CONMED Corp
For the period ended Sep 30, 2024. Filed Oct 31, 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.
Sep 30, 2024 · Filed Oct 31, 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 2024-06-30; filed 2024-08-01.
0000816956-24-000015
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0000816956-24-000018
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 93 previous paragraphs and 94 current paragraphs.
66 unchanged; 24 reworded; 4 added; 2 removed; 1 previous and 0 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 (4)
Current report
Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the amounts in thousands. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.
Current report
During the latter part of the third quarter of 2024, the path of Hurricane Helene impacted the Company’s manufacturing facility in Largo, Florida and the Company’s distribution center in Lithia Springs, Georgia. The Company prioritizes the safety of its employees, and ceased manufacturing operations at its Largo, Florida facility for approximately 24 hours. Then, during the early part of the fourth quarter of 2024, the path of Hurricane Milton impacted the Company's manufacturing facility in Largo, Florida and we again ceased manufacturing operations for four days. The facilities did not incur any significant damage as a result of these hurricanes, we have confirmed the safety of our employees and the Company has resumed normal operations. We are monitoring the impact these hurricanes had, and may continue to have, on hospitals and surgery centers, as well as supply chain, but cannot quantify the impact at this time.
Current report
•Orthopedic surgery sales increased 4.7% and 2.1% in the three and nine months ended September 30, 2024, respectively, primarily due to growth in our sports medicine and BioBrace® product offerings.
Current report
•overall decrease in selling and administrative expense as a percentage of sales as we leverage our existing selling and administrative structure.
Removed paragraphs (2)
Previous report
Forward-Looking Statements are not Guarantees of Future Performance
Previous report
•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.
Reworded paragraphs (24)
Previous 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.
Current 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 43% and 44% of our consolidated net sales during the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
The following table presents net sales by product line for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table presents net sales by product line for the three and nine months ended September 30, 2024 and 2023:
Previous wording
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 wording
Net sales increased 4.0% and 4.7% in the three and nine months ended September 30, 2024, respectively, compared to the same periods a year ago. The increases during the three and nine months ended September 30, 2024 were primarily due to growth in both the orthopedic surgery and general surgery product lines.
Previous 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.
Current wording
•General surgery sales increased 3.5% and 6.7% in the three and nine months ended September 30, 2024, respectively, primarily due to growth in our AirSeal® and biliary product offerings.
Previous 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.
Current wording
Cost of sales increased to $137.7 million in the three months ended September 30, 2024 as compared to $136.5 million in the three months ended September 30, 2023 and increased to $426.4 million in the nine months ended September 30, 2024 as compared to $423.6 million in the nine months ended September 30, 2023. Gross profit margins increased 130 basis points to 56.5% in the three months ended September 30, 2024 as compared to 55.2% in the three months ended September 30, 2023. Gross profit margins increased 180 basis points to 55.6% in the nine months ended September 30, 2024 as compared to 53.8% in the nine months ended September 30, 2023.
Previous 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.
Current wording
The 130 and 180 basis point increases in gross profit margins during the three and nine months ended September 30, 2024, respectively, were mainly due to favorable product mix as well as during the three and nine months ended September 30, 2023, we incurred costs for the amortization of inventory step-up to fair value of $2.2 million and $6.5 million, respectively, related to the In2Bones acquisition.
Previous 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:
Current wording
Selling and administrative expense decreased to $99.7 million in the three months ended September 30, 2024 as compared to $125.3 million in the three months ended September 30, 2023, and decreased to $345.6 million in the nine months ended September 30, 2024 as compared to $385.1 million in the nine months ended September 30, 2023. Selling and administrative expense as a percentage of net sales decreased 960 basis points to 31.5% in the three months ended September 30, 2024 as compared to 41.1% in the three months ended September 30, 2023 and decreased 600 basis points to 36.0% in the nine months ended September 30, 2024 as compared to 42.0% in the nine months ended September 30, 2023. The decreases in selling and administrative expense as a percentage of net sales for the three and nine months ended September 30, 2024 were primarily driven by:
Previous wording
•$(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;
Current wording
•$27.0 million and $42.3 million of income related to fair value adjustments to contingent consideration in the three and nine months ended September 30, 2024, respectively, compared to expense of $3.2 million and $6.9 million in the three and nine months ended September 30, 2023, respectively, see Note 6;
Previous wording
•$2.1 million in costs related to the termination of distribution agreements during the three and six months ended June 30, 2023;
Current wording
•$2.1 million in costs related to the termination of distribution agreements during the nine months ended September 30, 2023;
Previous 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
Current wording
•$6.1 million in costs related to the implementation of a new warehouse management system in the nine months ended September 30, 2023. These costs mainly consisted of incremental freight, labor and travel costs as well as professional fees;
Previous wording
•$1.6 million in costs consisting of severance related to the elimination of certain positions during the six months ended June 30, 2023.
Current wording
•$1.6 million in costs consisting of severance related to the elimination of certain positions during the nine months ended September 30, 2023; and
Previous wording
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 wording
These decreases are offset by $1.9 million and $4.6 million in costs incurred for third party services pertaining to potential issues with certain royalty payments to design surgeons during the three and nine months ended September 30, 2024, respectively.
Previous 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.
Current wording
Research and development expense increased to $13.6 million in the three months ended September 30, 2024 as compared to $12.5 million in the three months ended September 30, 2023, and increased to $41.3 million in the nine months ended September 30, 2024 as compared to $38.6 million in the nine months ended September 30, 2023. As a percentage of net sales, research and development expense increased 20 basis points to 4.3% in the three months ended September 30, 2024 as compared to 4.1% in the three months ended September 30, 2023 and increased 10 basis points to 4.3% in the nine months ended September 30, 2024 as compared to 4.2% in the nine months ended September 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 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.
Current wording
Interest expense decreased to $9.3 million in the three months ended September 30, 2024 from $10.0 million in the three months ended September 30, 2023 and decreased to $28.4 million in the nine months ended September 30, 2024 from $30.3 million in the nine months ended September 30, 2023. The weighted average interest rates on our borrowings decreased to 3.15% in the three months ended September 30, 2024 as compared to 3.17% in the three months ended September 30, 2023. The weighted average interest rates on our borrowings increased to 3.18% in the nine months ended September 30, 2024 as compared to 3.13% in the nine months ended September 30, 2023. The decrease in interest expense in the three months ended September 30, 2024 was driven by lower weighted average borrowings outstanding and lower weighted average interest rates during 2024. The decrease in interest expense in the nine months ended September 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 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.
Current wording
Income tax expense has been recorded at an effective tax rate of 13.2% for the three months ended September 30, 2024 compared to 21.9% for the three months ended September 30, 2023. Income tax expense has been recorded at an effective tax rate of 17.4% for the nine months ended September 30, 2024 compared to 21.8% for the nine months ended September 30, 2023. The lower effective tax rates for the three and nine months ended September 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 September 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 from finalizing the 2023 federal tax return which decreased the effective tax rate by 2.1%. The three months ended September 30, 2023 included discrete income tax benefit from stock option exercises which reduced the effective tax rate by 0.3% and discrete income tax benefit from finalizing the 2022 federal tax return which decreased the effective tax rate by 7.4%. The nine months ended September 30, 2024 included discrete income tax expense from stock option exercises which increased the effective tax rate by 0.1%, discrete income tax benefit related to acquired federal research credits which decreased the effective tax rate by 0.3% and discrete income tax benefit from finalizing the 2023 federal tax return which decreased the effective tax rate by 1.0%. The nine months ended September 30, 2023 included discrete income tax benefit from stock option exercises which decreased the effective tax rate by 3.7%, discrete income tax benefit from finalizing the 2022 tax return which decreased the effective tax rate by 3.7%, and discrete income tax expense from foreign related taxes which increased the effective tax rate by 0.9%. 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 $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
Current wording
Our net working capital position was $358.7 million at September 30, 2024. Net cash provided by operating activities was $123.6 million in the nine months ended September 30, 2024 compared to net cash provided by operating activities of $69.0 million in the nine months ended September 30, 2023, generated on net income of $98.7 million and $31.4 million for the nine months ended September 30, 2024 and 2023, respectively. Significant changes in assets and liabilities affecting operating cash flows in the nine months ended September 30, 2024 include the following:
Previous 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.
Current wording
•A decrease in cash flows from accrued compensation and benefits as a result of higher incentive compensation payments in the nine months ended September 30, 2024 compared to the same period a year ago.
Previous 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.
Current wording
Net cash used in investing activities in the nine months ended September 30, 2024 decreased $6.1 million from the same period a year ago primarily due to capital expenditures being lower at $9.0 million in the nine months ended September 30, 2024 compared to $14.2 million in the same period a year ago.
Previous 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:
Current wording
Net cash used in financing activities in the nine months ended September 30, 2024 was $99.9 million compared to net cash used in financing activities of $51.7 million during 2023. Below is a summary of the significant financing activities impacting the change during the nine months ended September 30, 2024 compared to 2023:
Previous wording
•During the six months ended June 30, 2024, we repaid the remaining $70.0 million outstanding on the 2.625% Notes.
Current wording
•During the nine months ended September 30, 2024, we repaid the remaining $70.0 million outstanding on the 2.625% Notes.
Previous wording
•During the six months ended June 30, 2024, we paid $39.4 million in contingent consideration related to the In2Bones and Biorez acquisitions.
Current wording
•During the nine months ended September 30, 2024, we paid $48.1 million in contingent consideration related to the In2Bones and Biorez acquisitions.
Previous 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.
Current wording
•During the nine months ended September 30, 2024, we had net borrowings on our revolving line of credit of $34.0 million, compared to net payments of $48.0 million in the same period a year ago.
Previous 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.
Current wording
•During the nine months ended September 30, 2024, we had net cash proceeds of $5.0 million related to stock issued under employee plans compared to $16.5 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 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.
Current wording
There were $114.6 million in borrowings outstanding on the term loan facility as of September 30, 2024. There were $36.0 million in borrowings outstanding under the revolving credit facility as of September 30, 2024. Our available borrowings on the revolving credit facility at September 30, 2024 were $547.4 million with approximately $1.6 million of the facility set aside for outstanding letters of credit.
Rearranged previous paragraphs (1)
Previous report — wording carried 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: