CONMED Corporation

04/30/2026 | Press release | Distributed by Public on 04/30/2026 07:57

Quarterly Report for Quarter Ending March 31, 2026 (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, 2025 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 laws and 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;
•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 impact of divestitures of products or product portfolios;
•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, 2025 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, and thoracic surgery.
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 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 March 31,
2026 2025
Orthopedic surgery 47 % 43 %
General surgery 53 % 57 %
Consolidated net sales 100 % 100 %
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 45% and 43% of our consolidated net sales during the three months ended March 31, 2026 and 2025, respectively.
Business Environment
In recent years, the Company has experienced higher manufacturing and operating costs as well as ongoing supply chain challenges. We continue to monitor our spending and expenses in light of these factors. We engaged a consulting firm during the past year to evaluate and propose improvements in our 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. During the first quarter of 2026, the Supreme Court ruled tariffs paid under the International Emergency Economic Powers Act ("IEEPA") were illegal. We are following the process to submit refund claims for such payments however this requires review and approval from the U.S. Customs and Border Protection agency and therefore we have not recorded any receivables related to these potential refunds at this time. See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 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.
On December 5, 2025, we announced our intent to exit our gastroenterology product lines as part of our portfolio optimization strategy. This included the termination of our distribution agreement with W.L. Gore & Associates, Inc. ("Gore") for the Gore® VIABIL® biliary stent effective January 1, 2026 and the subsequent sale of certain assets related to our gastroenterology product lines during the three months ended March 31, 2026. We subsequently sold the remaining gastroenterology product lines during April 2026.
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, 2025 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 March 31,
2026 2025
Net sales 100.0 % 100.0 %
Cost of sales 42.1 44.7
Gross profit 57.9 55.3
Selling and administrative expense 44.7 46.3
Research and development expense 5.2 4.0
Income from operations 8.0 5.0
Interest expense 2.2 2.6
Income before income taxes
5.8 2.4
Provision for income taxes
1.4 0.5
Net income
4.4 % 1.9 %
Net Sales
The following table presents net sales by product line for the three months ended March 31, 2026 and 2025:
Three Months Ended
% Change
2026 2025 As Reported Impact of Foreign Currency Constant Currency
Orthopedic surgery $ 147.7 $ 138.3 6.8 % -2.3 % 4.5 %
General surgery 169.3 183.0 -7.4 % -1.1 % -8.5 %
Net sales $ 317.0 $ 321.3 -1.3 % -1.6 % -2.9 %
Single-use products $ 270.0 $ 276.3 -2.3 % -1.6 % -3.9 %
Capital products 47.0 45.0 4.6 % -1.5 % 3.1 %
Net sales $ 317.0 $ 321.3 -1.3 % -1.6 % -2.9 %
Net sales decreased 1.3% in the three months ended March 31, 2026 compared to the same period a year ago due to the exit from many products in the gastroenterology product line during the quarter. Gastroenterology sales were $9.5 million and $25.0 million during the three months ended March 31, 2026 and March 31, 2025, respectively. This decrease was partially offset by sales growth in Orthopedic surgery.
•Orthopedic surgery sales increased 6.8% in the three months ended March 31, 2026, primarily due to growth in our procedure-specific and BioBrace® product offerings.
•General surgery sales decreased 7.4% in the three months ended March 31, 2026 primarily due to the exit from many products in the gastroenterology product line during the quarter.
Cost of Sales
Cost of sales decreased to $133.6 million in the three months ended March 31, 2026 as compared to $143.5 million in the three months ended March 31, 2025. Gross profit margins increased 260 basis points to 57.9% in the three months ended March 31, 2026 as compared to 55.3% in the three months ended March 31, 2025.
The 260 basis point increase in gross profit margins during the three months ended March 31, 2026 was primarily due to a $1.9 million benefit resulting from the termination of our distribution agreement with W.L. Gore & Associates, Inc. for the Gore® VIABIL® biliary stent; the favorable impact of foreign currency exchange rates and product mix. In addition, during the three months ended March 31, 2025 we incurred costs of $3.4 million for the engagement of consultants to evaluate and propose improvements to our supply chain and manufacturing operations.
Selling and Administrative Expense
Selling and administrative expense decreased to $141.7 million in the three months ended March 31, 2026 as compared to $148.8 million in the three months ended March 31, 2025. Selling and administrative expense as a percentage of net sales decreased 160 basis points to 44.7% in the three months ended March 31, 2026 as compared to 46.3% in the three months ended March 31, 2025. The decrease in selling and administrative expense as a percentage of sales for the three months ended March 31, 2026 was 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 three months ended March 31, 2025;
•a $3.9 million benefit resulting from the gain on the sale of certain assets related to gastroenterology products; and
•a decrease of $3.2 million in costs related to fair value adjustments to contingent consideration ($0.7 million of expense for the three months ended March 31, 2026 compared to $4.0 million of expense for the three months ended March 31, 2025), see Note 6
The decrease in selling and administrative expense as a percentage of sales was partially offset by $7.5 million of consulting fees, legal fees and other costs related to operational optimization during three months ended March 31, 2026; $3.3 million of cash and stock-based compensation costs related to advisory services provided by our former Chief Financial Officer in the three months ended March 31, 2026; and increased investment into our key growth drivers.
General and administrative costs and amortization expense in the three months ended March 31, 2026 were in line with the three months ended March 31, 2025 as a percentage of sales.
Research and Development Expense
Research and development expense increased to $16.3 million in the three months ended March 31, 2026 as compared to $12.9 million in the three months ended March 31, 2025. As a percentage of net sales, research and development expense increased 120 basis points to 5.2% in the three months ended March 31, 2026 as compared to 4.0% in the three months ended March 31, 2025. The increase in research and development expense as a percentage of sales was mainly driven by increased investments into our key growth drivers as well as $1.2 million in costs to comply with the European Union's Medical Device Regulations in the three months ended March 31, 2026.
Interest Expense
Interest expense decreased to $7.1 million in the three months ended March 31, 2026 from $8.3 million in the three months ended March 31, 2025. The weighted average interest rates on our borrowings decreased to 2.62% in the three months ended March 31, 2026 as compared to 2.90% in the three months ended March 31, 2025. The decrease in interest expense in the three months ended March 31, 2026 was driven by lower weighted average borrowings outstanding and lower weighted average interest rates during 2026.
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 24.7% for the three months ended March 31, 2026 compared to 21.3% for the three months ended March 31, 2025. The higher effective tax rate for the three months ended March 31, 2026 was primarily the result of a lower discrete benefit from changes in unrecognized tax benefits related to acquired federal research credits recorded in 2026 as compared to the same period for 2025. 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, 2025 under Note 8 to the consolidated 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 $377.9 million at March 31, 2026. Net cash provided by operating activities was $13.5 million and $41.5 million in the three months ended March 31, 2026 and March 31, 2025, respectively, generated on net income of $13.8 million and $6.0 million for the three months ended March 31, 2026 and 2025, respectively. Net income in the three months ended March 31, 2026 included a $3.9 million gain on the sale of certain assets related to gastroenterology products. In addition, below is a summary of significant changes in assets and liabilities in the three months ended March 31, 2026:
•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;
•A decrease in cash flows from accrued compensation and benefits as a result of higher incentive compensation payments during the period; and
•A decrease in cash flows from other assets due to the timing of payments on prepaid contracts and increases in field inventory.
Investing cash flows
Net cash provided by investing activities in the three months ended March 31, 2026 increased $7.0 million from the same period a year ago mainly driven by cash proceeds of $7.0 million from the sale of certain assets related to gastroenterology products. Capital expenditures were $2.9 million in the three months ended March 31, 2026 compared to $3.8 million in the same period a year ago.
Financing cash flows
Net cash used in financing activities in the three months ended March 31, 2026 was $22.6 million compared to net cash used in financing activities of $28.4 million during 2025. Below is a summary of the significant financing activities impacting the change during the three months ended March 31, 2026 compared to 2025:
•During the three months ended March 31, 2026, we paid $37.0 million for repurchases of common stock.
•During the three months ended March 31, 2026, we had $25.0 million in net borrowings on our revolving line of credit and we did not have any net borrowings during the three months ended March 31, 2025.
•During the three months ended March 31, 2026, we paid $11.4 million in contingent consideration related to the Biorez acquisition compared to $7.2 million related to the Biorez acquisition in the same period a year ago.
•During the three months ended March 31, 2025, we repaid $14.6 million on our term loan.
•During the three months ended March 31, 2025, we paid $6.2 million in dividends.
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, 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, 2025, for further discussion.
There were $40.0 million in borrowings outstanding on the term loan facility as of March 31, 2026. There were $25.0 million in borrowings outstanding under the revolving credit facility as of March 31, 2026. Our available borrowings on the revolving credit facility at March 31, 2026 were $623.4 million with approximately $1.6 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. It also includes a minimum liquidity covenant that commences 91 days prior to the earliest scheduled maturity date of the Company's convertible notes. This covenant requires the Company to maintain liquidity of at least $75 million plus the aggregate principal amount of the early maturing debt so long as the aggregate principal amount of such early maturing debt exceeds $200 million. We were in full compliance with these covenants and restrictions as of March 31, 2026. We are also required, under certain circumstances, to make mandatory prepayments with net cash proceeds from the incurrence of certain additional indebtedness, certain asset sales, or insurance proceeds or condemnation awards, in each case, subject to certain exceptions and reinvestment rights.
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. We intend to secure incremental financing to fund the maturity of the 2.250% Convertible Notes. There can be no assurance we will be able to obtain such financing on acceptable terms. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as foregoing acquisitions, reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital.
See Note 10 for further information on our financing agreements and outstanding debt obligations.
Our Board of Directors has authorized a $150.0 million share repurchase program. Through March 31, 2026, we repurchased a total of 0.9 million shares of common stock aggregating $37.4 million under this program. The program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend, modify or discontinue the program at any time. The Company expects to repurchase at least $25.0 million in shares annually with $61.8 million
planned for 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 authorization of 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.
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 April 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 30, 2026 at 13:57 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]