CONMED Corp
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 1, 2024
CNMD$51.50-2.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-25.
0000816956-24-000006
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-01.
0000816956-24-000015
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 89 previous paragraphs and 93 current paragraphs.
65 unchanged; 21 reworded; 5 added; 3 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 4 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
Net sales increased 4.5% and 5.1% in the three and six months ended June 30, 2024, respectively, compared to the same periods a year ago. The increases during the three and six months ended June 30, 2024 were primarily due to strong growth in the general surgery product line.
Current report
•$2.1 million in costs related to the termination of distribution agreements during the three and six months ended June 30, 2023;
Current report
These decreases are offset by $1.3 million and $2.7 million in costs incurred for third party services pertaining to potential issues with certain royalty payments to design surgeons during the three and six months ended June 30, 2024, respectively.
Current report
•An increase in cash flows from accounts receivable due to timing of sales and cash receipts compared to the same period a year ago;
Current report
•A decrease in cash flows from inventory as we increased inventory to mitigate supply chain challenges;
Removed paragraphs (3)
Previous report
Net sales increased 5.7% in the three months ended March 31, 2024 compared to the same period a year ago primarily due to increases in both orthopedic surgery and general surgery product lines.
Previous report
These decreases are offset by higher selling and administrative expenses associated with higher sales volumes.
Previous report
•An increase in cash flows from accounts receivable as we experienced higher sales in the fourth quarter of 2023 compared to the fourth quarter of 2022 as well as the timing of cash receipts;
Reworded paragraphs (21)
Previous wording
A significant amount of our products are used in surgical procedures with approximately 85% of our revenues derived from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related single-use products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 44% of our consolidated net sales during both the three months ended March 31, 2024 and 2023.
Current wording
A significant amount of our products are used in surgical procedures with approximately 84% of our revenues derived from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related single-use products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 44% of our consolidated net sales during both the six months ended June 30, 2024 and 2023.
Previous wording
The following table presents net sales by product line for the three months ended March 31, 2024 and 2023:
Current wording
The following table presents net sales by product line for the three and six months ended June 30, 2024 and 2023:
Previous wording
•Orthopedic surgery sales increased 2.8% in the three months ended March 31, 2024 primarily driven by growth in procedure specific and BioBrace® product offerings.
Current wording
•Orthopedic surgery sales decreased 0.9% and increased 0.9% in the three and six months ended June 30, 2024, respectively. The decrease during the three months ended June 30, 2024 was primarily driven by longer recovery times from supply chain constraints in certain of our product offerings offset by continued growth in our BioBrace® product offerings and growth in our visualization products. The increase during the six months ended June 30, 2024 was primarily driven by growth in procedure specific and BioBrace® product offerings.
Previous wording
•General surgery sales increased 8.0% in the three months ended March 31, 2024 on growth in our AirSeal® and biliary product offerings.
Current wording
•General surgery sales increased 8.9% and 8.4% in the three and six months ended June 30, 2024, respectively, primarily due to growth in our AirSeal® and biliary product offerings.
Previous wording
Cost of sales increased to $140.3 million in the three months ended March 31, 2024 as compared to $140.1 million in the three months ended March 31, 2023. Gross profit margins increased 250 basis points to 55.1% in the three months ended March 31, 2024 as compared to 52.6% in the three months ended March 31, 2023.
Current wording
Cost of sales increased to $148.4 million in the three months ended June 30, 2024 as compared to $147.0 million in the three months ended June 30, 2023 and increased to $288.7 million in the six months ended June 30, 2024 as compared to $287.1 million in the six months ended June 30, 2023. Gross profit margins increased 160 basis points to 55.3% in the three months ended June 30, 2024 as compared to 53.7% in the three months ended June 30, 2023. Gross profit margins increased 200 basis points to 55.2% in the six months ended June 30, 2024 as compared to 53.2% in the six months ended June 30, 2023.
Previous wording
The 250 basis point increase in gross profit margins during the three months ended March 31, 2024 was mainly due to favorable product mix during the three months ended March 31, 2024. In addition, during the three months ended March 31, 2024, we wrote off $1.4 million in inventory, tooling and equipment related to the cancellation of a planned new product line and $0.2 million in severance related to the elimination of certain positions. During the three months ended March 31, 2023, we incurred costs for the amortization of inventory step-up to fair value of $2.1 million related to the In2Bones acquisition, $1.1 million in consulting fees related to a cost improvement initiative and $1.0 million in severance related to the elimination of certain positions.
Current wording
The 160 and 200 basis point increases in gross profit margins during the three and six months ended June 30, 2024, respectively, were mainly due to favorable product mix as well as during the three and six months ended June 30, 2023, we incurred costs for the amortization of inventory step-up to fair value of $2.2 million and $4.3 million, respectively, related to the In2Bones acquisition.
Previous wording
Selling and administrative expense decreased to $123.4 million in the three months ended March 31, 2024 as compared to $130.1 million in the three months ended March 31, 2023. Selling and administrative expense as a percentage of net sales decreased 450 basis points to 39.5% in the three months ended March 31, 2024 as compared to 44.0% in the three months ended March 31, 2023. The 450 basis point decrease in selling and administrative expense as a percentage of net sales for the three months ended March 31, 2024 was primarily driven by:
Current wording
Selling and administrative expense decreased to $122.5 million in the three months ended June 30, 2024 as compared to $129.7 million in the three months ended June 30, 2023, and decreased to $245.9 million in the six months ended June 30, 2024 as compared to $259.8 million in the six months ended June 30, 2023. Selling and administrative expense as a percentage of net sales decreased 390 basis points to 36.9% in the three months ended June 30, 2024 as compared to 40.8% in the three months ended June 30, 2023 and decreased 420 basis points to 38.2% in the six months ended June 30, 2024 as compared to 42.4% in the six months ended June 30, 2023. The decreases in selling and administrative expense as a percentage of net sales for the three and six months ended June 30, 2024 were primarily driven by:
Previous wording
•A decrease of $10.9 million in costs related to fair value adjustments to contingent consideration ($6.5 million of income in 2024 compared to $4.4 million expense in 2023), see Note 6; and
Current wording
•$(8.7) million and $(15.2) million of income related to fair value adjustments to contingent consideration in the three and six months ended June 30, 2024, respectively, compared to (income) expense of $(0.6) million and $3.8 million in the three and six months ended June 30, 2023, respectively, see Note 6;
Previous wording
•$4.3 million in costs related to the implementation of a new warehouse management system in 2023. These costs mainly consisted of incremental freight, labor and travel costs as well as professional fees.
Current wording
•$1.8 million and $6.1 million in costs related to the implementation of a new warehouse management system in the three and six months ended June 30, 2023, respectively. These costs mainly consisted of incremental freight, labor and travel costs as well as professional fees; and
Previous wording
Research and development expense increased to $13.6 million in the three months ended March 31, 2024 as compared to $12.5 million in the three months ended March 31, 2023. As a percentage of net sales, research and development expense increased 20 basis points to 4.4% in the three months ended March 31, 2024 as compared to 4.2% in the three months ended March 31, 2023. The change in spend as a percentage of sales was mainly driven by additional research projects during the three months ended March 31, 2024 as compared to the same period in the prior year.
Current wording
Research and development expense increased to $14.1 million in the three months ended June 30, 2024 as compared to $13.6 million in the three months ended June 30, 2023, and increased to $27.7 million in the six months ended June 30, 2024 as compared to $26.1 million in the six months ended June 30, 2023. As a percentage of net sales, research and development expense decreased 10 basis points to 4.2% in the three months ended June 30, 2024 as compared to 4.3% in the three months ended June 30, 2023 and remained flat at 4.3% in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. Spend as a percentage of sales was mainly driven by the timing of research and development projects.
Previous wording
Interest expense decreased to $9.6 million in the three months ended March 31, 2024 from $10.3 million in the three months ended March 31, 2023. The weighted average interest rates on our borrowings increased to 3.18% in the three months ended March 31, 2024 as compared to 3.14% in the three months ended March 31, 2023. The decrease in interest expense in the three months ended March 31, 2024 was driven by lower weighted average borrowings outstanding on our senior credit facility during 2024.
Current wording
Interest expense decreased to $9.6 million in the three months ended June 30, 2024 from $10.0 million in the three months ended June 30, 2023 and decreased to $19.2 million in the six months ended June 30, 2024 from $20.3 million in the six months ended June 30, 2023. The weighted average interest rates on our borrowings increased to 3.22% in the three months ended June 30, 2024 as compared to 3.09% in the three months ended June 30, 2023. The weighted average interest rates on our borrowings increased to 3.20% in the six months ended June 30, 2024 as compared to 3.11% in the six months ended June 30, 2023. The decrease in interest expense in the three and six months ended June 30, 2024 was driven by lower weighted average borrowings outstanding during 2024.
Previous wording
Income tax expense has been recorded at an effective tax rate of 22.5% for the three months ended March 31, 2024 compared to 25.6% for the three months ended March 31, 2023. The lower effective tax rate for the three months ended March 31, 2024 was primarily the result of the higher income in 2024 incurring a lower percentage of tax expense. The three months ended March 31, 2024 included discrete income tax benefit related to acquired federal research credits which reduced the effective tax rate by 1.4% and discrete income tax expense from stock options which increased the effective tax rate by 0.4% as compared to the three months ended March 31, 2023 which included discrete income tax benefit from stock option exercises which reduced the effective tax rate by 2.4%. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in our Annual Report on Form 10-K for the year ended December 31, 2023 under Note 9 to the consolidated financial statements.
Current wording
Income tax expense has been recorded at an effective tax rate of 20.1% for the three months ended June 30, 2024 compared to 21.2% for the three months ended June 30, 2023. Income tax expense has been recorded at an effective tax rate of 21.1% for the six months ended June 30, 2024 compared to 21.7% for the six months ended June 30, 2023. The lower effective tax rates for the three and six months ended June 30, 2024 were primarily the result of the higher income in 2024 incurring a lower percentage of tax expense and income related to the fair value adjustments to contingent consideration which is not subject to federal tax. The three months ended June 30, 2024 included discrete income tax benefit from stock option exercises which decreased the effective tax rate by 0.1% as compared to the three months ended June 30, 2023 which included discrete income tax benefit from stock option exercises which reduced the effective tax rate by 8.4%. The six months ended June 30, 2024 included discrete income tax expense from stock option exercises which increased the effective tax rate by 0.1% and discrete income tax benefit related to acquired federal research credits which decreased the effective tax rate by 0.6% as compared to the discrete income tax benefit from stock option exercises which decreased the effective tax rate by 7.7% and discrete income tax expense from foreign related taxes which increased the effective tax rate by 1.8% for the six months ended June 30, 2023. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in our Annual Report on Form 10-K for the year ended December 31, 2023 under Note 9 to the consolidated financial statements.
Previous wording
Our net working capital position was $344.3 million at March 31, 2024. Net cash provided by operating activities was $29.1 million in the three months ended March 31, 2024 compared to net cash used in operating activities of $3.8 million in the three months ended March 31, 2023, generated on net income of $19.7 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. Significant changes in assets and liabilities affecting operating cash flows in the three months ended March 31, 2024 include the following:
Current wording
Our net working capital position was $357.4 million at June 30, 2024. Net cash provided by operating activities was $72.4 million in the six months ended June 30, 2024 compared to net cash provided by operating activities of $22.8 million in the six months ended June 30, 2023, generated on net income of $49.7 million and $15.6 million for the six months ended June
Previous wording
•A decrease in cash flows from accrued compensation and benefits as a result of higher incentive compensation payments in the three months ended March 31, 2024 compared to the same period a year ago.
Current wording
•A decrease in cash flows from accrued compensation and benefits as a result of higher incentive compensation payments in the six months ended June 30, 2024 compared to the same period a year ago.
Previous wording
Net cash used in investing activities in the three months ended March 31, 2024 decreased $2.2 million from the same period a year ago due to capital expenditures being lower at $2.0 million in the three months ended March 31, 2024 compared to $4.3 million in the same period a year ago.
Current wording
Net cash used in investing activities in the six months ended June 30, 2024 decreased $4.2 million from the same period a year ago primarily due to capital expenditures being lower at $5.6 million in the six months ended June 30, 2024 compared to $8.8 million in the same period a year ago.
Previous wording
Net cash used in financing activities in the three months ended March 31, 2024 was $17.0 million compared to net cash provided by financing activities of $5.4 million during 2023. Below is a summary of the significant financing activities impacting the change during the three months ended March 31, 2024 compared to 2023:
Current wording
Net cash used in financing activities in the six months ended June 30, 2024 was $61.1 million compared to net cash used in financing activities of $14.4 million during 2023. Below is a summary of the significant financing activities impacting the change during the six months ended June 30, 2024 compared to 2023:
Previous wording
•During the three months ended March 31, 2024, we repaid the remaining $70.0 million outstanding on the 2.625% Notes.
Current wording
•During the six months ended June 30, 2024, we repaid the remaining $70.0 million outstanding on the 2.625% Notes.
Previous wording
•During the three months ended March 31, 2024, we paid $26.9 million in contingent consideration related to the In2Bones and Biorez acquisitions.
Current wording
•During the six months ended June 30, 2024, we paid $39.4 million in contingent consideration related to the In2Bones and Biorez acquisitions.
Previous wording
•During the three months ended March 31, 2024, we had net borrowings on our revolving line of credit of $86.0 million, compared to net borrowings of $9.0 million in the same period a year ago.
Current wording
•During the six months ended June 30, 2024, we had net borrowings on our revolving line of credit of $60.0 million, compared to net payments of $16.0 million in the same period a year ago.
Previous wording
•During the three months ended March 31, 2024, we had net cash proceeds of $1.1 million related to stock issued under employee plans compared to $3.4 million in the same period a year ago.
Current wording
•During the six months ended June 30, 2024, we had net cash proceeds of $2.3 million related to stock issued under employee plans compared to $15.3 million in the same period a year ago.
Previous wording
There were $114.6 million in borrowings outstanding on the term loan facility as of March 31, 2024. There were $88.0 million in borrowings outstanding under the revolving credit facility as of March 31, 2024. Our available borrowings on the revolving credit facility at March 31, 2024 were $495.4 million with approximately $1.6 million of the facility set aside for outstanding letters of credit.
Current wording
There were $114.6 million in borrowings outstanding on the term loan facility as of June 30, 2024. There were $62.0 million in borrowings outstanding under the revolving credit facility as of June 30, 2024. Our available borrowings on the revolving credit facility at June 30, 2024 were $521.4 million with approximately $1.6 million of the facility set aside for outstanding letters of credit.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
•$1.6 million in costs consisting of severance related to the elimination of certain positions during the six months ended June 30, 2023.
Current report — wording carried from elsewhere
30, 2024 and 2023, respectively. Significant changes in assets and liabilities affecting operating cash flows in the six months ended June 30, 2024 include the following: