CONMED Corporation (NYSE:CNMD) Q3 2025 Earnings Call Transcript

CONMED Corporation (NYSE:CNMD) Q3 2025 Earnings Call Transcript November 5, 2025

CONMED Corporation beats earnings expectations. Reported EPS is $1.08, expectations were $1.05.

Operator: Thank you for standing by. Welcome to CONMED’s Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] 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 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 events, performance or results. The company’s actual results may differ materially from its current expectations.

Please refer to the risks and other uncertainties disclosed under the forward-looking information in today’s press release, as well as the company’s SEC filings, for more details on the risks and uncertainties that may cause actual results to differ materially. 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 its normal ongoing operations. These adjusting items are specified in 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?

Patrick 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 Garner, our Executive Vice President and Chief Financial Officer. I’ll begin with a 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 health care 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 and Ankle, 2 foundational growth drivers within our orthopedics portfolio.

BioBrace continues to be a cornerstone of our sports medicine strategy. Quarter 3 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 2 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 DV5 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 AirSeal growth globally, particularly in regions where Xi placements are increasing and AirSeal’s clinical advantages are well understood.

Stepping back, one of my first priorities, as CEO after more than a decade with CONMED, 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 BioBrace, 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 CONMED to drive superior clinical outcomes for patients while delivering meaningful improvements in health care 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 3 financial performance and discuss our 2025 financial guidance.

Todd?

Todd Garner: Thank you, Pat. All sales growth numbers I reference 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 U.S. 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 U.S., 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 sales mix. 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 diluted 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 30 was $38.9 million compared to $33.9 million at June 30.

Accounts receivable days as of September 30 were 60 days, down from 62 days at the end of Q2. Inventory days at September 30 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 30. Our leverage ratio stood at 3.0x as of September 30, 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 million 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.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Robbie Marcus of JPMorgan.

Lilia-Celine Lozada: This is actually Lily on for Robbie. Maybe I’ll start with one on capital allocation and suspending the dividend. Can you talk a bit more about what drove that shift in capital allocation strategy? And should we be expecting any other changes to your thinking and strategy on M&A or debt pay down?

Todd Garner: Great question, Lily. Thank you. No other changes. You should not expect any other changes. We worked with our banking partners. We looked at our peer set, med device companies our size. We’re one of the very few to pay a dividend. I — maybe one of the more common questions I get these days is with the stock where it is, why the company is not buyers of our own stock. I’ve answered over the last couple of years that we feel like we’ve had to prioritize getting leverage down. And when I’ve given that answer, I think investors have almost unanimously in agreement with those priorities. Now that we’ve reached the 3.0 mark, which has been kind of the target, we’ve reached it a little sooner than we thought. We thought now would be a good time to make that exchange and fit in more with the peer set and what’s expected in our market and in our size and return cash to shareholders through share repurchases instead of dividends.

Lilia-Celine Lozada: Great. That’s helpful. And then I was hoping to get some early thoughts on 2026. I know you’re not guiding yet, but there’s some moving pieces here. So can you talk about how you’re thinking about supply and your ability to fully meet demand next year? And any other important headwinds or tailwinds to be keeping in mind?

Todd Garner: I certainly appreciate the attempt, and I know all of our interest is quickly moving to 2026. We’re going to guide 2026 at the appropriate time when the year starts. So we’re not going to get into that, and I don’t have anything to call out for you at this time.

Operator: Our next question comes from the line of Matt O’Brien of Piper Sandler.

Anna Runci: This is Anna on for Matt. So I guess I just want to ask one on tariffs. If there was any incremental tariff headwind versus what you expected before. In the press release, you commented on $0.09 in the back half in Q2, and now you’re expecting $0.07 in Q4. So did this become a larger headwind sort of incrementally? Or what’s the thought process there?

Todd Garner: Great question, Anna. Thank you for that question to make sure we’re clear. So this has been consistent. So we started seeing — a couple of quarters ago, we forecasted that Q3 would be about $0.02 and Q4 would be about $0.07. The reason we have been so accurate with that is because tariffs go into our manufacturing variances, which travel with inventory and then get released in the external P&L with that revenue, which for us is about a 6-month deferral. So the tariffs you’re seeing hit the P&L in the back half of ’25 are actually the tariffs from calendar Q1 and Q2 of ’25. And so that has been consistent with how we projected it. So Q2 of 2025 was $0.07, and that’s what’s being recognized in Q4 of 2025.

Anna Runci: Great. That’s super helpful. And then I believe DV5’s manufacturer on their quarterly call mentioned a 90% utilization rate of their insufflator in the quarter. So in your view, what keeps that from going to 100%? And then where does AirSeal fit into the picture there?

Patrick Beyer: Good question. This is Pat here. If you remember last quarter, we guided that our — what we’re seeing is between 80% and 90% of procedure rates with DV5’s happening. And what we’re seeing is the clinical benefits of AirSeal, I would remind you, those are shorter length of stay, reduction of pain are equally applicable to DV5 that were in Xi. And what we’re seeing is the early adoption with AirSeal with DV5 is limited because of the commitment that hospitals have to have to do a set number of procedures with DV5. And what we’re seeing with the total volume of DV5s in the market, it’s nearly 90%. But what we’re able to see is those hospitals that have DV5s and are after the commitment volume that they have to do, it’s in that range of 80% to 90%.

So it ties to what we were saying before. And I would also just say we’re learning every day on that. What is steadfast is when clinicians use AirSeal with DV5, they’re getting an enhanced clinical benefit for their patients.

Operator: Our next question comes from the line of Vik Chopra of Wells Fargo.

Vikramjeet Chopra: Congrats on a nice quarter. A couple for me. So maybe one just on AirSeal. I mean, I think you talked in your comments about Xi systems being put into international markets and into the ASCs. I’m just curious how you’re thinking about the adoption rate in ASCs in the U.S. and how you’re thinking about international markets? And then I had a follow-up, please.

Patrick Beyer: Yes. Vik, as I think about Xis, we know that Xis have to have an external insufflator. We know that Xis have a history of benefiting from the clinical benefits of AirSeal. We know that when — if an Xi is placed in an ASC, shorter length of stay really matters. And so that benefit of AirSeal, which delivers reduction of pain, shorter length of stay will play out, we believe, in the ASCs, and it will also play out in the international markets in which we’re seeing right now.

Vikramjeet Chopra: Got it. That’s super helpful. And I’m just curious, if you can elaborate on the specific initiatives that strengthened your supply chain in the third quarter and how you intend to either maintain or enhance these improvements through 2026?

Patrick Beyer: Vik, we started talking about it at the end of last year that we had to improve our supply chain, specifically in our orthopedic world. We commented in quarter 1, we had an outside consultant come in and help us. We’ve made progress in quarter 1. We made progress in quarter 2. In quarter 3, we had record manufacturing volumes for our orthopedic products. And also, we had a record reduction in the critical SKUs associated to getting our orthopedics business back on offense. I would characterize it as we made progress. We’re not there yet. We expect to make continued progress in quarter 4. And the key things we’re working on are systems and enhancements to our procurement, our planning and our production area.

Operator: Our next question comes from the line of Young Li of Jefferies.

Young Li: I was wondering if you can maybe kind of give on sort of the U.S. AirSeal non-robotic laparoscopic opportunity, if you guys have been making any headways in that channel? And then also maybe a similar question just for U.S. now Intuitive robotic attachments, Hugo, CMR, like Asian. I’m just wondering how is the attachment rate for those categories?

Patrick Beyer: Vik, good question. I’ll try to take it in 2 parts, and I think I heard your question. Number one, AirSeal attachment internationally on the robots that are internationally that are not DV5. There was a recent meeting in Strasbourg, France, that was the Global Society of Robotic Surgery. There are a number of robotic systems that are coming into the market. It leads us to believe there’s a future for robotic surgery outside of DV5 and outside of Intuitive, and that also salutes the work that Intuitive has done in pioneering the clinical benefits of robotic surgery. DV5, as you know, has to have and — it has an integrated insufflator. The robotic systems that aren’t DV5 have to have an insufflator that attaches to it.

In the international space, we’re seeing AirSeal where the clinical benefits are well known. Again, I would remind you, shorter length of stay, reduction in pain are also being used in the non-DV5 robots. We also — I would pivot to your other question on the United States. We continue to see a strong opportunity in the laparoscopic area, the non-robotic procedures. Again, we commented, I think, last quarter, there’s over 2 million procedures that are done laparoscopically. There are longer cases that are done also laparoscopically, where the clinical benefit of AirSeal is being used. And we’re seeing more and more of a benefit and a drive from our United States commercial teams into that area. Sorry about that. I said Vik, sorry about that, Young.

Young Li: No worries. It’s an honor to be confused for Vik.

Patrick Beyer: I’ll make it up to you in London.

Young Li: Okay. Yes. Looking forward to seeing you there. Just a follow-up, I guess, just on the orthopedic side, I guess, kind of two-parter. Just maybe following up on ortho supply questions. Can you maybe comment a little bit about your latest thoughts on share loss and your [ ability ] to recapture share once these supply chain issues are resolved hopefully by year-end or early next year? And then on BioBrace, I think you said 70-plus procedures. That’s a pretty big jump. I think last quarter, you called out 52. What triggered such a big jump type of procedures and where that can go?

Patrick Beyer: Young, 2 things. So I would — again, it’s two-parts. It’s a little bit hard to hear you at the beginning. Again, playing on the number of procedures. The beauty of BioBrace is it has a clinical indication where tissue weakness exists, it’s approved to be used, and it has the clinical benefit of strength and healing, which allows for surgeons to continue to expand and use it in extended indications where they haven’t been normally able to use it with other products on the market. And that’s just the expansion from the 50s to the 60s to 70s is just a natural evolution of time where surgeons continue to see clinical application for it. With respect to the orthopedic sales force taking market share and getting back on offense, I would just continue to say our customers, although they’re not using a number of our products because they’re not available for them to use, doesn’t mean our sales professionals aren’t in those cases, supporting other products that are available for them.

And our sales professionals are doing a great job continuing to sell what they can sell and support clinical cases. But I would also tell you, our expectation is not the moment we get off of back order that we again to immediately start taking more market share. We believe it will be a transactional period of time where it will take a quarter or 2 for those customers to again open their eyes to our sales force and the opportunity for them to use CONMED products.

Operator: Our next question comes from the line of Travis Steed of BofA Securities.

Gracia Mahoney: This is Gracia on for Travis. My first question, I just wanted to ask a little bit on the capital environment and what you’re seeing this quarter in those trends and then how you expect them to sort of progress over the next 12 months here?

Patrick Beyer: Pat here. We’re not — again, we’re seeing a healthy capital market. We’re not seeing a capital slowdown. We’re seeing hospitals continue to invest in capital equipment that improves patient outcomes and improves volume throughput through the operating room, which is the space we operate in, which is surgical procedures. And I think what we’re seeing going into next year also as interest rates come down, a continued flow of that.

Gracia Mahoney: Great. And then maybe just one follow-up on margins. I know you guided more flat for margins in ’25 and $20 million of annual savings from the operational improvements. How do you think this supports margin expansion and maybe the next year as well and puts and takes to consider in SG&A and R&D, just thinking looking forward?

Todd Garner: Yes. Thanks, Gracia. Did I get that name right?

Gracia Mahoney: Yes, that’s correct.

Todd Garner: Okay. So we’re going to talk about ’26 in ’26. But you’re right, we have been making improvements, as Pat said. We have communicated that we expect to save tens of millions of dollars overall. Of course, there’s things that work against that, right? The new tariffs, of course, are going to be worked against that. But we will give 2026 guidance when we do our Q4 call.

Operator: Our next question come from the line of Mike Matson of Needham & Company.

Joseph Conway: This is Joseph on for Mike. Maybe just on orthopedics. I saw that it looks like improved growth in the U.S. and internationally. So I just want to see if you can maybe just give more color on that improvement in the quarter. What are you seeing there? And what were the major drivers in the quarter?

Patrick Beyer: Joseph, good question. Again, I’d call out 2 things. BioBrace continues to do well. BioBrace is a great growth platform, not just in our Sports Medicine portfolio, but also in our Foot and Ankle portfolio, and it’s doing great things for us. That also combined with improving reduction in back order and improving service levels on the operations side are allowing us to take some incremental steps forward in growth. But I would again just call out, we’re not declaring victory there on the operations front and continue to expect progress in quarter 4.

Joseph Conway: Okay. And then I guess just a quick follow-up. Really appreciate all the color you gave on the backlog and the improvement there. But I’m just wondering if there’s a way that you can kind of plot this out time line-wise, maybe what inning of the improvement are we in? Yes, that would be helpful.

Patrick Beyer: Well, I’m going to — hopefully, this isn’t the World Series game that went to the 18th innings last couple. You know what, we’re in the second half of the game. I’m not sure if we’re in the sixth, seventh or eighth, but we’re certainly in the fifth, sixth, seventh. So we’re in the second half. I don’t want to declare victory. There’s more innings to play here. I feel good about our progress. I feel good about our commitment. I feel great about our learnings. It’s now just time. And we know supply chain can take quarters as vendors turn on and make progress. And it doesn’t happen overnight, but I feel good about our progress there.

Operator: I would now like to turn the conference back to Pat Beyer for closing remarks. Sir?

Patrick Beyer: Thank you. I just — I want to thank everybody for joining us for our quarter 3 earnings call. We look forward to a great fourth quarter and look forward to updating you on 2026 in January. Thank you.

Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.