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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, 2023001-39218
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 23, 2023 is 30,752,199 shares.


CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
PART I FINANCIAL INFORMATION
Item NumberPage
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
PART II OTHER INFORMATION
   
 30
   
   

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,
 2023202220232022
Net sales$304,578 $275,088 $917,699 $794,605 
Cost of sales136,519 123,473 423,629 355,222 
Gross profit168,059 151,615 494,070 439,383 
Selling and administrative expense125,295 114,600 385,080 333,302 
Research and development expense12,464 12,767 38,574 34,932 
  Operating expenses137,759 127,367 423,654 368,234 
Income from operations30,300 24,248 70,416 71,149 
Interest expense10,019 8,536 30,271 19,462 
Other expense (See Note 11)— — — 112,011 
Income (loss) before income taxes20,281 15,712 40,145 (60,324)
Provision (benefit) for income taxes
4,444 (30,438)8,757 46,842 
Net income (loss)$15,837 $46,150 $31,388 $(107,166)
Comprehensive income (loss)$14,825 $43,125 $35,287 $(113,096)
Per share data: 
Net income (loss) 
Basic$0.52 $1.51 $1.02 $(3.59)
Diluted0.50 1.48 0.99 (3.59)
Weighted average common shares
Basic30,741 30,473 30,638 29,892 
Diluted31,689 31,103 31,563 29,892 

 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,
2023		December 31,
2022
ASSETS 
Current assets: 
Cash and cash equivalents$30,502 $28,942 
Accounts receivable, net230,196 191,345 
Inventories325,824 332,320 
Prepaid expenses and other current assets39,127 28,619 
Total current assets625,649 581,226 
Property, plant and equipment, net120,436 115,611 
Goodwill815,143 815,429 
Other intangible assets, net657,353 681,799 
Other assets107,094 103,527 
Total assets$2,325,675 $2,297,592 
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities: 
Current portion of long-term debt$70,625 $69,746 
Accounts payable81,871 73,393 
Accrued compensation and benefits60,334 54,733 
Other current liabilities163,489 98,680 
Total current liabilities376,319 296,552 
Long-term debt942,166 985,076 
Deferred income taxes66,913 66,725 
Other long-term liabilities144,072 203,694 
Total liabilities1,529,470 1,552,047 
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 2023 and 2022, respectively
313 313 
Paid-in capital439,731 413,235 
Retained earnings425,612 412,631 
Accumulated other comprehensive loss(53,959)(57,858)
Less: 552,016 and 811,532 shares of common stock
in treasury, at cost, in 2023 and 2022, respectively
(15,492)(22,776)
Total shareholders’ equity796,205 745,545 
Total liabilities and shareholders’ equity$2,325,675 $2,297,592 

 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, 202231,299 $313 $413,235 $412,631 $(57,858)$(22,776)$745,545 
Common stock issued under employee plans  556  2,044 2,600 
Stock-based compensation  5,726    5,726 
Dividends on common stock ($0.20 per share)
(6,113)(6,113)
Comprehensive income:
Cash flow hedging gain, net877 
Pension liability, net403 
Foreign currency translation adjustments1,596 
Net income1,819 
Total comprehensive income4,695 
Balance at March 31, 202331,299 $313 $419,517 $408,337 $(54,982)$(20,732)$752,453 
Common stock issued under employee plans6,841 4,856 11,697 
Stock-based compensation6,422 6,422 
Dividends on common stock ($0.20 per share)
(6,145)(6,145)
Comprehensive income:
Cash flow hedging gain, net503 
Pension liability, net403 
Foreign currency translation adjustments1,129 
Net income13,732 
Total comprehensive income15,767 
Balance at June 30, 202331,299 $313 $432,780 $415,924 $(52,947)$(15,876)$780,194 
Common stock issued under employee plans765 384 1,149 
Stock-based compensation6,186 6,186 
Dividends on common stock ($0.20 per share)
(6,149)(6,149)
Comprehensive income (loss):
Cash flow hedging gain, net2,730 
Pension liability, net403 
Foreign currency translation adjustments(4,145)
Net income15,837 
Total comprehensive income14,825 
Balance at September 30, 202331,299 $313 $439,731 $425,612 $(53,959)$(15,492)$796,205 

3
 Common StockPaid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Treasury
Stock		Shareholders’
Equity
 SharesAmount
Balance at December 31, 202131,299 $313 $396,771 $496,605 $(54,203)$(54,051)$785,435 
Common stock issued under employee plans  2,232  4,020 6,252 
Stock-based compensation  4,463    4,463 
Dividends on common stock ($0.20 per share)
(5,899)(5,899)
Comprehensive income (loss):
Cash flow hedging gain, net1,082 
Pension liability, net521 
Foreign currency translation adjustments(163)
Net income14,975 
Total comprehensive income16,415 
Cumulative effect of change in accounting principle(1)
(37,911)20,791 (17,120)
Balance at March 31, 202231,299 $313 $365,555 $526,472 $(52,763)$(50,031)$789,546 
Common stock issued under employee plans  611  633 1,244 
Stock-based compensation  5,755    5,755 
Dividends on common stock ($0.20 per share)
(6,092)(6,092)
Shares issued for the settlement of convertible notes(25,890)25,890 — 
Convertible note premium on extinguishment103,125 103,125 
Settlement of convertible notes hedge transactions118,912 118,912 
Settlement of warrants(96,758)(96,758)
Issuance of convertible notes hedge transactions, net of tax(142,128)(142,128)
Issuance of warrants72,000 72,000 
Comprehensive income (loss):
Cash flow hedging gains, net4,662 
Pension liability, net490 
Foreign currency translation adjustments(9,497)
Net loss(168,291)
Total comprehensive loss(172,636)
Balance at June 30, 202231,299 $313 $401,182 $352,089 $(57,108)$(23,508)$672,968 
Common stock issued under employee plans  159  426 585 
Stock-based compensation  5,754    5,754 
Dividends on common stock ($0.20 per share)
(6,095)(6,095)
Comprehensive income (loss):
Cash flow hedging gain, net4,833 
Pension liability, net490 
Foreign currency translation adjustments(8,348)
Net income46,150 
Total comprehensive income43,125 
Balance at September 30, 202231,299 $313 $407,095 $392,144 $(60,133)$(23,082)$716,337 
(1)We recorded the cumulative impact of adopting Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in 2022.

See notes to consolidated condensed financial statements.

4
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
 September 30,
 20232022
Cash flows from operating activities: 
Net income (loss)$31,388 $(107,166)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation12,148 12,028 
Amortization of deferred debt issuance costs4,558 3,404 
Amortization41,724 39,754 
Stock-based compensation18,334 15,972 
Deferred income taxes(891)38,442 
Non-cash adjustment to fair value of contingent consideration liability6,949 — 
Loss on early extinguishment of debt— 3,426 
Loss on convertible notes conversion premium— 103,125 
Loss on convertible notes hedge transactions settlement— 5,460 
Increase (decrease) in cash flows from changes in assets and liabilities:  
Accounts receivable(38,015)(16,092)
Inventories5,286 (52,126)
Accounts payable8,133 14,475 
Accrued compensation and benefits5,461 (8,261)
Other assets(21,978)(11,710)
Other liabilities(4,144)4,232 
Net cash provided by operating activities68,953 44,963 
Cash flows from investing activities: 
Purchases of property, plant and equipment(14,177)(16,109)
Payments related to business acquisitions, net of cash acquired
— (227,102)
Other(1,000)— 
Net cash used in investing activities(15,177)(243,211)
Cash flows from financing activities: 
Payments on term loan— (92,981)
Payments on revolving line of credit(560,000)(404,000)
Proceeds from revolving line of credit512,000 317,000 
Payments to redeem convertible notes— (275,000)
Proceeds from issuance of convertible notes— 800,000 
Payments related to debt issuance costs— (21,830)
Dividends paid on common stock(18,353)(17,865)
Purchases of convertible notes hedge transactions— (187,600)
Proceeds from issuance of warrants— 72,000 
Proceeds from settlement of convertible notes hedge transactions— 86,228 
Payment for settlement of warrants— (69,534)
Other, net14,687 7,067 
Net cash provided by (used in) financing activities(51,666)213,485 
Effect of exchange rate changes on cash and cash equivalents(550)(2,730)
Net increase in cash and cash equivalents
1,560 12,507 
Cash and cash equivalents at beginning of period28,942 20,847 
Cash and cash equivalents at end of period$30,502 $33,354 
Non-cash investing and financing activities:
Contingent consideration$— $183,914 
Dividends payable$6,149 $6,095 
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 devices and equipment for surgical 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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, 2022 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.

While 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 26, 2023, 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.

Note 3 - New Accounting Pronouncements
    
Recently Issued Accounting Standards, Not Yet Adopted
    
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance if certain criteria are met for entities that have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022 and was extended through December 31, 2024 by ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The Company has not adopted these ASUs as of September 30, 2023. Our seventh amended and restated senior credit agreement includes language to address the change from LIBOR to SOFR, an alternative base rate, therefore we do not believe reference rate reform will have a significant impact on our consolidated financial statements.

Note 4 - Business Combinations

On June 13, 2022, we acquired In2Bones Global, Inc. ("In2Bones") and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash. In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022. In2Bones is a global developer, manufacturer and distributor of medical devices for the treatment of disorders and injuries of the lower extremities (foot and ankle). The
6
In2Bones Acquisition was funded through a combination of cash on hand and long-term borrowings as further described in Note 11. Proforma information for In2Bones is immaterial for disclosure for the three and nine months ended September 30, 2023 and 2022. Purchase accounting has been completed for the In2Bones Acquisition.

On August 9, 2022, we acquired Biorez, Inc. ("Biorez") and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.5 million in cash. We paid $84.1 million as of September 30, 2023, with a $1.4 million holdback, pursuant to the merger agreement for the Biorez Acquisition. In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. Biorez is a medical device start-up focused on advancing the healing of soft tissue using its proprietary BioBrace® implant technology. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings. Proforma information for Biorez is immaterial for disclosure for the three and nine months ended September 30, 2023 and 2022. Purchase accounting has been completed for the Biorez Acquisition.

We incurred costs for the amortization of inventory step-up to fair value of $2.2 million and $6.5 million during the three and nine months ended September 30, 2023, respectively, and $2.1 million and $2.4 million during the three and nine months ended September 30, 2022, respectively, related to the In2Bones acquisition, which were recorded in cost of sales. During the nine months ended September 30, 2023, we recognized $0.8 million in integration costs and professional fees related to the In2Bones and Biorez acquisitions that were included in selling and administrative expense. During the three and nine months ended September 30, 2022, we recognized $3.7 million and $6.3 million, respectively, in consulting fees, legal fees and other integration costs related to the acquisitions of In2Bones and Biorez, which were included in selling and administrative expense.
7
Note 5 - 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, 2023September 30, 2022
 Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$46,273 $124,250 $170,523 $45,688 $110,033 $155,721 
Europe, Middle East & Africa28,001 23,436 51,437 26,914 20,300 47,214 
Asia Pacific29,995 23,289 53,284 28,242 17,223 45,465 
Americas (excluding the United States)20,398 8,936 29,334 17,774 8,914 26,688 
Total sales from contracts with customers$124,667 $179,911 $304,578 $118,618 $156,470 $275,088 
Timing of Revenue Recognition
Goods transferred at a point in time$115,722 $177,915 $293,637 $108,875 $154,856 $263,731 
Services transferred over time8,945 1,996 10,941 9,743 1,614 11,357 
Total sales from contracts with customers$124,667 $179,911 $304,578 $118,618 $156,470 $275,088 

Nine Months EndedNine Months Ended
September 30, 2023September 30, 2022
Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$147,557 $362,223 $509,780 $124,097 $312,034 $436,131 
Europe, Middle East & Africa93,703 72,032 165,735 88,955 63,093 152,048 
Asia Pacific93,365 58,632 151,997 79,333 46,379 125,712 
Americas (excluding the United States)62,008 28,179 90,187 53,932 26,782 80,714 
Total sales from contracts with customers$396,633 $521,066 $917,699 $346,317 $448,288 $794,605 
Timing of Revenue Recognition
Goods transferred at a point in time$367,118 $515,529 $882,647 $317,140 $443,629 $760,769 
Services transferred over time29,515 5,537 35,052 29,177 4,659 33,836 
Total sales from contracts with customers$396,633 $521,066 $917,699 $346,317 $448,288 $794,605 

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

September 30, 2023December 31, 2022
Contract liability$18,645 $19,114 
    
Revenue recognized during the nine months ended September 30, 2023 and September 30, 2022 from amounts included in contract liabilities at the beginning of the period were $10.4 million and $9.5 million, respectively. There were no material contract assets as of September 30, 2023 and December 31, 2022.

8
Note 6 - Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following:
 
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Net income (loss)$15,837 $46,150 $31,388 $(107,166)
Other comprehensive income (loss):
Cash flow hedging gain, net of income tax (income tax expense of $873 and $1,546 for the three months ended September 30, 2023 and 2022, respectively, and $1,315 and $3,384 for the nine months ended September 30, 2023 and 2022, respectively)
2,730 4,833 4,110 10,577 
Pension liability, net of income tax (income tax expense of $129 and $157 for the three months ended September 30, 2023 and 2022, respectively, and $387 and $439 for the nine months ended September 30, 2023 and 2022, respectively.)
403 490 1,210 1,502 
Foreign currency translation adjustment(4,145)(8,348)(1,421)(18,009)
Comprehensive income (loss)$14,825 $43,125 $35,287 $(113,096)

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, 2022$2,497 $(23,749)$(36,606)$(57,858)
Other comprehensive income (loss) before reclassifications, net of tax
8,692 — (1,421)7,271 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(6,048)1,597 — (4,451)
Income tax 1,466 (387)— 1,079 
Net current-period other comprehensive income (loss)
4,110 1,210 (1,421)3,899 
Balance, September 30, 2023$6,607 $(22,539)$(38,027)$(53,959)

Cash Flow
Hedging
Gain (Loss)		Pension
Liability		Cumulative
Translation
Adjustments		Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2021$3,656 $(29,671)$(28,188)$(54,203)
Other comprehensive income (loss) before reclassifications, net of tax18,711 — (18,009)702 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(10,736)1,941 — (8,795)
Income tax 2,602 (439)— 2,163 
Net current-period other comprehensive income (loss)10,577 1,502 (18,009)(5,930)
Balance, September 30, 2022$14,233 $(28,169)$(46,197)$(60,133)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive loss components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. Refer to Note 7 and Note 13, respectively, for further details.
9

Note 7 - 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 (loss) but are included in accumulated other comprehensive loss.  These changes in fair value will be recognized into earnings (loss) 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, 2023December 31, 2022
Forward exchange contractsCash flow hedge$218,929 $198,473 
Forward exchange contractsNon-designated49,918 81,929 

The remaining time to maturity as of September 30, 2023 is within two years for hedge designated foreign exchange contracts and approximately one month for non-hedge designated forward exchange contracts.

10
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 Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain Reclassified from AOCI
Three Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20232022Location of amount reclassified2023202220232022
Foreign exchange contracts$6,180 $11,695 Net Sales$304,578 $275,088 $1,095 $5,090 
 Cost of Sales136,519 123,473 1,482 225 
Pre-tax gain$6,180 $11,695 $2,577 $5,315 
Tax expense1,498 2,835 625 1,288 
Net gain$4,682 $8,860 $1,952 $4,027 

Amount of Gain Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain Reclassified from AOCI
Nine Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20232022Location of amount reclassified2023202220232022
Foreign exchange contracts$11,471 $24,698 Net Sales$917,699 $794,605 $2,585 $10,237 
Cost of Sales423,629 355,222 3,463 499 
Pre-tax gain$11,471 $24,698 $6,048 $10,736 
Tax expense2,779 5,987 1,466 2,602 
Net gain $8,692 $18,711 $4,582 $8,134 

At September 30, 2023, $5.7 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.

11
Derivatives not designated as cash flow hedges

Net gains from derivative instruments not accounted for as hedges 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)2023202220232022
  
Net gain on currency forward contractsSelling and administrative expense$227 $892 $630 $1,088 
Net loss on currency transaction exposuresSelling and administrative expense$(552)$(1,110)$(1,831)$(2,874)

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, 2023 and December 31, 2022:

September 30, 2023Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:   
Foreign exchange contractsPrepaid expenses and other current assets$8,124 $(658)$7,466 
Foreign exchange contractsOther assets1,344 (89)1,255 
$9,468 $(747)$8,721 
Derivatives not designated as hedging instruments:   
Foreign exchange contractsOther current liabilities39 (150)(111)
Total derivatives$9,507 $(897)$8,610 

December 31, 2022Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:  
Foreign exchange contracts Prepaid expenses and other current assets$6,757 $(3,121)$3,636 
Foreign exchange contractsOther long-term liabilities60 (400)(340)
$6,817 $(3,521)$3,296 
Derivatives not designated as hedging instruments:  
Foreign exchange contractsOther current liabilities48 (395)(347)
Total derivatives$6,865 $(3,916)$2,949 

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Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated condensed balance sheets.
 
Fair Value Disclosure. FASB guidance defines fair value and establishes a framework for measuring fair value and related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is defined based upon an exit price model.

Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been no significant changes in the assumptions.
 
Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of September 30, 2023 consist of forward foreign exchange contracts and contingent consideration. The Company values its forward foreign exchange contracts using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward foreign exchange contract assets and liabilities were valued using Level 2 inputs and are listed in the table above.  

The Company values contingent consideration from the In2Bones and Biorez acquisitions using Level 3 inputs. The contingent consideration was recorded at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, revenue volatilities and projected revenues. The recurring Level 3 fair value measurements of contingent consideration for which the liabilities are recorded include the following significant unobservable inputs as of September 30, 2023:

Assumptions
Unobservable InputIn2BonesBiorez
Discount rate8.02%12.71%
Revenue volatility14.50%21.38%
Projected year of payment
2023-2026
2023-2026

Adjustments to the fair value of contingent consideration relate to the passage of time and changes in market assumptions. Changes in the fair value of contingent consideration liabilities for the nine months ended September 30, 2023 are as follows:

In2BonesBiorezLocation in Financial Statements
Balance as of January 1, 2023$70,198 $116,234 
Changes in fair value of contingent consideration860 6,089 Selling and administrative expense
Balance as of September 30, 2023$71,058 $122,323 
    
Contingent consideration of $82.5 million and $110.9 million is included in other current liabilities and other long-term liabilities, respectively, in the consolidated condensed balance sheet at September 30, 2023. Contingent consideration of $18.6 million and $167.8 million is included in other current liabilities and other long-term liabilities, respectively, in the consolidated condensed balance sheet at December 31, 2022.

The carrying amounts reported in our consolidated condensed balance sheets for cash and cash equivalents, accounts receivable, accounts payable and variable long-term debt approximate fair value.  

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Note 8 - Inventories

Inventories consist of the following:

September 30,
2023		December 31,
2022
Raw materials$115,547 $110,677 
Work-in-process30,382 26,166 
Finished goods179,895 195,477 
Total$325,824 $332,320 
 
Note 9 - Earnings (Loss) Per Share

Basic earnings (loss) per share (“basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022 (“diluted EPS”) gives effect to all dilutive potential shares. As the Company was in a net loss position for the nine months ended September 30, 2022, there were no dilutive potential shares included in the computation of diluted shares outstanding.

The following tables set forth the computation of basic and diluted earnings (loss) per share, as applicable, for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023Three Months Ended September 30, 2022
 Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS
Net income
$15,837 $— $15,837 $46,150 $— $46,150 
Weighted average shares outstanding30,741 — 30,741 30,473 — 30,473 
Stock compensation— 770 770 — 585 585 
Convertible notes— 178 178 — 45 45 
30,741 948 31,689 30,473 630 31,103 
EPS$0.52 $0.50 $1.51 $1.48 
 
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Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
 Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS
Net income (loss)
$31,388 — $31,388 $(107,166)— $(107,166)
Weighted average shares outstanding30,638 — 30,638 29,892 — 29,892 
Stock compensation— 758 758 — — — 
Warrants— 15 15 — — — 
Convertible notes— 152 152 — — — 
30,638 925 31,563 29,892 — 29,892 
EPS$1.02 $0.99 $(3.59)$(3.59)

The shares used in the calculation of diluted EPS exclude stock options and stock appreciation rights to purchase shares where the exercise price was greater than the average market price of common shares for the period and the effect of the inclusion would be anti-dilutive. Such shares aggregated approximately 1.7 million and 1.8 million for the three and nine months ended September 30, 2023, respectively, and 2.0 million for the three months ended September 30, 2022. As the Company was in a net loss position for the nine months ended September 30, 2022, there were no anti-dilutive shares.


Note 10 - Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2023 are as follows:

Balance as of December 31, 2022$815,429 
Foreign currency translation(286)
Balance as of September 30, 2023$815,143 
Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition.  Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. 

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Other intangible assets consist of the following:

 September 30, 2023December 31, 2022
Weighted Average Amortization Period (Years)Gross
Carrying
Amount		Accumulated
Amortization		Gross
Carrying
Amount		Accumulated
Amortization
Intangible assets with definite lives:22
Customer and distributor relationships24$369,812 $(184,040)$369,854 $(170,870)
Sales representation, marketing and promotional rights25149,376 (70,500)149,376 (66,000)
Developed technology18320,204 (42,087)320,204 (34,675)
Patents and other intangible assets1681,677 (53,633)79,838 (52,472)
Intangible assets with indefinite lives:    
Trademarks and tradenames86,544 — 86,544 — 
$1,007,613 $(350,260)$1,005,816 $(324,017)

Customer and distributor relationships, trademarks and tradenames, developed technology and patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”).

Amortization expense related to intangible assets which are subject to amortization totaled $8.7 million for both the three months ended September 30, 2023 and 2022 and $26.3 million and $24.9 million for the nine months ended September 30, 2023 and 2022, respectively, and is included as a reduction of revenue (for amortization related to our sales representation, marketing and promotional rights) and in selling and administrative expense (for all other intangible assets) in the consolidated condensed statements of comprehensive income (loss).
 
The estimated intangible asset amortization expense remaining for the year ending December 31, 2023 and for each of the five succeeding years is as follows:
 
Amortization included in expenseAmortization recorded as a reduction of revenueTotal
Remaining, 2023
$7,338 $1,500 $8,838 
202428,730 6,000 34,730 
202529,607 6,000 35,607 
202629,371 6,000 35,371 
202730,411 6,000 36,411 
202833,543 6,000 39,543 

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Note 11 - Long-Term Debt

Long-term debt consists of the following:

 September 30, 2023December 31, 2022
Revolving line of credit$22,000 $70,000 
Term loan, net of deferred debt issuance costs of $575 and $729 in 2023 and 2022, respectively
134,013 133,858 
2.625% convertible notes, net of deferred debt issuance costs of $93 and $432 in 2023 and 2022, respectively
69,907 69,568 
2.250% convertible notes, net of deferred debt issuance costs of $15,644 and $18,834 in 2023 and 2022, respectively
784,356 781,166 
Financing leases2,515 230 
Total debt1,012,791 1,054,822 
Less:  Current portion70,625 69,746 
Total long-term debt$942,166 $985,076 

Seventh Amended and Restated Senior Credit Agreement

On July 16, 2021, we entered into a seventh amended and restated senior credit agreement consisting of: (a) a $233.5 million term loan facility and (b) a $585.0 million revolving credit facility. The revolving credit facility will terminate and the loans outstanding under the term loan facility will expire on July 16, 2026. The term loan was payable in quarterly installments increasing over the term of the facility. During 2022, we made a $90.0 million prepayment on the term loan facility resulting in the elimination of such quarterly payments with the remaining balance due upon the expiration of the term loan facility. The $90.0 million prepayment was accounted for as an extinguishment and resulted in a write-off to other expense of unamortized debt issuance costs of $0.5 million for the nine months ended September 30, 2022. Proceeds from the term loan facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement. Interest rates are at the term Secured Overnight Financing Rate plus 0.114% ("Adjusted Term SOFR") (5.489% at September 30, 2023) plus an interest rate margin of 1.125% (6.614% at September 30, 2023). For borrowings where we elect to use the alternate base rate, the initial base rate is the greatest of (i) the Prime Rate, (ii) the Federal Funds Rate plus 0.50% or (iii) the one-month Adjusted Term SOFR plus 1.00%, plus, in each case, an interest rate margin.

There were $134.6 million in borrowings outstanding on the term loan facility as of September 30, 2023. There were $22.0 million in borrowings outstanding under the revolving credit facility as of September 30, 2023. Our available borrowings on the revolving credit facility at September 30, 2023 were $561.4 million with approximately $1.6 million of the facility set aside for outstanding letters of credit. The carrying amounts of the term loan and revolving credit facility approximate fair value.
    
The seventh amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The seventh amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of September 30, 2023. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.

2.625% Convertible Notes

On January 29, 2019, we issued $345.0 million aggregate principal amount of 2.625% convertible notes due in 2024 (the "2.625% Notes"). Interest is payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2019. The 2.625% Notes will mature on February 1, 2024, unless earlier repurchased or converted. The 2.625% Notes represent subordinated unsecured obligations and are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common stock.  The 2.625% Notes may be converted at an initial conversion rate of 11.2608 shares of our common stock per $1,000 principal amount of 2.625% Notes (equivalent to an initial conversion price of approximately $88.80 per share of common stock). Holders of the 2.625% Notes may convert the 2.625% Notes at their option at any time on or after November 1, 2023 through the second scheduled trading day preceding the maturity date. Holders of the 2.625% Notes will also have the right to convert the 2.625% Notes prior to November 1, 2023, but only upon the occurrence of
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specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur. A portion of the net proceeds from the offering of the 2.625% Notes were used as part of the financing for the Buffalo Filter acquisition and $21.0 million were used to pay the cost of certain convertible notes hedge transactions as further described below.

On June 6, 2022, the Company repurchased and extinguished $275.0 million principal amount of the