Q3 2024 Earnings Summary
- Strong Financial Performance: In the third quarter of 2024, adjusted net income increased by 15% year-over-year to $32.7 million, and adjusted diluted EPS grew by 16.7% to $1.05. The company also improved its adjusted gross margin by 60 basis points to 56.5%. Additionally, cash flow from operations increased to $51.2 million, up from $46.1 million in the same quarter last year, and the leverage ratio decreased to 3.6x as of September 30. These figures indicate robust operational performance and a strengthening financial position.
- Growth Prospects with Key Products: AirSeal continues to exhibit strong growth in both disposable and capital revenue in the U.S., with no signs of slowdown. Surgeons prefer AirSeal for precision clinical insufflation, especially in longer and more complex procedures, leading to benefits like shortened length of stay, reduced postsurgical pain, and quicker postoperative recovery. Furthermore, the Orthopedics business is showing recovery, with U.S. Orthopedic sales increasing by 7.4%, which is at the upper end of the market. The company has made progress in supply chain improvements and remains focused on continuing this trend to enhance growth and market share.
- Leadership Committed to Continued Growth: With the appointment of Patrick Beyer as the new CEO, who has a long tenure of med-tech leadership and a track record of success, the company is poised for continued advancement. Under previous leadership, sales grew more than 80%, EPS increased by approximately 240%, and operating cash flow almost tripled over the past ten years. Pat emphasizes a commitment to connecting with customers and employees and advancing CONMED's growth trajectory, focusing on delivering innovative clinical solutions and improving patient outcomes.
- Ongoing supply chain challenges in the orthopedic business, possibly extending into 2025, could hamper growth. ,
- The foot and ankle business has been slower than expected this year, leading to adjustments in contingent consideration and impacting earnings.
- IV fluid shortages and hurricane impacts have led hospitals to defer procedures, which could negatively affect procedure volumes and sales.
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2025 Growth Outlook
Q: Can you return to high single-digit/double-digit growth in 2025?
A: Curt Hartman, the retiring CEO, stated he won't provide guidance for 2025, but noted strong financial performance this quarter, including teen level adjusted EPS growth and a leverage ratio down to 3.6. He emphasized the focus on reinvigorating the top line, leveraging their portfolio, and that guidance will be offered in January 2025 by the new leadership. -
Orthopedics Supply Constraints into 2025
Q: Will orthopedic supply constraints extend into 2025?
A: Todd Garner acknowledged progress in improving orthopedic supply but mentioned that hurricanes were a speed bump. They remain laser-focused on continuing progress and getting teams back on offense as soon as possible. No definitive answer was given on whether constraints could shift into 2025. -
Foot and Ankle Business Adjustment
Q: Explain the contingent consideration adjustment this quarter.
A: The foot and ankle business has been slower than expected, contributing to the adjustment. They are working hard to get it back on track. Additionally, BioBrace is performing well, but the timing of its trial readout has been adjusted due to a more robust study design than initially anticipated, affecting the contingent consideration in later years. They still feel good about both acquisitions. -
Impacts from IV Fluid Shortages
Q: Are IV fluid shortages impacting procedures?
A: Yes, they've already seen impacts in October, with hospitals allocating and deferring procedures to ensure products are available for patients who need them most. This situation has been factored into their guidance, assuming a status quo from October for the quarter. -
Gross Margin Outlook
Q: Any concerns about gross margin outlook?
A: Todd Garner expects gross margin to be around 57% in Q4, as previously anticipated. He believes CONMED has a good mix advantage and a structure to improve gross margins heading into the future, with more details to be provided for 2025 in January. -
New CEO's Priorities
Q: What are your top priorities for 2025, Pat?
A: Pat Beyer plans to spend time with customers, employees, and shareholders, aiming to advance the company's growth and continue the success story of the past ten years. -
Recovery of Smoke Evacuation Business
Q: Is the smoke evacuation issue still impacting you?
A: The transitory quality issue in smoke evacuation was resolved in Q2. Q3 showed improvement, though not fully back to the normal trend, indicating positive progress toward their goals. -
Orthopedic Implants Supply Chain
Q: Which orthopedic implants are still affected?
A: They've made improvements across all categories to enhance the supply chain. The strategy involves increasing manufacturing capability and improving vendor supply chains. The U.S. Orthopedic business grew 7.4%, which is at the upper end of the market, while international growth was slightly lower due to prior year comparisons and other issues. -
General Surgery Performance
Q: Can you expand on General Surgery performance?
A: Todd Garner explained that lighter performance was due to comparisons with last year, where Q3 had significant improvements from clearing back orders. They had big capital products released from back order in Q3 last year, impacting current comparisons. Curt Hartman added that circuit board availability affected generators and energy platforms, areas where CONMED has a comprehensive portfolio serving both international and U.S. markets.