CONMED Corporation (NYSE:CNMD) Q4 2022 Earnings Call Transcript

Operator: And thank you. And one moment for our next question. Our next question comes from Robbie Marcus from JPMorgan. Your line is now open.

Robbie Marcus: Great. Thanks for taking the questions. Maybe we could just go back to how this — the warehouse management disruption began, why it happened? I imagine these things are implemented all the time. What was different at CONMED and what are the processes you put in place to prevent it from happening again?

Curt Hartman: Well, I would start by saying we all agree the remediation has taken longer than we expected. And I think you have to look at CONMED has one main warehouse. We have international distribution centers. The main warehouse is the warehouse that we put the system in place. And as we work through the issues, we took a very deliberate approach to identification and prioritization of those issues. While at the same time working daily to ship customer orders. And ultimately, we identified a lot more areas of remediation that were needed than we anticipated in the early stages. I think the way I think about it is the solutions when operating in a state-of-the-art software package require both technical and operational remediation and the technical remediation require comprehensive user and system validation and we’re also dealing with a substantial amount of what I would refer to as pure change management.

And I say that because the warehouse that we upgraded was very manual operation, very much a paper individual people driven operation versus a system. And I refer to it as going from a warehouse, kind of, vintage 1980 to vintage 20 20, that’s a quantum step. And while we thought our work pre-install had positioned us to do that, we obviously did not do a comprehensive enough set of validation, user verifications that captured all the base user cases. It’s important to note as Todd said, we’ve got the overall backlog down to $10 million and we’re making great progress. And the learnings will pull out of this will obviously come from a comprehensive after-action review and any further software platform work that we do, which there’s none in the foreseeable future at this point in time, would obviously benefit from these lessons.

So again, better today than we were, took longer than we wanted, but long-term this is the right solution to allow CONMED to scale from an operational standpoint.

Robbie Marcus: Great. And maybe just a follow-up question, I appreciate all the color on guidance and some of the long-term outlook commentary. But if I just focus on €˜23 guidance, looks like sales and EPS range came down just a bit at the upper end. I imagine some of that is due to how long this is has lasted versus your original expectations when you provided guidance. But maybe just help us understand what’s assumed in your market and recovery and customer capture assumptions at the low-end and the high-end, I think would be really helpful. Thanks.

Curt Hartman: Sure. Yes, you’re right, Robbie. When we gave that initial guide with the disclosure of the warehouse issue, we gave it wider than normal range because it was two months prior to and we normally do it on this call. And the difference today and then is essentially we’ve taken a little bit off the top of both of those ranges. But we’re back to what the range that we would normally give on this call for the year. So that’s $50 million on the top and $0.25 range on the bottom. So this is our very typical where we would — how we would start the year. And you’re right, I think the adjustment, we’re still very bullish on the business. The sales force is very bullish. We know we can win; the fact is that our sales force was put on defense in the fourth quarter and it’s lasted longer than it was supposed to.

And so our focus is to get them on offense as quickly as possible. And we’re laser focused on that, so we’re moving back to offense and that’s what’s assumed in the guide.