Q4 2024 CONMED Corp Earnings Call
Yeah.
Speaker Change: Thank you for standing by and welcome to <unk> fourth quarter fiscal year 'twenty 'twenty four earnings conference call.
At this time all participants are in a listen only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one one on your telephone.
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Speaker Change: 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 statements represent the forward looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws.
Speaker Change: Investors are cautioned that any such forward looking statements are not guarantees of future events.
Speaker Change: Formats or results the company's actual results may differ materially from its current expectations.
Speaker Change: Please refer to the risks 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 risks 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 the call.
Speaker Change: Except as may be required by applicable law, you will also hear management refer to non-GAAP or adjusted measures measurements during this discussion.
Speaker Change: 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.
Speaker Change: Adjusted net income and adjusted earnings per share measure the income up the company excluding credits or charges that are considered by the company to be special or outside its normal ongoing operations.
Speaker Change: These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website.
Speaker Change: With these required announcements completed I will turn the call over to Pat Beyer, President and Chief Executive Officer for opening remarks, Mr buyer.
Pat Beyer: Thank you Latif and good afternoon, and thank you for joining us for <unk> fourth quarter 2024 earnings call with me on the call is Todd Gardner Executive Vice President and Chief Financial Officer.
Pat Beyer: Ill provide a brief overview of the financial and operating performance for the fourth quarter and the full year.
Pat Beyer: Todd will then provide a more detailed analysis of our financial performance and discuss our 2025 guidance as well as how we're thinking about the impacts from potential tariffs. We will then open the call to your questions.
Pat Beyer: I'll start quickly I'll start by quickly reviewing our fourth quarter results.
Pat Beyer: Total sales for the quarter were $345.900 million, representing a year over year increase of five 8% as reported and 6% in constant currency.
Pat Beyer: This performance was generally in line with our expectations and financial guidance from.
Pat Beyer: From an earnings perspective, we delivered GAAP net income.
Pat Beyer: $33 $8 million in the fourth quarter. This compares to net income of $33 $1 million in the prior year period, excluding special items that affected comparability, our adjusted net income of $41 $8 million increased 26, 2% year over year and our adjusted.
Pat Beyer: Diluted net earnings per share of $1 34 increased 26, 4% year over year.
Pat Beyer: For the full year sales were $1.307 billion, representing year over year growth of 5% as reported and five 3% in constant currency.
Pat Beyer: For our orthopedics business increased two 4% in the fourth quarter and two 5% for the full year on constant currency basis.
Pat Beyer: Our general surgery business performed well with constant currency growth of eight 7% in the fourth quarter and seven 5% for the full year.
Pat Beyer: <unk> had another year of strong double digit growth with a record capital and disposable sales despite the change in market dynamics.
Pat Beyer: While our overall sales growth in 2024 was below our potential of our portfolio, we were able to offset some of the topline headwind with improving profitability driven by product mix and operating leverage which Todd will discuss in more detail.
Pat Beyer: Our 2024, GAAP net income totaled $134 million compared to $64 $5 million and 2023.
Pat Beyer: Excluding special items that affected comparability, our adjusted net income of $129 $9 million increased 20% year over year and our adjusted diluted net earnings per share of $4 17 increased 21% year over year.
Pat Beyer: Turning to 2025, we are laser focused on resolving the remaining supply challenges for our orthopedics business and strengthening our operations, while maximizing the potential of our key growth drivers, including <unk> Buffalo filter bio brace and our foot and ankle portfolio.
Pat Beyer: We made progress on our supply challenges throughout 2024, but not as quickly as we had planned our sales force is now back on offense in foot and ankle. While there is still work ongoing in other areas of orthopedics to that end. We recently engaged a top tier consulting firm that is helping us drive change more.
Pat Beyer: Rapidly and turn our operations from an area of weakness and to an area of strength.
Pat Beyer: I noted that <unk> delivered good growth in 2024, despite the evolving competitive environment for much of the year.
Pat Beyer: We believe the continued strong demand reflects the importance of the clinical Insufflator <unk> provided by <unk> and robotic surgery in laparoscopy, which.
Pat Beyer: <unk> is particularly important for longer and more complex procedures. We are confident that <unk> will remain a double digit grower for a long time supported by physician demand for better patient outcomes, including less pain and quicker recovery times, which mean fewer hospital days, enabling the hospitals to treat more patients.
Pat Beyer: <unk>.
We're going to continue to expand the impact of Buffalo filter, which plays a key role in protecting caregivers from toxic smoke in the operating room.
Pat Beyer: We are the leader in the smoke evacuation market, which is still in the early stages of growth and we are excited about the outlook for <unk>, our highly differentiated product for soft tissue repair and sports medicine.
Speaker Change: Over the last decade led by Curt Hartman, we turn <unk> into a growth company and I am fortunate to take the helm at this point.
Speaker Change: <unk> portfolio has been developed over a 55 year period, and we will be performing a deep dive into our portfolio in markets with the objective of sharpening our focus to improve the durability growth and profitability of our portfolio into the next decade.
Speaker Change: I am excited about our long term future and I'm excited about the improvements we are going to make in the coming months. The foundation is strong and I am thrilled to be leading con met on the next chapter of its growth story.
Speaker Change: With that I'll turn the call over to Todd who will provide a more detailed analysis of our financial performance and discuss our 2025 financial guidance Todd.
Todd Gardner: Thank you Pat.
Speaker Change: All sales growth numbers I reference today will be given in constant currency the.
Speaker Change: A reconciliation to GAAP numbers is included in our press release as usual we have included an investor deck on our website that summarizes the results of the quarter of the year and our financial guidance.
Speaker Change: As a reminder, Q4 2024 I had one more day than Q4 2023.
Speaker Change: For the fourth quarter of 2024, our total sales increased 6.0%.
Speaker Change: For Q4, our sales in the U S increased six 8% versus the prior year quarter and our international sales grew <unk>, 5.0%.
Speaker Change: Total worldwide Orthopedics sales grew two 4% in the fourth quarter.
Speaker Change: In the U S. Orthopedic sales grew five 2% and internationally orthopedic sales increased 0.6%.
Speaker Change: Total worldwide General surgery sales increased eight 7% in the quarter.
Speaker Change: U S General surgery sales grew seven 4%, while internationally general surgery sales increased 12.0%.
Speaker Change: For the full year of 2024, our total sales increased five 3%.
Speaker Change: For the full year, our U S sales grew six 9% and international sales grew three 4% versus the prior year.
Speaker Change: Total worldwide orthopedic sales increased two 5% for the full year 2024.
Speaker Change: This below market performance as it related to the supply challenges, we have disclosed all year long.
Pat Beyer: As Pat said, we have engaged a top tier consulting firm to help us turn this weakness into a strength and 2025.
Pat Beyer: In the U S. Orthopedic sales grew five 6% and internationally orthopedic sales increased <unk>, 7%.
Pat Beyer: Total worldwide General surgery sales increased seven 5% for the full year 2024.
Pat Beyer: U S General surgery sales grew seven 4% in 2024, while internationally general surgery sales increased seven 6%.
Pat Beyer: Now, let's move to the expense side of the income statement.
Pat Beyer: We will discuss expenses and profitability in the fourth quarter and the full year, excluding special items, which are detailed in our press release.
Pat Beyer: Adjusted gross margin for the fourth quarter was 57, 6%, which is a 120 basis point improvement over the prior year quarter.
Pat Beyer: For the full year adjusted gross margin was 56, 3% an increase of 110 basis points from 'twenty to 'twenty three.
Pat Beyer: Considering the challenges we had in operations in 2024, we are pleased with this gross margin improvement and believe it reflects the long term mix tailwind we have in our portfolio.
Pat Beyer: Research and development expense for the fourth quarter was three 8% of sales 50 basis points lower than the prior year quarter.
Pat Beyer: This reduction was simply due to the timing of projects and Q4 being our highest sales quarter of the year.
Pat Beyer: For the full year 2020 for R&D expense was four 2% of sales no change from 2023.
Pat Beyer: Fourth quarter adjusted SG&A expenses were 35, 6% of sales.
Leverage gained on the higher sales drove the 110 basis point improvement over the prior year quarter.
Pat Beyer: For the full year adjusted SG&A expenses were 37, 1% of sales 30 basis points lower than 2023.
Pat Beyer: Q4, we delivered an adjusted operating margin of 18, 6% an increase of 280 basis points over the prior year quarter.
Pat Beyer: Adjusted operating margin for the full year 2024 was 15, 5% an improvement of 150 basis points over 2023.
Pat Beyer: We are intensely focused on turning our 2024 challenges into strengths in 2025.
Pat Beyer: Despite those challenges the strong improvement we delivered an operating margin demonstrates the long term opportunity for this portfolio to grow faster than our peers in revenue and profitability.
Pat Beyer: On an adjusted basis interest expense was $7 $4 million in the fourth quarter and $31 $6 million for the full year.
Pat Beyer: The adjusted effective tax rate in Q4 was 26, 7% due to year end calculations of tax items for.
Pat Beyer: For the full year, our adjusted effective tax rate was 24, 1% in line with expectations.
Pat Beyer: Fourth quarter GAAP net income was $33 8 million or two 1% increase over Q4 2023.
Pat Beyer: GAAP earnings per diluted share were $1 eight this quarter compared to $1 five a year ago.
Pat Beyer: For the full year GAAP net income was 134, I'm, sorry, $132 $4 million.
Pat Beyer: Compared to GAAP net income of $64 5 million in 2023.
Pat Beyer: GAAP earnings per diluted share were $4 25, and 2024 compared to GAAP earnings per diluted share of $2 <unk> and 2023.
Pat Beyer: Excluding the impact of special items discussed earlier in the fourth quarter, we reported adjusted net income of $41 $8 million, an increase of 26, 2% compared to the fourth quarter of 2023.
Pat Beyer: Our Q4 adjusted diluted net earnings per share were $1 34, an increase of 26, 4% compared to the prior year quarter.
Pat Beyer: For the full year of 2024, we reported adjusted net income of $129 $9 million, an increase of 20.0% compared to 2023.
Our full year adjusted diluted net earnings per share were $4 17.
Pat Beyer: An increase of 29% compared to the prior year.
Pat Beyer: Turning to the balance sheet, our cash balance at the end of the year was $24 $5 million compared to $38 $5 million as of September 30th.
Pat Beyer: Accounts receivable days as of December 31, or 62 days compared to 66 at the end of Q3.
Pat Beyer: Inventory days at year end were 211 compared to 224 at September 30.
Pat Beyer: Okay.
Pat Beyer: Long term debt at the end of the year was $905 $1 million.
Pat Beyer: $941 million as of September 30th.
Pat Beyer: Our leverage ratio on December 31 was 335 times.
Pat Beyer: Cash flow provided from operations in the quarter was $43 $3 million compared to $56 4 million in the fourth quarter of 2023.
Pat Beyer: Cash flow provided from operations for the full year 2024 was $167.0 million compared to $125 3 million in 2023.
Pat Beyer: That means returned five 3% sales growth for the year and to 29% growth in adjusted EPS and 33, 2% growth in operating cash flow.
Pat Beyer: This was accomplished in a year, where we built considerable inventory to mitigate our supply issues.
Pat Beyer: Our cash engine is strong and we have long term tailwind to our working capital.
Pat Beyer: Capital expenditures in the fourth quarter were $4.0 million compared to $4 9 million a year ago.
Pat Beyer: For the full year capital expenditures were $13 1 million compared to $19.0 million in 2023.
Pat Beyer: Now, let's turn to financial guidance.
Pat Beyer: Given the uncertainty around president Trump's tariff negotiations the guidance, we're providing today excludes any potential impact.
Pat Beyer: At the end of this discussion I'll provide what the math looks like for us on an annual basis, if the negotiations fail in the headline tariff numbers that Trump threatened actually take effect.
Pat Beyer: So excluding that for now let's start with revenue.
Pat Beyer: While we saw some encouraging signs in Q4, we're not going to get ahead of ourselves with guidance today.
Pat Beyer: In our Investor deck, we provided a slide for the purpose of aligning investors models with where the portfolio is today, including current gross margins and expected midterm revenue growth ranges.
Pat Beyer: To be clear, we are not changing the level of detail in our ongoing financial disclosures, rather we are offering this more detailed product level view into revenue and margin expectations for the purpose of resetting expectations.
Pat Beyer: Going forward, we will continue to disclose total company results along with the sales breakout between orthopedics and general surgery.
Pat Beyer: Of course, as we always have we will provide color commentary on certain products as they are relevant and material.
Pat Beyer: That slide I referenced shows the 4% to 9% revenue growth potential of our portfolio over the mid term.
Pat Beyer: We're going to start at the low end of that range for 2025 and expect to earn the credibility to move higher within that range as we deliver in future years.
Pat Beyer: For the full year 2025, we expect constant currency revenue growth between 4% and 6% with currency headwind between approximately 100 and 120 basis points.
Pat Beyer: Together that places our reported revenue guidance range between 134, 4 billion and $1 372 billion.
Pat Beyer: Of note <unk>.
Pat Beyer: Q1, 2025 has one less selling day than 2024, and Q3 has one more.
Currency is also a little stronger headwind in Q1 than it is for the full year. So we expect reported sales in Q1 to be between $310 million and $316 million.
Pat Beyer: Okay.
Pat Beyer: That same slide that I referenced also calculates our gross margin mix tailwind based on those revenue growth rates.
Pat Beyer: To be between 50, and 80 basis points for 2025.
Pat Beyer: We remain bullish on our long term mixed tailwind as the product families that are growing the fastest also have the higher gross margins.
Pat Beyer: And we're confident this work we're doing on our supply chain and manufacturing will be accretive to gross margins in future years, as we increase supply predictability and establish a culture of continuous improvement and cost savings.
Pat Beyer: We're aware that our larger competitors have more sophistication in their processes and that we are too dependent on single source supply.
Pat Beyer: Closing those gaps may require additional investment before we can realize the savings.
Pat Beyer: Therefore in 2025 it is possible that this effort is a drag on margins before the savings are realized.
Pat Beyer: We're in the early stages of the process and it's too early to quantify the timing and magnitude of the savings we expect.
Pat Beyer: With that context in the fact that currency is a headwind of about 50 basis points for the coming year in gross margins.
Pat Beyer: We would not be surprised if gross margins as a percentage of sales in 2025 were at a similar level to 2024.
Pat Beyer: Before I leave gross margins I'd like to note that in our standard costing system for the first time in our history for a calendar year in 2020 for our standard gross margin started with a six at 61%.
Pat Beyer: Mix should continue to drive that number up.
Pat Beyer: Our task is to reduce our manufacturing variances and other cost of sales and we're focused on training those functions from a weakness to our strength.
Pat Beyer: We continue to expect SG&A as a percentage of sales to decrease over the long term.
Pat Beyer: We expect to continue to invest and grow our resources to improve and solidify the topline growth.
Pat Beyer: We believe this can be accomplished by growing sales expenses slower than revenue.
Pat Beyer: However, currency is also working against US on this line in 2025, So we expect our 2025 SG&A as a percentage of sales to be similar to 2024.
Pat Beyer: We expect full year R&D expense in 2025 to be between 4.0, and four 5% of sales.
Pat Beyer: We expect Q1 to land at the high end of that range to make up for some of the timing we saw in Q4 of 2024.
Pat Beyer: Based on our current forecast of interest rates from our banking partners, we expected adjusted interest expense to be between $27 $5 million and $28 million in 2025.
Pat Beyer: We expect the adjusted effective tax rate to be in the mid 24% range in 2025.
Pat Beyer: As I mentioned before we've delivered adjusted EPS growth recently, much higher than revenue growth by multiples even.
Pat Beyer: That's because of our margin tailwind and responsible management of expenses as.
Pat Beyer: As we focus on moving more on offense going forward, we believe an attractive and responsible model is to grow adjusted EPS at approximately twice the rate of sales growth on a constant currency basis.
Pat Beyer: So longer term, that's what we would expect.
Pat Beyer: As we look specifically at 2025 the currency.
Pat Beyer: Headwind on adjusted EPS is estimated to be between 15 and 20.
Pat Beyer: And given the potential temporary pause on gross margins I discussed earlier, we project reported adjusted EPS guidance for 2025 between $4 25.
Pat Beyer: And $4 40.
Pat Beyer: The currency impact on EPS appears to be relatively consistent by quarter throughout the year.
Pat Beyer: Yeah.
Pat Beyer: With the initiatives, we have underway, we expect full year operating cash flow in 2025 to be between $130 million and $140 million with capital expenditures in the $20 million to $30 million range, putting free cash flow around $110 million for the year.
Pat Beyer: Yeah.
Pat Beyer: We project adjusted EBITDA between $270 million and $280 million for 2025.
Pat Beyer: Similar to last year, there are heavier cash requirements in the beginning of the year. So we expect our leverage ratio to stay relatively flat for the next six months and then drop below three by the end of 2025.
Pat Beyer: So that concludes our 2025 financial guidance, which as a reminder, excludes any impact from increased tariffs from the new Trump administration.
Pat Beyer: We don't want to be in the business of predicting outcomes of international trade negotiations at this early date. So we're simply going to provide the numeric answer for trumps initial declaration with no exclusions on an annual basis.
Pat Beyer: For Mexico and Canada.
Pat Beyer: An additional 25% tariff on the total product value crossing the border into the United States using our current accounting and process would be a tariff increase of approximately $45 million in total.
Pat Beyer: The Canadian piece of this is very small.
Pat Beyer: To demonstrate the uncertainty here.
Pat Beyer: Even if the 25% tariff ultimately was put in place, but only assigned to the value added in Mexico.
Pat Beyer: Liability would decrease from $45 million to approximately seven $5 million.
Pat Beyer: Today everything produced in Mexico comes into the United States to be sterilized and shift around the globe from our distribution center in Georgia.
Pat Beyer: Because of our global revenue mix theoretically, we could reduce that liability by approximately half by only bringing products into the U S that are for U S customers.
Pat Beyer: But of course that would take time to implement.
Pat Beyer: We also have manufacturing capacity in the U S and have experienced moving product lines between plants, but of course that also takes time.
Pat Beyer: For China, Trump has announced an additional 10% to the existing tariffs with no exemptions.
Pat Beyer: The existing tariffs that Trump implemented in his first term are at 25% power.
Pat Beyer: However section 301 of the trade Act exempts certain medical devices, which includes our products from China.
Pat Beyer: So we are currently paying very minimal tariffs on product from China.
Pat Beyer: That exemption expires at the end of May 2025, and our partners in the process believe the way. The current order is worded the exemption will continue until exploration.
Pat Beyer: So the worst case scenario appears to be that a 10% tariffs would be assessed on products from China, beginning this month, which would equate to about $250000 per month.
Pat Beyer: If nothing changes beginning in June the tariff rate will become 35%.
Pat Beyer: Which would be approximately $875000 per month for us are roughly $10 $5 million on an annual basis starting in June.
Pat Beyer: Mitigation efforts here would require finding substitute vendors, which could take significant time in a regulatory regulated environment and also potentially add costs.
Pat Beyer: That's the maximum potential impact as we understand it today.
Pat Beyer: Given the number and frequency of changes in policy lately, we will not provide updates with every twist and turn in D. C. But we will provide updates as appropriate on our quarterly calls or in other public formats as we gain further visibility and certainty.
Speaker Change: As Pat said, we are laser focused on turning our weaknesses into strengths in 2025 by improving our processes and rebuilding our credibility.
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.
Speaker Change: With that we'd like to open the call to your questions I will turn it back to Latif.
Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press Star one won that game.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Matt O'brien of Piper Sandler Your question. Please Matt.
Speaker Change: Hi, This is Joe on for Matt. Thanks for taking our questions I guess, just I wanted to start higher level.
Speaker Change: In the Investor deck, you state that the aggregate convert growth rate is call. It six 5% at the midpoint you are guiding to 5% constant currency. This year at the midpoint, where is that 150 basis points of delta coming from mainly.
Speaker Change: Thanks, Joe Yes, mainly the frustration that we had in 2024 right. We've talked about supply chain challenges that have lingered longer than we.
Speaker Change: Thought they would that's why we've engaged top tier consulting firm to help us get out of this.
Speaker Change: As quick as possible, but that's slowed us down that's kept our sports medicine business from being on offense and I would say, that's probably the biggest headwind in the near term.
Speaker Change: That's helpful and I was just hoping to see some color on how that franchise grew in Q4 it appears as well.
Speaker Change: Expectation going forward it looks like double digits in the deck is that the expectation in here in 2025 as well.
Speaker Change: Yes. Good question again, we commented we had a record year in 2024, and Aerocele, both capital and disposables.
Speaker Change: <unk> grew double digits in quarter, four and our expectation.
Speaker Change: For the for the foreseeable future there are seal clinical integration platform as a double digit grower for us.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Comes from the line of Rick Wise of Stifel. Please go ahead Rick.
Speaker Change: Good afternoon, Hi, Brian Hi, Todd.
Speaker Change: Two questions from me.
Speaker Change: Maybe stepping back and just thinking about guidance.
Speaker Change: I appreciate it.
Speaker Change: What might.
Speaker Change: Current U R M <unk>.
Speaker Change: B thoughtfully convert or heading into <unk>.
Speaker Change: 2025 year, but maybe you can help us.
Speaker Change: Understand.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Again at a high level.
Speaker Change: Where is the conservatism that you're baking in.
Speaker Change: The market at the timing of new products is it sticky.
Speaker Change: <unk> supply chain is it ramping.
Speaker Change: Yeah.
Speaker Change: Re ramping foot and ankle or.
Speaker Change: Just at a high level help us understand what might go right actually.
Speaker Change: A high level.
Speaker Change: Thanks, Rick.
Speaker Change: Yes. So we just grew five 3% constant currency in 2024, and 2024 or an extra day now when you put a day on a year, it's not very much right, but still we just add five three so we are guiding for six four to six.
Speaker Change: For <unk>.
Speaker Change: 2025, and Thats really where the portfolio is right now right. So we feel like we have to earn our way up that curve and we expect to.
Speaker Change: If we can get sports medicine back to where it should be.
Speaker Change: We saw good signs from foot and ankle in Q4, they grew double digits in Q4, the general surgery business has been durable and solid so if we can get the orthopedics business back to where it's supposed to be then I think we can earn the right to guide higher up into that range of where we think the portfolio should be so to be clear.
Speaker Change: Here.
Speaker Change: We are also disappointed that we're in this 4% to six range at the current time.
Speaker Change: And are anxious to prove our way.
Speaker Change: To move up that in future years.
Speaker Change: The other part I would tell you the frustrating part has been gross margins as you know we've got a terrific mix tailwind, which was demonstrated in 2024, despite all those challenges.
Speaker Change: That we've been living with we still delivered really good margin improvement in 2024 that mix tailwind is still there and it's still real or.
Speaker Change: We're fighting two things in 2025, one is currency, which is meaningful its 50 basis points of headwind that we have to digest in 2025.
Speaker Change: And then the rest of it is this this construction project, we've got going on in operations and we're excited about it.
Speaker Change: We are confident that it will get us on offense and get us to where we need to be to move up that that range and to and to recognize the tailwind that we believe we have in our profitability engine.
Speaker Change: But we've got to get through this construction project in the near term and.
Speaker Change: And it's a little early too.
Speaker Change: Be too bullish on what that's going to deliver so we're working hard on that obviously, what we want to exceed.
Speaker Change: The numbers, we've given today, but we've got to prove that before we before we commit to it so.
Speaker Change: That's the exercise.
Speaker Change: And that's what led to the guidance today.
Speaker Change: Gotcha.
Speaker Change: Good.
Speaker Change: As a follow up.
Speaker Change: Okay.
Speaker Change: Impressed by.
Speaker Change: The solid <unk> performance and your words, you said continued strong demand.
Speaker Change: Demand for ethanol.
Speaker Change: <unk> you.
Speaker Change: Indicating your belief that it's going to remain a double digit grower I think youre reserved for a long time.
Speaker Change: Help us understand.
Speaker Change: In more detail the drivers you've highlighted relates to the story.
Speaker Change: Confirm attachments current da Vinci airfield attachment to exercise that.
Speaker Change: The huge.
Speaker Change: Base out there, but the part I'm most intrigued with the airfield, playing a more substantial role in laparoscopy.
Speaker Change: Is that.
Speaker Change: Whats part or parts are.
Speaker Change: Our sort of prompting your optimism.
Speaker Change: Sure.
Speaker Change: What's going on in the non robotic leg and.
Speaker Change: And maybe expand on your comments on the non robotic commercial progress today, sorry for the long question. Thank you so much.
Speaker Change: Fair, Rick again to remind everybody.
Speaker Change: Comed purchased surge of quest switches the <unk> portfolio in 2016.
Speaker Change: And this portfolio and this platform has been significant to <unk>. Since then and would reiterate it reduces length of stay.
Speaker Change: With with patients and it reduces pain for patients.
Speaker Change: On procedures, both laparoscopic and robotic and im going to touch on the robotic robotic just to remind everybody. Yes, TV five is launching in the market, we're seeing a slower attachment rate, but <unk> is still very prevalent in the market and they continue to sell X size around the world.
Speaker Change: Perhaps skippy side the international World has been successful in laparoscopy space. In addition to the growing opportunity in robotics, but Darren National side has proven very successful on that in the last year or so in the United States has seen an uptick in that <unk>.
Speaker Change: Could be opportunity as our sales force has continued to see those opportunities present themselves in front of them.
Speaker Change: In addition to the <unk> robotic opportunity and Thats not a new market is my track as the sales reps are seeing that opportunity surgeons are pulling them into those opportunities and patients are performing great with air sale and laparoscopic procedures.
Speaker Change: Thanks for all.
Speaker Change: All of that color.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Mike Matson of Needham. Please go ahead Mike.
Speaker Change: Hi, everybody. This is Jason on for Mike.
Speaker Change: I guess, maybe first one for Pat obviously in a short time in the CEO role but.
Speaker Change: I guess just wondering if maybe you could discuss maybe some of the new directives that you've implemented.
Speaker Change: The deep dive that you had mentioned in the prepared remarks, I'm just kind of wondering how youre thinking about that is that.
Speaker Change: Looking for holes in the portfolio is that maybe finding lower gross margin products that you would maybe want to see price or dispose of it.
Speaker Change: Just kind of wondering.
Speaker Change: What the path forward is how are you seeing it.
Speaker Change: And then maybe just get a quick update on the CEO search.
Speaker Change: Three things first of all nice to meet you Joseph we're not going to look for a CFO right now I'm going to continue to have the commercial operations report to me my role as COO quite honestly. It was an opportunity for me to step into a new role taken expanded view of the organization under Kurt.
Speaker Change: And to prepare me for this for this position.
Speaker Change: As I sit in the CEO role I've been asked what's my focus going to be and I have been careful to say step one I'm going to ask a lot of questions I am not going to jump into making decisions early and in that vein I'm, calling out six things, we're focusing on right now and it seems a lot, but it's really six focus areas.
Speaker Change: Number one continuing to advance the clinical and supply chain platform <unk> that portfolio has to continue to win number one number two the construction projects that Todd talks about getting our orthopedic business back on offense do operations number three continuing to be mindful of.
Speaker Change: Debt.
Speaker Change: Continuing to drive that leverage down then we have three great portfolios, we have to continue to win in bio brace.
Buffalo filter and our foot and ankle space now I said I want to be careful that I don't jump in and make decisions quickly.
Speaker Change: But to make decisions for the durability the growth and the profitability of <unk> going into the next decade, we have to review the portfolio was 55 years old and me and the leadership team and our commercial leaders are going to be looking at which spaces are comment in what's our portfolio look like doing some natural.
Speaker Change: Hygiene, and pruning, where it makes sense, but all with the goal of durability in the growth and profitability of the <unk> going forward.
Speaker Change: Okay, Great that's very helpful.
Speaker Change: And then maybe I'll just do a quick one on <unk>.
Speaker Change: If you could remind us maybe what is the clinical data profile look like right now.
Speaker Change: I guess just in terms of like other anatomies or I guess extremities is there any read outs or publications.
Speaker Change: Any trials that are ongoing that we should expect a readout for in the future.
Speaker Change: Joseph two things again, <unk> is being used clinically and almost 50 procedures be that from a rotator cuff to the ACL and to the Achilles and so almost 50 different procedures.
Speaker Change: We have 14 peer reviewed publications already in print and we have nine clinical studies undergone undergoing right now as we speak we have the large random.
Speaker Change: Prospective clinical study with 268 patients.
On the go we passed 100 patients in 2024, and we look to have readout data at the end of 2026 on that and so there is active bodies of evidence growing in the world of bio based on strength and healing.
Speaker Change: Okay, great. Thank you very much and great value.
Thank you.
Speaker Change: Thank you our next.
Speaker Change: Question.
Speaker Change: Comes from the line of Robbie Marcus of Jpmorgan.
Speaker Change: Your question please Robby.
Robbie Marcus: Great. Thanks for taking the question.
Robbie Marcus: Two for me, maybe first one I know, it's been asked in certain different ways here, but.
Robbie Marcus: After a couple of years.
Robbie Marcus: Backend loaded guidance impacted by supply I guess, how do we put this yearend perspective, given the first quarter guide and the level of confidence in the acceleration throughout the year.
Robbie Marcus: Yes, Ravi I think Thats, a fair question I think.
Robbie Marcus: We were all very disappointed in 2024, we thought that we could get back on offense, we thought the sports medicine business will be back on offense by July one.
Robbie Marcus: That got pushed back to later in the year and we didn't make the progress at the end of the year that we wanted to and so.
Robbie Marcus: The guide if you go back to 2023, we spent most of 2023, beating and raising actually but in 2024, we didn't.
Robbie Marcus: And so what we've done here today is to not get ahead of ourselves. So we've guided essentially.
Robbie Marcus: Two on the revenue line to do what we did in 2024, which again was a disappointing year. So we're not getting ahead of ourselves. We're obviously going to work to do better than that but we're not going to get ahead of ourselves on the guide.
Robbie Marcus: And then like I said directly the challenge on the on our profitability is really in that gross margin line.
Robbie Marcus: Say half of it coming from currency, which is just reality and the other half is this.
Robbie Marcus: Serious work, we need to do to get our operations better. So that we can get out of this we were in this.
Robbie Marcus: Rut for longer than we wanted to be and we're tired of it we're not going to live with it and we're changing it and.
Robbie Marcus: And so we've got the best in the business to help us do that and we're committed to do that but but until we deliver that and have something concrete that we can promise our shareholders. We're not going to get ahead of that either so we've got to do the hard work and keep our heads down and get through this.
Robbie Marcus: Improvement project.
Robbie Marcus: In the meantime, we're going to we're going to go sideways, we think this year.
Robbie Marcus: On gross margins, which is really disappointing, but we think it will set us up to get the tailwind more visible going forward and so that's the reality of where we are and we focus on our focus is to deliver that in turn this what's been a really frustrating weakness and our status.
Robbie Marcus: Behind our competition.
Robbie Marcus: And to turn that into our strength and so that's the that's our mantra here that's what we're all focused on.
Robbie Marcus: I appreciate that.
Todd Gardner: Maybe one more Todd I know you've been talking for a while about EPS leverage in this year, we're not getting a ton for all the reasons you just talked about do you think 2026 can be a return to faster bottom line growth.
Todd Gardner: Yeah, obviously, we're not guiding to 'twenty six today, but.
Todd Gardner: But I did try and point out we believe that a we ought to be able to grow the bottom line twice as fast or note from a.
Todd Gardner: Growth rate perspective, we think the bottom outgrow to ex that what the top grows right now.
Todd Gardner: In reality the last couple of years, we've been doing more than two X right.
Todd Gardner: But I think a sustainable reliable expectation longer term as you think about what should what should <unk> do over the coming years.
Todd Gardner: As I would I would take whatever you have for a reasonable revenue growth rate and double that for a fee.
Todd Gardner: For adjusted EPS growth rate and I think Thats fair and you know look there could be periods, where we do much better than that and there could be periods like this year, where currency or other things might work against you to pull that down a little bit, but we think thats kind of where the portfolio should be and that we should we can stay on offense and and.
Todd Gardner: Protect.
Todd Gardner: The revenue line with that kind of model.
Todd Gardner: Great. Thanks, a lot for taking the questions.
Todd Gardner: Okay.
Todd Gardner: Thank you.
Todd Gardner: Our next question.
Speaker Change: Comes from the line of <unk> Chopra of Wells Fargo. Your question. Please.
Speaker Change: Hey, good afternoon, and thanks for taking the questions. Two for me first one maybe just talk about your revenue guidance, maybe what gets you to the high end versus the low end of that 4% to 6% range and then I had a follow up question. Please.
Yeah, well so like I said, we just at five three.
Speaker Change: Percent, we do so.
Speaker Change: So we're not going to get ahead of ourselves and we're going to kind of carryover into 2025 with that assumption.
Speaker Change: There's lots of ways, we can do better than that right. We were very disappointed by the performance in.
Speaker Change: In 2024.
Speaker Change: So I'd say, there should be more upside than downside to that vik, but.
Speaker Change: That's how I'd answer your question.
Robbie Marcus: Okay. That's helpful. And then maybe a follow up for me is just how youre thinking about capital allocation and M&A in 2025, and maybe just talk about financial flexibility at this point. Thank you.
Robbie Marcus: Yeah, nothing has really changed we stay active eyes open Arizona.
Robbie Marcus: We would have a hard time, letting a really compelling asset go to the competition.
Robbie Marcus: At the same time.
Robbie Marcus: We're excited about getting leverage down below three which we're projecting to do by the end of this year.
Robbie Marcus: And.
Robbie Marcus: And so in the absence of a really compelling asset that we think makes sense to add in the near term.
Robbie Marcus: We will continue to pay down debt and get that leverage down.
Robbie Marcus: Below three.
Robbie Marcus: Thank you.
Robbie Marcus: Our next question comes from the line of young Li of Jefferies. Your question. Please.
Speaker Change: Alright, great. Thank you so much.
Robbie Marcus: I guess to start maybe on.
Hello filter.
Speaker Change: So there was a.
Speaker Change: <unk> comment on this slide.
Speaker Change: Kind of curious if you can provide an update.
Speaker Change: Yes.
Legislation in the pipeline for U S, a and maybe comment.
Speaker Change: Your expectations for around the world.
Pat Beyer: Yes, Shanghai Pat here.
Pat Beyer: We continue to be excited about the smoke evacuation market.
Pat Beyer: We believe we're the market leader, we believe the technology Buffalo filter brings is meaningful to the to the clinicians and caregivers at pretax.
Pat Beyer: There at year end.
Pat Beyer: Currently in United States. There is 18 states who have currently approved are enacted legislation that includes three that have been enacted this year, that's west, Virginia, Virginia and Minnesota.
Pat Beyer: To happen in 2025.
Pat Beyer: Globally, we continue to see geographies.
Pat Beyer: In certain places around the world also enact legislation as well as hospitals and caregivers continue to focus on protecting themselves and so we continue to be bullish on the Buffalo filter product line.
Pat Beyer: Alright, great very helpful I.
Speaker Change: I guess, maybe Juan Perez.
Juan Perez: Perez I appreciate all the color.
Pat Beyer: This.
Pat Beyer: Was wondering.
Pat Beyer: What are your thoughts.
Pat Beyer: Using price to potentially offset some of that impact.
Pat Beyer:
Pat Beyer: What is overall pricing for the comment.
Yeah, maybe two thoughts here I'll have Todd talk about the pricing that we're getting a con man, but with respect to passing price.
Pat Beyer: With respect to the tariffs on to the to the hospitals again.
Pat Beyer: You remember a lot of our portfolio was contracted with hospitals around the world. So we'd have to open up contracts and I think it's going to be a period of time before we really understand the impact of these tariffs on our portfolio and is it.
Pat Beyer: An opportunity to pass on pricing, but quite honestly I'd say I think it's going to be pretty difficult to pass on tariff pricing on to the hospital systems around the world with respect to that such my personal opinion on that.
And I agree with you.
Speaker Change: Yes, it would depend if everybody was in the same boat.
Speaker Change: If it was a industry wide kind of increase then maybe that that happens, but it would be tough to I think to do a con specific one if that's how it shook out.
Speaker Change: And general price has been fairly neutral for us recently.
Speaker Change: Prior to 2022, I would say we lived in a kind of a 100 basis point price headwind World I'd say, that's where we live for a long time and 2022 and inflation was.
Speaker Change: Accelerated all over the globe and every everything you bought I think the hospital appetite opened up for the first time in my career, where you could actually get some price increases through we along with the rest of the industry have done some of that.
Speaker Change: Not close to I think offsetting the inflation that we all experienced but I think we got some and I think that window is probably closing my opinion is that window is probably kind of closing now as inflation has come back to more reasonable levels and so I.
Speaker Change: I wouldn't expect a lot of price benefit going forward, but but thankfully because of this time. We are in I would say, we're kind of at a price neutral potentially slightly price positive world currently.
Speaker Change: Alright, Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Come from the line of Travis Steed of Bofa Securities.
Speaker Change: Please go ahead Travis.
Speaker Change: Hey, Thanks for taking the question.
Speaker Change: Give some color on Q1 revenue, but I'm curious.
Speaker Change: Can help a little bit on Q1, EPS or margins or how to think about the cadence of the year from a margin or an EPS standpoint.
Speaker Change: Yes, I think as I look at it Travis I think.
Speaker Change: It probably kind of travels together right.
Speaker Change: I think revenue and EPS should travel decently together of course nothing is ever linear.
Speaker Change: We didn't feel the need to specifically guide to that other than revenue there obviously.
Speaker Change: We felt like the revenue expectations were a little ahead of what we expect and so we gave that guidance today, but we think as as you adjust.
Speaker Change: Your revenue expectations for Q1, the EPS expectations out of travel with that and be in a decent place.
Speaker Change: And like I said, the currency is pretty even throughout the year, it's a little heavier in Q1 on the revenue side.
Speaker Change: And we have one less day in Q1 than a year ago and one more day in Q3.
Speaker Change: So that plays into it but other than that.
Speaker Change: I look at the growth rates and expectations.
Speaker Change: Yes.
Speaker Change: Called the rest of the year.
Speaker Change: We didn't feel the need to call anything out specifically.
Speaker Change: <unk>.
Speaker Change: Okay. That's helpful. And then just wanted to confirm on.
Speaker Change: The China tariffs is that excluded from the guidance as well I know, Mexico, and Canada, where but it's China also excluded.
Speaker Change: Yes, China is excluded as well.
Speaker Change: Alright, great. Thank you.
Speaker Change: Thank you.
Speaker Change: I would now like to turn the conference back to Pat buyer for closing remarks, Sir.
Latif: Latif. Thank you I wanted to reiterate what I said earlier.
Latif: Im excited about our long term future I'm excited about the improvements we're going to make in the coming months.
Speaker Change: <unk> Foundation is strong and I am thrilled to be leading con med with its leadership team on the next chapter of its growth story. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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