CONMED Corporation

fiscal 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans and objectives. These statements represent the forward-looking statements that involve risk and uncertainties, as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance, or results. The company's actual results may differ materially from its current expectations. Please refer to the risk and other uncertainties disclosed under the forward-looking information in today's press release, as well as the company's SEC filings for more details on the risk and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will also hear management refer to non-GAAP or adjusted measurements during this discussion. While these figures are not a substitute for 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 this normal ongoing operations. These adjusting items are specified and the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Pat Beyer, President and Chief Executive Officer, for opening remarks. Mr. Beyer.

Thank you, operator. Good afternoon, and thank you for joining us for ConMed's third quarter 2025 earnings call. With me today is Todd Gardner, our Executive Vice President and Chief Financial Officer. I'll begin with the review of our performance in the quarter. Todd will then walk through our financial results and guidance in more detail. We will then open the call to your questions. Before I dive into the quarter, I want to take a moment to recognize the continued dedication of our global team, their commitment to our mission, empowering healthcare providers worldwide to deliver exceptional outcomes for patients. is what drives our performance and enables us to navigate change with confidence. Turning to our third quarter results, total sales were approximately $338 million. This represents 6.7% growth year over year as reported and 6.3% growth in constant currency. Performance was led by general surgery, which grew 6.9% globally on a constant currency basis and orthopedics, which delivered 5.3% constant currency growth globally. From an earnings perspective, adjusted net income for the quarter was $33.4 million, up 2.2% year over year, excluding special items that affected comparability. Adjusted diluted earnings per share came in at $1.08, an increase of 2.9% compared to the prior year quarter. Let me now turn to the platforms that continue to anchor our growth strategy and deliver differentiated, durable performance across the business. I'll begin with BioBrace and Foot & Ankle, two foundational growth drivers within our orthopedics portfolio. BioBrace continues to be a cornerstone of our sports medicine strategy. Quarter three growth was driven by expanding clinical adoption and strong surgeon engagement. BioBrace is now used across 70 plus distinct procedures from rotator cuff and ACL repairs to Achilles and gluteus medius reconstructions, underscoring its versatility and clinical relevance. Turning to our foot and ankle franchise, we see continued opportunity in this clinical area and will remain focused on driving growth and delivering strong economic returns through expanded adoption and portfolio innovation. Shifting to our general surgery portfolio, I want to highlight two platforms that continue to demonstrate strong performance and long-term potential, Buffalo Filter and AirSeal. Starting with Buffalo Filter, we're seeing sustained momentum driven by expanding legislative mandates, heightened awareness of surgical smoke risks, and deeper integration to hospital protocols. Moving to AirSeal, this platform remains a foundational pillar of our general surgery portfolio. The clinical benefits, reduced postoperative pain, shorter length of stay, and improved outcomes are well established and continue to resonate with surgeons. As DB5 adoption expands in the U.S., we continue to see AirSeal attachment rates within our range of expectations. We're also closely monitoring the potential redeployment of XI system trade-ins into international markets and into United States ASCs. While still early, we view this as a promising opportunity to accelerate AeroSeal growth globally, particularly in regions where XI placements are increasing and AeroSeal's clinical advantages are well understood. Stepping back, one of my first priorities as CEO after more than a decade with ComMed was to initiate a comprehensive strategic review of our portfolio and operations. To support this effort, we engaged top-tier consultants to bring a fresh perspective on where we are today, where our greatest opportunities lie, and how we can deliver the strongest long-term returns for shareholders. While the review is still underway, I want to share some early insights. Our evaluation has been detailed and rigorous, assessing each product offering through the lens of long-term return on invested capital. The objective is clear, sharpen our focus, improve our margin profile, and position ConMed for durable long-term growth. For a company of our size, ConMed has a diverse set of product lines. Early findings confirm that our strongest growth opportunities lie in our core markets, minimally invasive robotic and laparoscopic surgery, smoke evacuation, and the surgical treatment of orthopedic soft tissue repair. We are positioned to capitalize on these opportunities through a portfolio of best-in-class clinical solutions, including AirSeal, Buffalo Filter, and Barbrace, which is gaining momentum through its expanding application within foot and ankle procedures. These platforms will be the cornerstone of our future investments in growth and profitability, enabling ConVed to drive superior clinical outcomes for patients while delivering meaningful improvements in healthcare economics. As part of our evolving capital allocation framework, we are transitioning the cash return to shareholders from our legacy dividend policy to prioritize share repurchases. The board has authorized a new $150 million share repurchase program. Historically, we have returned approximately $25 million annually through dividends. Today, we are suspending the dividend, and you should expect at least $25 million of share repurchases annually going forward. This change enhances our financial flexibility and supports disciplined capital deployment aligned with long-term shareholder value creation. In conclusion, we remain confident in our ability to deliver both top-line growth and margin expansion, supported by a focused portfolio, operational discipline, and a commitment to innovation. With that, I'll turn the call over to Todd, who will provide a more detailed analysis of our quarter three financial performance and discuss our 2025 financial guidance. Todd?

Thank you, Pat. All sales growth numbers I referenced today will be given in constant currency. The 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 and our financial guidance. For the third quarter of 2025, total sales increased 6.3% year over year. The quarter included one extra selling day, which we estimate contributed between 100 and 150 basis points to growth. For Q3, our sales in the US increased 5.9% versus the prior year quarter, and our international sales grew 6.8%. Total worldwide orthopedic sales grew 5.3% in the third quarter. In the US, orthopedic sales increased 5.5%, and internationally, orthopedic sales increased 5.2%. Total worldwide general surgery sales increased 6.9% in the quarter. U.S. general surgery sales grew 6.0%, while internationally general surgery sales increased 9.2%. Now let's move to the expense side of the income statement. We will discuss expenses and profitability in the third quarter, excluding special items, which are detailed in our press release. Adjusted gross margin for the third quarter was 56.1%, which was ahead of our projection due to positive salesman. As a reminder, the Q3 results reflect the expenses that went into inventory in Q1 when our manufacturing variances were high. This drove a 40 basis point decline in gross margin compared to Q3 of 2024, including 20 basis points of headwind from new tariffs. Research and development expense for the third quarter was 4.1% of sales, 20 basis points lower than the prior year quarter. Third quarter adjusted SG&A expenses were 37.3% of sales, 10 basis points higher than the prior year. On an adjusted basis, interest expense was $6.3 million in the third quarter. The adjusted effective tax rate in Q3 was 25.5%. Third quarter GAAP net income was $2.9 million compared to $49.0 million in 2024. GAAP earnings per diluted share were $0.09 this quarter compared to $1.57 a year ago. Excluding the impact of special items discussed earlier, in the third quarter, we reported adjusted net income of $33.4 million, an increase of 2.1% compared to the third quarter of 2024. Our Q3 adjusted diluting net earnings per share were $1.08, an increase of 2.9% compared to the prior year quarter. Turning to the balance sheet, our cash balance at September 30th was $38.9 million, compared to $33.9 million at June 30th. Accounts receivable days as of September 30th were 60 days down from 62 days at the end of Q2. Inventory days at September 30th were 191 down from 212 days at the end of June. Long-term debt at the end of the quarter was $853.0 million versus $881.1 million as of June 30th. Our leverage ratio stood at 3.0 times as of September 30th, reaching that milestone slightly ahead of expectations for the year, which, as Pat explained, provides us additional flexibility to return cash to shareholders through share repurchases. Cash flow provided from operations in the quarter was $53.7 million compared to $51.2 million in the third quarter of 2024. Capital expenditures in the third quarter were $5.2 million compared to $3.4 million a year ago. Now let's turn to financial guidance. Let's start with revenue. We're guiding Q4 revenue to be between $363 and $370 million, which represents mid-single-digit constant currency growth for the total company with about 100 basis points of tailwind from currency. That would put the full year 2025 reported revenue guidance at a range of 1.365 billion to 1.372 billion, which is a narrowing from the prior range. FX is still projected to be essentially neutral for the full year 2025. We continue to project adjusted gross margin in Q4 to be in the mid-55% range, inclusive of about 150 basis points of headwind from the new tariffs in 2025. Turning to adjusted EPS. we expect Q4 to be between $1.30 and $1.35, which would put the full year guidance at a range of $4.48 to $4.53, compared to the prior guidance range of $4.40 to $4.55. So far, 2025 has been a year of solid execution amid meaningful strategic transformation work. As Pat mentioned, our portfolio review is ongoing and we're already seeing early benefits from a more focused approach. We believe the work done in 2025 positions ConMed to be a stronger, more profitable company over the long term. With that, we'd like to open the call to your questions.