Curt R. Hartman - President, Chief Executive Officer & Director Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer.

Ravi Misra - Leerink Partners LLC Kristen Stewart - Deutsche Bank Securities, Inc. Mike S. Matson - Needham & Co. LLC J. P. McKim - Piper Jaffray & Co. (Broker) Matt Mishan - KeyBanc Capital Markets, Inc. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker).

Good afternoon, everyone. Before we begin, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, which represents forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws.

The company's actual results may differ materially from its current expectations. Please refer to the risk factors and other cautionary factors in today's press release as well as the company's SEC filings for more details on factors that may cause actual results to differ materially.

You will also hear management refer to certain non-GAAP adjusted measurements during this discussion.

While these figures are not a substitute for GAAP measurements, management will use these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies.

Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation in the press release issued this afternoon.

With these required announcements completed, I will now turn the call over to Curt Hartman, CONMED's President and Chief Executive Officer, for opening remarks. Mr.

Hartman?.

The disappointing decline in domestic Orthopedics after three quarters of growth, an outcome driven by a decline in capital sales which also impacted our Visualization business. We simply missed on our expectations which is obviously very frustrating.

We saw progress with an improvement sequentially in the organic performance of domestic Advanced Surgical business, however, consistent with our first quarter comments, organic growth remained negative in the quarter, but we anticipate this moving into positive territory in Q3, again consistent with our comments in the first quarter.

As a result of the above, we updated our outlook for the fiscal year and lowered our organic constant currency growth expectation, which is partially offset by an increase in our AirSeal expectations. Luke will discuss this in more detail during his comments.

Looking forward as you all know, at AAOS in March, we showcased a number of new products including Edge. Coming into the year, we noted that Edge was our number one global new product priority, and we anticipated and initiated a June-July phased introduction.

I'm very pleased to say that today we have multiple sites up and running across Canada, Spain and the United States. We continue to see very positive feedback from our customers and area moving forward with a continued launch on a global basis throughout the quarter.

Finally, while technically a July event, I am pleased to announce the appointment of Kurt Azarbarzin, the former Chief Executive Officer and Founder of SurgiQuest, as CONMED's new Chief Technology Officer and Vice President of R&D.

As a senior medical device executive with a proven track record of R&D innovation, Kurt's leadership and passion will be instrumental in our continued focus of reinvigorating our product portfolio to accelerate the ongoing introduction of innovative solutions to the marketplace.

Brett Poole, a 16-year veteran who led our R&D effort for the last four years, has retired and I want to personally thank him for all his hard work and contributions during his time with CONMED.

In conclusion, as we look to the remainder of the year, we remain focused on restoring growth while expanding our portfolio of innovative products to enhance our presence in the markets we serve. Overall, we remain steadfast in building a sustainable and profitable business that delivers true solutions to our global customer base.

I'll now turn the call over to Luke..

The euro represents approximately 33% of the exposure, the Canadian dollar approximately 25%, the Australian dollar approximately 14%, and the British pound approximately 10%.

To be clear, our guidance for revenue and earnings per share on a reported basis already contemplates the impact of foreign exchange, including the gains and the future realized losses associated with our hedging program. Constant currency revenue guidance, as always, excludes the impact of any hedging activities.

Finally, with regard to our stated guidance as described in today's press release, we're reducing our 2016 constant currency organic sales growth estimate to a range of negative 1% to positive 1% compared to the previous range of 1% to 3%.

Additionally, based on foreign currency exchange rates, as of July 22, 2016, we are updating the anticipated negative impact of foreign exchange for the year to $17 million to $19 million compared to the previous range of $13 million to $15 million.

Also, due to stronger-than-expected year-to-date performance of AirSeal, we are increasing our sales forecast related to the SurgiQuest acquisition to $62 million to $67 million, compared to the previous range of $55 million to $60 million. As a result, we are revising our 2016 guidance for reported sales and adjusted diluted net earnings per share.

We are forecasting reported 2016 sales in the range of $757 million to $767 million, which represents growth of 5.3% to 6.7% over reported 2015 revenue of $719 million, compared to the previous range of $768 million to $778 million.

Based on our revised 2016 reported sales estimate range, we now forecast 2016 adjusted diluted net earnings per share in the range of $1.83 to $1.93 compared to the previous range of $1.95 to $2.05.

$0.05 in the earnings per share reduction is attributable to foreign exchange and the remaining $0.07 reduction is due to the decrease in organic sales net of the SurgiQuest increase.

The adjusted diluted net earnings per share estimates for 2016 exclude the cost of special items, including acquisition costs, restructuring costs and debt refinancing, which are now estimated to be in the range of $21 million to $23 million net of tax, versus the previous range of $18 million to $20 million, and translates into approximately $0.75 to $0.82 per adjusted diluted share.

Additionally, these estimates exclude the amortization of intangible assets, which are still estimated in the range of $12 million to $14 million net of tax, or approximately $0.43 to $0.50 per adjusted diluted share. And now, I'd like to turn the call over to Liz for Q&A..

Our first question comes from the line of Richard Newitter with Leerink Partners. Your line is now open..

Hi. Good afternoon. This is Ravi in for Rich.

Can you hear me?.

We can, Ravi.

How are you?.

Hi. Good. Thanks, Curt. Thanks for taking the call. A couple of questions on the guidance if I can just start there, you say you anticipate – continue to anticipate organic growth moving positive in the back half. Just a little bit more color on the cadence of that revenue would be helpful, and then sort of how that flows through the EPS as well.

And then maybe if I could follow up just with the new R&D announcements, are you still going through the management transition? Can you just maybe remind us what is remaining in terms of any sort of open seats on the senior management team and sort of what you need to add or change there? Thanks..

Yeah. Let me start with the R&D announcement that went out today. That's – that really had – that really was not planned. Brett Poole who had been with us for 16 years and had been running R&D literally notified us first part of April that he intended to retire, and he gave us plenty of advance notice and was not scheduling to depart until mid-June.

We did a comprehensive search and obviously, we're very fortunate via the acquisition to have a gentleman like Kurt Azarbarzin onboard. And it was a thumbs up vote from everybody that Kurt should be our next Chief Technology Officer and Head of R&D for the company. So I wouldn't call that part of a company people staffing transition.

I think, as you look across the leadership ranks of the company, we've done the majority of that work in a meaningful form in 2015. And this is just kind of the normal progression of transition.

And candidly, we were very fortunate to have somebody as equipped as Kurt with his experiences and background in R&D to step in, and I think he will bring a fresh and unique perspective to innovation for CONMED. I'm going to let Luke take the guidance, how that's going to fall out over the third and fourth quarter..

Yeah. Ravi, let me take it from a – I guess from an overall numbers perspective. So at the midpoint of our guidance of $752 million, we're looking at a first half/second half breakdown of 49.2% in the first half with the back half representing 50.8%.

If I look at what I anticipate from a revenue split in the second half, I think it's going to be really consistent with what we saw last year. Last year, we saw 46% of second half revenue in the third quarter, 54% in the fourth quarter. So that's the way I'd see revenue coming together for the second half of the year.

And I think as we think about organic growth, I think that's going to accelerate in the third and fourth quarters. So as you build your model, fourth quarter organic constant currency growth should be greater than third quarter. From an EPS standpoint, we've talked about leverage and how the impact is even greater from an EPS standpoint.

As we looked at last year on the second half, third quarter was 43%, fourth quarter was 57%, and I think this year it can even be more pronounced with anywhere from 40% to 43% of EPS in the third quarter and the remainder in the fourth quarter..

And that's referring to second half.

So that just sort of like rings out to $178 million on 3Q and $210 million on 4Q, if I'm thinking about it right?.

Yeah. If you follow those, the percentages I gave are – if you calculate those amounts, those are the appropriate amounts..

Sure. And then sort like the guidance reductions, a little bit of a reminder of what happened in last year. Anything that you want to say around planning? I mean is there anything that needs revising here or anything that you have in terms of visibility on the business to avoid these resets? Thanks..

Yeah. I think the guidance revision last year and this year, there's a little bit of apples and oranges there. Last year, a big part of the guidance revision in the third quarter was what happened in Latin America, specifically with Brazil and a pretty dramatic drop-off.

Further, as we looked at the rest of the underlying organic business and product introduction scales, sales force transition – and just to remind everybody, Advanced Surgical last year during that third quarter period was an all-hands-on-deck going after SurgiQuest, and we had strategically opted to not backfill a bunch of sales territories because we knew with SurgiQuest acquisition we'd be bringing additional sales people onboard.

This year as we look at the organic growth, a portion obviously is attributable to this swing in capital in the second quarter in our Orthopedics business. And as Luke noted in his script, we had soft capital both internationally and domestically, and capital's a lot harder to predict. That just takes time.

It takes more experience, and we've been pretty consistent at it, and obviously the third quarter was a miss. I feel pretty good about where our projection processes are, where our planning and forecasting methodologies are evolving to.

Again, I would just remind everybody those are now in their sixth quarter, so we're continuing to evolve those on a global basis, but I feel like we're making great progress. And as I look up and down the income statement, I feel pretty good about every number on the income statement this quarter.

We're a couple of million dollars off of where I would have liked to have been in Orthopedics, specifically in the domestic market, and obviously we spent a little more money in selling and marketing and a little less in R&D.

I don't worry so much about the R&D because that's more attributable to the projects and priorities and a little bit of timing, and I think we've got a good schedule in front of us to get back on the R&D spend.

And the sales and marketing is just a little tighter management and getting some of the training programs and things behind us in the first half..

Great, thanks. I'll get back in queue..

Our next question comes from the line of Kristen Stewart with Deutsche Bank. Your line is now open..

Hi. Good afternoon. I just wanted to go back to I guess the Orthopedics business and just wanted to further I guess get some color on that. I know it's not what you expected and I just wanted to get the sense of how – I guess longer do you think some of these trends could continue, and what specifically I guess went wrong.

It sounds like it was more execution, but I guess do you have your hands around it? More recently, I guess as you've closed the quarter and have had the opportunity to see some of the numbers through July, do you feel like this is something that can persist, or is this something that's likely to get turned around in pretty short order?.

Well, the comment specifically on Ortho is the bigger challenge here was in U.S.

Orthopedics and its focus on a capital deficiency versus the prior run rates that we've been experiencing, and capital was obviously harder to predict and as you spend more time focused on capital, more deals, the better because your probability of delivering the numbers is that much better.

And so, we just did not have a good close rate in the second quarter as we came to the end of that quarter. Obviously, we're hoping to reverse that as we get back in the third quarter, get into a more of a normal capital close cycle, consistent with what we've had in many of the previous quarters.

A little hard to predict or give a high degree of confidence that it's going to happen until we actually see the deals close. But, if you look at the international Orthopedics business, it's a solid business. It has been for a long time. We've had a lot of transition in our U.S. Orthopedics business.

I have a lot of confident in our General Manager there and a lot of confidence in our sales leadership team, and we're going to get there, Kristen. It's a little harder to predict but we're going to get there..

I guess what do you think is the reason why there's the capital deficiency? I assume it's in the power tools business.

Is it more of a competitive issue? Is it a lack of products? I guess, what is the heart of the reason as to why you're starting to see it now? Is it the end markets?.

Well, you've got to remember a couple of things about our Orthopedics business.

The distribution channel here is, people are covering both sports medicine, procedures as well as chasing capital and that can be at times a challenging dichotomy of responsibility, and sometimes we're a little better chasing the capital and a little better supporting sports medicine and I think we didn't call it out in the quarter, but we had a really nice improvement in our MTF business which has been struggling for many, many quarters and we are really putting all-hands in charge on getting the MTF franchise realigned.

We've got positive growth in MTF, it obviously was not enough to overcome the deficit that was created in capital. So, we're just trying to build the underlying franchise to get consistency across everything here and capital happened to be one that suffered this quarter..

Okay. And then just going on SurgiQuest obviously and AirSeal, that's obviously going very positive.

Do you get the sense that some of the, I guess, weakness in the quarter on Surgery is due to sales forces focusing on that since that seems to be a hot sell? And so, maybe some of the slower organic growth is coming, I guess, at the expense of better SurgiQuest sales?.

I would just go back to my first quarter comments and say with an absolute affirmative, the innovative nature of the product, the market interest is clearly consuming a lot of our sales force time. And sales representatives are going to go where the product is hottest and right now, the AirSeal platform is very, very hot.

With that said, I need to give credit to that organization because in the first quarter, they were negative. I commented on the call that I thought in the second half of the year, they would return to positive growth and they did move the needle. They were not as negative in the second quarter as they were in the first quarter.

And the trends would indicate that in the third quarter, we will get to positive growth in the Advance Surgical business on the organic business.

Again, I'm going to qualify that a little bit because AirSeal is very hot and there's only so much time in a day and that the AirSeal orders are, both capital and disposable nature, are very attractive for our sales force.

But, I can assure you our sales management, our marketing teams and our general manager are all very focused on building great a business here means sell the organic portfolio along with the AirSeal franchise..

Our next question comes from the line of Mike Matson with Needham & Company. Your line is now open..

Hi. Thanks for taking my questions. I guess I just wanted to start with the currency impact. So, it seems like from other companies that have reported so far that, if anything, the currency impacts may be getting a little less severe as they get into the latter part of the year here. And I was just wondering what's really driving this.

Is it more of an issue, you do a lot of exposure to the pound, so is it – is that the source of this? And just trying to understand what – why this impact is so large when other companies seem to be seeing smaller than expected impacts for the remainder of the year?.

Yeah. Mike, as I pointed out in the prepared remarks, for us, currency is a large – euro was a large impact for us. I think, compared to other companies, we even have a greater impact with the Canadian dollar and the Australian dollar, and to a lesser degree the pound.

Plus you know, three months ago, we actually took the numbers up $8 million for currency and unfortunately, given the change in rates over the last three months, something like $4 million is going back the other way..

Okay.

And then just staying on the topic of currency, at this point with rates where they currently are, if you assume that they stayed at these levels, what would 2017 look like? Would you expect the headwind, the tailwind, and what would the magnitude of that be relative to this year, bigger or smaller, et cetera?.

Yeah. I would actually anticipate that overall rates will be fairly flat. So, the largest thing driving our year-over-year impact today is some of the hedges that we benefit from last year. But, as of today, I would say it's flat..

Our next question comes from the line of Matt O'Brien with Piper Jaffray. Your line is now open..

Hi. Good afternoon. This is J.P. in for Matt. Thanks for taking the question. I just want to dig deeper into Orthopedics. I mean just trying to get at the root of the issue here.

Is it more of a distribution issue, or is it more of a product? I mean, are you lacking a product to sell, or is it on the distribution side?.

It's fundamental execution. I think we have a great product offering in our Orthopedics business, specifically on the capital side, and we had a pipeline and we just fundamentally didn't close what we thought we were going to close in the pipeline. So, I see it as an execution issue. Some of that, we do expect to close.

Some of it, competitive issues, we lost business and didn't close the deals we thought we were going to close. So I put both of those on the execution topic..

Okay. But in your mind, the pipeline remains okay. It's not like the pipeline is falling off a cliff, it's just when some of these deals close.

And then a follow-up to that is just, when do you feel comfortable about returning to market growth, especially in Orthopedics? Is that now, next year, middle of next year?.

There's pipelines that are built and deals going to those pipelines and the deals close or they go to a competitor. So, once the deals in the pipeline are done, they're done. The pipeline is constantly building as new hospitals, whether in the U.S.

or on a global basis, elect to purchase more capital and our job is to be aware of those and continue to build our pipeline. So, we lost some orders in the second quarter. We had some orders pushed. Hopefully those orders that pushed, will close and they'll come back into the CONMED portfolio.

As far as the longer-term outlook on Orthopedics, right now, the international Orthopedics business on direct standpoint appears to be trending in the right direction. We've got some good products coming out, things like Edge, TenoLok device that we introduced is now in full launch.

Those are very much additive to the overall effort and I feel good about the international Orthopedic effort, direct – a little further forward ahead in export, but export is starting to show signs of progress as well. Domestically, this quarter is clearly a step backwards for us.

But I'm not going to let one quarter take us off the track toward progress and improvement. And again, this is an organization that hasn't had a lot of new products, so the Edge platform is very important for them. TenoLok is now in a full U.S. launch as well. Those are important items. The AssistArm, both U.S.

and internationally, that we showed at academy is out. So, new products are critical to the entire organization. And then as we look forward, we'll continue to move the business forward. I don't see us getting to market growth rates this year.

A majority of this market, sports medicine grows 5% to 7%, 6% to 8%; the capital equipment is probably a 3% to 5% grower. So, we're ways behind getting to that. So, we haven't put out guidance for next year, so I have to wait on any pronouncement, let's not get into market growth rates in Orthopedics until we do that..

Good. Thank you..

Our next question comes from the line of Matt Mishan with KeyBanc. Your line is now open..

Hey. Good afternoon and thank you for taking my questions..

Hi, Matt..

Hi, Matt..

Hey, Curt and Luke. I'm looking at your slide, the reconciliation to the 2016 sales forecast. And as I'm running those numbers at the midpoint, I'm coming to really the high end of your guidance, coming to about $766 million.

Is that – or are you pointing us towards the high end of your guidance at the midpoint of those numbers, or am I missing something?.

No, I think we're not pointing you towards the high part of the guidance. We're giving you the revenue guidance that I laid out in my prepared remarks, and that supplemental schedule should reflect that..

Okay. I'll talk later offline with you guys.

On AirSeal, were there any kind of one-time nonrecurring orders there, and can you give us the breakdown of what capital was versus single-use for AirSeal in the quarter?.

Yeah, I think when we look at the quarter, the issue number one is a reminder last year in the second quarter is when SurgiQuest really ramped up their international distributors. So the international performance was going against a big number.

So international had a good quarter in that – finally got our distributor partners managed and started to ramp up the business there. We had one large order out of Japan for AirSeal, not likely to repeat but we're pretty early in our international experience with AirSeal. So I think there's still runway ahead. On the U.S.

side, it was just another quarter of very solid, strong performance on both capital and disposables. Probably not going to get into a great amount of detail on capital versus disposable. But suffice it to say the disposable run rates obviously are predicated on the amount of iFS units that are placed.

So disposable growth is higher than the capital number all the way around; disposable growth rates are higher. We expect that trend to continue, though we've had pretty good capital placements in the second quarter here in the U.S. So that definitely helped the number. But we're still very early in the market.

So I don't see that slowing down, and I think our guidance reflects our enthusiasm for the product. And I think it's a responsible number given that we only have six months of this under our belt..

Our next question comes from the line of Jeff Cohen with Ladenburg Thalmann. Your line is now open..

Hi, guys. Firstly, just a couple clarifications. Thanks for taking the questions.

Luke, on the 2017 hedging, what percentage has been completed at this point?.

Yeah. We're about 70% complete..

Okay.

And if I can follow up, I think you were asked on the Orthopedics, but following up on Kristen's question and some of the follow-on commentary, were the sales pushed out during the second quarter more so than you expected, or simply you didn't get them? I guess the question is, were they closing as you expected them to close on the sales, or were they getting pushed out to a larger degree?.

Jeff, candidly, it was both. Some of them went to competitors; some of them did push into the third quarter. And our job is to pursue the ones that moved into the third quarter, close those, while also rebuilding the pipelines.

And again, at CONMED, we spend a lot of time focused on MTF and re-establishing our presence there, and our relationships with customers, and we saw positive trends on that. But that came at the expense of some of our focus on capital. And shame on us, we got to learn to do two things at once. But we will. We'll get there. So it's a little bit of both..

We have a follow-up question from the line of Mike Matson with Needham & Company. Your line is now open..

Hi. Just on AirSeal, I was curious how much of that growth is currently being driven by the robotics related procedures versus conventional laparoscopy, because I think it was mostly a robotics business to begin with.

But are you having success in converting the regular laparoscopic business as well?.

That's a great question, Mike. And I don't have an exact percentage. We don't ultimately track them by whether they go to robotics user or into general laparoscopic procedure base.

And you're correct, SurgiQuest really built their business by first focusing on intuitive surgical robotics placements because the technology is a robotics-enabling technology. So that's where the majority of disposable revenue comes from. In addition, there's still opportunity to sell some more capital into that market.

We're not at a 100% market share there. But I would say with the expanded sales force, the ongoing education, the growing clinical awareness, we're starting to see more participation in the general laparoscopic market. And I think, as I showed in one of my slides back in January, that's where the big volume is. That's where the long play is.

And the ability to generate and create a low-impact procedure for general laparoscopic cases is really the long game here. Not that robotics is unimportant; it's very, very important, and we're still going to be a big participant there and that's where the company was built.

But, the bigger market, as my slides indicated back in January, is really around general laparoscopic procedure base and the low-impact nature..

We have a follow-up question from the line of Kristen Stewart with Deutsche Bank. Your line is now open..

Hi. Thanks for taking the follow-up.

Just wondering if – I know it's still kind of early, but are you seeing any evidence in some of the accounts with SurgiQuest, any pull-through of other products that you've had?.

Yes. I would say, we talked about that as being a driver for 2017. We anticipate, however, though that anecdotally and in a few specific examples, we are starting to see the opportunity for pull through existing CONMED products. In many cases, these large institutions, clinical thought leaders don't have a lot of past experience with CONMED.

By virtue of having AirSeal in the room, our reps have an opportunity to be present and just inherently in that presence, conversations occur, opportunities are presented and we're doing our best to take advantage of those. So, I think we're starting to get some of that activity initiated and it will be our job to follow up and continue to grow that.

And as I've said, 2017 is where we really see the synergy sales on our legacy AirSeal, our Advanced Surgical portfolio beginning to occur..

And I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Hartman for closing remarks..

Okay. Thank you, Liz. And everybody, I want to thank you for your time today. We look forward to speaking with you on our next earnings call, which will be held on October 27, 2016. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You can now disconnect. Everyone, have a good day..