in Q3 was 21.0%.
Third Court of Gapman income was $49.0 million. This compares to Gapman income of $15.8 million in Q3, 2023.
Gapper earnings for Deluded Share were $1.57 this quarter compared to 50 cents a year ago.
Excluding the fact of special items discussed earlier in a third quarter we reported adjusted net income of $32.7 million.
Pat: and increase of 15.0% compared to the third quarter of 2023.
Our Q3 adjusted to do loaded that earnings per share, we're $1.5, an increase of 16.7% compared to the prior quarter.
Pat: Turning to the balance sheet, our cash balance at the end of the quarter was $38.5 million. Compared to $28.9 million as of June 30th.
The Council received a full day as of September 30, where 66 compared to 65 at the end of June and 68 a year ago.
In the Tory Day, the quarter end, we're 224 compared to 196 June 30th and 215 a year ago.
We made progress on our safety stocks for faster moving items this quarter. We're focused on also reducing the inventory levels for slower moving items.
Pat: Long-term dad at the end of the quarter was $940 million versus $965 million as of June 30th.
Our leverage ratio on September 30 was 3.6 times.
Casflow provided from operations in the quarter was $51.2 million, compared to $46.1 million in the third quarter of 2023.
Capital expenditures in the third quarter were $3.4 million compared to $5.4 million a year ago.
Now let's turn to financial guidance.
We know that Hurricane Haleens devastation in North Carolina affected a key med tech player that supplies IV solutions, which has already delayed surgical procedures.
Pat: Well, we're not going to try and project that impact on November and December. We are incorporating what we've already seen in our updated guidance today.
Pat mentioned the impacts of hurricanes, the lean and Milton on our facilities, and while we are working hard to make up the lost hours of production, we likely won't be able to make all those up in the fourth quarter. We also know that procedures in the region were deferred to the storms.
With that context, we expect fourth quarter reported revenue to be between $339 million and $344 million.
That would put our full year reported revenue guidance between 1 billion, 300 million and 1 billion, 305 million. With foreign exchange now looking immaterial for the full year.
Pat: We project Q4 EPS to be between $1.18 and $1.23 which represents growth between 11 and 16%.
Pat: That would put our new full-year guidance for adjusted EPS between $4 even and $4.5. Representing growth between 15.9 and 17.4%.
With that we'd like to open the call to your questions and I'll hand it back to Josh.
Thank you. As a reminder, task a question you will need to press star 1-1 on your telephone to remove yourself from the queue you may press star 1-1 again. You will be limited to one question and one follow-up. Please stand by while we compile a Q&A roster.
Our first question comes from Kristen Stewart, with CLK and you may proceed.
Hi, congratulations Curt on a really successful career. You'll definitely be missed.
Kristen Stewart: Thank you, Curt. I was wondering if I could just start off just talking a little bit more about General Surgery, came in a little later than what we were anticipating. I hear the comments around airfield, so it sounds like that was not a contributor in the quarter. Is there anything that was a little bit weaker? I also noticed capital equipment.
Revenue's around almost 10% so just wondering if you could just expand upon General Surgery, a little bit more detail.
Speaker Change: Yeah, and that's, Kristen, that's really just a function of last year. If you remember, a year ago we were getting out of back order in kind of big swaths. And Q3 last year was a large improvement in that. And so as I said in our...
Pat: in my prepare remarks.
Pat: International was really strong.
Pat: Last year and in the general surgery specifically we had a lot, some big capital.
Products that released from back order in the third quarter of.
Pat: of last year.
and think of those Kristen as circuit board availability.
that would impact generators and energy platforms, which Conmed has a pretty comprehensive portfolio of both serving international and US market.
Okay, and then just on the orthopedic supply situation, it sounds like you're making some good progress there. Do you still feel like that the impact will be just relegated to 2024? Do you think that some of the supply constraints could sift into 2025? Thanks for the question.
Speaker Change: Yeah, as Pat said, we did make progress. The hurricanes were a little bit of a speed bump, so we remain laser focused on continuing that progress and getting our teams back on offense as soon as we can.
Speaker Change: Thank you.
All right, next question comes from Mike Matzen with Needham, he may proceed.
Hi guys, this is Joseph Allen from Mike. Maybe just another one on the board at the eight ex-business.
Speaker Change: just in terms of the supply chain, I guess what, what are the implantables still being affected right now is it?
Speaker Change: is a more isolated to say, knees and shoulders are still pretty, you know, brought effect at this point. And I know you guys have talked about finding alternate suppliers and maybe qualifying some of them, so you just kind of wondering the progress of that as well.
We have this is Pad here, give you some thoughts here again.
I don't want to characterize it as one product or one category that we've made improvements on or not improvements on. We've actually made pretty good improvements on all of our categories there to improve the supply chain. And the past to getting out of the challenges we've had are really too strong.
It's increasing manufacturing capability and expansion here and improving the supply chain with some of our vendors and we continue to be laser focused on that.
Speaker Change: and I would just.
We're still working on it to be fair and I think we try to be clear with that in the script But in the quarter our US orthopedic business grew 7.4% which I would say is
Speaker Change: At the upper end of the market, internationally was a little below that. Again, that relates to some of what Todd spoke to in terms of Q3 last year and some large shipments.
coming out of Back Order and some other related international issues. So I feel like we're definitely moving in the right direction, more work to do, and our team is later focused on it.
Okay, thank you very much. I just want to question for us this time. Congrats on the retirement, Curt.
Curt Hartman: Thank you.
Curt Hartman: Thank you.
Speaker Change: Our next question comes from Robbie Marcus with JP Morgan in May proceed.
Hi, this is Lily on Barabbi. Thanks for taking the question. I'll echo everyone's comments and say, Kurt, you'll be missed and we wish you the best and welcome to Pat.
Speaker Change: and...
You had talked about confidence in being able to deliver accelerated top line grows and leverage learning, earning growth. It's 2025 the year that you think you can return to that high single pushing double digit growth profile. And it's a little bit early still, but any call you can give on your thoughts for next year would be helpful.
I won't be sitting in the chair offer in that guidance so I will still be the single largest shareholder so I would love to see great numbers.
But I think you're in very qualified hands here with Todd and with Pat and Nill.
I'm going to speak for them. They will offer guidance in January of 25 when we always offer guidance.
and I think it will be appropriate guidance for the company and what we have in front of us and what we're pursuing. And I try to reference our financial performance this quarter.
Speaker Change: and it was a teen level adjusted EPS growth. It was one of if not our best cash performance leverage ratio down to 3.6.
So they outlook on the leverage ratio continues to make great progress. So it's really just about reinvigorating the top line. And I think we're doing all the right things to leverage the portfolio we've built.
To do that, but we've got to deliver it, and that's where the laser focus is right now.
Speaker Change: and Dan.
Got it, okay. And then just as it follow up, I think you had previously spoken about a transitory, quality issue and smoke evacuation. So can you speak to whether that's still impacting you and how did Buffalo filter perform in the quarter? Thanks a much.
Yeah, no, that was transitory in Q2, Lily. We got that behind us in Q2 and Q3 was better, but not all the way back to our normal trend, but Q3 was a good sign heading back to where we want to be.
Speaker Change: Thank you, and as a reminder, task a question, please press star 1-1 on your telephone. Our next question comes from Big Chopper with Wells Fargo, you may proceed.
Hi, I just want to echo everyone else's comments and congratulate Pat and also thank you to Curt. I just wanted to ask a question I guess related to it. What are your top three priorities for 2025 Pat on board?
Pat: Boy, you know, taking over for a curtain. You know, my focus is to spend time with customers.
to spend time with our employees and connect with our shareholders and continue to advance the cause and be part of a growth company. And I'm super excited about taking over for Curt and continuing the story of success that has had for the last 10 years.
Great. Oh, and this is Dino on Perfect Chopra. Just follow up question on the hurricane impacts in the quarter. You mentioned there were rebookings of some procedures or delays. Have you seen impact as a result of the IV fluid shortages? There's any detail you could expand upon.
Now we have seen that already, I think it's interesting. One of the best sources is a chatGPT. You can go ask chatPT to list the systems that have talked about.
Alicating or deferring procedures and you'll get along with. So, it did. We did see that already in October. We have captured that in our guidance. We've kind of assumed a status quo from October for the quarter. We don't pretend to...
Project if it's going to get worse or better. So we've kind of assumed that what we've seen already in the quarter is kind of what we're dealing with. And so, but yes, that is just factual that hospitals have...
have already started allocating and deferring to make sure that they have the products they need for the patients that need them the most.
Speaker Change: Thank you.
Our next question goes from Kristen Stewart with CLK, he may proceed.
Kristen Stewart: Hi, thanks, chicken to follow up. Todd, I just wanted to ask on Gross margins, we saw some nice expansion in the quarter, still expecting to see good expansion on a year-rear basis. Is there anything that gives you pause for concern in terms of the outlook for Gross margins in terms of seeing the success and expansion?
Yeah, we're going to talk about 25 in January, Kristen. Q4 looks like we thought it did 90 days ago. I said it gross margins should be around 57% in Q4 and that's still the case. And so I know that Conmit has a...
has a good mix advantage and we've got a structure to be able to improve gross margins heading into the future and we'll quantify that better for 25 in January.
And then just wanted to ask on the contingent consideration, could you just provide a little bit more detail on that adjustment for the quarter? What that was related to?
You bet. So as we've talked about the footnankle business has been slower this year than we wanted to be. We're working hard to get that back on offense. But that...
being slower than expected is part of that adjustment.
Biobrace is doing really well, currently. We have adjusted our timing of when we expect the trial to read out, and that's adjusted out a little bit. We're really happy with the robust.
Nature of the trial that we have designed. But it took a little, that's actually a more robust, more significant study than was anticipated at the time of acquisition.
and so therefore that took us a little longer to get that off and running. So no negative signs there, just kind of a shift in timing, but that shift in timing in the outer years also affects that contingent consideration. So we still feel really good about both of those acquisitions.
and I think we've disclosed everything about how those are doing appropriately.
Speaker Change: Thank you. I would now like to turn the call back over to Curt Hartman for any closing remarks.
Thank you Josh, I want to thank everybody for your time today and given the succession plan announcement.
Curt Hartman: I will not be on the next call and so I want to take this opportunity to thank each of you for your attention to Conmed and your support during my tenure. You are in good hands with Pat and Todd and they look forward to speaking with you on our next earnings call with that said thank you and enjoy the rest of your evening.
Thank you, this concludes the conference. Thank you for your participation. You may not disconnect.
Speaker Change: [inaudible]
Speaker Change: [inaudible]
. .
Don't forget to subscribe to my channel and turn on notifications!