Q4 2024 Earnings Summary
- Buffalo Filter is poised for significant growth due to increasing legislation on smoke evacuation in operating rooms. Currently, 18 U.S. states have enacted legislation requiring smoke evacuation, including 3 new states (West Virginia, Virginia, and Minnesota) coming into effect in 2025. The company is bullish on Buffalo Filter, expecting continued global adoption as more regions enact similar legislation.
- AirSeal continues strong performance with expectations to remain a double-digit grower. AirSeal had a record year in 2024 with double-digit growth in Q4, driven by its clinical benefits in both robotic and laparoscopic procedures. Management is confident that AirSeal will sustain double-digit growth, supported by increasing adoption in laparoscopy and ongoing demand in robotic surgeries.
- Proactive measures to resolve supply chain challenges may unlock higher growth potential. The company has engaged a top-tier consulting firm to address lingering supply chain issues, particularly in the Orthopedics business. Early signs are positive, with Foot & Ankle growing double digits in Q4. Management believes there is more upside than downside to their revenue guidance, aiming to exceed the current 4% to 6% growth range.
- Ongoing supply chain challenges have negatively impacted CONMED's performance, particularly in the Orthopedics and Sports Medicine segments. The company was "very disappointed" in 2024 and acknowledged that supply issues have lingered longer than expected, slowing down business segments like Sports Medicine and Foot & Ankle. , ,
- Gross margin pressures are expected due to currency headwinds and operational inefficiencies. Despite a mix tailwind, the company anticipates gross margins in 2025 to be similar to 2024 levels, with currency being a headwind of about 50 basis points. This may impact profitability and indicates that operational improvements are required. , ,
- The company's conservative revenue guidance reflects potential underperformance and limited confidence in near-term growth acceleration. CONMED guided to 4% to 6% constant currency revenue growth for 2025, which is at the lower end of their midterm potential of 4% to 9%. This cautious outlook is due to previous disappointing performance and ongoing challenges. , ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +5.8% (from $326.9M to $345.9M) | Total Revenue grew by 5.8% YoY as strong performance in the General Surgery segment (up 8.6% YoY) helped drive overall revenue growth. This increase builds on previous period strengths in product mix and geographic expansion, reinforcing the company’s momentum despite more modest gains in other segments. |
General Surgery Revenue | +8.6% (from $190.5M to $206.8M) | General Surgery Revenue increased by 8.6% YoY likely due to robust product demand and favorable shifts in the sales mix. The improvement is built upon the previous period’s strong performance in surgical product lines, indicating consistency in execution and market acceptance. |
Orthopedic Surgery Revenue | +1.9% (from $136.4M to $139.1M) | Orthopedic Surgery Revenue had a modest 1.9% increase YoY which may reflect challenges such as supply constraints and market maturity noted in past periods. While new product offerings contributed to the growth, underlying supply issues seen previously continued to keep the increase limited. |
U.S. Revenue | +6.7% (from $190.38M to $203.29M) | U.S. Revenue grew by 6.7% YoY, driven by strong domestic performance, including an additional sales day in Q4 2024 and robust sales across both orthopedic and general surgery segments. These factors reinforce improvements from previous quarters where operational execution and product mix had already started to show positive trends. |
Asia Pacific Revenue | +9.5% (from $45.4M to $49.67M) | Asia Pacific Revenue increased by 9.5% YoY, reflecting solid regional growth likely from market expansion and improved operational performance. This growth builds on prior improvements, even as the region’s sales mix might face challenges elsewhere, demonstrating strong regional momentum. |
Net Income | +2% (from $33,071K to $33,755K) | Net Income saw a modest 2% YoY increase, indicating improved cost management and operational efficiencies. However, the slight improvement suggests that while margins and expense controls have improved relative to previous periods, other rising costs or headwinds maintained a subdued net income growth. |
Net Change in Cash | Deterioration (from -$6,206K to -$14,008K) | Net Change in Cash worsened significantly, declining from -$6,206K to -$14,008K YoY. This substantial deterioration likely reflects increased cash outflows related to financing activities, heightened capital expenditures, and possibly payments on contingent considerations, marking a shift in cash management dynamics compared to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Reported Revenue | Q4 2024 | Expected to be between $339 million and $344 million | no current guidance | no current guidance |
EPS | Q4 2024 | Projected to be between $1.18 and $1.23 | no current guidance | no current guidance |
Gross Margin | Q4 2024 | Expected to be around 57% | no current guidance | no current guidance |
Reported Revenue | FY 2024 | Expected to be between $1.3 billion and $1.305 billion | no current guidance | no current guidance |
Adjusted EPS | FY 2024 | Projected to be between $4.00 and $4.05 | no current guidance | no current guidance |
Constant currency revenue growth | FY 2025 | no prior guidance | Expected between 4% and 6% | no prior guidance |
Currency headwind | FY 2025 | no prior guidance | Approximately 100 to 120 basis points | no prior guidance |
Reported revenue guidance range | FY 2025 | no prior guidance | Between $1.344 billion and $1.372 billion | no prior guidance |
Expected reported sales | Q1 2025 | no prior guidance | Between $310 million and $316 million | no prior guidance |
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2025 Guidance and Outlook
Q: Where is the conservatism in the 2025 guidance coming from?
A: Todd Garner explained that despite growing 5.3% in constant currency in 2024, CONMED is guiding to a 4% to 6% growth range for 2025 to reflect where the portfolio currently stands. They believe they need to earn their way up the curve and are focusing on getting the sports medicine and orthopedics businesses back on track. Gross margins face headwinds from currency (50 basis points) and operational challenges, which they are addressing through improvement projects. -
Confidence in Achieving Guidance
Q: How should we view this year's guidance after previous supply issues?
A: Todd acknowledged disappointment in 2024 due to supply chain challenges that delayed progress. They are not getting ahead of themselves in the 2025 guidance and are essentially guiding to match 2024's performance. They are committed to operational improvements to enhance gross margins, even if it means margins remain flat this year. -
EPS Leverage and Future Growth
Q: Will 2026 see a return to faster bottom-line growth?
A: Todd stated that while they are not guiding for 2026, they expect the bottom line to grow at twice the rate of revenue growth in the coming years. Despite potential fluctuations due to factors like currency, they aim for adjusted EPS growth at double the revenue growth rate. -
Operational Challenges and Improvements
Q: What's causing the growth delta and how are supply chain issues impacting?
A: Todd attributed the 150 basis points difference between the aggregate growth rate and guidance mainly to lingering supply chain challenges from 2024. These issues have slowed down their sports medicine business, prompting them to engage a top-tier consulting firm to resolve them quickly. -
Capital Allocation and M&A
Q: How are you thinking about capital allocation and M&A in 2025?
A: Todd mentioned they remain active and open to compelling opportunities but are also focused on reducing leverage below 3x by the end of the year. In the absence of attractive assets to acquire, they will continue to pay down debt. -
Margin Outlook and Gross Margin Headwinds
Q: How are gross margins being affected in 2025?
A: Todd explained that gross margins face headwinds from currency impacts (50 basis points) and operational challenges. They expect margins to remain flat this year but believe operational improvements will position them better for future profitability. -
Tariffs and Pricing Strategies
Q: Can pricing offset tariff impacts, and what's the overall pricing strategy?
A: Patrick noted that passing tariff costs onto hospitals is challenging due to existing contracts. Todd added that while they had some pricing power during the high inflation period of 2022, they expect pricing to be neutral or slightly positive going forward as inflation normalizes. -
AirSeal Performance and Outlook
Q: What are the expectations for AirSeal's growth in 2025?
A: Patrick highlighted that AirSeal had a record year in 2024, with double-digit growth in Q4, and they expect it to remain a double-digit grower in 2025 and beyond. Growth drivers include both robotic and laparoscopic procedures, with increasing adoption in laparoscopic surgeries, especially in the U.S.. -
CEO Priorities and Portfolio Review
Q: What new directives have you implemented, and what's the path forward?
A: Patrick stated that he is focusing on six areas, including advancing AirSeal, improving orthopedic operations, reducing debt, and strengthening portfolios like BioBrace, Buffalo Filter, and Foot & Ankle. They plan to review their 55-year-old portfolio to ensure durability, growth, and profitability. -
Buffalo Filter and Legislation
Q: Can you provide an update on Buffalo Filter and related legislation?
A: Patrick reported that 18 U.S. states have approved or enacted smoke evacuation legislation, including three new ones (West Virginia, Virginia, Minnesota) effective in 2025. Internationally, more regions are enacting legislation, and hospitals are focusing on staff protection, which bodes well for Buffalo Filter's market position. -
Q1 EPS and Margin Guidance
Q: Can you provide guidance on Q1 EPS or margins?
A: Todd indicated that revenue and EPS should move together, and as revenue expectations adjust, so should EPS. They did not feel the need to provide specific EPS guidance but mentioned that currency impacts are fairly even throughout the year, with a slightly heavier effect in Q1. -
Tariffs in Guidance Exclusion
Q: Are China tariffs excluded from the guidance as well?
A: Todd confirmed that China tariffs are excluded from their guidance, similar to tariffs from Mexico and Canada.