CONMED Corporation 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, operator, and welcome everyone to our third quarter of 2026 earnings call.

I am joined on the line by John Gallagher, our Chief Financial Officer. Let me provide you with a quick agenda for today's call. I will start with a brief overview of our quarterly financial results. Then I will discuss the sales performance in our general and orthopedic surgery product lines, the key product growth drivers within each, and related operational highlights. John will review our financial results in detail, along with our guidance for 2026, which we updated in today's press release. I will then share a few closing remarks before we open the call for questions. With that, let us get started with a review of our financial performance in the third quarter. Unless noted otherwise, all sales growth figures discussed are provided on a year-over-year and constant currency basis.

We reported net revenue of $335.6 million in the third quarter. Our net sales decreased 70 basis points on an as-reported basis and 80 basis points on a constant currency basis. On an organic constant currency basis, our net revenue increased 6.7% year-over-year. As we have discussed previously, our organic growth excludes the sales of gastroenterology products in our general surgery product line due to our strategic exits of these products as part of our portfolio optimization strategy. Our organic constant currency sales performance was consistent with our expectations for the quarter, which we shared in our last earnings call. In terms of profitability, we generated adjusted diluted earnings per share of $1.04 for the third quarter, which exceeded the high end of our expectations. In short, we were pleased to deliver strong performance in the third quarter on both the top and bottom line.

I will now discuss the third quarter sales performance in our general surgery and orthopedic surgery product lines, along with updates on the key product growth drivers in each. Excluding the impact of our strategic GI exits, our sales growth was broad-based across both of our product lines, reflecting strong contributions from our key growth platforms. Sales of our general surgery products increased 6.4% on an organic constant currency basis. By geography, our general surgery growth was driven by 15.5% organic constant currency growth internationally, where we saw impressive performance in both EMEA and APAC regions, coupled with 1.9% growth domestically. By product, AirSeal was the largest driver of our total general surgery sales growth. We also saw notable contributions from direct sales of Buffalo Filter, our surgical smoke evacuation platform. I will now provide an update on these two key growth products, starting with AirSeal, our advanced insufflation platform.

We were pleased with our AirSeal sales performance and the improvement in growth trends we experienced in the third quarter, as expected. Our AirSeal's growth was driven primarily by stable growth in sales of disposables and strong growth in capital equipment, particularly outside the U.S. From an operational standpoint, our domestic and international teams remain focused on facilitating the adoption and utilization of AirSeal in both robotic and laparoscopic surgery. In robotic surgery, AirSeal's clinical differentiation in complex high acuity procedures remains central to our commercial efforts. Surgeons performing these cases consistently highlight AirSeal's ability to maintain stable, low pressure insufflation as a meaningful advantage over conventional insufflation systems. In practice, this translates into real benefits that have been demonstrated in clinical studies: shorter procedure times, clear visualizations, and meaningful reductions in both postoperative pain and length of stay.

This combination of clinical performance and economic value is what keeps robotic surgeons choosing AirSeal. With this in mind, our team is focused on leveraging these advantages to establish AirSeal as the preferred insufflation solution for complex robotic procedures, regardless of the site of care and underlying robotic platform. We continue to see success on this front, which gives us confidence in its growth trajectory as robotic surgery adoption continues to expand. With respect to specific operational highlights during the quarter, in late July, we announced a new expanded U.S. clinical indication for our AirSeal Robotic Solution, which is now indicated for use with Intuitive's 8-millimeter hex cannulas. This expanded indication enables our sales professionals to market AirSeal directly to the growing base of hospitals and surgeons adopting Intuitive's da Vinci 5 robotic surgical platform.

It also provides prospective customers with the compatibility data they need as they evaluate AirSeal alongside this robotic surgical platform. This data was generated through joint testing conducted between the teams at CONMED and Intuitive, and I am pleased with the continued collaboration between our organizations. Our team has been focused on educating current and prospective customers on this development in recent months. While it is early, we believe this expanded indication will provide our customers clarity and confidence on the joint use of these products and procedures. We also continue to leverage and expand our portfolio of clinical and economic evidence. Specifically, our team is raising awareness globally of AirSeal's competitive advantages by leveraging the results of a recently published study by Professor Nikhil Vasdev. As a reminder, this study detailed a randomized controlled trial comparing AirSeal to a widely used competing insufflator.

It found that patients treated with AirSeal experienced more favorable outcomes in intraoperative pain, blood loss, and procedure time. Professor Vasdev has presented his experience and findings of more favorable outcomes at multiple robotic surgery conferences around the world, including the Society of Robotic Surgery conferences in both the U.S. and India. Our team also made significant progress towards building out our dataset in the ambulatory surgery center setting. We aim to utilize this data to further strengthen our value proposition and support our future growth in ambulatory surgery centers. Turning to laparoscopic surgery. As we have discussed in the past, we remain significantly under-penetrated in the U.S. market, with AirSeal estimated to be used in only 6%-7% of the more than 3 million laparoscopic procedures performed annually.

With this in mind, our team is focused on prioritizing specific laparoscopic procedure categories where AirSeal is likely to have a maximal clinical and economic impact, giving us the right to win. Our execution here is becoming more targeted as we implement procedure-specific training for our commercial teams, strengthen our relationship with key clinicians, and generate related clinical and economic evidence. Stepping back, given our performance and progress in the third quarter, we remain confident in AirSeal's long-term growth trajectory. Our conviction is further supported by multiple factors, including AirSeal's differentiated clinical and economic value proposition, the substantial untapped opportunity that remains ahead of us across the global robotic and laparoscopic surgery markets, and the focused execution of our global team. Moving to an update on Buffalo Filter, our smoke evacuation platform.

As I mentioned earlier, we saw strong contributions in the third quarter from sales of our direct smoke evacuation portfolio. With year-over-year growth within the high single digit to low double digit range, we expect annually over the long term. This performance was moderated by a decrease in sales to our OEM smoke evacuation customers. As we have discussed previously, our strategic focus remains on our direct smoke evacuation portfolio, given its stronger margin profile and closer proximity to the end user. As a reminder, we estimate the global smoke evacuation market represents a $1 billion opportunity, and the unmet clinical need remains clear. An estimated 90% of surgical procedures generate smoke, creating a potentially hazardous environment for both clinicians and patients. Against this backdrop, we continue to see meaningful activity from both legislators and medical societies working to address this issue, which remains an important long-term tailwind for Buffalo Filter.

To that end, during the third quarter, Michigan enacted a law requiring facilities that perform surgical procedures with equipment likely to generate smoke to implement a smoke evacuation policy by July 2027. Just this past week, Pennsylvania enacted a law requiring hospitals and ambulatory surgery centers to use smoke evacuation devices during all procedures that generate hazardous smoke. This legislation will require facilities to implement the related programs and policies before the end of January 2027. With these developments, there are now a total of 23 states with smoke-free operating room laws covering approximately 60% of the U.S. population. Buffalo Filter remains well-positioned in this evolving market, with clinical studies demonstrating its ability to filter out virtually all toxic surgical smoke.