CONMED Corporation

Good afternoon, everyone. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook and its plans and objectives, which represent forward-looking statements that involve risks and uncertainties, as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future results, performance, or results. and the company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under forward-looking information in today's press release, as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will also hear management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for GAAP measures, 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 operation. These adjusting items are specified in the reconciliations supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Curt Hartman, ComEd's President, Chief Executive Officer, and Chair of the Board for opening remarks. Mr. Hartman.

Curt Hartman Thank you, Crystal. Good afternoon and thank you for joining us for ConMed's third quarter 2020 earnings call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. Today we will walk you through our third quarter results and share with you our thoughts on the current operating environment while still recognizing the uncertainty that exists across the global markets. We'll then open the call to your questions. Turning to our results, total sales for the third quarter were $237.8 million, representing a year-over-year increase of 1.8% as reported and in constant currency. Globally, our entire team did a fantastic job responding to and working with our customers as they continue to increase their surgical procedure volumes. A closer look shows that within the international business, four of six key markets delivered positive growth, with the export countries remaining challenged, while within the U.S., two of four businesses delivered positive growth. Our global orthopedics business represented 43% of sales in the quarter. Our sports procedure volumes continue to improve. However, capital sales in these markets remain slow, as expected. While there is no way to clearly tell if the entire deferred procedure backlog has cleared, we think the majority of that volume is behind us at this point. Further, we do think new procedures have been slower to return to normal run rates, with many factors contributing to this condition. If 2019 volumes are considered the benchmark for normal, we think we're still a ways from that level across the globe. Global general surgery continued to see solid trends and delivered 9.8% constant currency growth. Both capital and single-use sales exceeded prior year levels. We had two of three businesses that comprise our general surgery offerings surpass their 2019 performance on a worldwide basis. The enthusiasm I noted for the AirSeal and the Buffalo Filter products during our previous two calls continued throughout the third quarter, driven by ongoing clinical education, surgical safety protocols, and improved access to medical facilities, which allows our sales force the opportunity to demonstrate these clinical solutions. As we have discussed in the past, we continue to see growing awareness and installations of these products in the clinical community. Our last three quarters reflect the benefits of this trend, and we are confident this will drive longer-term sustainable business outcomes. I have noted in past calls our focus as a company to address and operate in the COVID-19 environment. Consistent with our comments on the previous calls, Our three priorities remain the safety and well-being of our workforce and their families, the financial security of the company, and finally operating and executing in this new environment. YMs 1 and 2 are always part of our offense. We are confident at this point we have institutionalized them as it relates to operating and executing in the COVID-19 environment. That said, we remain mindful of the market uncertainty and the possibility of further slowdowns around the globe. but our business has demonstrated resilience and is serving our customers as they identify their critical needs. While we feel our efforts have us well positioned under a variety of scenarios in the macro environment, we understand that the nature of this virus will cast uncertainty across the markets on a regional basis as governments and healthcare providers adjust to the changing COVID-19 caseloads. At this time, we don't anticipate another mass procedure deferral, but rather believe that procedure volume inconsistency is likely to persist and slow the overall market productivity. In closing, I remain very proud to be part of the ConMed team and am proud of the results we are discussing with you today. We continue to run a very focused offense and candidly have pivoted remarkably well into an operating mode to support today's environment. Our people made that happen. I'll now turn the call over to Todd, who will provide a more detailed analysis of our financial performance.

Todd? Thank you, Kurt. All sales growth numbers I referenced today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release. For the third quarter of 2020, our total sales grew 1.8 percent. The performance during the quarter was fairly stable. Comparing each month to the same month in the prior year, July grew slightly, August declined slightly, and September grew slightly. For the full quarter, our sales in the U.S. increased 4.7% versus the prior year quarter. Our international sales decreased 1.7% for the full quarter compared to the prior year. Geographies around the globe are experiencing varying levels of impact from COVID-19 and the related government responses. Europe grew in the mid-single digits overall. Asia was down single digits. Canada grew in the low single digits. and Latin America was down significantly. While the uncertainty about the virus and how it impacts the future is global, we see the challenges in Latin America as likely the most persistent. Worldwide orthopedics revenue declined 7.1% in the third quarter. In the U.S., orthopedic sales decreased 8.5%, and internationally, orthopedic sales decreased 6.2%. Capital sales were down double digits in orthopedics in the third quarter, both in the U.S. and globally. Worldwide sales of single-use orthopedic products decreased in the mid-single digits in the third quarter. Total worldwide general surgery revenue grew 9.8% in the quarter. U.S. general surgery revenue grew 11.3%. Internationally, general surgery revenue increased 6.4%. AirSeal and Buffalo Filter growth remains strong as hospitals around the world focus on improving operating room safety. Now let's move to the expense side of the income statement. We will discuss expenses and profitability excluding special items, which include charges related to acquisitions and integrations, restructurings, manufacturing consolidations, amortization of intangible assets, and amortization of deferred financing fees and debt discount net of tax. Adjusted gross margin for the third quarter was 56.8%, an increase of 40 basis points from the prior year quarter. Our product and channel mix is driving improvement here as we expected. In Q4, we expect underlying gross margin improvement offset by the timing of recognition of unfavorable manufacturing variances. We expect these variances in Q4 2020 to to be about $6 million worse than those recognized in Q3 of 2020. So, our Q4 total gross margin may look similar to the prior year quarter, but the underlying improvements are meaningful and should be obvious once we get through this difficult period. Research and development expenses for the third quarter was 4.2 percent of total sales, a 50 basis point decrease from the prior year quarter. While the R&D spend was a little light in Q3, we anticipate higher levels of R&D spend in Q4. Third quarter SG&A expenses on an adjusted basis were 36.3 percent of sales, a decrease of 220 basis points from Q3 2019. Due to these strong expense controls and despite the challenges presented by the pandemic, we improved our adjusted operating margin by 300 basis points over Q3 2019. Interest expense in Q3 2020 was $8.5 million on an adjusted basis. Tax rate has been pretty volatile through this pandemic as we have moved from losses in Q2 to very strong profitability in Q3. For that reason, the GAAP tax rate is elevated in Q3, and the adjusted tax rate is lower as we updated the tax provision for new guidance around the details of handling foreign income. Third quarter gap net income totaled $6.9 million, or 23 cents per diluted share, which was flat to the prior year quarter. Excluding the impact of special items discussed earlier, we reported adjusted net income of $26.0 million compared to $18.2 million in the third quarter of 2019. Our third quarter adjusted diluted net earnings per share was 88 cents, an increase of 42 percent over the prior year period. Turning to the balance sheet, our cash balance at the end of the quarter was $35.6 million compared to $35.0 million as of June 30th, 2020. Accounts receivable days as of September 30th were 63 days compared to 82 days at the end of the second quarter and compared to 67 days at the end of Q3 2019. Inventory days at quarter end were 158 compared to 184 days at the end of the second quarter and compared to 151 days at the end of Q3 2019. Long-term debt at the end of the quarter was $760 million versus $790 million as of June 30th. Our leverage ratio at September 30th, 2020 was 4.9 times, a good decrease from the prior quarter and well within our original covenant. We are performing very favorably to our amended agreement with the banks. Our fixed charge coverage is 3.35 versus our agreement of 1.5, and our liquidity is $388 million at September 30th compared to our minimum agreement of $135 million. Cash flow provided from operations for the quarter was $35.1 million compared to $36.6 million in the third quarter of 2019. Capital expenditures in the third quarter were $3.3 million compared to $4.9 million in the prior year quarter. So, as sales have continued to return, our disciplined expense control has led to improved profitability and strong cash flow generation. We believe that by remaining focused on being the best possible partner to our customers during this ongoing pandemic, we will be rewarded with increased market share over the long term. Lastly, given the continued global uncertainty created by the ongoing pandemic, we do not feel it appropriate to issue guidance at this time. And with that, we'd like to open the call to your questions and I'll hand it back to Crystal.