Q1 2024 Earnings Summary
- Resolution of supply chain challenges is expected to lead to an acceleration in growth in the second half of 2024, with the Orthopedics business returning to low double-digit organic growth rates, consistent with historical performance. ,
- The company's diverse product portfolio, including strong new products like BioBrace and the Foot & Ankle expansion, is anticipated to contribute significantly to growth and offset potential competitive pressures. ,
- Management expressed confidence in maintaining gross margin expansion of 100 to 150 basis points for the year, indicating operational efficiency and no change to full-year guidance, despite currency and interest rate headwinds. ,
- Increased competitive threat to the AirSeal insufflation product from new entrants. Management acknowledged concerns about a competitor entering the market with a similar insufflation device, which may put pressure on CONMED's General Surgery segment. They mentioned needing to find new strategies to address potential market challenges.
- Reliance on strong second-half performance to meet full-year guidance, which may be uncertain. Analysts noted that CONMED's guidance implies a significant acceleration in the second half of the year. This reliance on future performance introduces risk, especially considering potential supply chain challenges and market uncertainties.
- Supply chain challenges affecting the Orthopedics and Foot & Ankle business segments. Management admitted to facing supply challenges in these key segments, which impacted performance. While they expect improvements, continued issues could hinder growth and profitability in these areas.
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Guidance and FX Impact
Q: Explain guidance changes with FX headwinds?
A: CONMED reduced full-year guidance by $10 million due to FX headwinds. Despite a small beat in Q1, they see no change to their constant currency outlook and maintain their guidance based on the latest information. -
AirSeal Competitive Threat
Q: Impact of new competitor on AirSeal sales?
A: CONMED feels confident in AirSeal's clinical advantages, such as low-pressure consistency and patient benefits like reduced surgery length and post-op pain. They believe the competitor's product is a standard insufflator and have already accounted for potential headwinds in their guidance, with no change in their outlook. -
Second-Half Growth Outlook
Q: What's driving expected second-half acceleration?
A: They expect Orthopedics' supply challenges to be resolved, boosting second-half results. Confidence stems from a diverse product portfolio, including new products like BioBrace and expansion in Foot & Ankle, while the general surgery business remains strong. -
M&A Strategy
Q: What are your thoughts on future M&A as leverage drops?
A: CONMED's M&A approach remains unchanged. They seek acquisitions accretive to revenue growth and gross margin, prefer platforms with IP protection, and aim for deals that benefit shareholders. -
Biorez Growth Expectations
Q: Will Biorez revenue more than double this year?
A: CONMED expects Biorez to reach double-digit millions in revenue in 2024 and is confident in its performance. Launching Biorez in Foot & Ankle enhances growth prospects. -
AirSeal Expansion Strategy
Q: Are you investing more in traditional laparoscopic market?
A: They are naturally progressing into the traditional laparoscopic space, with 40% of AirSeal revenue now from there. CONMED will continue pursuing opportunities in both general laparoscopic and robotic surgery but did not disclose specific investments. -
Gross Margin Outlook
Q: Do you still expect gross margins up 100-150 bps?
A: There is no change to the full-year gross margin guidance. -
Procedure Volume Trends
Q: How were patient volume trends in orthopedics and surgery?
A: Q1 saw consistent procedure volumes and capital availability in both orthopedics and general surgery, aligning with historical trends. -
Smoke Evacuation Legislation Impact
Q: Is new smoke evacuation legislation changing outlook?
A: Where states pass smoke evacuation legislation, CONMED observes higher growth rates. They support such legislation and continue to offer a best-in-class product portfolio. -
Guidance Adjustment Clarification
Q: Why not adjust guidance by $5 million net of Q1 beat?
A: Despite the small Q1 beat, CONMED maintains their guidance based on the latest information and sees no change to how they view the year. -
AirSeal in ASCs
Q: Is selling AirSeal into ASCs harder due to pricing?
A: There isn't substantial volume of relevant procedures in ASCs yet. CONMED hasn't faced pricing pressure due to AirSeal's clinical differentiation and value. They will be ready as procedures move to ASCs. -
Foot & Ankle Recovery
Q: Update on Foot & Ankle business performance?
A: They faced supply challenges but expect the Foot & Ankle business to return to expected growth rates in the second half of 2024. Q1 domestic Orthopedics growth was positive, indicating progress. -
Orthopedics Performance
Q: Why was international Orthopedics below expectations?
A: High Q1 2023 volumes due to warehouse catch-up and capital shipments inflated prior-year comparisons; performance was not related to Foot & Ankle. -
Q2 Growth Expectations
Q: Why isn't Q2 growth higher than Q1's 5.9%?
A: Q2 guidance of 4.5%–6.5% constant currency growth is consistent with Q1 and accounts for normal seasonality. -
Q2 Guidance Details
Q: Can you provide Q2 guidance on EPS and growth?
A: CONMED expects Q2 reported growth of 4%–6%, with a 50 basis point currency headwind. They did not provide specific EPS guidance but believe Street estimates are appropriate. -
AirSeal Commercial Strategy
Q: How is your AirSeal U.S. strategy evolving?
A: While not disclosing competitive strategies, CONMED is confident in AirSeal's clinical differentiation and its ability to succeed across market segments.