10-Q 1 cnmd-20210930.htm 10-Q cnmd-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedCommission File Number
September 30, 2021001-39218
CONMED CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware16-0977505
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
11311 Concept BlvdLargo,Florida33773
(Address of principal executive offices)(Zip Code)
(727) 392-6464
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueCNMDNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer     Accelerated filer     Non-accelerated filer

Smaller reporting company     Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

The number of shares outstanding of registrant's common stock, as of October 25, 2021 is 29,247,120 shares.



CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
PART I FINANCIAL INFORMATION
Item NumberPage
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
PART II OTHER INFORMATION
   
   
   


PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands except per share amounts)
 
 Three Months EndedNine Months Ended
 September 30,September 30,
 2021202020212020
Net sales$248,827 $237,835 $736,665 $609,631 
Cost of sales106,521 104,137 324,485 284,845 
Gross profit142,306 133,698 412,180 324,786 
Selling and administrative expense104,736 94,380 307,476 274,721 
Research and development expense10,859 9,936 32,203 28,756 
  Operating expenses115,595 104,316 339,679 303,477 
Income from operations26,711 29,382 72,501 21,309 
Interest expense8,145 11,943 27,917 32,938 
Other expense1,127 89 1,127 266 
Income (loss) before income taxes17,439 17,350 43,457 (11,895)
Provision for income taxes2,491 10,500 5,359 2,728 
Net income (loss)$14,948 $6,850 $38,098 $(14,623)
Comprehensive income (loss)$13,756 $8,976 $42,242 $(16,858)
Per share data: 
Net income (loss) 
Basic$0.51 $0.24 $1.31 $(0.51)
Diluted0.47 0.23 1.19 (0.51)
Weighted average common shares 
Basic29,179 28,583 29,097 28,529 
Diluted32,143 29,426 32,020 28,529 
 See notes to consolidated condensed financial statements.
1

CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in thousands except share and per share amounts)
 
September 30,
2021
December 31,
2020
ASSETS 
Current assets: 
Cash and cash equivalents$31,511 $27,356 
Accounts receivable, net165,433 177,152 
Inventories228,572 194,868 
Prepaid expenses and other current assets17,889 17,278 
Total current assets443,405 416,654 
Property, plant and equipment, net109,181 111,407 
Goodwill617,651 618,440 
Other intangible assets, net478,861 501,537 
Other assets104,994 103,635 
Total assets$1,754,092 $1,751,673 
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities: 
Current portion of long-term debt$12,251 $18,415 
Accounts payable46,596 53,310 
Accrued compensation and benefits54,632 50,171 
Other current liabilities69,713 68,305 
Total current liabilities183,192 190,201 
Long-term debt703,335 735,221 
Deferred income taxes58,940 57,875 
Other long-term liabilities52,942 59,338 
Total liabilities998,409 1,042,635 
Commitments and contingencies
Shareholders' equity: 
Preferred stock, par value $0.01 per share;
 
authorized 500,000 shares; none outstanding
  
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 31,299,194 shares
issued in 2021 and 2020, respectively
313 313 
Paid-in capital394,810 382,628 
Retained earnings478,035 457,417 
Accumulated other comprehensive loss(59,537)(63,681)
Less: 2,064,390 and 2,410,045 shares of common stock
in treasury, at cost in 2021 and 2020, respectively
(57,938)(67,639)
Total shareholders’ equity755,683 709,038 
Total liabilities and shareholders’ equity$1,754,092 $1,751,673 
 See notes to consolidated condensed financial statements.
2


CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited, in thousands except per share amounts)
 Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
 SharesAmount
Balance at December 31, 202031,299 $313 $382,628 $457,417 $(63,681)$(67,639)$709,038 
Common stock issued under employee plans  2,944  5,271 8,215 
Stock-based compensation  3,387    3,387 
Dividends on common stock ($0.20 per share)
(5,813)(5,813)
Comprehensive income (loss):
Cash flow hedging gain, net3,926 
Pension liability, net631 
Foreign currency translation adjustments(3,674)
Net income9,860 
Total comprehensive income10,743 
Balance at March 31, 202131,299 $313 $388,959 $461,464 $(62,798)$(62,368)$725,570 
Common stock issued under employee plans414 2,312 2,726 
Stock-based compensation4,290 4,290 
Dividends on common stock ($0.20 per share)
(5,830)(5,830)
Comprehensive income (loss):
Cash flow hedging gain, net1,221 
Pension liability, net631 
Foreign currency translation adjustments2,601 
Net income13,290 
Total comprehensive income17,743 
Balance at June 30, 202131,299 $313 $393,663 $468,924 $(58,345)$(60,056)$744,499 
Common stock issued under employee plans(3,180)2,118 (1,062)
Stock-based compensation4,327 4,327 
Dividends on common stock ($0.20 per share)
(5,837)(5,837)
Comprehensive income (loss):
Cash flow hedging gain, net2,917 
Pension liability, net631 
Foreign currency translation adjustments(4,740)
Net income14,948 
Total comprehensive income13,756 
Balance at September 30, 202131,299 $313 $394,810 $478,035 $(59,537)$(57,938)$755,683 

3

 Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
 SharesAmount
Balance at December 31, 201931,299 $313 $379,324 $470,844 $(59,277)$(80,737)$710,467 
Common stock issued under employee plans  (7,736) 2,696 (5,040)
Stock-based compensation  3,032    3,032 
Dividends on common stock ($0.20 per share)
(5,703)(5,703)
Comprehensive income (loss):
Cash flow hedging gain, net2,405 
Pension liability, net535 
Foreign currency translation adjustments(9,988)
Net income5,927 
Total comprehensive loss(1,121)
Balance at March 31, 202031,299 $313 $374,620 $471,068 $(66,325)$(78,041)$701,635 
Common stock issued under employee plans  (1,150) 1,283 133 
Stock-based compensation  3,555    3,555 
Dividends on common stock ($0.20 per share)
(5,712)(5,712)
Comprehensive income (loss):
Cash flow hedging loss, net(2,429)
Pension liability, net535 
Foreign currency translation adjustments4,581 
Net loss(27,400)
Total comprehensive loss(24,713)
Balance at June 30, 202031,299 $313 $377,025 $437,956 $(63,638)$(76,758)$674,898 
Common stock issued under employee plans  562  893 1,455 
Stock-based compensation  3,532    3,532 
Dividends on common stock ($0.20 per share)
(5,720)(5,720)
Comprehensive income (loss):
Cash flow hedging loss, net(3,026)
Pension liability, net535 
Foreign currency translation adjustments4,617 
Net income6,850 
Total comprehensive income8,976 
Balance at September 30, 202031,299 $313 $381,119 $439,086 $(61,512)$(75,865)$683,141 
See notes to consolidated condensed financial statements.

4

CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
 September 30,
 20212020
Cash flows from operating activities: 
Net income (loss)$38,098 $(14,623)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation12,519 13,617 
Amortization of debt discount7,611 7,239 
Amortization of deferred debt issuance costs2,946 2,697 
Amortization40,747 40,973 
Stock-based compensation12,003 10,119 
Deferred income taxes(1,311)(786)
Loss on early extinguishment of debt899  
Increase (decrease) in cash flows from changes in assets and liabilities:  
Accounts receivable9,890 21,574 
Inventories(34,679)(19,396)
Accounts payable(6,223)1,477 
Accrued compensation and benefits5,030 (8,864)
Other assets(15,915)(6,013)
Other liabilities6,370 (3,628)
Net cash provided by operating activities77,985 44,386 
Cash flows from investing activities: 
Proceeds from sale of a facility 3,227 
Purchases of property, plant and equipment(11,678)(9,864)
Payments related to business and asset acquisitions, net of cash acquired (3,852)
Net cash used in investing activities(11,678)(10,489)
Cash flows from financing activities: 
Payments on term loan(63,673)(9,938)
Proceeds from term loan52,411  
Payments on revolving line of credit(272,753)(142,000)
Proceeds from revolving line of credit236,753 152,000 
Payments related to contingent consideration(3,536)(2,071)
Payments related to debt issuance costs(2,000)(2,057)
Dividends paid on common stock(17,418)(17,099)
Other, net9,457 (3,730)
Net cash used in financing activities(60,759)(24,895)
Effect of exchange rate changes on cash and cash equivalents(1,393)740 
Net increase in cash and cash equivalents4,155 9,742 
Cash and cash equivalents at beginning of period27,356 25,856 
Cash and cash equivalents at end of period$31,511 $35,598 
Non-cash investing and financing activities:
   Dividends payable$5,837 $5,720 
See notes to consolidated condensed financial statements.
5

CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands except per share amounts)

Note 1 – Operations

CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides surgical devices and equipment for minimally invasive procedures.  The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology.

Note 2 - Interim Financial Information

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary to fairly present the results for the periods presented. The consolidated condensed financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated. Results for the period ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The consolidated condensed financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2020 included in our Annual Report on Form 10-K.

Use of Estimates

Preparation of the consolidated condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenue and expenses during the reporting period.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 28, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

6

Note 3 - Revenues
    
The following tables present revenue disaggregated by primary geographic market where the products are sold, by product line and timing of revenue recognition:
Three Months EndedThree Months Ended
September 30, 2021September 30, 2020
 Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$37,957 $98,444 $136,401 $38,913 $95,292 $134,205 
Europe, Middle East & Africa24,155 19,905 44,060 23,104 17,584 40,688 
Asia Pacific27,517 16,113 43,630 26,403 15,405 41,808 
Americas (excluding the United States)16,122 8,614 24,736 13,767 7,367 21,134 
Total sales from contracts with customers$105,751 $143,076 $248,827 $102,187 $135,648 $237,835 
Timing of Revenue Recognition
Goods transferred at a point in time$96,389 $141,798 $238,187 $93,000 $134,745 $227,745 
Services transferred over time9,362 1,278 10,640 9,187 903 10,090 
Total sales from contracts with customers$105,751 $143,076 $248,827 $102,187 $135,648 $237,835 

Nine Months EndedNine Months Ended
September 30, 2021September 30, 2020
Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$115,864 $288,069 $403,933 $97,339 $243,137 $340,476 
Europe, Middle East & Africa77,327 58,594 135,921 62,726 50,345 113,071 
Asia Pacific80,403 44,911 125,314 66,737 34,211 100,948 
Americas (excluding the United States)47,215 24,282 71,497 35,152 19,984 55,136 
Total sales from contracts with customers$320,809 $415,856 $736,665 $261,954 $347,677 $609,631 
Timing of Revenue Recognition
Goods transferred at a point in time$291,728 $412,298 $704,026 $237,224 $345,068 $582,292 
Services transferred over time29,081 3,558 32,639 24,730 2,609 27,339 
Total sales from contracts with customers$320,809 $415,856 $736,665 $261,954 $347,677 $609,631 

Contract liability balances related to the sale of extended warranties to customers are as follows:

September 30, 2021December 31, 2020
Contract liability$15,833 $13,666 
    
Revenue recognized during the nine months ended September 30, 2021 and September 30, 2020 from amounts included in contract liabilities at the beginning of the period were $8.4 million and $7.6 million, respectively. There were no material contract assets as of September 30, 2021 and December 31, 2020.

7

Note 4 – Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following:
 
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net income (loss)$14,948 $6,850 $38,098 $(14,623)
Other comprehensive income (loss):
Cash flow hedging gain (loss), net of income tax (income tax expense (benefit) of $929 and $(964) for the three months ended September 30, 2021 and 2020, respectively, and $2,568 and $(972) for the nine months ended September 30, 2021 and 2020, respectively)
2,917 (3,026)8,064 (3,050)
Pension liability, net of income tax (income tax expense of $201 and $170 for the three months ended September 30, 2021 and 2020, respectively, and $603 and $510 for the nine months ended September 30, 2021 and 2020, respectively)
631 535 1,893 1,605 
Foreign currency translation adjustment(4,740)4,617 (5,813)(790)
Comprehensive income (loss)$13,756 $8,976 $42,242 $(16,858)

Accumulated other comprehensive loss consists of the following:

Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2020$(5,945)$(36,620)$(21,116)$(63,681)
Other comprehensive income (loss) before reclassifications, net of tax5,141  (5,813)(672)
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
3,854 2,496  6,350 
Income tax (931)(603) (1,534)
Net current-period other comprehensive income (loss)8,064 1,893 (5,813)4,144 
Balance, September 30, 2021$2,119 $(34,727)$(26,929)$(59,537)
Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2019$493 $(31,691)$(28,079)$(59,277)
Other comprehensive income (loss) before reclassifications, net of tax(1,916) (790)(2,706)
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(1,496)2,115  619 
Income tax 362 (510) (148)
Net current-period other comprehensive income (loss)(3,050)1,605 (790)(2,235)
Balance, September 30, 2020$(2,557)$(30,086)$(28,869)$(61,512)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income (loss) components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. Refer to Note 5 and Note 11, respectively, for further details.

8

Note 5 – Fair Value of Financial Instruments
 
 We enter into derivative instruments for risk management purposes only. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.
 
By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
 
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts.  We account for these forward contracts as cash flow hedges.  To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss.  These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted transaction occurs.  

We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables designated in foreign currencies.  These forward contracts settle each month at month-end, at which time we enter into new forward contracts.  We have not designated these forward contracts as hedges and have not applied hedge accounting to them.  

The following table presents the notional contract amounts for forward contracts outstanding:

As of
FASB ASC Topic 815 DesignationSeptember 30, 2021December 31, 2020
Forward exchange contractsCash flow hedge$178,908 $154,504 
Forward exchange contractsNon-designated37,254 42,380 

The remaining time to maturity as of September 30, 2021 is within two years for hedge designated foreign exchange contracts and approximately one month for non-hedge designated forward exchange contracts.

9

Statement of comprehensive income (loss) presentation

Derivatives designated as cash flow hedges

Foreign exchange contracts designated as cash flow hedges had the following effects on accumulated other comprehensive income (loss) ("AOCI") and net earnings on our consolidated condensed statements of comprehensive income (loss) and our consolidated condensed balance sheets:

Amount of Gain (Loss) Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain (Loss) Reclassified from AOCI
Three Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20212020Location of amount reclassified2021202020212020
Foreign exchange contracts$3,188 $(3,542)Net Sales$248,827 $237,835 $(1,077)$663 
 Cost of Sales106,521 104,137 419 (215)
Pre-tax gain (loss)$3,188 $(3,542)$(658)$448 
Tax expense (benefit)770 (856)(159)108 
Net gain (loss)$2,418 $(2,686)$(499)$340 

Amount of Gain (Loss) Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain (Loss) Reclassified from AOCI
Nine Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20212020Location of amount reclassified2021202020212020
Foreign exchange contracts$6,778 $(2,526)Net Sales$736,665 $609,631 $(4,948)$2,206 
Cost of Sales324,485 284,845 1,094 (710)
Pre-tax gain (loss)$6,778 $(2,526)$(3,854)$1,496 
Tax expense (benefit)1,637 (610)(931)362 
Net gain (loss)$5,141 $(1,916)$(2,923)$1,134 


At September 30, 2021, $1.5 million of net unrealized gains on forward contracts accounted for as cash flow hedges, and included in accumulated other comprehensive loss, are expected to be recognized in earnings in the next twelve months.

10

Derivatives not designated as cash flow hedges

Net losses from derivative instruments not accounted for as hedges and gains and losses on our intercompany receivables on our consolidated condensed statements of comprehensive income (loss) were:

Three Months Ended September 30,Nine Months Ended September 30,
Derivative InstrumentLocation on Consolidated Condensed Statements of Comprehensive Income (Loss)2021202020212020
  
Net loss on currency forward contractsSelling and administrative expense$(48)$(682)$(398)$(1,224)
Net gain (loss) on currency transaction exposuresSelling and administrative expense$(441)$312 $(1,320)$143 

Balance sheet presentation

We record these forward foreign exchange contracts at fair value. The following tables summarize the fair value for forward foreign exchange contracts outstanding at September 30, 2021 and December 31, 2020:

September 30, 2021Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:   
Foreign exchange contractsPrepaid expenses and other current assets$3,319 $(1,311)$2,008 
Foreign exchange contractsOther long-term assets932 (145)787 
$4,251 $(1,456)$2,795 
Derivatives not designated as hedging instruments:   
Foreign exchange contractsOther current liabilities21 (160)(139)
Total derivatives$4,272 $(1,616)$2,656 

December 31, 2020Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:  
Foreign exchange contracts Other current liabilities$1,500 $(8,826)$(7,326)
Foreign exchange contractsOther long-term liabilities23 (535)(512)
$1,523 $(