CONMED Corporation

11/06/2025 | Press release | Distributed by Public on 11/06/2025 11:40

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
In this Quarterly Report on Form 10-Q, we make forward-looking statements about our financial condition, results of operations and business. Forward-looking statements are statements made by us concerning events that may or may not occur in the future. These statements may be made directly in this document or may be "incorporated by reference" from other documents. Such statements may be identified by the use of words such as "anticipates", "expects", "estimates", "intends" and "believes" and variations thereof and other terms of similar meaning.
Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that may cause our actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include those identified under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024 and the following, among others:
•general economic and business conditions, including, without limitation, a potential economic downturn, supply chain challenges and constraints, including the availability and cost of materials, the effects of inflation, and increased interest rates;
•trade protection measures, tariffs and other border taxes, and import or export licensing requirements;
•compliance with and changes in regulatory requirements;
•the failure of any enterprise-wide software programs or information technology systems, or potential disruption associated with updating or implementing new software programs or information technology systems;
•the risk of an information security breach, including a cybersecurity breach;
•pandemics and health crises, and the responses thereto by governments and hospitals;
•the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors;
•the introduction and acceptance of new products;
•the ability to advance our product lines, including challenges and uncertainties inherent in product research and development, and the uncertain impact, outcome and cost of ongoing and future clinical trials and market studies;
•competition;
•laws and government regulations;
•changes in customer preferences;
•changes in technology;
•cyclical customer purchasing patterns due to budgetary, staffing and other constraints;
•environmental compliance risks, including lack of availability of sterilization with Ethylene Oxide ("EtO") or other compliance costs associated with the use of EtO;
•the quality of our management and business abilities and the judgment of our personnel, as well as our ability to attract, motivate and retain employees at all levels of the Company;
•the availability, terms and deployment of capital;
•current and future levels of indebtedness and capital spending;
•changes in foreign exchange and interest rates;
•the ability to evaluate, finance and integrate acquired businesses, products and companies;
•changes in business strategy;
•the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues;
•the ability to defend and enforce intellectual property,including the risks related to theft or compromise of intellectual property in connection with our international operations;
•the risk of patent, product and other litigation, as well as the cost associated with such litigation; and
•weather related events which may disrupt our operations.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" below and "Risk Factors" and "Business" in our Annual Report on Form 10-K for the year ended December 31, 2024 for a further discussion of these factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
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.
Overview
CONMED Corporation is a medical technology company that provides devices and equipment for surgical procedures. The Company's products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology.
Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine and lower extremities instrumentation and implants, small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgery procedures and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, clinical insufflation, smoke evacuation devices, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. These product lines as a percentage of consolidated net sales are as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Orthopedic surgery 41 % 41 % 42 % 42 %
General surgery 59 % 59 % 58 % 58 %
Consolidated net sales 100 % 100 % 100 % 100 %
A significant amount of our products are used in surgical procedures with approximately86% 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% of ourconsolidated net sales during both the nine months ended September 30, 2025 and 2024.
Business Environment
The Company has been and continues to be impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. We continue to monitor our spending and expenses in light of these factors. This will likely impact our results of operations and we therefore engaged a consulting firm to evaluate and propose improvements in our supply chain and manufacturing operations. In addition, our results of operations are being impacted by tariffs placed on imported goods to the United States as well as exporting of products to other countries. We are actively working to mitigate this impact. See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024 for more information.
The Company has not been materially impacted by the conflicts in Ukraine and the Middle East. The Company has no direct operations in these regions with our business limited to selling to third party distributors. Total revenues and accounts receivable associated with sales to third party distributors in these regions are not material to the consolidated condensed financial statements. We will continue to monitor and adjust, if necessary, our business strategy in response to the conflicts in these regions.
Under the terms of our Distribution Agreement with W. L. Gore & Associates, Inc. ("Gore®"), CONMED has exclusive distribution rights to the Gore® VIABIL® Biliary Endoprosthesis for endoscopic placement ("VIABIL® device") in the United States and Canada ("Distribution Agreement") through December 31, 2026. CONMED will not be renewing its Distribution Agreement for the commercial support and distribution of the Gore® VIABIL® device after December 31, 2026. The VIABIL distribution represented $44.1 million of net sales in the nine months ending September 30, 2025, with a gross profit margin of approximately 38%.
Critical Accounting Policies
Preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2024 describes the significant accounting policies used in preparation of the Consolidated Financial Statements. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, those related to goodwill and intangible assets, contingent consideration and our pension benefit obligation.
Consolidated Results of Operations
The following table presents, as a percentage of net sales, certain categories included in our consolidated condensed statements of comprehensive income for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 50.8 43.5 46.9 44.4
Gross profit 49.2 56.5 53.1 55.6
Selling and administrative expense 41.5 31.5 42.5 36.0
Research and development expense 4.1 4.3 4.1 4.3
Income from operations 3.5 20.7 6.6 15.4
Interest expense 2.3 2.9 2.4 3.0
Other expense - - - -
Income before income taxes
1.3 17.8 4.2 12.4
Provision for income taxes
0.4 2.4 1.2 2.2
Net income
0.8 % 15.5 % 3.0 % 10.3 %
Net Sales
The following table presents net sales by product line for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended
% Change
2025 2024 As Reported Impact of Foreign Currency Constant Currency
Orthopedic surgery $ 138.2 $ 130.5 5.9 % -0.6 % 5.3 %
General surgery 199.7 186.2 7.3 % -0.4 % 6.9 %
Net sales $ 337.9 $ 316.7 6.7 % -0.4 % 6.3 %
Single-use products $ 289.2 $ 270.8 6.8 % -0.5 % 6.3 %
Capital products 48.7 45.9 6.3 % -0.3 % 6.0 %
Net sales $ 337.9 $ 316.7 6.7 % -0.4 % 6.3 %
Nine Months Ended
% Change
2025 2024 As Reported Impact of Foreign Currency Constant Currency
Orthopedic surgery $ 417.2 $ 405.0 3.0 % 0.3 % 3.3 %
General surgery 584.3 556.1 5.1 % -0.1 % 5.0 %
Net sales $ 1,001.5 $ 961.1 4.2 % 0.1 % 4.3 %
Single-use products $ 863.2 $ 814.8 5.9 % 0.1 % 6.0 %
Capital products 138.3 146.3 -5.5 % 0.2 % -5.3 %
Net sales $ 1,001.5 $ 961.1 4.2 % 0.1 % 4.3 %
Net sales increased 6.7% and 4.2% in the three and nine months ended September 30, 2025, respectively, compared to the same periods a year ago. The increases during the three and nine months ended September 30, 2025 were due to growth in both the orthopedic surgery and general surgery product lines. There was a return to growth in capital sales during the three months ended September 30, 2025; however, growth during the nine months ended September 30, 2025 was impacted by lower capital sales as we work through supply chain and manufacturing operation improvements.
•Orthopedic surgery sales increased 5.9% and 3.0% in the three and nine months ended September 30, 2025, respectively, primarily due to growth in our procedure specific, foot and ankle and BioBrace®product offerings.
•General surgery sales increased 7.3% and 5.1% in the three and nine months ended September 30, 2025, respectively, primarily due to growth in our AirSeal®, Buffalo Filter®and biliary product offerings.
Cost of Sales
Cost of sales increased to $171.8 million in the three months ended September 30, 2025 as compared to $137.7 million in the three months ended September 30, 2024 and increased to $469.3 million in the nine months ended September 30, 2025 as compared to $426.4 million in the nine months ended September 30, 2024. Gross profit margins decreased 730 basis points to 49.2% in the three months ended September 30, 2025 as compared to 56.5% in the three months ended September 30, 2024. Gross profit margins decreased 250 basis points to 53.1% in nine months ended September 30, 2025 as compared to 55.6% in the nine months ended September 30, 2024.
During the three and nine months ended September 30, 2025 we incurred costs of $3.7 million and $12.3 million, respectively, for the engagement of consultants to evaluate and propose improvements to our supply chain and manufacturing
operations. As a result of our consultations and internal review, we wrote off $19.7 million in inventory, equipment, tooling and patents related to the cancellation of planned new product lines and discontinuation of certain catalog numbers during the three and nine months ended September 30, 2025. During the nine months ended September 30, 2024, we wrote off $1.4 million in inventory, tooling and equipment related to the cancellation of a planned new product line. The 730 and 250 basis point decreases in gross profit margins during the three and nine months ended September 30, 2025, respectively, were mainly due to these charges as well as the cost of tariffs.
Selling and Administrative Expense
Selling and administrative expense increased to $140.3 million in the three months ended September 30, 2025 as compared to $99.7 million in the three months ended September 30, 2024 and increased to $425.2 million in the nine months ended September 30, 2025 as compared to $345.6 million in the nine months ended September 30, 2024. Selling and administrative expense as a percentage of net sales increased 1,000 basis points to 41.5% in the three months ended September 30, 2025 as compared to 31.5% in the three months ended September 30, 2024 and increased 650 basis points to 42.5% in the nine months ended September 30, 2025 as compared to 36.0% in the nine months ended September 30, 2024. The increases in selling and administrative expense as a percentage of sales for the three and nine months ended September 30, 2025 were primarily driven by:
•$12.2 million of cash and stock-based compensation costs related to advisory services provided by our former Chief Executive Officer in the nine months ended September 30, 2025;
•$5.5 million and $8.5 million of consulting fees related to operational optimization during the three and nine months ended September 30, 2025, respectively; and
•$1.3 million and $3.5 million in expense related to fair value adjustments to contingent consideration in the three and nine months ended September 30, 2025, respectively, compared to income of $27.0 million and $42.3 million in the three and nine months ended September 30, 2024, respectively, see Note 6.
Salesforce and commissions, marketing, general & administrative costs and amortization expense in the three and nine months ended September 30, 2025 were in line with the three and nine months ended September 30, 2024 as a percentage of sales.
Research and Development Expense
Research and development expense increased to $13.9 million in the three months ended September 30, 2025 as compared to $13.6 million in the three months ended September 30, 2024 and decreased to $41.0 million in the nine months ended September 30, 2025 as compared to $41.3 million in the nine months ended September 30, 2024. As a percentage of net sales, research and development expense decreased 20 basis points to 4.1% in both the three and nine months ended September 30, 2025 as compared to 4.3% in both the three and nine months ended September 30, 2024. Spend as a percentage of sales was mainly driven by the timing of research and development projects.
Interest Expense
Interest expense decreased to $7.6 million in the three months ended September 30, 2025 from $9.3 million in the three months ended September 30, 2024 and decreased to $23.7 million in the nine months ended September 30, 2025 from $28.4 million in the nine months ended September 30, 2024. The weighted average interest rates on our borrowings decreased to 2.80% in the three months ended September 30, 2025 as compared to 3.15% in the three months ended September 30, 2024 and decreased to 2.83% in the nine months ended September 30, 2025 as compared to 3.18% in the nine months ended September 30, 2024. The decrease in interest expense in the three and nine months ended September 30, 2025 was driven by lower weighted average borrowings outstanding and lower weighted average interest rates during 2025.
Other Expense
Other expense during the nine months ended September 30, 2025 was related to costs associated with our eighth amended and restated senior credit agreement entered into June 10, 2025, as further described in Note 10. These costs included $0.4 million related to a loss on early extinguishment and third party fees.
Provision for Income Taxes
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate applied to its year-to-date earnings, and also adjusting for discrete items arising in that quarter. In each quarter, the Company updates its
estimate of the annual effective tax rate and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.
Income tax expense has been recorded at an effective tax rate of 33.1% for the three months ended September 30, 2025 compared to 13.2% for the three months ended September 30, 2024. Income tax expense has been recorded at an effective tax rate of 27.6% for the nine months ended September 30, 2025 compared to 17.4% for the nine months ended September 30, 2024. The higher effective tax rates for the three and nine months ended September 30, 2025 was primarily the result of lower income in 2025 incurring a higher percentage of tax expense and year to date expense related to the fair value adjustments to contingent consideration which is not deductible for federal tax as compared to the effective tax rates for the three and nine months ended September 30, 2024 which included year to date income related to the fair value adjustments to contingent consideration which is not subject to federal tax. 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, 2024 under Note 9 to the consolidated financial statements.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law in the United States. The OBBBA permanently extends and modifies significant provisions of the Tax Cuts and Jobs Act. Key modifications expected to impact the Company's effective tax rate and cash tax position include the increased business interest expense limitation and the reduced federal research credit benefit effective in 2025 and changes to the international tax provisions effective in 2026. The Company has included the estimated impact of the OBBBA in the income tax provision for the three and nine months ended September 30, 2025. The estimated impact was not material to the consolidated condensed financial statements.
Non-GAAP Financial Measures
Net sales on a "constant currency" basis is a non-GAAP measure. The Company analyzes net sales on a constant currency basis to better measure the comparability of results between periods. To measure percentage sales growth in constant currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of net sales.
Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. This adjusted financial measure should not be considered in isolation or as a substitute for reported net sales growth, the most directly comparable GAAP financial measure. This non-GAAP financial measure is an additional way of viewing net sales that, when viewed with our GAAP results, provides a more complete understanding of our business. The Company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Liquidity and Capital Resources
Our liquidity needs arise primarily from capital investments, working capital requirements and payments on indebtedness under the eighth amended and restated senior credit agreement. We have historically met these liquidity requirements with funds generated from operations, borrowings under our revolving credit facility and issuances of debt in the capital markets. In addition, we have historically used term borrowings, including borrowings under the eighth amended and restated senior credit agreement and borrowings under separate loan facilities, in the case of real property purchases, to finance our acquisitions, including payments of contingent consideration. We also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering.
Operating cash flows
Our net working capital position was $347.5 million at September 30, 2025. Net cash provided by operating activities was $124.4 million in the nine months ended September 30, 2025 compared to net cash provided by operating activities of $123.6 million in the nine months ended September 30, 2024, generated on net income of $30.3 million and $98.7 million for the nine months ended September 30, 2025 and 2024, respectively. Net income in the nine months ended September 30, 2024 included a $42.3 million non-cash gain related to the adjustment to fair value of the contingent consideration liability compared to a $3.5 million non-cash charge in the current year. In addition, below is a summary of significant changes in assets and liabilities in the nine months ended September 30, 2025:
•An increase in cash flows from accounts receivable due to timing of sales and cash receipts;
•A decrease in cash flows from inventory as we increased inventory to mitigate supply chain challenges;
•An increase in cash flows from accounts payable due to the timing of payments; and
•An increase in cash flows from accrued compensation and benefits as a result of lower incentive compensation payments during the period.
Investing cash flows
Net cash used in investing activities in the nine months ended September 30, 2025 increased $4.8 million from the same period a year ago. Capital expenditures were $14.7 million in the nine months ended September 30, 2025 compared to $9.0 million in the same period a year ago.
Financing cash flows
Net cash used in financing activities in the nine months ended September 30, 2025 was $98.5 million compared to net cash used in financing activities of $99.9 million during 2024. Below is a summary of the significant financing activities impacting the change during the nine months ended September 30, 2025 compared to 2024:
•During the nine months ended September 30, 2025, we had net payments on our term loan of $54.6 million, inclusive of a $25.2 million impact on both borrowings and repayments between independent counterparties associated with the eighth amended and restated senior credit agreement.
•During the nine months ended September 30, 2025, we paid $22.6 million in contingent consideration related to the Biorez acquisition compared to $48.1 million related to the Biorez and In2Bones acquisitions in the same period a year ago.
•During the nine months ended September 30, 2024, we repaid the remaining $70.0 million outstanding on the 2.625% Notes.
•During the nine months ended September 30, 2025, we did not have any net borrowings on our revolving line of credit compared to $34.0 million in net borrowings during the nine months ended September 30, 2024.
Other Liquidity Matters
Our cash balances and cash flows generated from operations may be used to fund strategic investments, business acquisitions, including contingent consideration payments, working capital needs, research and development, common stock repurchases and payments of dividends to our shareholders. Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our eighth amended and restated senior credit agreement, will be adequate to meet our anticipated operating working capital requirements, debt service, funding of capital expenditures, dividend payments and common stock repurchases in the foreseeable future. In addition, management believes we could access capital markets, as necessary, to fund future business acquisitions.
We are also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. We continue to monitor our spending and expenses in light of these factors. However, we may need to take further steps to reduce our costs, or to refinance our debt. See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, for further discussion.
There were $60.0 million in borrowings outstanding on the term loan facility as of September 30, 2025. There were no borrowings outstanding under the revolving credit facility as of September 30, 2025. Our available borrowings on the revolving credit facility at September 30, 2025 were $648.5 million with approximately $1.5 million of the facility set aside for outstanding letters of credit.
The eighth amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The eighth amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of September 30, 2025. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.
On June 6, 2022, we issued $800.0 million aggregate principal amount of 2.250% Convertible Notes due 2027 (the "2.250% Notes"). Interest is payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2022. The 2.250% Notes will mature on June 15, 2027, unless earlier repurchased or converted.
See Note 10 for further information on our financing agreements and outstanding debt obligations.
Effective as of October 31, 2025, our Board of Directors has authorized a $150.0 million share repurchase program (the "Modified Program") which modified our prior $200.0 million share repurchase program (the "Prior Program"), under which $37.4 million had remained available for repurchases prior to the establishment of the Modified Program. Through September 30, 2025, we repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under the Prior Program. The Modified Program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the Modified Program at any time. We have not purchased any shares of common stock under the Prior Program or the Modified Program during 2025. The Company expects to repurchase at least $25.0 million in shares annually beginning in 2026. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility. With the decision to extend the share repurchase program, we have suspended our dividend payments and the Board of Directors will consider whether to declare dividends and the amount of such dividends from time to time in the future. We paid approximately $18.6 million of dividends year-to-date through October 31, 2025.
New Accounting Pronouncements
See Note 3 to the consolidated condensed financial statements for a discussion of new accounting pronouncements.
CONMED Corporation published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 17:40 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]