All right. Good afternoon. My name's Ross Abram. I'm on the med tech team here at Wells Fargo. I'm pleased to introduce management from CONMED. Joining us from the company is Pat Beyer, President, CEO, and John Gallagher, EVP and CFO. Thanks for being here.
Good to be here.
Diving right in. CONMED has historically been viewed as a steady grower, but the story today appears increasingly centered on accelerated growth with improving execution. What do you believe investors still underestimate the most about the company?
Ross, as I think about it, first of all, I would go, CONMED's a growth company. 2025, we grew our top line 5.1%, grew our EPS double digits. This year, we've guided our top line to 5%-6%. We've got us a platform of growth. As I think about undervaluing, I think more about how do we bring value to our shareholders. The value to our shareholders are going to come from our growth drivers. We are in great markets. Two big markets, minimally invasive laparoscopic and robotic surgery, and minimally invasive sports med. Fast-growing markets, big markets that deliver strong ROIC. We're focused on those. We have strong growth drivers, AirSeal, BioBrace, Buffalo Filter. We also have an accelerated plan to increase margins, drive free cash flow stronger, and I think as we combine those and deliver on those, value will be delivered to our shareholders.
Absolutely. Looking at our two markets over the next three to five years, where do you think the most opportunity is for share gain?
I think as we think about the two markets, I think they're both strong. I wouldn't pick between either of them. I think the idea of minimally invasive surgery that delivers better patient outcomes and better economics to the hospital system are great to be in. I think our growth drivers are split between them where you have Buffalo Filter that delivers protection to the caregiver, then you have AirSeal delivering compelling clinical and economic outcomes for patients and hospitals, and BioBrace that treat one of orthopedics' last bastions of need, rotator cuff repairs that fail in the 20%-30% range, and we deliver better outcomes there.
Absolutely. Then, just looking at the current procedural environment on a global basis, are there any differences you're seeing across geographies, site of care settings, or surgical specialties?
As we think about demand and volumes globally, in general, they've been strong. There's been no material weaknesses across our markets. What you are seeing is the treatment of care continuing globally to moving to higher acuity, lesser acuity. Where can they deliver better efficiency, better outcomes, better value to patients and hospital systems? That's code for ASCs, ambulatory surgery centers, private hospitals outside of the U.S.
How do you guys benefit from that shift?
Well, the beautiful thing is that's where minimally invasive surgery is done. That's sports medicine, that's robotic, that's laparoscopic procedures. That's the sweet spot of better for the patient, better for the healthcare system.
Looking at 2Q results, I think revenue growth came in around 6% excluding the GI deficit.
Sure.
Where do you guys feel like there is room for improvement? What steps are you doing to address that?
Yeah. Look, we were really pleased with the Q2 result. Constant currency, organic revenue 6%, as you said, Ross. What helped contribute to that was sequential improvement in AirSeal. Pat was just talking about AirSeal and the strength of that product area. Coming out of Q2, we are seeing sequential growth, or Q1 into Q2, and now we are expecting to see further acceleration in the back half of the year. That was key. Also on the quarter, BioBrace, one of the other key drivers, helped us achieve the ortho growth number on the quarter, which was a little better than our expectations. So those were a couple of the key highlights from Q2.
Great. You alluded to this, but your guidance implies acceleration the second half of this year.
It does.
What gives you confidence?
Yeah, it does. When you look first half, second half, to your point, there is some acceleration there. But if you pick it apart, the guidance for the second half of the year that is implied is 6%-8%. And in Q2, as we just discussed, we were organic constant currency 6%. If you break it down, we basically need to perform in line how we exited Q2 for the remainder of the year to hit our guide. As I already mentioned, we do have some acceleration points that we are expecting. AirSeal Q1 into Q2, into second half of this year, will be higher, and that is due to some of the commercial activities that we have really been pressing on over the course of the last 12 months.
Great. Outside of AirSeal, any other key growth drivers you would highlight in the second half specifically?
Yeah, second half. The other one, outside of just the products themselves, I would say that international is outperforming our expectations this year. We do not see any reason for that to change in the second half of the year. In fact, we will probably even see some acceleration there. I would say it is AirSeal sequential improvements related to the initiatives that we have in place, along with strengthening international portfolio as the international markets start to adopt these growth drivers in AirSeal, BioBrace, and Buffalo Filter.
Great. Maybe we will spend some time on the international business. How much of that is any tailwind, headwinds outside of what CONMED is doing versus you guys executing?
I think it's a combination of all of them. Number one, you know that CONMED is probably over-indexed on its international business. It's got 45% of its sales internationally. We've got a great foundation of commercial execution. We also have the tailwinds of the unfortunate news with regulatory approvals like EU MDR. They have been slow, but now they're here with us. Technology that we launched in the U.S. three and four years ago is now launching. That's a great tailwind for us. In fact, we just got approval for BioBrace in, not Europe, but in Brazil yesterday. Some of these regulatory approval tailwinds can drive a strength to be even stronger.
Great. Maybe on Brazil, what does the adoption curve look like when you guys enter a new market? How much legwork is it going to take to see you guys accelerate along the adoption curve for BioBrace?
Yeah. Again, we've been in Brazil for probably 30 years. Ten years ago, we chose to acquire our local distributor. We are a direct legal entity in Brazil. We're selective about the markets we choose to be in direct in. That was a market we were indirect for decades. It was the right time to go direct. When we go direct, we go direct in a plan of partnership with locals. We bought the orthopedic business from our distributor. We were direct, connecting with customers, but had a legacy of relationships that had been built. We just got the BioBrace approval in Brazil. That will go with that channel. We also just started a new distributor in Brazil for AirSeal. That distributor is the distributor for Intuitive in Brazil.
They get the benefit of new technology from CONMED with a legacy, proven partner for the medical community there, with a distributor called Strattner. It's kind of the best of both worlds.
Great. Are there any other geographic expansion initiatives we should be aware of this year or next?
Again, I think we're in the right places internationally. We're strong in Japan, we're strong in Europe, we're strong in Canada. In fact, we just took our board of directors to Canada for our board meeting in September. It's important for our board to engage and understand some of our international markets, and we make that commitment to go on those. But I would say Brazil, Europe, Japan, and the Canada market are the big ones that we're driving at.
Great. Looking at 2027, you talk about mid-single digit growth historically. This year, you're guiding acceleration 6%-8%. How should we think about next year? Is high single digits a fair place to start?
It's too early to guide next year, of course, during this discussion. But you can tell that we're definitely generating some momentum in the sense that we're planning to exit this year with an AirSeal number that's in line with the expectations that we laid out at the beginning of the year. So high single digit, low double digit. We had a lower Q1, and now, as you pointed out, we're anticipating a higher second half of the year. All of that spells some acceleration in the revenue growth this year. We got to see how the year plays out, but we certainly, given the commercial execution on the growth drivers in AirSeal, Buffalo Filter, and BioBrace, it sets us up well for next year.
I guess asked differently, if you exit the year, let's say at the midpoint at 7%, are there any headwinds we should be thinking about in 2027 to assume you would decelerate growth?
Scale becomes a natural headwind and a tailwind in equal measures. The numbers get bigger. When the snowball gets bigger, it rolls faster downhill. So that's both a tailwind and a headwind. But right now, we don't wake up and go, other than execution, focus, and discipline, and blocking and tackling. Right now, those are our big focus points here as we think about meaningful innovation, making the right commercial decisions with the right data, and driving leverage across our organization to expand margin. Those initiatives are critical to us, and they're right in front of us to execute on.
Great. Maybe moving down the P&L, we've been talking a lot about revenue growth. But what's the margin story look like for 2027?
Yeah. Margin expansion is, Pat was mentioning this earlier, of the top three financial things that we're looking at, as you said, revenue growth takes the top spot for sure. We've been expanding margins. Gross margins expanding this year are sort of on track. Even if you neutralize for the tariff refund that we received, we're still expanding margins in the 50 to 100 basis point range on the gross margin line. We'd anticipate that there's room to continue to expand margins going forward. The other aspect, so that's going to help our EPS, of course, as well. The other key priority is around free cash flow. So there is opportunity for us. We already at CONMED have a very strong free cash flow conversion profile when you look against ortho or against general surgery.
But it's come down a little bit in recent quarters, and we think there's some opportunity to enhance that going forward, looking at revenue, or I'm sorry, inventory opportunities as well as working capital opportunities, all of which is going to help that free cash flow conversion get even stronger against our peer group than where we already are.
Great. And we've obviously talked about AirSeal at a high level, but what specific metrics would you point investors to that we can judge how that's progressing to us and globally?
Yeah. When I think about AirSeal and I think about metrics, I think about two ways. I'm going to talk about leading indicators. We will continue to be proactive in publishing, promoting, and preaching about the clinical data. We had a clinical study published a couple of months ago out of the U.K., a prospective 40 patients, CONMED, another insufflator, statistically significant that with AirSeal, less blood loss, shorter length of stay, less pain. And we will continue to not preach, but explain and share that because it's compelling. That is a leading indicator to the numbers we'll share are we driving high single digit, low double digit dollar growth? That's what we have to be delivering. Because ultimately, if we have compelling clinical and economic value, it has to translate into sales dollars. And that's the ultimate measure.
What we can see now is quarter 1, capital and disposables grew, and we shared it. Quarter 2, it accelerated capital and disposables. And those are some of the data we'll continue to share.
Okay, great. In terms of gaining share, maybe your current mix between lab and robotic surgical, do you disclose what the split is?
What we say is, there are 3 million laparoscopic procedures in the U.S. We have a penetration of about 6% or 7% of that, somewhere in that range. The robotic procedures, we are on about 80% of the robots out there, and we get between 35% and 40% of the robotic procedures. Those are two data points we have shared.
Great. The robotic space is obviously growing and becoming more competitive. Any high-level thoughts on how you guys can benefit from that?
When you have a portfolio that drives clinical and economic value, and you have customers compelled to need that and want that, it is a good story. I was recently at the Society of Robotic Surgery, and I was at it in Strasbourg a year ago. I was at it in Hollywood, Florida this year. It changed dramatically. The number of robotic companies was twofold bigger. While Intuitive Surgical is an amazing company, and they have certainly been a pioneer, there are more and more robotic companies globally. While I believe Intuitive Surgical has a headwind and a head start for themselves, tailwind and a head start, there are some robotic companies in certain geographies that will do very well in their geographies as you look into Asia and some of those markets there in India.
CONMED today, month-by-month, is being put into hospitals around the world with every robotic system, including the U.S. and the ASCs and non-Intuitive robotic systems. We deliver clinical value. When a robotic company comes to market, they want the best-in-class insufflator that helps their robotic system deliver the clinical value, and we're a great partner to them.
Great. In terms of the mechanical structure, are there any limiting factors with other robotics?
Again, I think when you say mechanical structures, you mean the fact that DV5 has an integrated system? Yeah, there can be potentially more, but that's a pretty big barrier. In spite of that, over 10% of their procedures are done with our insufflator. Even Intuitive, to their credit, the patient wins, which is why they worked with us for their new cannula system to have an integrated system with ours that we launched and did our press release at the Society of Robotic Surgery. Intuitive said, in spite of the fact that they have a built-in insufflator, they want their customers to have choice. That's compelling.
Yes. In terms of your relationship with Intuitive, it's non-exclusive, correct?
We are agnostic. We have an exclusive, dedicated, tested, engineered component for their robot system. That is exclusive to theirs. We have the right to work with any robotic company around the world.
Then just the latest on the installation market. Anything from a competitive dynamic standpoint you would highlight?
Just that surgeons are challenging themselves to operate in expanded areas of space. I say that in that way because you are seeing Intuitive launch a new robot for the upper GI. AirSeal can deliver space for surgeons to operate outside of the abdomen or the urological area. The more surgeons want to deliver clinical value minimally invasively, that is a great thing for AirSeal.
Absolutely. Then just looking at BioBrace, obviously, you are in a new market next year, but outside of that, what are the biggest drivers for growth?
Market's growing fast. The patient volumes are strong. The unfortunately unsatisfactory clinical results are challenging surgeons to look for better solutions. The surgical bodies, I have said before, the American Academy of Orthopaedic Surgeons in 2025 gave a strong recommendation to augmenting biologics in the rotator cuff. That's a great tailwind for that type of technology.
Absolutely. Would you remind us the split between your sales force, how comfortable you are with BioBrace being supported in the field, any incremental investments you need to make?
I think we will continue. It's a great question. Sales force is so important. They're the first line of the company for the hospital. We continue to advance our sales force both in numbers and in quality year by year. You should expect us to get bigger every year, and you should expect us to challenge ourselves to be better, hiring better people, training them better, helping them understand technology better every year.
In fact, you saw investment dollars going in during 2026. That's one of the areas. That and R&D are the two areas where CONMED was putting investment dollars to work in the sales force, in marketing, and then secondarily in R&D.
Great. That's actually where I was going next. Looking at R&D spend, I guess, how should we think about next year? Another good investment year, and any projects you would highlight that we should be looking out for?
Yeah. The investment dollars that we're putting, I was just mentioning sales, R&D, we would expect to continue to invest in both of those areas. The quantity and to what extent needs to be balanced with the margin expectations that we were just talking about. But we think we can manage both. We're doing that this year. We can expand the margin while at the same time investing in the key pockets of the area that are going to sustain growth over time. You should expect to continue to see investment dollars going to R&D for that reason.
Great. How should we think about capital allocation priorities?
Capital allocation. I talked about free cash flow a little bit. We think that there's opportunity to free up more cash. You've seen the leverage come down. We did change the profile of the debt on our balance sheet. As a result of that interest expense had gone up. We're going to continue to monitor the capital markets for opportunities there. We also want to continue to de-lever, as an organization, all with a focus toward freeing up some capital or some headroom and capacity to look at tuck-in M&A that's going to accelerate top-line growth. That's one of the key areas. Of course, at the same time, we have been buying back shares this year. We have a commitment to buy back shares during 2026. We're standing by that.
But I'd say a lot of the focus at this point in time is how to free up cash to delever the balance sheet, create the headroom and capacity so that we can look at tuck-in opportunities or other M&A opportunities that can be accretive to the top line.
How do you guys consider tuck-in, in terms of dollar size? Then, what the profile of that company would look like?
I think in multiple ways. Naturally, tuck-in assumes it fits into our sales back. It's not an adjacency. Again, we have 1,000+ reps around the world. We want technology that they can bring to their current customers. We believe tuck-ins are faster accretive to the top and the bottom line. We believe tuck-ins, we want them to be more on the innovative side. They bring something differentiated. They're not tourists on the sales bus. They're part of our growth driver engine. Scale. Scale's a nature of the companies that we see. The key thing for me and John is do we have enough capacity to buy the right technology and the right company at the right time?
Yeah. Up until this point
Yeah
we've been somewhat balance sheet constrained. The good news is we've hit the leverage objectives that we had. We've looked hard at the capital structure, and I think that tuck-ins could be anything from tens of millions of USD up to a hundred, couple hundred million USD would be in that range. All dependent on how successful we are on freeing up the cash and de-levering the balance sheet.
Great. Anything else you guys would like to highlight that we haven't touched on?
No. Again, you've touched on it. Again, the AirSeal story is a success story. We bought AirSeal in 2015. We have grown it every quarter since then, other than the period of time when we had our warehouse management issue. We continue to drive compelling clinical results. And I think the outside world is starting to see that the world of robotic surgery values patient outcomes as much or more than a closed system. When patient outcomes supersede having a closed system, that's going to win, and I think it's compelling.
Sounds great. Thank you very much for being here.
Thank you.
Thanks for having us.