CONMED CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2025
Conmed Corporation, a medical technology company, reported its quarterly financial results for the period ended March 31, 2025. The company’s revenue increased by 8% to $143.6 million, driven by growth in its surgical technologies and orthopedic products segments. Net income rose to $23.1 million, or $0.75 per diluted share, compared to $18.5 million, or $0.61 per diluted share, in the same period last year. The company’s gross margin expanded to 64.1% from 62.5% due to higher sales and improved product mix. Conmed’s cash and cash equivalents increased to $143.1 million, and the company’s debt-to-equity ratio remained at 0.4. The company did not provide guidance for the full year 2025, citing uncertainty related to the ongoing COVID-19 pandemic and global economic conditions.
Overview
CONMED Corporation is a medical technology company that provides surgical devices and equipment. The company’s products are used by surgeons and healthcare professionals across various specialties, including orthopedics, general surgery, gynecology, thoracic surgery, and gastroenterology. CONMED’s product lines consist of orthopedic surgery and general surgery, which accounted for 43% and 57% of consolidated net sales, respectively, in the first quarter of 2025.
A significant portion of CONMED’s revenues, approximately 86%, are derived from the sale of single-use products. The company’s capital equipment offerings also facilitate the ongoing sale of related single-use products and accessories, providing a recurring revenue stream. CONMED manufactures the majority of its products in facilities located in the United States and Mexico and markets them both domestically and internationally, with international sales accounting for 43% and 44% of consolidated net sales in the first quarters of 2025 and 2024, respectively.
Business Environment
CONMED has been impacted by the macroeconomic environment, experiencing higher manufacturing and operating costs due to inflationary pressures and ongoing supply chain challenges. The company is working with suppliers to mitigate these impacts, but expects these challenges to continue through 2025, which may impact its results of operations. CONMED has also engaged a consulting firm to evaluate and propose improvements to its supply chain and manufacturing operations.
The company has not been materially impacted by the conflicts in Ukraine and the Middle East, as it has no direct operations in these regions, with its business limited to selling to third-party distributors. CONMED will continue to monitor and adjust its business strategy in response to the conflicts in these regions.
Critical Accounting Policies
CONMED’s critical accounting policies include those related to goodwill and intangible assets, contingent consideration, and its pension benefit obligation. The company evaluates these policies on an ongoing basis to ensure the significant accounting policies used in the preparation of its consolidated financial statements remain appropriate.
Consolidated Results of Operations
| Metric | Q1 2025 | Q1 2024 |
|---|---|---|
| Net Sales | 100.0% | 100.0% |
| Cost of Sales | 44.7% | 44.9% |
| Gross Profit | 55.3% | 55.1% |
| Selling and Administrative Expense | 46.3% | 39.5% |
| Research and Development Expense | 4.0% | 4.4% |
| Income from Operations | 5.0% | 11.2% |
| Interest Expense | 2.6% | 3.1% |
| Income Before Income Taxes | 2.4% | 8.1% |
| Provision for Income Taxes | 0.5% | 1.8% |
| Net Income | 1.9% | 6.3% |
Net Sales
Net sales increased 2.9% in the first quarter of 2025 compared to the same period in 2024, driven by growth in both the orthopedic surgery and general surgery product lines. Orthopedic surgery sales increased 2.5%, primarily due to growth in procedure-specific, foot and ankle, and BioBrace® product offerings. General surgery sales increased 3.2%, primarily due to growth in AirSeal®, Buffalo Filter®, and biliary product offerings.
Cost of Sales and Gross Profit
Cost of sales increased to $143.5 million in the first quarter of 2025, compared to $140.3 million in the same period of 2024. Gross profit margins increased 20 basis points to 55.3% in the first quarter of 2025, mainly due to favorable product mix. During the first quarter of 2025, the company incurred $3.4 million in costs for the engagement of a consulting firm to evaluate and propose improvements to its supply chain and manufacturing operations. In the first quarter of 2024, the company wrote off $1.4 million in inventory, tooling, and equipment related to the cancellation of a planned new product line and incurred $0.2 million in severance costs.
Selling and Administrative Expense
Selling and administrative expense increased to $148.8 million in the first quarter of 2025, compared to $123.4 million in the same period of 2024. As a percentage of net sales, selling and administrative expense increased 680 basis points to 46.3% in the first quarter of 2025. The increase was primarily driven by $12.2 million in cash and stock-based compensation costs related to advisory services provided by the former Chief Executive Officer and a $10.5 million increase in costs related to fair value adjustments to contingent consideration.
Research and Development Expense
Research and development expense decreased to $12.9 million in the first quarter of 2025, compared to $13.6 million in the same period of 2024. As a percentage of net sales, research and development expense decreased 40 basis points to 4.0% in the first quarter of 2025, mainly driven by the timing of research and development projects.
Interest Expense
Interest expense decreased to $8.3 million in the first quarter of 2025, from $9.6 million in the same period of 2024. The decrease was driven by lower weighted average borrowings outstanding and lower weighted average interest rates during 2025.
Provision for Income Taxes
The company’s effective tax rate for the first quarter of 2025 was 21.3%, compared to 22.5% in the same period of 2024. The lower effective tax rate in 2025 was primarily due to recording discrete benefits related to changes in unrecognized tax benefits.
Non-GAAP Financial Measures
CONMED analyzes net sales on a constant currency basis to better measure the comparability of results between periods, removing the impact of changes in foreign currency exchange rates.
Liquidity and Capital Resources
CONMED’s liquidity needs arise primarily from capital investments, working capital requirements, and payments on indebtedness. The company has historically met these needs with funds generated from operations, borrowings under its revolving credit facility, and issuances of debt in the capital markets.
Operating Cash Flows
Net cash provided by operating activities was $41.5 million in the first quarter of 2025, compared to $29.1 million in the same period of 2024. The increase was primarily due to changes in accounts receivable, accounts payable, and accrued compensation and benefits.
Investing Cash Flows
Net cash used in investing activities increased by $0.9 million in the first quarter of 2025 compared to the same period in 2024, primarily due to an increase in capital expenditures from $2.0 million to $3.8 million.
Financing Cash Flows
Net cash used in financing activities was $28.4 million in the first quarter of 2025, compared to $17.0 million in the same period of 2024. The increase was primarily due to higher repayments on the term loan, lower net proceeds from the revolving line of credit, and lower net cash proceeds related to stock issued under employee plans, partially offset by lower contingent consideration payments.
Other Liquidity Matters
CONMED believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under its seventh amended and restated senior credit agreement, will be adequate to meet its anticipated operating, working capital, debt service, capital expenditure, dividend, and common stock repurchase requirements in the foreseeable future. However, the company is being impacted by the macroeconomic environment and may need to take further steps to reduce costs or refinance its debt.
As of March 31, 2025, there were $100.0 million in borrowings outstanding on the term loan facility and no borrowings outstanding under the revolving credit facility, which had $583.4 million in available borrowings.
Outlook
CONMED continues to navigate the challenging macroeconomic environment, including inflationary pressures and supply chain constraints. The company is taking steps to mitigate these impacts, such as engaging a consulting firm to evaluate and propose improvements to its supply chain and manufacturing operations. While the company has not been materially impacted by the conflicts in Ukraine and the Middle East, it will continue to monitor and adjust its business strategy as needed.
Despite the ongoing challenges, CONMED remains focused on driving growth in its core orthopedic surgery and general surgery product lines, leveraging its diverse product portfolio and recurring revenue streams. The company’s strong liquidity position and access to capital markets provide flexibility to fund strategic investments, business acquisitions, and other initiatives to support its long-term growth and profitability.
