All right. Afternoon, everybody. Thanks so much for joining me. My name is Matt O'Brien. I cover med tech here at Piper Sandler. Very excited to have a CONMED up here with us. From the company, we've got Pat, who is the incoming CEO, Curt, who's the outgoing CEO, and then Todd as well, who is the standing CFO, although you're sitting right now. I'm not gonna quit my day job, so Pat, some in the room might be a little bit new to you and your background, so maybe just talk a little bit about that, and then what you're gonna bring to the organization, you know, in your new role.
First of all, excited to be here. Thanks for the question. Those of you that don't know me, I'm Pat Beyer. I've got a little over 35 years of med tech experience. My first 20 years, I was at a growth company called Stryker, and I finished with them and ran their European business, then ran a small startup as CEO and sold that company to Baxter, and I've been with CONMED for 10 years. The common thread is three growth companies, and what I'm not going to change is the excitement about being part of a growth company, and so, as the new CEO, I'm gonna bring fresh eyes, but a passion and excitement about running a growth company and being part of a growth company.
Okay. So, maybe we'll just stay there for a second. What is it on the growthy side, that you get excited about at CONMED with the existing portfolio that you have today?
Two things. Love the markets we're in: laparoscopy, biologics, and sports foot and ankle, and love the acquisitions and technology we have around AirSeal, Buffalo Filter on the smoke evacuation, the In2Bones acquisition, and clearly the BioBrace is a hot technology for us.
Okay. Okay. Appreciate that. And then, you know, and I'm not sure if this is for you, Pat, or for you, Todd, but, you know, when you get a new CEO in the seat, sometimes you wanna bring that, you know, bring along with that a pretty conservative outlook to the business. Is that something that we should kinda think about as you're getting closer to not a guiding for 25?
Why don't we both take a swing at that? I think what you're gonna see from me is a thoughtful approach about simplifying our story. Kurt started as CEO and talked about people, products, and profits, and it's something that's not gonna change. I'm gonna try to take the CONMED story and bring something that's simple and communicable to the outside world. When we think about guidance, me and Todd will partner and be a thoughtful approach about something that we believe in and we think we can deliver. And I think that would be our similar approach, Todd.
Any anecdotally? Any issues with their insufflation product? Or they're having, you know, complications? If you're using it, if you have to use it in the entire ecosystem, and they don't want to, but they're, you know, using the insufflator, oh, we're having a problem here.
Yeah. We know, we've said, and we know for a fact that customers who value the differentiation of AirSeal have returned to AirSeal after that trial period, because they value the differentiation that AirSeal brings with clinical insufflation.
And they get back to the same number of cases as. Yeah.
I mean, I think it's still too early to say the precise same number of cases, but, you know, I think we just invite everybody to do the math on the entire market opportunity, all the places where AirSeal is used, including it will be used with the DV5. It will continue to have a very strong attachment rate to XI. XI is gonna be durable and around for a long time. XI is still growing. And then there's the non-robotic side, right? So we just encourage people to go beyond the headline, break out those three parts, look at how successful AirSeal has been with all of them, and you'll see that AirSeal is gonna stay a growth driver for us for a very long time. Okay.
Matt, you've given me stage props.
Yeah. So many.
There's three XI robots. They're doing AirSeal procedures. Now they buy the new robot. The dock moves from there to there, but there's a dock waiting to use that.
Okay.
I think people think it's this.
Yeah.
It's not. It's that. Okay. It's expanding the market, and they continue to sell these, the XI. So I think that's do the math, I think, is the answer here that we keep imploring people to do. If you really look at the marketplace and the math, you get where we got in Q2 of 2023 when we first addressed this.
Yeah.
In the earnings call.
Okay.
Okay. Even with that, that fourth prop you have there, that's more utilization 'cause they're using it on DV5 too. Absolutely. That's actually good for you. Yep. So I guess. Which is part of the growth algorithm that we've always said.
The more robots, the more growth we get out of those installed base. The better.
Got it. What about on the non-robotic side? I know it's a giant market opportunity. You didn't spend as much time focused there. Do you have investment dollars going there right now, and are you starting to see some traction on that side of things?
Again, we've always had investment dollars there, but the sales rep has had an opportunity in the United States to partner and follow the Intuitive robots going in.
Yeah.
And now as the DV5 comes to the market, the U.S. sales rep is walking into the hospital today saying, "Where's my best opportunity to change clinical insufflation?" And it's in laparoscopy space many times in certain hospitals.
Okay.
They're going into those paths.
Okay. And does that a longer sales process, getting into that?
It can be.
How long?
Depending on how big the hospital is, how many operating rooms they have to convert, and how many surgeons they have to convert, but longer can also mean a larger payback with more procedures, more surgeons.
Got it. Okay.
And should do.
Okay. What do we think about in terms of the growth rate for AirSeal going forward? I mean, I know it had been over 20%. Do we think about it as a high teens grower for the next several years, all in globally?
Yeah. Again, we're not gonna get overly precise on guidance like that, but AirSeal is gonna be a grower for CONMED for years and years to come. AirSeal's not going backwards.
Okay. Okay, and I'm gonna keep trying, Todd, to get more out of you, and you're gonna keep not giving it to me. What about Buffalo? We, you know, it gets AirSeal gets so much attention, but Buffalo's a big business for you guys now. How is that growing, and what are you seeing in terms of legislation for more and more adoption?
Yeah. It continues. I mean, again, very differentiated, keeps everybody in the room safe. It's a big deal. It's really hard to find or understand the counter argument against keeping everybody safe from smoke, from toxic smoke. So, Minnesota was the last state to pass something. There has been kind of a lull, I think, probably because of the election. I think legislatures were somewhat inactive the last couple quarters. So there's a number of states that we know there are things in the works. Some big states like Pennsylvania and Texas, and Massachusetts is on that list. The Carolinas are on that list. And so we expect that we just expect that to continue to roll out as we, as the world, you know, should protect operating room nurses from toxic smoke.
Yeah. That makes a lot of sense. Pat, I'm gonna ask you this question since I know Todd's not gonna tell me. Can this smoke business be a consistent double-digit grower collectively for the next several years?
Here's what I would say, and what we've said. We think the market today is around $300 million. We think it's going north of a billion over time, and so great technology, great market, a lot of tailwinds to it. We think this can continue to grow strongly.
Got it. Okay. What about competitively on the Buffalo side of things? I think that's something that's misunderstood is how differentiated that is. It's like that's a smoke evacuation thing at the site of the surgical procedure, but you have multiple different types of products within that category. And so how do you continue to differentiate from like Stryker, etc., that are trying to compete with you there?
We think a complex portfolio matters, and so two things. The technology around the Buffalo Filter filtration system is best-in-class. We think it's the best filtration system on the market, then we have a full portfolio of different price points and economic value to try to overcome some potential hurdles a hospital might feel on the economic cost of protecting their caregivers, and so complex portfolio or comprehensive portfolio and best-in-class filtration, we think is powerful.
Got it. Okay. All right. So let's turn to BioBrace for a second here, and it's a sports medicine product that you guys know I love, that thing. Is it trending towards more than $20 million in sales this year?
Here's what I'd say on that. Again, we're not gonna give specific numbers on the product. We said we were gonna be high single-digit millions last year at the end of the year. We've had a really good year on BioBrace. Three things have happened. We've continued to see the applications of BioBrace being used, expanded in the sports med area, over 40 indications, number one. Number two.
Sorry, real quick. It used to be 30, right? Not up to 40.
No, we always said about 40.
Okay.
We're saying 40+ today. We've also launched a new product, which is the 40ml by 60 ml BioBrace. Some clinicians wanted a larger BioBrace. We've launched that product. We've also had our first peer-reviewed journal article published on massive rotator cuff repairs in the orthopedic surgery journal by Dr. Sean McMillan.
McMillan.
And so those were great results, 94% success rate in 49 patients after a year, where many clinical data would say the failure rate is 90%+. And so great clinical results, great indications, and the portfolio expanding to match the clinical needs there.
Got it. Are you seeing most of the utilization in rotator cuff, or is it down in the knees?
Rotator cuff is the biggest opportunity and the biggest market, but we're seeing it in multiple applications. Probably the next biggest location for it is the foot and ankle area.
Okay.
With the lateral ligaments in the foot and ankle and the Achilles tendon.
Okay. Historically, you've been strong in shoulders, if I remember correctly with that.
Correct.
What are you seeing in terms of pull-through in terms of your other products within shoulder for accounts that are using BioBrace?
It's a clinical solution, not just a product. And so in the last few years, you would have seen CONMED launch three new anchors for the rotator cuff. These rotator cuff anchors are being used with the BioBrace in there. So it's a great clinical solution, with the BioBrace.
Got it. Okay. Good to hear. How big can that product be eventually with 40 applications?
We think it can be big. Again, we, you know, it's a let me hand it over to Todd to see if he wants to see.
Yeah. I think.
I think it's safe to say.
Todd, protect me.
Tony Armando.
I'm running out of time.
Yeah.
I, you know, we think that market today is over $200 million. We think this can be over $100 million, you know, down the road product.
When you say it's over $200 million, I mean, what, what is $200 million today? It's not the Zimmer product that.
No, the leading product is the Smith & Nephew product.
Okay. So they're doing $200 million today.
We don't know their numbers precisely, but, you know, we think if you add up all the augmentation market today, it's probably in that neighborhood. There's, you know, that's a market that can grow too, right?
Yeah.
With more data, you know, our solution is clearly the best solution on the market. That should expand the market. So the idea of this product line growing to, you know, $100 million level is very reasonable, we think.
Okay. I mean, can this be one of your, your fastest growth areas the next couple of years?
It can be.
Okay. Yeah. I'm not sure why it wouldn't be, but. Okay. All right. Oh, and the, the last piece was just on, I know you've been restraining the growth there a little bit, waiting for some of this data. Is that one publication enough for you to really take the gloves off, or are you still kinda trying to be measured with how you're, you're rolling out, BioBrace?
Yeah. I'm not sure. I think we're being pragmatic, not measured. So the expansion of the opportunity is gonna come from regulatory approvals in some international spaces as those become expanded. Clinical data will matter, the expansion of the product portfolio like we just did. And the next thing will be an instrumentation application system for rotator cuff repair to help clinicians do the procedure easier. And you'll see that coming out in the future years from us.
Got it. Okay. Foot and ankle, everything all buttoned up now as far as supply goes with the foot and ankle business?
We've made a lot of progress on it. I think if you were to ask our sales force today, "Do we have a supply chain challenge on the foot and ankle?" they would say for the most part, "No." We've done a pretty good job there of late.
Okay. How do you differentiate in that category? There's some, you know, really good focus players in foot and ankle. How do you differentiate and grow above the market rate, which is still good?
I think three ways. I think it starts with a great sales rep that the surgeon lines up with and says, "I believe and trust you." Number two, I think the technology of the In2Bones portfolio that we acquired was really good, strong and broad so that a surgeon could count on CONMED to provide surgical solutions. The third thing is biologics. BioBrace is a huge differentiator in that space, as well as some of the MTF products like CartaMax. So we're seeing those three things: great sales force, broad portfolio from the IndoBone's team, and the new technology that they have launching there in minimally invasive surgery in bunionectomy and the sports med portfolio from CONMED.
Okay. Do you, and I'm sorry I should remember this, but do you have a foot and ankle specific sales force, or are your sports med reps selling everything?
No. If you remember, one of the reasons why we got into the foot and ankle space was our shoulder and knee reps were being asked by foot and ankle surgeons to bring sports med products into a foot and ankle procedure, and so we have a dedicated foot and ankle channel.
Okay. Got it. Okay. Todd, gross margins, that part of the story a couple years ago was super compelling with, you know, all of these, faster growth, much higher gross margin products. Is that an area as gross margin specifically? I know you don't wanna get to the 100 basis points or 150 basis points, numbers that you've said historically, actually might have been higher than that. But, is that an area we could see dramatic improvement in 2025 on the gross margin side?
I think, I mean, continued improvement. I think, you know, all the growth drivers that we've talked about today are all accretive to gross margins. And so as those grow faster than the rest of the portfolio and they have higher margins than the rest of the portfolio, we have a mixed tailwind that's gonna just keep on giving. So yeah, we'll get into specific numbers for 2025 in January, but we have a steady tailwind of gross margin improvement.
Okay. 100 basis points per year?
Yeah. We're not doing numbers.
I know. What about OpEx? Is there an opportunity to leverage that next year?
Yeah. There always is. I mean, we, I think we've been pretty, you know, Curt spent the first five or so years having to rebuild a medical device company. We are now built to compete in this space. It takes a certain amount to get to that point. We will continue to invest and increase, you know, sales force and R&D. But we think with the revenue opportunities we have, we should be able to grow revenue faster than we grow expenses, which will provide continued leverage. You know, even in, it's been a 2024 has been a pretty tough year. We did not grow like we expected to at the beginning of the year. Having said that, we're still gonna grow earnings mid-teens or, you know. So we have a really good response engine, very good cash conversion.
You know, we turn dollars into cash, one-to-one. And so it's a good business. Even though 2024 has been disappointing, it's a very strong competitive business.
Got it. Okay. You mentioned to start with the leverage ratio being a headwind, which it has been. You're at 3.6 times ending Q3. Congrats on that. Do you need to be under three times before you guys are gonna start doing deals again? I mean, do you need a period of like, "We're finally there. We finally got the leverage down," or are you gonna be active, you know, once you once you get the?
Yeah. I mean, we've never thought about it that way. It's really about the assets that present, right?
Okay.
You know, we'd have a hard time letting a really compelling asset go to the competition just because of where our leverage was at a certain moment, right? You know, we have demonstrated this pattern of making a good acquisition, executing on that, and then the leverage comes down over time. Our business development people are here this week, and we have never taken the effort off at all on keeping our eyes and ears open on what's out there. You know, I can't predict. You should certainly not expect that once it hits a certain number, we're gonna do something. That's never been, you know, how the decisions are made.
But you're comfortable letting it fall down to two times?
Sure. I mean, you know, we would love to get out of that naughty column that we've been in, but we also know that to become what we wanna be, it's gonna take both organic innovation and inorganic acquisitions. And so we'll continue to keep our eyes and ears open.
Last 10 seconds. What about dilution? You do something that's dilutive?
Yeah. I'm not gonna put us in a box one way or the other. Yeah.
Got it. Okay. We're all out of time. So I have to cap it there. Jens, thanks so much for all the feedback. Appreciate it.
Thanks, Matt.
No, he had his props.