CONMED Corporation (CNMD) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of CONMED Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mark Tryniski, Chair of the Board of Directors of CONMED. Mr. Tryniski, the floor is yours.

Thank you. Good afternoon, everyone. It's now 1:30. And as Chair of the Board of Directors of CONMED Corporation, I will call to order this Annual Meeting of Shareholders. We will conduct today's meeting in accordance with the agenda and the rules of conduct, which are both posted on the online meeting site. You will note that under item 7 in the agenda, an opportunity is provided for your questions. I would like to note for the record that all of our directors have joined us for this meeting today. A slide has been posted in this presentation, which shows their photos, names and the year that they joined the CONMED Board. They are Jerome Lande, David Bronson, Martha Goldberg Aronson, LaVerne Council, Charles Farkas, Dr. John Workman, Brian Concannon, Barb Schwarzentraub and Curt Hartman. Also present today is Keith Belote from PricewaterhouseCoopers, the company's auditors; as well as Steve Jones of Computershare. If questions arise during the discussion period that they should appropriately address, they would be glad to respond. I would like to introduce Curt Hartman, President and CEO of CONMED. Once we complete some of the formalities as to the items submitted for shareholder approval today, Curt will provide an overview of the company. Curt?

Thank you, Mark. It's my pleasure to virtually welcome all of you to the Annual Meeting of Shareholders, and I'm honored to be here serving in the capacity of President and CEO of CONMED. My direct team, the leaders who are responsible for the day-to-day operations and performance of CONMED, are all logged on to the meeting today as are the other corporate officers who have been working hard across the company over the past year. The slide with their photos, titles and years of service is displayed online. They are as follows: Pat Beyer, Nate Folkert, Jed Kennedy, Bill Peters, Heather Cohen, Todd Garner, Dan Jonas, Pete Shagory and Wilf Ruiz-Caban. The additional corporate officers include Terry Bergé, Sarah Oliker, Shanna Cotti-Osmanski and Johonna Pelletier. CONMED's General Counsel, Dan Jonas, will act as secretary of this meeting and will now address matters regarding the mailing of notice and the presence of a quorum. Dan?

Thanks, Curt. In my capacity as secretary of the meeting, I'd like to note for the record that this meeting is held pursuant to printed notice mailed on April 10, 2020, by first-class mail to all shareholders of record of the company as of April 3, 2020, the record date for shareholders entitled to vote at this meeting. As required by Section 1.7 of the company's bylaws, a list of shareholders of record on the record date is available for examination by any shareholders who wish to do so through the online meeting site. All documents concerning the call and notice of the meeting will be filed with the records of today's meeting. The count of shares present immediately prior to the commencement of the meeting reflected 26,509,555 shares of the company's common stock were present in person or by proxy. This amounts to 92.93% of the outstanding stock of the company. And accordingly, pursuant to Section 1.9 of the bylaws, a quorum is present, and the annual meeting may proceed. Steve Jones of Computershare has been appointed to act as inspector of elections to count the votes represented and exercised at today's meeting. The following proposals are brought before the meeting today. Proposal 1, the nominations of the nominees listed in the proxy statement to serve as directors on the company's Board. Number two, to appoint PricewaterhouseCoopers as the independent accountants for the company for 2020. Proposal 3, the following resolution for the advisory vote on executive compensation, which reads as follows: resolved that the shareholders of the company approve, on an advisory basis, the compensation of the company's named executive officers disclosed in the compensation discussion and analysis, summary compensation table and the related tables and narrative disclosure in the proxy statement. Proposal 4 is to approve the reincorporation of the company from New York to Delaware, the reincorporation, including the adoption of the agreement and plan of merger required to effect the reincorporation and approval of the company's proposed Delaware certificate of incorporation and bylaws. Proposal 5 is to approve procedural matters with respect to shareholder action by written consent, included in the Delaware certificate of incorporation in connection with the reincorporation. Proposal 6 is to approve the exculpation provision eliminating director liability for monetary damages included in the certificate of incorporation in connection with the reincorporation. Proposal 7 is to approve the amended and restated 2020 nonemployee director equity compensation plan. Proposal 8 is to approve amendments to the company's employee stock purchase plan, and such other businesses may be properly brought before the meeting or any adjournment or postponement thereof. So at this time, unless there's something else, the polls are now closed, and the inspector of elections may tally the vote. So while that is happening, I will turn the meeting back over to Curt Hartman to provide a quick presentation and discussion. Curt?

Thank you, Dan. And while the votes are tallied, I thought we'd take the opportunity to update shareholders on our performance. If we go to the first slide, please we have a copy of the forward-looking statement, which is appropriate before I begin. We like to start our presentations for investors with a presentation of the CONMED vision, which you can see is detailed as empowering health care providers worldwide to deliver exceptional outcomes for patients. We think this vision is very appropriate and certainly more so today in the global pandemic environment. We stand behind that vision with a focus on 3 areas: the people of the company, the people that make the products, design the products, build the products, distribute the products; the folks in the field sales organization, customer service, our quality regulatory departments that make up CONMED Corporation; along with the executive team and the Board of Directors. We believe that innovation in our products is essential to taking care of those customers. And therefore, you've probably noticed over the last couple of years an enhanced investment in R&D as a percentage of sales. And then finally, we believe that if we take care of the people and continue to deliver innovative products that the profitability of the company over the long term will be greatly enhanced. We underpin our vision with 5 pillars that you can see listed on the slide. At the center of those 5 pillars in the middle is the "we do things the right way" pillar. And this is a constant reminder to our organization across the globe regardless of market that our behavior is always on display and that the demonstration of appropriate behaviors in all market and appropriate actions by all employees is always first and foremost in our mind. This being the Annual Shareholder Meeting, I thought we'd put up a slide that indicates what our objectives are for our shareholders. They're fairly straightforward. The first is aggregating growth and profitability over the long term to significantly increase the valuation of the company. Obviously, we believe a big portion of doing that first objective is increasing our market share. And you'll see in a later slide that we participate in large and attractive markets. And finally, we believe that by doing that, we can deliver above-market revenue and profitability growth over the long term. As we look at our 2019 results, you can see that 2019 was a very good year for your company. Revenue finished at $955 million, which was 11.1% reported growth and 11.7% in constant currency. I would also note that early in the year, February 11, we closed on the acquisition of Buffalo Filter, which has been a transformational acquisition for the company and continues to be so as we began 2020 and even to this day. We look at our GAAP EPS, finished at $0.97 compared to $1.41 in the prior year. And the adjusted EPS finished at $2.64, representing 21.1% growth over 2018. It's also worth noting that in the 2019 results, we added 2 new Board members. Barb, who's on the call with us today, joined in September of 2019, and LaVerne, who's also on the call with us, joined in December of 2019. And we're excited by the expertise that both of these new directors bring to the company and the long-term outlook for the company. As we turn to the next slide and we look at the 2 categories of business that the company participates in. Orthopedics is broken out here into 5 subcategories: the sports medicine, allograft tissue, powered instruments and surgical visualization that make up total orthopedics. You can see for the full year of 2019, our revenue was split 39% in the U.S., 61% outside the U.S. and about 71% of that global revenue was recurring or single-use revenue. If you go to the far right side of the slide, you'll see our attempt here to indicate that 1 market share point in each of those categories, the dollar value of 1 market share point and what it would mean if CONMED can take 1 market share point in terms of total company growth, which would be $83 million or approximately 8% growth for the total company. If you move to the next slide where we look at our General Surgery business. Similar in the sense that all the competitors and all the markets are very large, a little bit different in terms of the full year mix where international was 31% of the revenue and the domestic business was 69% of the revenue. A higher volume are reoccurring single-use items. And again, on the far right side of the slide, we indicate the dollar value of 1 market share point, which if we were able to take 1 market share point across each of those categories, it would equate to $98 million and 10% growth for the company. So the point of the previous 2 slides is to highlight for all of you, we're in large, growing markets. One market share point makes a meaningful difference for the company. And as I indicated earlier, product innovation and having the right people in the marketplace are the keys to success for CONMED Corporation. The next slide indicates the outcomes. And we've put together the previous 5 years of outcomes on both the revenue and the adjusted cash EPS line. We think both of these graphs are very telling of the investments the company has been making as they are the outcomes of those investments. And again, we highlight at the bottom that we think our people and our products are influencing the outcomes, that there's more consistency in the business because of that approach, and we're able to step forward with leveraged earnings growth and that the Board and the executive team are 100% aligned on a strategic plan in delivering these type of outcomes. Let's step forward now since we're in the month of May and give you a brief overview of Q1 of 2020. And in the quarter, we delivered $214 million of revenue. That was a decrease over prior year, clearly impacted in the month of March and really going back to late January and early February when COVID-19 first arrived and started gaining attention across the global markets. For CONMED, we felt that first in China then, more broadly speaking, the Asian markets of Korea and Japan. And then we watched it progressively move into the European markets and ultimately in the middle of March somewhat come into a more aggressive stance in the U.S., Canadian and Latin American markets. We're proud of the results. Trends were good. And obviously, our attention then shifted to how we address and respond to the global pandemic. And if you go to the next slide, our response has really been centered on 3 priorities: first and foremost, employee safety and well-being. And encompassed in that is the safety for the families that our employees represent and the safety of the customers that our employees serve. Second was financial security of CONMED Corporation. We took a very important step when we renegotiated our bank debt and covenants associated with that. And we feel like we've really positioned the company in a much better spot for financial security for the long haul. And then the third item is being ready for the future. And some might say that the future is already upon us as markets are starting to open up. And we're certainly ready. We've invested heavily in sales force training, education during this time period, along with customer education, using online and virtual tools. But we also think there's still more uncertainty in the future, and we want to be ready for that uncertainty in the future. So we have 2 forms of the future. There's the here and now where customers are returning to work, surgeries are starting to be performed. And then there's that further outlook. What does the future of work look like, and how can CONMED best be prepared for that? And we have both of those initiatives underway. I think it's also important to note that as we look at 2020 -- and I don't want to gloss past this fact because it's very important. Back in February on the 10th, the company celebrated its 50th year anniversary of being in business, the 50th year of its founding. Also on that day, we moved our listing to the New York Stock Exchange, and we're very proud of that 50-year history. There's not a lot of companies that make it to 50 years. And we think that, that history will allow us to navigate the current environment and come out stronger. So in closing, as we look at the final thoughts around the company and our quick update here, we remain very intensely focused on health care customer, solving their unmet needs and therefore driving the increased market share. We serve large and attractive markets. And they provide us ample opportunity for above-average revenue and profitability growth, market conditions notwithstanding obviously. And aggregating that growth over the long term can and will drive meaningful shareholder value. And I want to leave all of you with this final point that at CONMED, we're focused on doing things the right way and being good corporate citizens. Before I turn the meeting back over to Dan, I think it's also appropriate at this point in time that I make some comments on behalf of the Board of Directors, our employees and our shareholders regarding Mark Tryniski, our Chairman. As all of you are aware, Mark has indicated that he will not be standing for reelection to the Chairman's role. And I recall my first meeting with Mark in his Syracuse office after joining the Board in 2014. And I quickly learned in that first meeting that Mark was a man of high character, high standards and high expectations. Importantly, he also was well versed in the business and the numbers. And I remember thinking after that meeting that CONMED was fortunate to have him as its Chairman. Obviously, Mark and I have spent a lot of time together since that first meeting. I've truly appreciated his mentorship as both the CEO and from the Chairman position. He has a style supported by a phrase that I have heard him say many times. And that phrase is, "Pound the facts, not the table." In that regard, we are kindred spirits. He is also one who can efficiently bridge the divide and leave all parties feeling as if they in some way won. He can let a conversation run its course, reach the right outcomes and leave the team united. It's no wonder then that as the CEO of Community Bank, he has delivered exceptional results for their shareholders, and as the Chairman of CONMED, he has overseen a dramatic business transformation. Each of those individually is hard enough. Both of those put together is absolutely special. While my words can't fully convey all of his positive personal and professional attributes, I would be remiss if I did not simply state that Mark is a great person. I think that is the best complement a person can receive. Mark, on behalf of our employees, our shareholders and your fellow directors, thank you for all you have done for CONMED over the last 13 years as a director and over the past 6 as Chairman. The company is better because of your leadership and we're fortunate to have you remaining on the Board. Thank you, Mark. And I will now turn the call back over to Dan.

Thank you, Curt. I echo those comments about Mark, and let me just walk through the results of the meeting itself. So as to proposal 1, the election of the directors, all directors were reelected with votes ranging in favor from 95% to 99%. I won't take the time to go over the individual results, but they will be posted in a Form 8-K to be filed sometime likely tomorrow. For proposal 2 concerning the auditors, that was approved with a 96% approval rating. The advisory vote on executive compensation was, I guess, recommended or approved with a vote of 95% in favor. Reincorporation, proposal #4, passes with 98% of the vote in favor. Procedural matters, the next proposal, was approved with a vote of 98% in favor. The next proposal, exculpation, proposal #6, was approved with 98% of the votes in favor. And then the next proposal relating to the amended nonemployee equity plan was approved with a vote of 75% in favor. And the employee stock purchase plan amendments were approved with 98% voting in favor. So I will now turn the meeting over again to Mark Tryniski and Curt Hartman for questions if there are any.

[Operator Instructions]

Well, it doesn't appear as though there are any questions from what I can see.

Me either. Thank you, Dan. As there's no further business, I would like to thank those shareholders who participated in this meeting. We will file the results of the meeting, and we'll post a transcript on the online meeting site shortly. I would like to take the opportunity to thank Curt and the entire management team for their tireless efforts over the past several months and very effectively managing the impacts of the COVID pandemic. Their steadfast focus on our people, our customers and our business has never wavered. They have served CONMED and our shareholders well. And on behalf of the Board and our shareholders, Curt, to you and your team, thank you. Lastly, Curt, I very much appreciate those very kind words. Thank you. I would like to take this opportunity to thank my fellow directors for their engagement, their support and their counsel over the past 6 years and to thank Curt for his support and his leadership and his counsel as well. It's been a great privilege for me to serve as Chair. And for that opportunity, I'm most grateful. Thank you. And with those comments, the 2020 CONMED Corporation Annual Shareholder Meeting is now adjourned. Thank you.

This concludes the meeting. You may now disconnect.