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Edited Transcript of CNMD.N earnings conference call or presentation 28-Oct-20 8:30pm GMT

·32 min read

Q3 2020 Conmed Corp Earnings Call Dec 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Conmed Corp earnings conference call or presentation Wednesday, October 28, 2020 at 8:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Curt R. Hartman CONMED Corporation - Chairman of the Board, CEO & President * Todd W. Garner CONMED Corporation - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Erin Sydney Fahey SVB Leerink LLC, Research Division - Associate * Frederick Allen Wise Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst * Matthew Ian Mishan KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst * Matthew Oliver O'Brien Piper Sandler & Co., Research Division - MD & Senior Research Analyst * Michael Stephen Matson Needham & Company, LLC, Research Division - Senior Analyst * Sarin Pennadam Murlidar JPMorgan Chase & Co, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, everyone. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook and its plans and objectives, which represent forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future results, performance or results, and the company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under forward-looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will also hear management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for GAAP measures, management uses these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Curt Hartman, CONMED's President, Chief Executive Officer and Chair of the Board for opening remarks. Mr. Hartman? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [2] -------------------------------------------------------------------------------- Thank you, Crystal. Good afternoon, and thank you for joining us for CONMED's Third Quarter 2020 Earnings Call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. Today, we will walk you through our third quarter results and share with you our thoughts on the current operating environment while still recognizing the uncertainty that exists across the global markets. We'll then open the call to your questions. Turning to our results. Total sales for the third quarter were $237.8 million, representing a year-over-year increase of 1.8% as reported and in constant currency. Globally, our entire team did a fantastic job responding to and working with our customers as they continued to increase their surgical procedure volumes. A closer look shows that within the international business, 4 of 6 key markets delivered positive growth with the export countries remaining challenged. While within the U.S., 2 of 4 businesses delivered positive growth. Our global orthopedics business represented 43% of sales in the quarter. Our sports procedure volumes continued to improve. However, capital sales in these markets remain slow as expected. While there is no way to clearly tell if the entire deferred procedure backlog has cleared, we think the majority of that volume is behind us at this point. Further, we do think new procedures have been slower to return to normal run rates with many factors contributing to this condition. If 2019 volumes are considered the benchmark for normal, we think we're still a ways from that level across the globe. Global general surgery continued to see solid trends and delivered 9.8% constant currency growth. Both capital and single-use sales exceeded prior year levels. We had 2 of 3 businesses that comprise our general surgery offerings surpass their 2019 performance on a worldwide basis. The enthusiasm I noted for the AirSeal and the Buffalo Filter products during our previous 2 calls continued throughout the third quarter, driven by ongoing clinical education, surgical safety protocols and improved access to medical facilities, which allows our sales force the opportunity to demonstrate these clinical solutions. As we have discussed in the past, we continue to see growing awareness and installations of these products in the clinical community. Our last 3 quarters reflect the benefits of this trend, and we are confident this will drive longer-term, sustainable business outcomes. I have noted in past calls our focus as a company to address and operate in a COVID-19 environment. Consistent with our comments on the previous calls, our 3 priorities remain: the safety and well-being of our workforce and their families; the financial security of the company; and finally, operating and executing in this new environment. Items 1 and 2 are always part of our offense. We are confident at this point we have institutionalized them as it relates to operating and executing in the COVID-19 environment. That said, we remain mindful of the market uncertainty and the possibility of further slowdowns around the globe. But our businesses demonstrated resilience and is serving our customers as they identified their critical needs. While we feel our efforts have us well positioned under a variety of scenarios in the macro environment, we understand that the nature of this virus will cast uncertainty across the markets on a regional basis as governments and health care providers adjust to the changing COVID-19 caseloads. At this time, we don't anticipate another mass procedure deferral but rather believe that procedure volume inconsistency is likely to persist and slow the overall market productivity. In closing, I remain very proud to be part of the CONMED team, and I'm proud of the results we are discussing with you today. We continue to run a very focused offense and candidly, have pivoted remarkably well into an operating mode to support today's environment. Our people made that happen. I'll now turn the call over to Todd, who will provide a more detailed analysis of our financial performance. Todd? -------------------------------------------------------------------------------- Todd W. Garner, CONMED Corporation - Executive VP & CFO [3] -------------------------------------------------------------------------------- Thank you, Curt. All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release. For the third quarter of 2020, our total sales grew 1.8%. The performance during the quarter was fairly stable. Comparing each month to the same month in the prior year: July grew slightly, August declined slightly and September grew slightly. For the full quarter, our sales in the U.S. increased 4.7% versus the prior year quarter. Our international sales decreased 1.7% for the full quarter compared to the prior year. Geographies around the globe are experiencing varying levels of impact from COVID-19 and the related government responses. Europe grew in the mid-single digits overall. Asia was down single digits. Canada grew in the low single digits, and Latin America was down significantly. While the uncertainty about the virus and how it impacts the future is global, we see the challenges in Latin America as likely the most persistent. Worldwide orthopedics revenue declined 7.1% in the third quarter. In the U.S., orthopedic sales decreased 8.5%, and internationally, orthopedic sales decreased 6.2%. Capital sales were down double digits in orthopedics in the third quarter, both in the U.S. and globally. Worldwide sales of single-use orthopedic products decreased in the mid-single digits in the third quarter. Total worldwide general surgery revenue grew 9.8% in the quarter. U.S. general surgery revenue grew 11.3%. Internationally, general surgery revenue increased 6.4%. AirSeal and Buffalo Filter growth remains strong as hospitals around the world focus on improving operating room safety. Now let's move to the expense side of the income statement. We will discuss expenses and profitability, excluding special items, which include charges related to acquisitions and integrations, restructurings, manufacturing consolidations, amortization of intangible assets and amortization of deferred financing fees and debt discount, net of tax. Adjusted gross margin for the third quarter was 56.8%, an increase of 40 basis points from the prior year quarter. Our product and channel mix is driving improvement here as we expected. In Q4, we expect underlying gross margin improvement, offset by the timing of recognition of unfavorable manufacturing variances. We expect these variances in Q4 2020 to be about $6 million worse than those recognized in Q3 of 2020. So our Q4 total gross margin may look similar to the prior year quarter, but the underlying improvements are meaningful and should be obvious once we get through this difficult period. Research and development expenses for the third quarter was 4.2% of total sales, a 50 basis point decrease from the prior year quarter. While the R&D spend was a little light in Q3, we anticipate higher levels of R&D spend in Q4. Third quarter SG&A expenses on an adjusted basis were 36.3% of sales, a decrease of 220 basis points from Q3 2019. Due to the strong expense controls and despite the challenges presented by the pandemic, we improved our adjusted operating margin by 300 basis points over Q3 2019. Interest expense in Q3 2020 was $8.5 million on an adjusted basis. Tax rate has been pretty volatile through this pandemic as we have moved from losses in Q2 to very strong profitability in Q3. For that reason, the GAAP tax rate is elevated in Q3, and the adjusted tax rate is lower as we updated the tax provision for new guidance around the details of handling foreign income. Third quarter GAAP net income totaled $6.9 million or $0.23 per diluted share, which was flat to the prior year quarter. Excluding the impact of special items discussed earlier, we reported adjusted net income of $26.0 million compared to $18.2 million in the third quarter of 2019. Our third quarter adjusted diluted net earnings per share was $0.88, an increase of 42% over the prior year period. Turning to the balance sheet. Our cash balance at the end of the quarter was $35.6 million compared to $35.0 million as of June 30, 2020. Accounts receivable days as of September 30 were 63 days compared to 82 days at the end of the second quarter and compared to 67 days at the end of Q3 2019. Inventory days at quarter end were 158 compared to 184 days at the end of the second quarter and compared to 151 days at the end of Q3 2019. Long-term debt at the end of the quarter was $760 million versus $790 million as of June 30. Our leverage ratio at September 30, 2020, was 4.9x, a good decrease from the prior quarter and well within our original covenants. We are performing very favorably to our amended agreement with the banks. Our fixed charge coverage is 3.35 versus our agreement of 1.5, and our liquidity is $388 million at September 30 compared to our minimum agreement of $135 million. Cash flow provided from operations for the quarter was $35.1 million compared to $36.6 million in the third quarter of 2019. Capital expenditures in the third quarter were $3.3 million compared to $4.9 million in the prior year quarter. So as sales have continued to return, our disciplined expense control has led to improved profitability and strong cash flow generation. We believe that by remaining focused on being the best possible partner to our customers during this ongoing pandemic, we will be rewarded with increased market share over the long term. Lastly, given the continued global uncertainty created by the ongoing pandemic, we do not feel it appropriate to issue guidance at this time. And with that, we'd like to open the call to your questions, and I'll hand it back to Crystal. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from Robbie Marcus from JPMorgan. -------------------------------------------------------------------------------- Sarin Pennadam Murlidar, JPMorgan Chase & Co, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- This is Sarin on for Robbie. Congrats on the good quarter. So I just had a question regarding -- I know you gave some guidance on what the backlog versus new demand look like in the third quarter. But is there anything you could see on how sustainable new patient growth would be going into the fourth quarter? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [3] -------------------------------------------------------------------------------- I don't think we're going to -- Todd commented there at the end that we're not going to issue guidance in the fourth quarter or guidance for the rest of the year, given all the uncertainty that remains. What we were trying to say in our scripted comments was there's still a lot of variability. There's some patient anxiety. There's some health care worker fatigue. So those things and others drive variability in the demand. On the orthopedic side, we feel like any backlog that may have existed as we exited Q2 has been worked through. So we don't see a lot of backlog that would keep surgical volumes high. So it is dependent on new patients presenting. And on general surgery, we've seen a little better side of surgical volumes there. And I think our results reflect that. But not wanting to give anything too specific here on the fourth quarter. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Our next question comes from Rick Wise from Stifel. -------------------------------------------------------------------------------- Frederick Allen Wise, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [5] -------------------------------------------------------------------------------- Mostly fantastic job in a challenging time, both on the sales and the P&L side. Just to -- I'm intrigued with some of the opportunities as I am some of the challenges. Curt, several times, you highlighted that capital is slow. I think that was your word. Just -- I just want to make sure I'm understanding what you're suggesting. Slow to come back, slow to rebound, I mean -- and how are you thinking about, not just the setup for fourth quarter, but just looking ahead generally, are you concerned about the capital environment? Are -- should we be worried about the setup for next year because of that? I mean just give us some flavor, it would be great. -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [6] -------------------------------------------------------------------------------- I think what we're trying to comment on, and this would be consistent with what we said last quarter as well, Rick, that capital purchases are not the priority right now for the health care environment. It's -- it was, first and foremost, about learning how to operate in a COVID environment, getting through the deferred procedures. As people get further into that environment, capital may come back on to the scene in terms of priority. In CONMED's position, we offset that a little bit by the fact that our capital is not the big-ticket items. Our capital is used to operate. Our capital is required to do the cases. So it's a little easier from a price point to acquire CONMED's capital. But we're just candidly not seeing that as much in today's environment. And I think we did comment capital in orthopaedics was down in the double digits, both domestically and internationally. But capital was up on the general surgery side and, obviously, Buffalo Filter and AirSeal have a capital component. But there was other capital items in general surgery that delivered positive growth. So again, it's a little bit of 2 different stories. And I think we're just trying to tell you how things are right now versus reading anything into that -- into '21 or fourth quarter or 2021 at this point. -------------------------------------------------------------------------------- Frederick Allen Wise, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [7] -------------------------------------------------------------------------------- Yes. And maybe just talk to us a little bit about what's happening in the field level. I mean again, the results speak for themselves. But to what extent are your new products driving the performance we're seeing or your ability or maybe an easier ability to open up new accounts or drive penetration in existing accounts? Can you just give us a little more color on -- from that perspective? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [8] -------------------------------------------------------------------------------- I'll try. I think it's a little bit varied by geography, Rick. In the U.S., I would say, and for the most part, our reps have pretty good access. And they're -- I wouldn't say they're showing up quite as much as they did pre-COVID because there's just a lot different conversation around, we'd like you to be present for that case, you don't need to be present for this case. And both sides recognize the inherent risk of more people being in that environment. But access in the U.S. is pretty open, whether that's in the core orthopedics business, sports medicine cases, the general surgery hospital-based cases or the endoscopic technologies, the endo center. So I would say cases are open, therefore, our facilities are open, therefore, our reps have the capability of presenting new products or legacy items. And it really is them following the path of where the customer wants them to go. Outside the U.S., I think you have a little different level of variability right now. I think in the last call, Todd and I talked about the Melbourne, Australia area literally had shut down while the rest of Australia was going gangbusters, getting through procedures. And so you see kind of that regional, very geographic specific shutdown. And anytime you have that environment and reps are not present, it's going to slow down new product trials or new customer trials. I would say as we look at some of our statistics, especially on things like Buffalo Filter, smoke evacuation and AirSeal, we are seeing a continued momentum of new customer interest. We can break out those sales to some level, not 100% perfect, but to some level. So we do see those technologies, those innovation platforms, still continuing to be gravitated to by new customers, which obviously is new cases, new procedures, new trials and evaluations. -------------------------------------------------------------------------------- Frederick Allen Wise, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [9] -------------------------------------------------------------------------------- Great. I must sneak in one more. I apologize. But OpEx, again, you did a great job in this quarter. Operating margin up 300 basis points, I think you said. How much more to go? What are the drivers from here? I mean it sounds like, just based on your comments, Todd, that you're feeling pretty good on that front as we look ahead. -------------------------------------------------------------------------------- Todd W. Garner, CONMED Corporation - Executive VP & CFO [10] -------------------------------------------------------------------------------- Sure, Rick. Yes, look, we're going to stay nimble, right? We -- from the start of this pandemic, we've taken a principled approach, like Curt said. First, protect the employees and customers from a health perspective, then protect the financial strength of the company, and then figure out how to operate wisely in this pandemic. So we continue to do that. We'll remain nimble and flexible so we're watching expenses closely. I told you before on a previous call that it's important to us that revenue comes back faster than expenses. That happened in Q3, right? Revenue came back, and we did not release the spending to the same level. The question is how sustainable is that, right? But we still feel like we're in a period of pretty good uncertainty here. And so we're not going to start increasing investment on the spending side until we have more stability and predictability on the revenue side. I would call out -- on the topic of the P&L, as we look to Q4, we do see a couple of headwinds that are temporary and specific to Q4. What I mentioned in my prepared remarks is about the timing of manufacturing variances, and that's a meaningful headwind that will be recognized in the P&L in Q4. And then R&D, there -- just the way that the projects laid out, it was a little light in Q3 and be -- and we see it a little heavier in Q4. So those 2 line items together is worth about $0.20 sequentially of a step-down to our EPS from Q3 to Q4. Now the good news is neither one of those linger. After we get past this kind of messy Q4, we think the -- that the profitability improvements will be obvious and consistent and sustainable. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next question comes from Matt Mishan from KeyBanc. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [12] -------------------------------------------------------------------------------- Curt, Todd, I'm just curious how methodical is the quoting and evaluation period for AirSeal and Buffalo Filter here. I mean my sense would be that you have a lot of interest in those products from a lot of customers. Are you seeing some of them just say, you know what, let's just do it. Let's fast-track the evaluation process and get it done as fast as possible. And are you seeing customers still maintaining that normal quoting activity for it, and you have a backlog that's continuing to improve as you go through the next several quarters? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [13] -------------------------------------------------------------------------------- Great question, Matt. And I think in Q2, as people anticipated returning to surgery, and they wanted to be in a position to do surgery in as safe a manner as possible, there would have been more fast-tracking or shortening of the evaluation cycle. I think as we got towards the end of Q2, things started to normalize a little more in that the evaluation protocols that historically have always been in place probably started to take a little more foothold in -- as we exited Q2 and got into Q3. And again, geographic variation is always at play here. But I think the third quarter would probably have been more of a normal evaluation, quoting, purchasing process. But like everything else, those people in the decision-making chairs are making their priority list, and we think those technologies, both Buffalo Filter and AirSeal belong near the top of those priority lists. And I think that's evident somewhat in our results. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [14] -------------------------------------------------------------------------------- Okay, excellent. And then just a couple on the international side. Could you just give us your best read on how Europe is starting to react to the rising cases? And if there's any difference between how they're reacting now and how they did previously? I realize there's -- Europe is a broad term so -- and there's multiple regions there. And then just as a follow-up, what percentage of sales is Latin America? Because you called that out as a serious headwind. -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [15] -------------------------------------------------------------------------------- Yes. I think my response on Europe would be similar to what I said in my scripted comments. We don't think the health care system, whether it's U.S. or any of the international markets, will jump into a complete lockdown, 100% deferral of procedures. I think that was appropriate at the time. I think it was responsible. There was a whole bunch of factors at play: a lack of PPE, a lack of great understanding on how to deal with COVID-19, on and on and on, right? I think the entire health care system is much more educated today, understand that deferring surgical procedures is probably -- creates a lot of unintended consequences downstream for the patient and, candidly, the health system. So I think what you'll see in a second go around, if things slow down, it's going to be more geographically driven instead of a blanket statement. And I think surgery will continue at some level. I don't think it will be a complete shutdown. And I think it's probably a little too early to say that we're seeing anything right now in this quarter. We're just a couple of weeks here into October, and the headlines are changing daily right now. But I think that's what we would anticipate if things start slowing down. I'm going to kick the second question here to Todd. -------------------------------------------------------------------------------- Todd W. Garner, CONMED Corporation - Executive VP & CFO [16] -------------------------------------------------------------------------------- Yes. Latin America is less than 5% of total sales, Matt. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- And our next question comes from Richard Newitter from SVB Leerink. -------------------------------------------------------------------------------- Erin Sydney Fahey, SVB Leerink LLC, Research Division - Associate [18] -------------------------------------------------------------------------------- This is Erin on for Rich. Just wanted to quickly touch base on Buffalo Filter. Obviously, it was really strong this quarter. Just wanted to see if you guys have heard anything or seen any impact from competitors in this space maybe. -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [19] -------------------------------------------------------------------------------- Well, it's obviously a very attractive market for -- it's implied total addressable market and the implied growth rates, and that's why if you look at CONMED's history, we've been -- prior to the acquisition of Buffalo Filter, we were their first OEM distribution partner. And that's why when they came up for sale, we thought it was just a perfect blend with CONMED, and we continue to believe that a year plus into it, those results would indicate we made a very good decision there. Obviously, when you have a market like that, it's going to bring in competitors. We're aware of what I would call single-product technologies that have come into the market. But I think I would just, again, reiterate the history here that Buffalo Filter had, the definition of the product, the knowledge they have of the market, the smoke capture, all the features and benefits and the institutional know-how that Buffalo Filter had that are now resident with CONMED. That we think we have a pretty good, substantial differentiation in our platform. And just to remind everybody, again, that we are also an OEM provider to other medical device companies with this technology. So we feel pretty good about our position. -------------------------------------------------------------------------------- Erin Sydney Fahey, SVB Leerink LLC, Research Division - Associate [20] -------------------------------------------------------------------------------- Okay. Great. And then just one more quick one for me. Have you guys seen any updates on legislation regarding smoke evacuation? Maybe has COVID kind of brought that to the attention of maybe more states enacting some of these laws? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [21] -------------------------------------------------------------------------------- No, it's a great question. And I'll just give you the statistics on the U.S. There are 2 states that have legislation in place. That has not changed: Rhode Island and Colorado. There are 16 states that have pending legislation: 9 of those were expected to get that legislation through in '20 or '21, and there are 7 of those that were targeting 2021. With COVID, we have not heard any legislative movement because, candidly, I think people have a lot on their plates right now. And I would just point out that if you do the math, that's 18 states that have something, which means there's 32 that have nothing pending. So there's still a lot more out there. But again, the market, when we acquired the technology, we said it was a healthy market regardless of legislation. And then outside the U.S., we're not familiar with any additional legislative change. I would just remind everybody Canada has had legislation in place for quite a while. Australia, parts of Australia, have legislation in place. The Scandinavian countries in Europe have legislation in place. But beyond that, it's still pretty wide open. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- And our next question comes from Mike Matson from Needham & Company. -------------------------------------------------------------------------------- Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [23] -------------------------------------------------------------------------------- Obviously, a great job on the margin side here this quarter, but I think Todd talked a little bit about this. I'm just curious about, if you're operating margin was 13.4% or so, if my math's right, then how much of that is really sustainable going forward. I mean R&D was 4.2%. You're normally kind of closer to 5%. The SG&A was down a couple of hundred basis points. I guess how much of this is due to kind of unsustainable cost measures versus things that can be sustained and maybe changes in the way you're doing business, like less travel, virtual training and things like that? -------------------------------------------------------------------------------- Todd W. Garner, CONMED Corporation - Executive VP & CFO [24] -------------------------------------------------------------------------------- Yes. It's a great question, Mike, and it's a key question. Just to clarify, our operating margin for the quarter was 16.9%, which was up 300 basis points from the prior year. Now we had guided -- before COVID happened, right, we were guiding to be north of 100 basis points better and executing well on that. So the whole -- our whole focus is increasing the margin profile of the company as we improve the growth profile of the company, right? And so it's certainly within the neighborhood of what we're shooting for. The key question is sustainability. Obviously, travel is still very light. The trade shows and conferences are essentially not happening. And so a lot of that money that you spend to support the sales effort is being done virtually at a much lower cost. The question is how long does that sustain? And can you get back to the growth, the revenue growth we want to be at these spending levels? The answer is probably no, not quite at these spending levels, but we're going to stay nimble and manage that kind of month-to-month, right? And we're not providing guidance because we're not sure what revenue is going to do in the fourth quarter. And because we're not sure of that, we're going to keep our spending pretty tight. Once we get through the pandemic and it's in our rearview mirror, then you can plan a little more purposefully, and we can get back to a place where we're giving guidance on these things. The key is that the principles and the foundation that we've built at CONMED to grow faster than our markets on the top and deliver growth faster than that top line growth on the bottom, we've been able to do. And we believe we're built to do going forward, and that we can sustain a much higher revenue base on our expense base. And so we'll continue to manage to those principles. How that plays out in any specific quarter is very difficult to predict right now. But I think our results, even through this crazy time, have validated and proven that our execution is strong, our foundation is good, and we're able to compete well and deliver profitability even on muted growth. -------------------------------------------------------------------------------- Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [25] -------------------------------------------------------------------------------- That was helpful. Sorry about the operating -- we have 2 lines, and I was looking at one that included the amortization. But all right. So the other question I'd have would just be looking at the strong general surgery growth, I don't know if you can really separate this out. But how much of that do you think was driven by kind of increased interest, adoption of the AirSeal and Buffalo Filter from the concerns around infection prevention from COVID versus just faster rebound in those types of procedures? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [26] -------------------------------------------------------------------------------- Yes, that's probably a trifecta we can't answer right now. I think what I did try to say though earlier, Mike, was that 2 of our 3 general surgery businesses in the quarter grew on a global basis. And one of those businesses does not have AirSeal or Buffalo Filter, and the other business does. And obviously, we're very excited about AirSeal and Buffalo Filter, and they get a lot of headlines because they were headline-grabbing acquisitions for the company. But we have other general surgery products that are doing very well as surgery has returned, whether that be in the endo suite or in the hospital environment. And those things have to grow as well. This is not just a Buffalo Filter and AirSeal story. It's a broad portfolio that the team is carrying across a couple of different business lines. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- And our next question comes from Matthew O'Brien from Piper Sandler. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [28] -------------------------------------------------------------------------------- Just wanted to talk a bit about the ortho business. Given this environment -- and it's kind of surprising to hear some of the commentary about the slowdown that you're seeing and continued kind of below '19 levels. So what are your thoughts as far as potentially the headwind that you should see on the ortho side, maybe for the next several quarters, even though it seems like general surgery is in great shape? How big of a headwind is that going to be? Is it a lot more difficult, even though you've got a lot more products, to get market share in this environment? Because you can't get in front of as many doctors, et cetera, with differentiated products. Or what are we thinking about as far as that business specifically? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [29] -------------------------------------------------------------------------------- Well, I think what we're trying to convey on the orthopedics business is the procedure levels in sports generally revolve around team activity, large events and -- because that has been slowed dramatically on a global basis. Think about procedures related to the knee, probably at a much lower level than they historically have run at. And so that's a big component of the overall sports medicine market. So until team activities -- outside of professionals, until team activities return at some level, I think the overall underlying procedure volume is going to be a little lower. And that's -- I can't predict how long that's going to be. So that is a potential headwind out into the future. On the other side of that, I think as we've looked at our customer base, the preeminent centers remain very busy. The more rural centers are not seeing quite the same volume. And maybe that's -- some of that is patient anxiety. Maybe that is health care worker fatigue and the protocols that they have to go through to do a procedure today versus what they had to do before. So I think all those things are at play here, Matt. Obviously, we run a business with a couple of different categories, and we're trying to navigate all the categories, put together the best company results. And we were down single digits here, and capital was a component of that. We'll see where customers go on capital. If their appetite picks up for that, that could be an offset. So there's just a lot of things at play here. So I wouldn't want to paint a picture, a dollar picture going well into the future. I just don't think we're in a position to do that. It's more a reflection of where we are right now. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [30] -------------------------------------------------------------------------------- Okay. Curt, are you taking a little bit of share here and there in sports still? -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [31] -------------------------------------------------------------------------------- I think in some categories, we're doing okay. I think that's a fair statement. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [32] -------------------------------------------------------------------------------- Got it. And then the other question would be on Q4. I know you guys don't want to give us guidance. That makes sense. There's just a lot of things moving around here with the shutdown in France and potentially OUS and the general surgery strength. So you guys grew here in Q3. The Street's modeling flat for Q4. Are you comfortable with flat in Q4? Or do you think we can get a similar kind of result in Q4 versus -- compared to Q3 as far as a little bit of growth goes? -------------------------------------------------------------------------------- Todd W. Garner, CONMED Corporation - Executive VP & CFO [33] -------------------------------------------------------------------------------- That's a stellar try, Matt. We appreciate the attempt. If we could guide you one way or the other, we would, but we just don't feel like we're in a position to give guidance here today. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Mr. Hartman for any closing remarks. -------------------------------------------------------------------------------- Curt R. Hartman, CONMED Corporation - Chairman of the Board, CEO & President [35] -------------------------------------------------------------------------------- All right. Thank you, Crystal. And I want to thank everybody for your time today, and we appreciate your attention. We look forward to speaking with all of you on our next earnings call. Thank you, and have a good evening. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a wonderful day.