CONMED Corporation

Afternoon, everyone. Before the conference 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 risk and uncertainties as these terms are defined under the federal security laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance, or results. and the company's actual results may differ materially from its current expectations. Please refer to the 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 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 the call, except as many 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 substitutes for the 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 the benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits and charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings release posted to the company's website. With these required announcements completed, I will now turn the call over to Kurt Hartman, ConMed's Chair of the Board, President and Chief Executive Officer, for opening remarks. Mr. Hartman.

Thank you, Angela. Good afternoon and thank you for joining us for ConMed's fourth quarter and full year 2020 earnings call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. Today I will provide a brief overview of the financial and operating highlights for the fourth quarter and full year, Todd will then provide a more detailed analysis of our financial performance and discuss our initial 2021 financial guidance. After that, we'll open the call to your questions. Turning to our results, total sales for the fourth quarter were $252.8 million, representing a year-over-year decrease of 4.5% as reported and a decrease of 5.2% in constant currency. For the full year, sales reached $862.5 million, representing a year-over-year decrease of 9.7% as reported and 9.3% in constant currency. From an earnings perspective, during the fourth quarter, our gap net income totaled $24.1 million. This compares to net income of $14.9 million in the fourth quarter of 2019. Excluding special items that affected comparability, our adjusted net income of $25 million decreased 6.6% year-over-year, and our adjusted diluted net earnings per share of $0.84 decreased 6.7% year over year. For the full year, our GAAP net income totaled $9.5 million, compared to net income of $28.6 million in 2019. Excluding special items that affected comparability, our adjusted net income of $64.2 million decreased 17.6% year over year, And our adjusted diluted net earnings per share of $2.18 decreased 17.4% year over year. We entered 2020 with a great deal of enthusiasm given our expanding market opportunities and product portfolio. As you all know, the COVID-19 pandemic presented unique operating challenges for every company. Many markets around the world have operated intermittently or shut down for varying periods of time. This dynamic continued in the fourth quarter. Throughout the year, including the fourth quarter, we have been acutely aware of the difficulties that many of our customers have faced, both financially and operationally, and have strived to be good partners to them, taking a lighter touch, particularly as it relates to capital sales. We're taking a longer-term view of these relationships and believe our customers will do the same. We are confident that we are taking the right steps to put the company in the best possible position over the long term. Overall, I'm proud of our team's efforts as we demonstrated agility and resilience in the face of the pandemic, supported our customers through the continued introduction of innovative products across many of our businesses, and delivered a successful full-year performance with our Buffalo filter offering. Overall, I'm very pleased with our team's responsiveness and flexibility. and firmly believe that in spite of the pandemic, we remain well-positioned to achieve long-term, profitable, above-market growth. In 2020, we define success by staying focused on our people, ensuring the financial health of the company, while remaining committed to our long-term strategies that we believe will drive above-market growth in both revenue and earnings. With that, I'll turn the call over to Todd. Todd?

Thanks, Kurt. All sales growth numbers I referenced today will be given in constant currency. The reconciliation to gap numbers is included in our press release. Normally on this call, we would discuss the numbers for both Q4 and the full year. Today we will discuss Q4 only and refer you to the press release for the full year comparables. We don't believe spending time on that view is terribly relevant or helpful at this specific time. For the fourth quarter of 2020, our total sales declined 5.2%. While COVID had a meaningful impact on the full quarter, the first two months of the quarter were very close to the prior year revenue performance, but December revenue was well short of the prior year. For the fourth quarter, our sales in the U.S. decreased 0.7 percent versus the prior year quarter. Our single-use products grew 4.0 percent in the U.S., but capital sales were down double digits. Our international sales decreased 10.5 percent for the quarter compared to the prior year. The most impacted geographies during the quarter were Japan and Latin America. The sharp reduction in Japan was largely due to distributors decreasing their inventories. We believe this is good news for future sales due to less inventory in the distribution channel. The rest of Asia and Europe declined in the single digits in the quarter, while Canada and Australia both grew. Worldwide orthopedics revenue declined 9.6 percent in the fourth quarter. In the U.S., orthopedic sales decreased 12.3 percent, and internationally, orthopedic sales decreased 7.9 percent. Capital sales were down double digits globally in orthopedics in the fourth quarter. As Kurt said, we've taken a light touch with our customers when it comes to the timing of capital purchases in 2020, and believe this will strengthen our customer relationships over the long term. Total worldwide general surgery revenue decreased 1.3% in the quarter. U.S. general surgery revenue grew 5.3%. Internationally, general surgery revenue decreased 14.7%. Despite the capital and procedural softness in Q4, AirSeal and Buffalo Filter combined to grow about 20%. We believe these two product lines will continue to benefit from the increased 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, and amortization of intangible assets, and amortization of deferred financing fees and debt discount net of tax. Adjusted gross margin for the fourth quarter was 53.8%, a decrease of 30 basis points from the prior year quarter. As we expected, our product and channel mix continues to drive improvement in our gross margin. However, as we mentioned on our last earnings call, the recognition of unfavorable manufacturing variances is masking that improvement in Q4. Research and development expense for the fourth quarter was 4.6 percent of total sales, the same ratio from the prior year quarter. Fourth quarter SG&A expenses on an adjusted basis were 35.8 percent of sales, an increase of 50 basis points from Q4 2019 due to lower revenue. Interest expense in Q4 2020 was $7.6 million on an adjusted basis. The adjusted effective tax rate was only 9.7% in Q4, as we benefited from the excess tax benefit from stock plans and the resolution of audits. Fourth quarter gap net income totaled $24.1 million, or 81 cents per diluted share, which was an increase of 65% over the prior year quarter. Excluding the impact of special items discussed earlier, We reported adjusted net income of $25.0 million compared to $26.8 million in the fourth quarter of 2019. Our fourth quarter adjusted diluted net earnings per share was 84 cents compared to 90 cents in the prior year period. Turning to the balance sheet, our cash balance at the end of the quarter was $27.4 million compared to $35.6 million as of September 30th, 2020. Accounts receivable days as of December 31st were 63 days compared to 64 days at the end of 2019. Inventory days at quarter end were 150, which was eight days better than they were at the end of Q3. However, we did not see the typical December drop this year due to softer sales as a result of the pandemic. Long-term debt at the end of the quarter was $735 million versus $760 million in as of September 30th. Our leverage ratio on December 31, 2020, was 4.9 times. We are performing very favorably to our agreement with the banks. Our fixed charge coverage is 3.26 versus our agreement of 1.75, and our liquidity was $403 million on December 31st compared to our minimum agreement of $135 million. Cash flow provided from operations for the quarter was $20.1 million, and capital expenditures in the fourth quarter were $3.1 million. Adjusted EBITDA was $47.9 million in Q4 2020, compared to $53.1 million in Q4 2019. We are very pleased with the way our teams have navigated this challenging year. As we look to the future, we are encouraged by the strength of our business and our positioning with our customers. While we're anxious to put the pandemic of 2020 behind us, the pandemic is still with us here as we enter 2021. There's still a great deal of uncertainty about when volumes return to a pre-pandemic trajectory, as well as the timing of when our customers will be free to return to pre-pandemic levels of operation. However, we have now lived with the virus for over 10 months, and we have a better understanding than we did at the beginning of the impact on our business. The key questions we can't answer right now are related to how the new, more contagious variant will affect healthcare globally and how quickly the available vaccines can lower the burden on hospitals. Despite these lingering questions, we have decided to provide financial guidance for 2021 within a framework of our current assumptions. We view 2021 as a transition year where we transition from the impacts of the pandemic in the first part of the year toward a post-pandemic environment by the end of the year. We anticipate that Q1 will continue to be significantly impacted by the virus, and we believe this impact will linger into Q2. Our assumption is that the global disbursement of vaccines will take months, but be effective at reducing the burden on healthcare from the known variants of the virus. We expect procedural growth in the United States to improve before international markets do. As the year progresses, we anticipate that volumes will improve sequentially, and we expect general surgery to see improved volumes before sports medicine does. Given that many sport activities are still suspended and that it typically takes months for an athlete to go from injury all the way to surgery, we do not anticipate sports medicine procedural growth to return to pre-pandemic levels until a couple of quarters after team sports resume globally. Those assumptions lead us to revenue guidance for the full year 2021 of between $975 million and $1.02 billion. We expect currency to be immaterial to 2021. We expect Q1 revenue between $210 million and $225 million. As far as phasing between first half and second half, we expect 46 to 48 percent of our full year revenue to be recognized in the first half of the year and 52% to 54% of revenue to be recognized in the second half of the year. For adjusted EPS, we expect the full year 2021 to be between $2.85 and $3.05. We expect Q1 adjusted EPS to be between 42 cents and 45 cents. We expect the phasing of adjusted EPS to be about 35 percent of the total year in the first half and about 65 percent in the second half of the year. This is a lighter mix in the first half than we're used to, as the lower production levels and higher freight costs that we experienced in the second half of 2020 are likely to continue through at least Q1 2021. And as we've addressed before, These unfavorable manufacturing variances are recognized in the external P&L a full four months after they are incurred. Accordingly, Q1 gross margins will be significantly impacted by the Q4 performance, and Q2 will likely be impacted by the continued lower volumes in Q1. I can tell you that because of this, we expect gross margins in Q1 2021 to to be about 250 basis points lower than the Q1 2020 gross margins. After that, in the second quarter and the second half of the year, we expect margins to show improvement over 2020 levels. It is also clear that the tax rate will be a headwind in 2021. Our adjusted effective tax rate for the full year of 2020 was 12.9 percent for a myriad of reasons that we do not expect to recur in 2021. We are assuming that our tax rate in 2021 will be between 24 percent and 25 percent, assuming no change in the U.S. tax code or any other major geography for that matter. Normally, we give you detail on each line of the income statement for the full year. Because of the level of uncertainty in the current environment, we are not going to do that today. The moving pieces may be different than we currently expect. and we need to remain agile and responsive in delivering the best results for our shareholders over the long term. The good news is that our strategy to shift the mix of the portfolio to higher growth and higher margins is working. We are increasingly competitive in the marketplace, and our customer engagement continues to improve. Our innovation is delivering more profitable products that are more clinically effective. AirSeal and Buffalo Filter are leading the way and are the most obviously impactful right now. However, we believe other product lines will contribute in a significant way in the future as well. And it remains true that our infrastructure can support much higher revenue in our large and attractive markets. As we transition out of the pandemic, we believe customers will continue to reward both our innovation and our actions as valued partners with increased trust and market share. And as volumes return, we believe the work we've been doing on the margin profile will become clearer and more obvious. With that, I'd like to turn you over to Angela for questions.

Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by one on your touchtone phone. We ask that you please limit to just one question and one follow-up question. And your first question is from the line of Richard Newbitter with SBB LiveRank. Please go ahead.

Hi. This is Erin on for Rich. Thanks so much for taking your questions. Just a quick one. Thanks so much for the color that you provided in the guidance. I was just wondering if you could maybe talk about some of the dynamics between ortho and Gensurg that you've seen maybe throughout the fourth quarter. and then into early 1Q, obviously understanding that you did give some color on, you know, the overall procedures, but just maybe a little bit of information on how those were broken out between those segments.

Aaron, help me just a little here when you say differences between ortho and Gensurg. Are you talking about the procedure trends or what specific are you asking?

Yeah, sorry. Just the procedure trends that you saw, you know, in the respective segments throughout 4Q and then maybe, you know, in early 1Q. Okay.

Okay. I think the way I would frame it would be around 4Q. I think October, November seemed to continue what we saw in the third quarter. We did start to see more deceleration, broadly speaking, in procedures as we got into the month of December. And I think that that was applicable both to the general surgery as well as the orthopedics business. Obviously, as Todd commented, we continue to see good volume, good attention on the Buffalo Filter and AirSeal platforms. But again, AirSeal is a more established platform, so as procedures are down, that consumable business also decreases significantly. On orthopedics, it's a more heavily weighted business on capital. In a normal year, about 30% capital, and obviously capital has not been anywhere near the levels of past years, and that continued again in the fourth quarter. So again, more impact in ortho because of the bigger percentage being capital, and capital just overall being tight. I don't think that changed from Q2, Q3, and Q4, but it just stayed very suppressed overall. And I think, again, a little bit of That intermittent comment that I noted against geographies outside the U.S., as we got deeper into the fourth quarter, you saw more of Europe really tightening up. You saw various markets across Asia tightening up or reserving capacity, if you will, not opening things all the way up. Again, both general surgery side and orthopedic side. I think that would kind of summarize my comments. Probably not going to comment on what we're seeing at this point in Q1.

Okay, great. Thanks so much. And then just quickly on Buffalo Filter, obviously, you know, it's been very strong. Have you guys seen or heard of any, you know, more states passing legislation on the, you know, around the aerosolization? Thanks so much.

No, great question. There is a lot of legislation in the works, but I think with COVID-19, priorities have shifted. So a lot of that legislative movement has stalled, if you will. But as we've said many times, we think the legislation, and we said this candidly during the announcement of the acquisition, that legislation would be additive, that the broad-based healthcare worker insistence on a safe operating room environment is really what's driving the growth in this market. And that has not let up one bit. And in fact, with 2020 and the events of the pandemic and the safe OR legislation, or not legislation, excuse me, the safe OR comments that the various societies have put out, it's further accelerated the movement towards the safe operating room environment of which Buffalo Filter and ARCO are both a key component of.

Okay, great. Thanks so much for taking the questions. Really appreciate it.

And your next question is from the line of Robbie Marcus with JP Morgan. Please go ahead.

Hi, this is actually Lily on for Robbie. Thanks for taking the question, and thanks for all the helpful cards you gave. So in the past, you've talked about how AirSeal and Buffalo Filter comprise about 25% of revenues, which is a bit higher than what we were thinking, and how they should continue to grow over 20%. So, you know, on the other side of COVID, do you think that that could make ConMed an eight to 10% grower rather than a mid single digit grower?

Thanks, Lily. It's a great question. I think, you know, if you just do the math, right, 25% growing 20%, you get a 5% growth on the total if everything else were flat, right? And I think to the premise of your question, we certainly don't expect everything else to be flat post-pandemic. We expect all of our markets to grow better than, all of our segments to grow better than the markets. And so I think it is logical that we should do better than the 5%. You know, what that number is, we'll have to talk about when we're finally in a post-pandemic place to guide. But I think there is good logic and that ConMed's got a strong growth engine in those two products together, and we're working on making sure the other part of the portfolio also contributes to stronger growth. So that's the game plan, and we're happy with how that's worked through the pandemic, and we think when the pandemic is done, that strength will be more obvious.

And your next question is from the line of Matthew O'Brien with Piper Sandler. Please go ahead.

Afternoon. Thanks for taking the questions. Maybe Kurt or Todd, either one. Just the commentary about lighter touch on the capital side of things, how long do you think that's going to persist for you guys? Do you think it's going to be the first half of this year? We're going to continue that lighter touch? And then what benefits, you know, tangible benefits do you see other than, hey, goodwill with the customer's? Are you expecting, you know, back half of this year and even into 22?

So it's a great question, and I think we refer to it as a lighter touch, but it's being more receptive to what the customer environment is at the moment. I would contrast that just candidly with two of the products we introduced in the fourth quarter were both capital items, a new large bone power tool platform and a new video system. We're excited about both of those, and we're in the stages of rolling those out right now on a global geographic region-by-region basis. So our sales force is excited to start the new year. You put a couple new products in their hands, and I think they're going to probably work just a little bit harder and candidly maybe not have quite as light a touch. But again, that's going against a capital market that still is not the priority for the majority of our customers. And I think more than anything, that's what we hear from our customers. And so we're referring to that a lighter touch. We're hearing them say it's just not our priority right now, so we're as patiently as we can waiting for them and hoping that our goodwill in that sense buys us that opportunity. But to the guidance comment, if the back half of the year starts to normalize more, I think certainly being in a position with new capital products in our portfolio, it should bode well for us in the back half.

On the financial side, Kurt, you're expecting some benefit on the back half of this to the result.

I'm saying if the markets return to normal in the back half of the year and we've got a sales force with two new capital products, it should show up in our numbers and obviously would benefit us financially.

Got it. Okay. Thank you. And then the follow-up question for Todd is just on the EBIT expansion side of things. You know, can you just be a little bit more granular with exactly what we're expecting here in 21 back half? And then there's just some things that are kind of masking some of these benefits. Can you just talk about, you know, the level of headwinds that you're seeing, you know, on the EBIT side of things and when some of those may ease? And then you know, the high end as far as EBIT goes. Are you thinking 50 to 100 basis points of expansion that we should expect maybe even if it's masked a little bit? Just a little more color on that metric specifically would be helpful. Thanks.

It's a great question, Matt, and I'm not at all surprised that you'd like a little more granular detail in the guidance. And I'd love to be in a position to give you more granular detail on the guidance, but we're not going to do that today. But I will do my best to address your question Yeah, so the biggest headwind is the gross margin hangover from these lower volumes and higher freight, right? And that's really hit us in the back half of 2020. And the way it gets recognized, that hits you essentially for another quarter after the problem is solved. And the problem is not solved yet sitting here today, right? So we expect more headwinds like that to occur in the first part of the year here. And so you really need to get a quarter past when volumes are depressed before you can start to see more normalized margins. And so, you know, the way that probably plays out is the back half looks a whole lot better than the first half. And then the reason we're not being more granular is, you know, we've been kind of agile and responsive and resilient through the pandemic We're going to continue those operating principles and make sure that we're putting the resources in the right places at the right times and not spending resources before we need to. So I think we've done a great job of protecting profitability through this unprecedented challenge, and we're going to continue to do that. You can see in our guidance that the profitability guide is, I think if you do the math and if you use the mid-range of what we've given, you'll see that we're growing at least twice as fast on the bottom as we are on the top. And that's consistent with ConMed operating principles. And, you know, when we've talked about margin improvement longer term, even pre-pandemic, right, we talked about 50 to 100 basis points kind of annually in margin improvement, right? And then we've told you through the pandemic that We've kind of had to get smarter and leaner and more sophisticated in certain areas. And so it's probably more realistic that the engine is operating closer to the top end of that or better than to the bottom end of that range. And I think once the clouds clear and the muddiness kind of is behind us, I think that will be apparent to investors. And you can kind of see that actually happening through 2020, right? We've been able to deliver good profitability with very challenging revenue numbers. And we believe that as hopefully the pandemic progressively gets better through the year, that that margin profile will become increasingly clearer. And I think that's about as much as I can help you with today. Very granular. Thank you so much.

Your next question is from the line of Rick Wise with Stifel. Please go ahead.

Good evening, gentlemen. First, I just want to follow up on Matt's excellent question, as always, and sort of take another step. You said a couple of things, both of you, about sort of post-recovery environments I mean, improved mix, better margin products, more compelling portfolio of products, lower costs potentially, and infrastructure. I think, Todd, you said that plenty of room to sort of grow into. I forget your exact – oh, I think you said infrastructure can support a higher level of sales. Thoughts like that maybe just help us think through whether – let's just assume 2022 is a year – pretty decent recovery. Who knows? Let's assume it. Is that con med coming out of this environment? And I'm not talking about strange optics of year-over-year comps, but are you back to growing top line, upper single digits, margins steadily progressing towards 60%? I mean, how do we think about the longer-term outlook here? How are you thinking about it?

Sure, Rick. Yeah, I'll play the theoretical game with you. Obviously, we're not guiding to 2022 today, right? But I love the idea of being in a post-pandemic world, and the hope is and the assumption is that by then we will be. And, yeah, I think your premise is correct. I think that when that cloud has passed – you will see a ConMed with healthier margins than we had going into the pandemic, both in gross and operating. And I think we're progressing towards the 60 number on gross. And, you know, we're moving towards the 20 number on operating. And I'm not prepared yet to say, you know, what those 2022 numbers will be. But what I can tell you is we're doing all the right things, right? The mix is improving, as you said. You know, we're getting smarter and more sophisticated in our procurement specifically. And as the volumes can return, we think there's lots of room for ConMed to grow faster on the bottom than we do on the top. And we expect to grow faster on the top than our markets do. And so, you know, that's the playbook. The pandemic has delayed some of that and certainly muddied some of that, but in some ways it's made us, it's, it's shored that up even right. And, and improves, um, the chances that, that those things actually come true, uh, in the future once the pandemic is behind us. And so we're optimistic, uh, but we're focused on executing in the current environment and make sure we do that wisely and, and make sure we focus on the longterm, uh, strength of the business.

Makes sense.

That's great. Um,

Maybe as long as I got you talking, Todd, maybe share your balance sheet priorities for 2021 in terms of you're thinking about cash generation, debt paydown, where you hope to be at the end of the year under the scenarios you've laid out.

Sure. Thanks, Rick. Yeah, so we, as you know, as I think everybody knows, when the pandemic started, we went and did an amendment with our banks to make sure that we had the flexibility necessary to make the right decisions, the right strategic decisions through the pandemic, no matter how ugly it could be. It turns out, even though the pandemic has lasted a while, our customers have been more resilient. We've been more resilient. It turns out, in hindsight, we probably didn't need to do that amendment at all. At the peak of of the trough, which was the end of Q2, our leverage was at 5.4 turns. We're ending the year at 4.9. And we said at a recent healthcare conference that, you know, based on our 2021 projections, we should be under three and a half turns by the end of 2021, you know, absent any significant M&A, which is not anticipated in the guidance. And so, You know, we feel like that's a pretty good trajectory. It's not all the way down to three turns, which is what we talked about when we bought Buffalo Filter. We said we'd be down to three turns by the end of 2021. But, you know, even given the pandemic, we're going to be kind of close to that, we think, on that same calendar. So the priorities are definitely, you know, profitability of the company, make sure that cash is tied to income. And there's not a big gap there. We've done a really good job with that. And we plan to continue to do a good job with that. And we'll continue to look for assets that add to the growth profile and margin profile of the company. And obviously, we haven't had anything to announce since Buffalo Filter to date. But we continue to be active on that front. And if we find something that we think makes the company stronger, we'll look for ways to act on that. So Those are the kind of priorities, continued strong blocking and tackling, good management of the business, and focused on the long-term profitability of the company.

Great. And just two last quick ones, if I could. If 75% of the business is sort of non-smoke at this point, what percentage is capital of all that? I sort of remember some number like 30%, and I'll sneak in one last one. On the gross margin, just normalizing for some of these freight variance headwinds that you were talking about, how would we think about gross margins in the fourth quarter, first quarter kind of range, if you wouldn't mind? Thank you so much.

Okay. I'll try. So first on capital, in general, what we talk about is on the general surgery side of the business, It's about 10% capital and 90% single use. And I would say Buffalo Filter and AirSeal are in that range, right? They might be just slightly more capital, but they're essentially in that similar range as general surgery. And then the orthopedic business is essentially 30% capital and 70% single use. And so... you know, you'd have to do the math on the mix there to, in general, overall CONMET's about 20% capital, but if you take away, you know, I think your question was if you took away AirSeal and Buffalo, what is the rest? And the answer would be it'd be a little higher than the 20 because they're lower than the 20, and so the mix would be a little higher than the 20%, but somewhere in that 20 to 30% would be the answer to that question mathematically. On the gross margin and kind of breaking down Q4 a little better, I am happy to do that. We've talked about the impact of these unfavorable variances and the increased freight, which the whole world is dealing with. If you just take the headwind that happened to Q4 because of those line items, which is all the manufacturing costs plus freight, you get 190 basis point headwind between Q4 2019 and Q4 2020. So that's kind of the magnitude of that headwind that we're experiencing currently. And I'd say it's a similar kind of range that we're talking about. Well, we said 250 basis points in total for Q1.

Gotcha. Appreciate that. Thanks again. You bet.

And your next question is from the line of Mike Mattson with Needham. Please go ahead.

Yeah. Hi, Kurt and Todd. This is David Saxon on for Mike. Thanks for taking the questions. I guess first, just, you know, on the end markets, you know, as these end markets that you participated in rebound later this year and into next year, How are you thinking about your market share? You know, you've talked about growing above market, but just wondering, you know, what opportunities do you see to gain share as trends improve?

Well, it's certainly the longer-term goal in a more normalized market, given our position, given our focus on innovation, is to grow faster than the markets we serve. That has been a goal since day one. The first couple years were about turning around the business, getting the innovation engine moving. We've supplemented that with M&A, and obviously I think everybody in the marketplace took a little bit of a detour here in 2020. But as things get back to normal, whenever that may be, our philosophy, our strategies aren't changing. We want to continue to go aggressively, innovate, serve our customers, earn their trust, and take market share. And given our overall market share positions, we have a lot of opportunity in front of us. Obviously, you go product by product. We're in different market share positions for different products. In the case of AirSeal, we're only in class products. We kind of define that market. And so you go through the list. I would say the broad percentage of our portfolio, we have a lot of market share to go after, and that remains the goal. And I think as we step into 2021, Our sales organizations understand that. We've all learned a lot through 2020. As Todd said, we know better how to operate in this environment. We have a great understanding of what customers are dealing with, and we're ready to get back after it.

Great. Thanks. And then my second question is just on international. You talked about distributors in Japan, Japan, lowering their inventories. Just wondering, I guess, if first you can quantify that and do you expect that to continue into the first quarter? Thanks so much.

Thank you, David. The answer is no, we don't expect it to continue into the first quarter. We think that was, we think they got down to good levels through 2020. We worked with them to kind of allow that, right? The logic being You don't want the distribution channels to be full because that would mask the level of recovery when it comes back. And the answer on the magnitude, we're not going to get too precise. First of all, it would be impossible to get entirely precise. But I can tell you that we're talking about a few million dollars of adjustment. So it's a meaningful impact on the growth rate in the quarter. but it sets us up better for the future. Great, thank you.

And your final question is from the one of Matthew Masson with KeyBank. Please go ahead.

Great, and thank you for taking the questions. Todd, last quarter I asked a question around quoting activity and evaluation times. You know, is some of what changed 4Q versus 3Q in general surgery. Maybe you received some really rushed orders placed in 2Q and 3Q when the guidelines, you know, had changed. And you placed those orders. And then things may have normalized in quoting and evaluations, as you said last quarter. And the backlog is really building, which is giving you confidence in the 20% plus growth in those areas. Discuss the recent comments.

Matt, I'm not sure. I don't think there's been a change in enthusiasm for Buffalo Filter and AirSeal. You know, we said that those were going to grow north at 20%. We told you even in Q4, despite the lower procedures, they did grow about 20%. I wouldn't say there's been a change there. Where we grew slower, where we declined in Q4 and we grew slightly in Q1 was really about the procedural side of the business on the full portfolio. And then, of course, capital was down significantly, right? And so I would not tie the difference If I understood your question correctly, I would not tie the delta between Q3 revenue and Q4 revenue to any sort of quoting time or change in enthusiasm around those two growth drivers. I would tie it directly to the virus and the situation that hospitals – they thought they were in a tough situation in Q3. We all thought that the hospitals were challenged in Q3 – I think in Q4 they would have loved to have gone back to the Q3 environment. And so I think that's really what is the difference between Q3 and Q4, if I understood your question correctly.

That was exactly what I was asking and getting at. And I think investors really appreciated that you were able to break out Buffalo Filter and air sale as 20% plus growers at that conference. I know you don't like to call that kind of stuff out on a quarter in, quarter out basis. Are you planning to do that moving forward, or was that something you were going to highlight directionally? I'm just curious how you can update those numbers moving forward.

No, I mean, our principles on disclosure and guidance remain the same, that we don't want to get into specific product lines. With all the mud and clouds or whatever term we want to use for the pandemic, how it's masking what's happening underneath, we thought that would be helpful for investors to understand that about a quarter of the business is from these two really strong growth drivers, our two most recent meaningful acquisitions that have been incredibly successful and have really changed the profile both from a mix and margin perspective and growth perspective of the company. And those have been incredibly successful even through the pandemic. We expect them to be successful as we're post-pandemic. And as the rest of the portfolio returns to kind of normal, what we would claim, you know, above market growth rates, we think it's an exciting place to be. We think the portfolio – looks really strong for the future if we can just get out of this pandemic situation.

Okay. And then last question, just on AirSail as a platform that you're building out, I think you introduced a product for pediatric surgery. I know you've already done the thoracic indication. How are you thinking about AirSail as more of a platform technology moving forward?

No, you said it correctly, Matt. It is a platform technology, and the expansion into those other indications gives us a unique position. And then further, there's our own internal continuation of R&D across that platform, which is obviously a high priority for very obvious reasons. The market is very large, whether it's the robotic market, market or the broad laparoscopic market. And we said on some previous calls that because of COVID, there's been more awareness to air seal in the broad laparoscopic markets. That's more of a U.S.-specific comment. That was already happening outside the U.S. because they don't have as many robots outside the U.S. But again, it's a key long-term platform for ConMed and our general surgery business. And our efforts are focused on continuing to drive that in the marketplace through awareness, but also continuing to drive it in the marketplace through continued innovation and focus from an R&D standpoint. And that will not change for the foreseeable future. It's a great platform, very differentiated, very beneficial to customers and the patients they serve. And that's what we're here to do, be a help to the customers and the patients they serve. Thank you very much.

And I'd now like to turn the call back over to Mr. Hartman for any closing remarks. Mr. Hartman?

All right. Thank you, Angela. And I just want to end by thanking everybody for your time today and appreciate you hearing more about the ConMed story. We look forward to speaking with you during our next earnings call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect your lines.