CONMED Corporation

Please stand by. Hello and welcome to ConMed's second quarter of 2026 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. 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 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 non-GAAP or adjusted measurements during this discussion. 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. 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 operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. I would now like to turn the call over to Mr. Pat Beyer, Con Med's President and Chief Executive Officer. Please go ahead, sir.

Thank you, Operator, and welcome everyone to our second quarter of 2026 earnings call. I'm joined on the line by John Gallagher, a recently appointed Chief Financial Officer. Let me provide you with a quick agenda for today's call. I'll begin with a high-level overview of our quarterly financial results, followed by a discussion of the sales performance in our two product lines, and an update on the key product growth drivers within each. I'll then highlight a few areas of operational progress in recent months, Then I'll turn the call over to John, who will walk through our quarterly financial results in greater detail. I'll conclude by reviewing our financial guidance for 2026, which we updated in today's press release before opening the call for questions. With that, let's get started with the review of our quarter two financial performance. For avoidance of doubt, all sales growth figures discussed are provided on a year-over-year Thank you for joining us. On an organic basis, our net sales increased 6% year over year, modestly exceeding the high end of our range of expectations we shared on our last earnings call. As a reminder, our organic growth excludes the sales of gastroenterology, or GI, products in our general surgery product line, related to the strategic exits we announced previously as part of our portfolio optimization strategy. From a profitability perspective, we delivered adjusted diluted earnings per share of $1.38, an increase of 20% year-over-year. These results were significantly better than the high end of our expectations, driven by a 21-cent benefit from tariff refunds that was not contemplated in our second quarter guidance range. Importantly, excluding this benefit, we delivered second quarter earnings per share that exceeded the high end of our guidance range by approximately three cents. All in all, we were pleased to deliver strong financial performance in the second quarter. With our consolidated results as a backdrop, I'll now discuss the sales performance in our general and orthopedic surgery product lines and provide an update on our key product growth drivers in each. Starting with general surgery. General surgery sales increased 5.3% on an organic basis. By geography, general surgery organic sales increased mid single digits in the US and increased high single digits internationally. From a product line standpoint, our general surgery sales growth was fueled primarily by contributions from AirSeal and Buffalo Filter. I'll now provide an update on these two key growth product offerings for ConNed, starting with AirSeal, our advanced insufflation platform. In the robotic surgery market, the team remains focused on driving adoption and utilization of AirSeal by leveraging the differentiated nature of our technology and its key role in supporting complex surgical procedure. Most notably, Airseal's ability to deliver stable, low pressure insufflation represents a key benefit for surgeons conducting high acuity cases. Moreover, Airseal has been clinically shown to reduce procedure times and improve visibilities while achieving impressive reductions in both patient post-operative pain and Length of Stay. These clinical and economic advantages continue to resonate with robotic surgeons and position Aeroseal for continued growth as robotic surgery expands across subspecialties and into ambulatory surgery centers. With respect to ambulatory surgery centers, we saw early success in this area in the second quarter as we continue to focus on developing our value proposition. To that end, our team is focused on generating data specific to ASC economics that we believe will support our continued growth in this site of care. Our team also continues to focus on expanding adoption of aerosol in the U.S. laparoscopic market, a significant market opportunity for ConMed going forward. Specifically, we estimate aerosol is used in only six to seven percent of the more than three million laparoscopic procedures performed in the U.S. each year. Our portfolio of published clinical evidence continues to expand as well. In May, Nikhil Vasdev, professor and chair of robotic surgery at the University of Hertfordshire, published the results of a randomized controlled trial comparing Airseal to a competitive system. The trial found that patients treated with Airseal saw less interoperative pain, less blood loss and shorter procedure times compared to those treated with a competitive system, continuing to strengthen our portfolio of clinical support. AirSeal was a top contributor to our general surgery growth in the second quarter. Our AirSeal growth in quarter two was driven by year-over-year growth in sales of both capital and single-use products, AirSeal sales trends also improved sequentially as expected. With that being said, the level of AirSeal growth in the quarter was lower than we had expected. Looking ahead, we continue to expect improving AirSeal growth trends in the second half of 2026, albeit at a lower rate than our prior guidance assumed. Importantly, we remain confident in AirSeal's ability to deliver High single digit to low double digit growth long term, given its compelling clinical and economic benefits across both robotic and laparoscopic procedures, the established advantages of low single digit pressure and complex surgery, and the multiple opportunities we have to drive further expansion and utilization, including in the U.S. laparoscopic market, ambulatory surgery centers, and international markets to name a few. Our confidence in the long-term outlook for AirSeal is further supported by a new clinical indication for our AirSeal robotic solution, which we announced publicly ahead of our participation in the Society of Robotic Surgery annual meeting. Our AirSeal robotic solution is now indicated for use with Intuitive's eight millimeter hex cannulas in addition to its existing indication for their 8mm round cannulas. The 8mm hex cannulas were introduced with DV5 and are currently compatible across X, Xi, and DV5. This now means that air seal robotic solution can be used across Intuitive's multiport portfolio. Securing this expanded indication represents an important milestone. It enables us to provide increased clarity in the market regarding the use of our product with Intuitive's complementary robotic technologies, specifically market air seal for use with Intuitive's hex camulas, and support current and prospective customers with clear product communication and compatibility data. In collaboration with the team at Intuitive, Our team conducted extensive engineering and technical compatibility testing throughout the first half of 2026 to support this expanded indication. Importantly, both companies are issuing letters to their respective customers to inform them of this indication and its implications. I'm proud of this collaborative achievement as we work to support surgeons through the continued evolution of Robotic Assisted Surgery. Moving to an update on Buffalo Filter, our smoke evacuation platform and the other key driver in our general surgery growth. Sales of our direct smoke evacuation portfolio delivered year-over-year growth in the second quarter, exceeding the high single-digit to low double-digit range we continue to expect longer term. This performance more than offset modest declines in our OEM smoke evacuation portfolio. As a reminder, we continue to prioritize direct smoke evacuation which puts us closer to the customer and carries a stronger margin profile than OEM. Buffalo Filter represents one of our most compelling long-term growth opportunities with multiple tailwinds including expanding legislation requiring the use of surgical smoke evacuation systems. To that end, we were pleased to see the states of Michigan and Maryland recently enact legislation to this effect. Michigan's law applies to facilities that provide surgical procedures using heat-related equipment likely to generate surgical smoke. It requires them to develop and implement a policy requiring the use of a smoke evacuation system by July 23, 2027. Maryland's law requires all healthcare facilities to adopt and implement smoke evacuation policies by January 1, 2028. With the addition of Michigan and Maryland, there are now a total of 22 US states with smoke-free operating room laws. covering approximately 57% of the U.S. population. We also see evidence of continued activity on this front, including more than 10 additional states with bills on this subject entered and pending passage. This is a testament to the efforts of medical societies like AORN, which continue to advocate for legislation as well as the clear benefit of surgical smoke evacuation. As a reminder, an estimated 90% of surgical procedures create smoke. A Buffalo filter has been shown in clinical studies to filter 99.9997% of toxic smoke molecules. We were pleased with our direct smoke performance internationally as well and continue to see early commercial traction in Europe, Canada, and Australia. On the new product front, our next generation evacuator PlumeSafe X5 continues to garner positive feedback for a smaller footprint, quieter operation, and faster smoke clearance, further strengthening our position in the market, including with ambulatory and outpatient settings. As a reminder, we estimate that the global smoke evacuation market represents a $1 billion opportunity. Given our performance and continued progress globally, We expect our direct smoke evacuation portfolio to continue to deliver solid growth as we penetrate this market opportunity longer term. Shifting now to our orthopedic surgery product line. Orthopedic surgery sales increased 6.8%. By geography, our international orthopedic sales increased 10.8%, driven by broad base growth in each of our major geographic regions with particular strength in APAC and EMEA in the second quarter. The domestic orthopedic sales were essentially flat in the second quarter, which was slower than expected. During the second quarter, we continued to strengthen our commercial organization. To be clear, our U.S. orthopedic team is back on offense and positioned to return to growth. By product, BioBrace, a reinforced bioinductive implant, was a top contributor to our total orthopedic surgery sales growth in the second quarter. I'll now provide a brief update on BioBrace. We are continuing to see BioBrace used across a wide range of orthopedic and foot and ankle procedures, most prominently in rotator cuff repairs. Rotator cuff repairs represent our largest single procedure opportunity with an estimated 1 million rotator cuff surgeries performed in the United States annually. Published clinical research highlights that rotator cuff repair outcomes are still suboptimal, with re-care rates estimated anywhere between 30 to above 50%. Both the Academy of Orthopedic Surgeons and the broader surgeon community agree that improving patient outcomes for rotator cuff procedures is an important unmet clinical need. No patient wants to go into an elective rotator cuff surgery knowing they have a one in three chance or potentially worse of requiring a second surgery after a re-tear. Bearing this in mind, using BioBrace for augmented rotator cuff repairs has clinically demonstrated a 94% healing rate in patients at high risk of re-tear. Our traction in this procedure category speaks to both the strength of our existing clinical data across over 30 published studies, along with the updated AAOS guidelines strongly recommending augmentation and rotator cuff repair, both of which continue to support surgeon adoption. Additionally, we are now one year into the launch of BioBrace RC, which is designed to streamline the use of BioBrace in rotator cuff repairs. Our observations over the past year of commercialization have reinforced that BioBrace RC enables surgeons to augment their rotator cuff repairs more consistently and efficiently, generating stronger surgeon interest and using BioBrace when an augment is needed. As a reminder, BioBrace is differentiated because it brings added mechanical strength and facilitates accelerated healing from its bioinductive properties. Other biologics and techniques that fail to provide this level of support can lead to re-tearing and incomplete healing. With these advantages in mind, our team continues to observe that surgeons who gain experienced distillation requiring the use of surgical smoke evacuation systems. To that end, we were pleased to see the states of Michigan and Maryland recently enact legislation to this effect. Michigan's law applies to facilities that provide surgical procedures using heat-related equipment likely to generate surgical smoke. It requires them to develop and implement a policy requiring the use of a smoke evacuation system by July 23, 2027. Maryland's law requires all healthcare facilities to adopt and implement smoke evacuation policies by January 1, 2028. With the addition of Michigan and Maryland, there are now a total of 22 US states with smoke-free operating room laws, covering approximately 57% of the US population. We also see evidence of continued activity on this front, including more than 10 additional states with bills on this subject entered and pending passage, This is a testament to the efforts of medical societies like AORN which continue to advocate for legislation as well as the clear benefits of surgical smoke evacuation. As a reminder, an estimated 90% of surgical procedures create smoke and Buffalo Filter has been shown in clinical studies to filter 99.9997% of toxic smoke molecules. We were pleased with our direct smoke performance internationally as well and continue to see early commercial traction in Europe, Canada, and Australia. On the new product front, our next generation evacuator, PlumeSafe X5, continues to garner positive feedback for a smaller footprint, quieter operation, and faster smoke clearance, further strengthening our position in the market, including with ambulatory and outpatient settings. As a reminder, we estimate that the global smoke evacuation market represents a $1 billion opportunity. Given our performance and continued progress globally, we expect our direct smoke evacuation portfolio to continue to deliver solid growth as we penetrate this market opportunity longer term. Shifting now to our orthopedic surgery product line. Orthopedic surgery sales increased 6.8%. By geography, our international orthopedic sales increased 10.8%, driven by broad base growth in each of our major geographic regions, with particular strength in APAC and EMEA in the second quarter. The domestic orthopedic sales were essentially flat in the second quarter, which was slower than expected. During the second quarter, we continue to strengthen our commercial organization. To be clear, our U.S. orthopedic team is back on offense and positioned to return to growth. By product, BioBrace, a reinforced bioinductive implant, was a top contributor to our total orthopedic surgery sales growth in the second quarter. I'll now provide a brief update on BioBrace. We are continuing to see BioBrace used across a wide range of orthopedic and foot and ankle procedures, most prominently in rotator cuff repairs. Rotator cuff repairs represent our largest single procedure opportunity with an estimated 1 million rotator cuff surgeries performed in the United States annually. Published clinical research highlights that rotator cuff repair outcomes are still suboptimal. with retail rates estimated anywhere between 30 to above 50%. Both the Academy of Orthopedic Surgeons and the broader surgeon community agree that improving patient outcomes for rotator cuff procedures is an important unmet clinical need. No patient wants to go into an elective rotator cuff surgery knowing they have a one in three chance or potentially worse of requiring a second surgery after a re-tear. Bearing this in mind, using BioBrace for augmented rotator cuff repairs has clinically demonstrated a 94% healing rate in patients at high risk of re-tear. Our traction in this procedure category speaks to both the strength of our existing clinical data across over 30 published studies along with the updated AAOS guidelines strongly recommending augmentation and rotator cuff repair, both of which continue to support surgeon adoption. Additionally, we are now one year into the launch of BioBrace RC, which is designed to streamline the use of BioBrace and rotator cuff repairs. Our observations over the past year of commercialization have reinforced that BioBrace RC enable surgeons to augment their rotator cuff repairs more consistently and efficiently, generating stronger surgeon interest and using BioBrace when an augment is needed. As a reminder, BioBrace is differentiated because it brings added mechanical strength and facilitates accelerated healing from its bioinductive properties. Other biologics and techniques that fail to provide this level of support can lead to rechairing and incomplete healing. With these advantages in mind, our team continues to observe that surgeons who gain experience using BioBrace and see the benefits of its use in their cases tend to become dedicated long-term users. While we remain in the initial years of commercialization, we see BioBrace's potential to improve the standard of care in sports medicine procedures and believe it will remain an important driver of our long-term growth. In addition to driving growth across our general and orthopedic surgery product lines and continuing to advance our key growth drivers, we also made important operational progress in other key areas this quarter, including executing our portfolio optimization strategy, improving our supply chain, bolstering our balance sheet, and strengthening both our leadership team and board of directors. I'll now take a moment to touch on each of these, starting with our portfolio optimization strategy and the completed exit from our gastroenterology product offerings. Following a comprehensive review of our portfolio, we are announced our intent to exit our GI product offerings at the end of last year. In the first quarter of 2026, we closed the sale of certain GI assets and in the second quarter, we completed the sale of the remaining GI portfolio. In conjunction with the second quarter transaction, we've entered into a manufacturing services agreement to continue producing certain GI products for the buyer over the next 12 months, ensuring continuity for our customers through the transition. With this chapter now closed, we've sharpened our focus on our strongest growth opportunities, which lie in our core markets, minimally invasive robotic and laparoscopic surgery, smoke evacuation, and the surgical treatment of orthopedic soft tissue repair, further positioning ConMed for long-term value creation. With respect to our efforts to improve our supply chain, our team has made clear progress over the last year. Specifically, we've strengthened our service levels, reduced back orders to their lowest levels in years, and reduced age-critical back orders while building greater stability across our network. I'm proud to say we've progressed from our former state of recovery and remediation. We're now in a strong position to take care of our customers and grow our business, and our team is primarily focused on driving operational enhancements now. Looking ahead, we'll continue to invest in building an efficient and resilient supply chain for the future by continuing to enhance our planning, sourcing, service, and inventory systems with the goal of supporting growth, margin expansion, and reliable customer service over the long term. In terms of strengthening our balance sheet, we refinanced our debt during the second quarter consistent with the intention we communicated in our last earnings call. Specifically in June, we secured a new senior secure terminal facility of $450 million that will expire in 2030. We used the proceeds from this facility along with the borrowings from our revolving credit facility to repurchase 645.2 million of convertible notes for and a total of $637.2 million that would have matured in June 2027. Lastly, during the second quarter, we enhanced both our board of directors and leadership team with the addition of key personnel. In May, we announced the appointment of Celine Martin and Jeff Mervis, who joined our board with deep global MedTech leadership experience and a track record of scaling and other complex businesses. Celine has had a more than 30-year career at Johnson & Johnson, most recently leading J&J's MedTech's Cardiovascular and Specialty Solutions Group. Jeff spent nearly 30 years at Boston Scientific, most recently as EVP and Global President of Peripheral Interventions. In June, we were pleased to announce the appointment of John Gallagher as our Chief Financial Officer, effective July 15. During the first half of 2026, ConMed conducted a comprehensive search process supported by a leading executive search firm to identify our next CFO. I was closely involved in this process alongside our board as we worked to identify a candidate with strong financial experience and leadership capabilities who would be a good steward of our stockholders' interests and a valuable resource to our senior leadership team. I'm pleased to say we found that in John Gallagher. John brings nearly three decades of financial leadership experience, most recently serving as CFO of two public healthcare companies, Certara and QHealth. He also spent nine years at Becton Dickinson including as SVP and CFO of BD's medical segment. John's combination of public company financial leadership and healthcare expertise along with his track record of leading global finance organizations make him an excellent fit for ConMed. As a reminder, Todd Garner will remain with us as an advisor until November to ensure a smooth transition. I'm proud of the level of talent we've been able to attract with our recent appointments and I'd like to take the opportunity on today's call to welcome Celine, Jeff, and John to our team. I'm excited to partner with them as we focus on delivering strong execution and creating long-term value for our shareholders. With that, I'll turn the call over to John who will walk you through our second quarter financial results in greater detail.

Thank you, Pat. I'm excited to join the ConMed team and pleased to have strong quarterly performance to outline on today's call. Before I do that, I'd like to take a moment to talk about joining ConMed. For me, the decision to join ConMed was about products, culture, and people. My initial views on ConMed's products are favorable, particularly the growth drivers in AirSeal, Buffalo Filter, and BioBrace. I believe those key products are highly differentiated and target large market opportunities, which presents the potential for compelling growth as the company increases penetration. That's an opportunity for shareholder value creation and something that I want to be a part of. Culture and people were also part of the decision. During the vetting process, I spent considerable time with the board and members of the management team. And while I've only been in the seat for two weeks and haven't met everyone by any stretch, I can see the strong focus among the team on the opportunity to create shareholder value. So let's get into the numbers now. Given Pat's detailed discussion of our sales results in the second quarter, I will begin my remarks on the gross profit line. Unless otherwise noted, my commentary will focus on our non-GAAP results during the second quarter of 2026 with all growth rates on a year-over-year basis. Our earnings press release issued today includes reconciliations to the most comparable figures presented in accordance with GAAP. We also have included a supplemental slide deck reviewing our second quarter results and updated financial guidance on the investor relations section of our website. Second quarter adjusted gross profit increased 5.6%. Adjusted gross margin was 59.5%. and increase of 300 basis points. The increase was driven primarily by an $8.5 million benefit from tariff refunds recognized during the quarter, representing approximately 250 basis points year over year. Excluding the tariff refund benefit, gross margin increased 50 basis points year over year, driven by favorable product mix and positive foreign currency impact. Adjusted operating expenses increased 1.5%. The increase in operating expenses was driven by a 1.5% increase in adjusted SG&A expense and a 2% increase in adjusted R&D expense. Our adjusted operating margin was 18.2% compared to 15.7% in the prior year period, an increase of 250 basis points year over year. Excluding the aforementioned tariff refund benefit, our adjusted operating income and operating margin were essentially flat year-over-year, modestly better than our expectations. Adjusted interest expense was $6.8 million in the second quarter compared to $6.4 million last year. As Pat mentioned, we have completed a refinancing during the quarter, drawing on our new $450 million term loan and our existing revolving credit facility to repurchase $645.2 million of our $800 million 2.25% convertible notes ahead of their June 2027 maturity. This drawdown occurred on June 12th and therefore had an immaterial impact on interest expense in the second quarter. The adjusted effective tax rate in Q2 was 25.2%, modestly higher than we had expected. Adjusted net income was $41.7 million, or $1.38 per diluted share, compared to $35.6 million, or $1.15 per diluted share in 2025. As Pat mentioned earlier, Second quarter adjusted EPS included a benefit of approximately 21 cents from the tariff refund received in the period. We generated $34.2 million of free cash flow in the second quarter of 2026. That represented an increase of 46% year-over-year. Turning to a review of our balance sheet and financial conditions. As of June 30, 2026, Con Med had cash of $37.3 million, total debt obligations of $834.2 million, and additional available borrowing capacity of $455.5 million. This compares to cash an equivalent of $40.8 million total debt obligations of $834.9 million and available borrowing capacity of $648.5 million as of December 31st, 2025. Our leverage ratio on June 30th, 2026 was 2.9 times. Con Med has made significant progress in terms of deleveraging in recent years. This quarter's refinancing meaningfully reduces our exposure to our convertible debt obligations ahead of their 2027 maturity and gives us a more straightforward capital structure to manage. With respect to share repurchases, ConMed has returned a meaningful amount of cash to shareholders. During the first six months of 2026, we repurchased approximately 1 million shares of common stock for a total of $43.7 million. We continue to expect to allocate approximately $61.8 million to share repurchase in 2026. I'll now turn the call back to Pat to discuss our financial guidance.