Curt Hartman - President and Chief Executive Officer Luke Pomilio - CFO, Principal Accounting Officer and Executive VP of Finance.

David Saxon - Needham & Company, LLC Richard Newitter - Leerink Partners LLC Jeffrey Cohen - Ladenburg Thalmann & Co. Inc. Matthew Mishan - KeyBanc Capital Markets Inc..

Good day, ladies and gentlemen, and welcome to the CONMED Corporation Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

Before we begin, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, which represent forward-looking statements that involve risks and uncertainties as those terms are defined under the federal security 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 the 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 a 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 turn the call over to Curt Hartman, CONMED's President and Chief Executive Officer, for opening remarks. Mr.

Hartman?.

Thank you, Nova. Good afternoon, and thank you for joining us for CONMED's third quarter 2017 earnings call. With me on the call is Luke Pomilio, CONMED's Executive Vice President and Chief Financial Officer. Today, I'll provide a brief overview of the financial and operating highlights for the quarter.

Luke will then provide a more detailed analysis of our financial performance and an update to our fiscal 2017 financial guidance. After that, we'll open the call to your questions. Looking at the quarter, total company sales in the third quarter were $190.1 million, an increase of 2.9% as reported, and 2.4% on a constant-currency basis.

As noted on the second quarter call, we had 63 selling days this quarter versus 64 in the year-ago quarter.

Finally, while it is impossible to fully determine the impact from Hurricanes Harvey and Irma on our top line, we estimate that our domestic results experienced an impact of approximately $2 million of either deferred or lost sales in the Texas, Florida and South Carolina geographies.

Approximately $800,000 of that was in domestic General Surgery, while the remaining $1.2 million was in domestic Orthopedics. From an earnings perspective, adjusted diluted net earnings of $11.7 million increased 1.7% year-over-year, and adjusted diluted net earnings per share of $0.42 increased 2.4% year-over-year.

On a worldwide basis, General Surgery recorded its 7th straight quarter of positive gains, posting 7.1% reported growth and 7% constant currency growth. While Orthopedics dipped negative owing to ongoing weakness in the domestic results during the quarter. Overall, our international business is delivering strong results.

For the quarter, top line results improved 7.3% as reported, and 6.2% in constant currency, with gains in both General Surgery and Orthopedics for the 6th consecutive quarter. International General Surgery remains strong, having now recorded its 7th consecutive quarter growth at 11.9% as reported and 11.6% on a constant-currency basis.

In international Orthopedics, gains were recorded across nearly every product category during the quarter, resulting in 5% reported growth and 3.6% constant currency growth. Our domestic business declined 90 basis points during the quarter, with growth in General Surgery of 4.8% offset by decline of 8.8% in Orthopedics.

After improved trends in the first 2 quarters of the fiscal year, domestic Orthopedics reversed in the quarter. When factoring in the hurricane impact and 1 less selling days, the results still indicate a year-over-year decline of approximately 4.4%.

Our focus in 2017 has been on new products, purchasing contracts and sales force development and we expect these efforts to deliver an improvement in domestic Orthopedics as we exit 2017. Our focus on innovation remains a key priority, and through the first 3 quarters of 2017, we have introduced 17 new products.

And keeping with our prior commitment, we on track to launch, no fewer than, 20 new products by the end of the year.

Overall, our results keep us on track to achieve our financial and operating goals for 2017, and we will continue to focus on new product introductions, while leveraging our investments across the income statement to enhance profitability. We believe we are set up for strong finish to 2017 and expect to carry momentum into the new year.

Finally, I'd like to point your attention to the other press release we published today, announcing Luke's retirement. As indicated, Luke will continue in his current role full-time until his successor is found.

Further, once his successor is in place, Luke has agreed to stay engaged with the company in an advisory capacity to ensure a smooth transition.

I'm excited for Luke as he has decided - as he has dedicated over 2 decades of his professional life to our company and his decision to retire at this point is consistent with the personal plans he discussed with me when he accepted the CFO position. He's been a great partner to me and he's been instrumental in the transformation of CONMED.

Frankly, with his focus on plant consolidation, he started the transformation long before I arrived. So before turning the call over to Luke, I want to thank him for always putting the best interest of CONMED first in his decision-making and for his commitment and service to our company.

I'd also like to express my appreciation for his invaluable partnership and leadership, which have helped us navigate the company to a position of growth through people and product innovation. I'll now turn the call over to Luke..

Thank you, Curt. As mentioned, our total sales for the third quarter of 2017 were $190.1 million, an increase of 2.9% on a reported basis, an increase of 2.4% on a constant-currency basis versus the third quarter of 2016.

Domestic sales, which represented 51.7% of total revenue, decreased 0.9% as year-over-year growth of 4.8% in General Surgery was more than offset by a decline of 8.8% in Orthopedics. Our third quarter sales for 2017 were negatively impacted by approximately $2 million related to the recent hurricanes, largely attributable to deferred procedures.

International sales, which represented 48.3% of total revenue, increased 7.3% compared to the third quarter of 2016 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a positive impact of $0.9 million on third quarter sales.

In constant currency, international sales increased 6.2% versus the prior-year period. With that, I will now review our 2 reporting categories, with all growth [indiscernible] in constant currency.

Worldwide Orthopedics revenue decreased 1.6% in the quarter as continued improvements in single-use sales was more than offset by a double-digit decline in capital sales. Domestically, third quarter Orthopedics revenue decreased 8.8% versus the prior-year period as both single-use and capital sales declined year-over-year.

This business saw the bulk of the negative hurricane impact as patients deferred elective surgeries, but we expect to see a rebound in the coming quarters, as these surgeries are rescheduled. As Curt pointed out, we expect this business will show improvement in the fourth quarter.

Internationally, Orthopedics revenue increased 3.6% year-over-year, representing a 6th consecutive quarter of growth, driven by improvements in both direct and export markets as well as by accelerating growth in our sports medicine category.

Worldwide, General Surgery revenue grew 7% in the third quarter, driven by strong performances from Advanced Surgical and Endoscopic Technologies. Domestically, third quarter General Surgery sales increased 4.8%, driven by strong Endoscopic Technologies and Advanced Surgical sales, despite the hurricane impact.

Internationally, General Surgery sales increased 11.6% in strength in both our direct and export markets and strong contributions from Advanced Surgical. Now turning to other components of the income statement.

Adjusted gross margin for the third quarter, excluding restructuring cost, declined by 20 basis points to 54.6% compared to 54.8% in the third quarter of 2016.

The decrease versus 2016 is attributable to the unfavorable impact from product mix of approximately 30 basis points, which was partially offset by favorable foreign exchange of approximately 10 basis points. Our third quarter adjusted gross margin improved sequentially by 140 basis points, due largely to more favorable production results.

Our original 2017 plan called for higher spending and lower gross margins in the first half of the year, with a rebound of more normalized gross margins in the second half of the year. We are still on track for this improvement. We now expect Q4 2017 adjusted gross margin in the 55% to 56% range compared to our prior guidance of approaching 56%.

Based on our performance for the first 3 quarters of the year and the range of our Q4 2017 gross margin forecast, we continue to expect full year 2017 gross margin near into low end of our annual guidance range of 54.5% to 55.5%. Moving down the income statements on an adjusted basis, which excludes the impact of amortization.

Selling and administrative expenses for the third quarter were $76.6 million or 40.3% of total sales compared to $73.7 million or 39.9% of total sales in the third quarter of 2016. As discussed previously, our business is seasonal.

This third quarter sales typically representing the lowest quarter of the year, and fourth quarter sales representing the highest quarter of the year. This should be the case in 2017, and we expect adjusted SG&A as a percentage of total sales for the fourth quarter at the lowest quarterly level for the year.

As you know, for the last 3 years, our primary objective has been to stop our declining top line and return the company to growth mode. With 3/4 of growth in 2017, we have made significant progress towards this objective. As our top line has permitted, we have made sales and marketing investments to accelerate our growth in 2018 and beyond.

These investments were prudent in our opinion but came at a cost. As a result, we've been performing to the first 3 quarters of the year at the higher end of our sales guidance, but to lower end of our earnings guidance, and this trend is expected to continue into the fourth quarter.

Consequently, we are now forecasting full year adjusted SG&A near the top end of our guidance range 38.5% to 39.5% of total sales. Research and development expenses for the third quarter were $8.3 million, which was slightly higher than the $8 million reported in the second quarter of 2017, and in line with our prior-year period.

Based on the R&D spend year-to-date, we continue to target 2017 R&D expense in the range of $31.5 million to $33.5 million. R&D expense increased sequentially for the last 2 quarters and our current forecast has this coming in at the lower half of our guidance range.

Adjusted EBITDA margin in the third quarter of 2017 was 16.8% compared to 16.9% a year ago. Now turning to a discussion of our tax rate.

Our adjusted effective quarterly tax rate decreased to 20.1% from 29.3% in the third quarter of 2016, as a result of several discrete tax benefits amounting to $796,000, which were recognized in the third quarter of 2017, in connection with finalizing our 2016 tax returns. In the first 9 months of 2017, our adjusted effective tax rate was 27.4%.

For modeling purposes, in Q4 2017, we expect a non-GAAP tax rate before any discrete items of approximately 29.5% to 30.5%. We can potentially report additional discrete tax benefits in the fourth quarter, but the likelihood and scope of these benefits are still being finalized at this point.

Therefore, we have not included these potential benefits in our formal earnings guidance range for 2017. Third quarter GAAP net income totaled $7.2 million or $0.26 per diluted share compared to reported net income of $7.3 million or $0.26 per diluted share a year ago.

As previously discussed and was outlined in today's press release, we excluded the cost of special items, including acquisitions, restructuring, legal matters, gains on the sale of assets and debt refinancing net of tax as well as amortization of intangible assets net of tax from our calculation of adjusted diluted net earnings per share.

Excluding the impact of these items, our third quarter adjusted diluted net earnings per share were $0.42 versus $0.41 in the prior-year period. Third quarter 2017 adjusted diluted net earnings per share include $0.03 from the discrete tax adjustments.

Looking at the balance sheet, our cash balance as of the end of the third quarter of 2017 was $44 million compared to $26.9 million at September 30, 2016, and $27.4 million as of September 30, 2015. Accounts receivable days as of September 30, 2017 were 68 days compared to 66 days in the same quarter a year ago.

The inventory balance at quarter end was $149.5 million compared to $136.5 million at June 30, 2017 and $142.4 million at September 30, 2016. Inventory days at quarter end were 141. As is usually the case, the third quarter is our slowest - lowest sales quarter of the year, while our fourth quarter sales will be our highest.

Our inventory balances tend to peak in September. In addition, one of our 3 manufacturing facilities is located in the Tampa, Florida area and we built some inventory as a buffer in advance of Hurricane Irma. We expect that inventory to normalize in the fourth quarter.

Long-term debt at the end of the quarter was $494.8 million versus $488.3 million at the end of 2016. Our leverage ratio at September 30, 2017 is 3.8x and we forecast it to be 3.7x at December 31, 2017. Free cash flow for the first 9 months of 2017 was $35.5 million compared to $15.8 million in the prior year period.

During the quarter, we used $13.4 million of cash to complete 2 product acquisitions, one in the Orthopedic area and one in the General Surgery area. Sales during the quarter related to these products amounted to approximately $1 million with insignificant earnings contribution given the start-up activities.

Finally, as described in today's press release, we've increased our constant currency sales guidance for the fiscal year. Based upon year-to-date performance, we now expect 2017 constant currency sales growth in the range of 2.5% to 3.25%, an increase from the prior guidance of 2% to 3%.

Through the first 3 quarters of the year, our constant currency sales growth was 3%. Our updated guidance reflects the fact that Q4 2017 has 1 less selling day versus the prior year quarter, which creates a potential 1.6% headwind in the fourth quarter. Foreign currency rates, overall, have remained favorable during the quarter.

As we've discussed in the past, we utilized a rolling hedging program to mitigate the short-term negative or positive impact of foreign exchange rate changes. The hedging program, somewhat, delays the benefits of currency changes in the weakening U.S. dollar environment. In general terms, we hedged approximately 35% of local currency sales value.

Our local currency expenses provide a natural hedge, plus that we achieve a combined 75% hedge of our earnings exposure. At this point in the year, we are fully hedged for 2017 and 2018.

Based on exchange rates, as of October 30, 2017, an inclusive of our hedging program, we forecast that there will be minimal foreign currency exchange impact to full year 2017 sales versus 2016, compared to our prior estimate of 0.25% headwind. Given our hedging program, the 2017 earnings impact and this change in foreign exchange rate is minimal.

Based on our performance for the first 3 quarters and our forecast for fourth quarter sales, we are tightening our full year 2017 adjusted diluted net earnings per share guidance to a range of $1.85 to $1.90 compared to our - the previous range of $1.85 to $1.95.

The adjusted diluted net earnings per share estimates for 2017 exclude the cost of special items, including acquisition costs, legal matters and restructuring costs, which are still estimated in the range of $16.5 million to $18.5 million net of tax, and amortization of intangible assets, which is still estimated in the range of $12 million to $14 million net of tax.

One final item as it relates to your models for 2018 and beyond, there is an accounting standards change related to the revenue - revenue recognition taking effect as we enter 2018, at which $0.8 million in fees that we paid group purchasing organizations and distributers, will transition from G&A to a contra sale on the income statement.

This will have a negative impact on the top line of your models next year, which will be offset by lower G&A expense, meaning EBIT will remain unchanged. On a personal note, I've announced my retirement today.

My experience with CONMED started 30 years ago, when I was an auditor of the PriceWaterHouse and CONMED had just gone public with $10 million of revenue. I officially joined the company 22 years ago and could have not - could not have asked for a more rewarding career.

I'm proud of so many things that company has accomplished over the years and feel fortunate to have played key roles in both CONMED's formal years and with a new commercial teams that has returned the company to growth. I already planned for retirement and look forward to next chapter of my life.

This moment is a bitter sweet as I'll truly miss my coworkers at CONMED, as well as interactions with so many others interested in the company, including many of you on the call this evening. And now, I'd like to turn the call back over to Nova for Q&A..

[Operator Instructions] And our first question comes from the line of Mike Matson of Needham & Co..

This is David Saxon, and I'm on for Mike.

So just looking at domestic Ortho, I mean it's - do you think this is more of a sales force issue or product issue, or perhaps, something else?.

I think there's a couple of factors. Number one, the depth of the hole that our domestic Orthopedic business was coming out as it related to a lack of new products.

And we started backfilling that, first, by outside acquisitions in 2016, and then we came out this year in the first prior to the year and showed 7 new products at Academy, which are in various stages of releases we got through the second and third quarter. And it's about getting in front of customers and getting traction with new products.

And we're seeing results of that. We've made tremendous amount of change across the entire organization, not just sales force. It's a new marketing team, it's - there's a lot of new people in sales and it's a lot of investment in the business, and the products don't come out overnight.

And we're pleased with the progress, that's why we said in the opening comments, we see better days ahead and we've said from the beginning of the year that we thought we would exit the year with a positive momentum. And I think we remain on track to do that.

So obviously, the proof will be in the fourth quarter results, but we like where it's going right now..

Okay.

And then for - in terms of the sales force, I mean is there - have you seen any increase in turnover or is it pretty stable? Or where you'd expect the attrition to be?.

I think we're right where we should be. We've been making changes in the sales force very early on, going back to 2015. We've got new Head of Sales that started in May of this year. I think we announced last year that we have made a change there.

And when you look at a fully commissioned sales force that the type of turnover that we see in the sales organization is no different at this point in time, then you would expect for a quarter driven, fully commissioned sales force.

So, I think sales force is in good spot and really have been begging us for new products, which we've been working fiercely to try to get out and feel good about what our R&D and marketing teams are doing, and it's just having the patience to let those products get out and get our sales force in front of customers with them and we're well underway with that..

Okay.

And then just lastly, real quick, can you give an update on how AirSeal is doing?.

I think, overall, we're very excited with the AirSeal platform. And it's reflected in the broad General Surgery numbers. And we said coming in this year, we saw opportunities on a global basis and the organization has done a great job in the U.S. market as well as outside the U.S.

And as important, when we first bought AirSeal, people were really curious about kind of the synergy sale, the legacy portfolio that CONMED had around that. And we have favorable results in the - what I would call legacy portfolio on a global basis. So, I think everything that we had hoped for AirSeal is happening and then some.

And as important, the rest of the General Surgery category, our Endoscopic Technologies business is doing great, we've had new product introductions.

So overall General Surgery looks in really good shape on a global basis and AirSeal is a key innovative differentiated product and we feel very good about what we've done year-to-date and how that's going to continue in the years ahead..

Our next question comes from the line of Richard Newitter of Leerink..

Luke, wish you well in your future endeavors. So just wanted to - maybe, start off with General Surgery. The growth rate there continued to kind of tug along quite nicely, particularly, outside the U.S. Curt, can you maybe just characterize kind of what exactly is going right outside the U.S.

yearly total growth rate like this on a tougher comp, on a constant-currency basis? And then in the U.S.

as well, I mean is this just AirSeal gaining traction? Or is there something pull through that you're starting to see through the rest of the portfolio from AirSeal? And can you quantify how much of that kind of is happening now versus, call it, a few months ago?.

It's a great question, Rich, and I'll break it down. Outside the U.S, things, overall, in the international business have been going well now for a number of quarters. And part of the history of CONMED was a big presence on the Orthopedic side in the business and not a very big presence on the General Surgery side.

And when we brought Pat in to run international and he got close to the markets and the leaders there, he made a very conscious decision that those leaders were going to run the entirety of the portfolio. So, a big part of the General Surgery growth is just the emphasis that he and his leaders are putting on General Surgery.

And then on top of that, dropping the AirSeal platform into international, which, like I said at the beginning of the year, we saw a lot of opportunities outside the U.S. It was very early innings for AirSeal, SurgiQuest had really just introduced that in the second quarter of 2015, and we took it over January 1 of 2016.

So, it was really early days for AirSeal outside the U.S. So, the General Surgery business outside the U.S. is a combination of the international teams' focus and leadership, creating, what I would call, 1 CONMED approach to the market and then the addition of AirSeal.

And candidly, we're getting growth out of the legacy General Surgery business at a rate that's very impressive, along with the growth out of AirSeal at a rate that's very impressive. In the U.S., General Surgery, AirSeal, no doubt, has shined a bright light on our General Surgery platform within the Advanced Surgical business.

And as I just said, the legacy business there is growing and AirSeal continues to do very well. But as important, other parts of the General Surgery portfolio, the Endoscopic Technology's business, specifically, has had a couple of years now of new products that have started to really drive their growth.

So, combination of more of the broad General Surgery assets growing AirSeal be on a real game changer in the marketplace, opening doors for us in places that historically we've not been able to get traction. And - don't get me wrong, we've done some other new products in General Surgery outside of AirSeal that have helped that business.

So, this is really good focus on an innovative technology, coupled with more attention to the existing portfolio and some solid innovation in the rest of the portfolio..

Got it. And I was jumping around calls, so I apologize if you might have gone over this in the opening remarks. But just on the gross margin, it was kind of in line with our expectations this quarter, despite another sales speed. I know you guys have talked about, it did improve sequentially as you said it would in the back half.

But I'm just curious, when do you think we're going to see a little bit more kind of leveraged earnings growth and bigger kind of gross margin contribution? And what's the gating factor there?.

Yes, Rick. So, on gross margins, we said that it would be at a lower level in the first half of the year, higher level second half of the year. And we did step up a little in the third quarter. We'll continue to step up further in the fourth quarter. So, I feel good that we're exiting the year at a higher rate.

And from an operations perspective, we continue to look at cost opportunities. And I think, ultimately, that will help us with leverage on the bottom. We also talked - at least I talked in my prepared remarks about our SG&A levels that we're making a conscious decision to do things to drive the top line faster.

I think over time, the focus will be on driving profitability, less focus on further advancing the top line, not that, that will ever be an area that we won't focus on..

Rich, I would just add to that, inherently, as the sales trend continues to improve, which is really driven by the right people and the right products, we're going to get that operating leverage, but as this year has unfolded and we started the year by saying we're going to make manufacturing investments the other thing is sales have improved.

We've made a conscious decision to keep investing in things we know are going to drive sales results. Some of that is channel changes in the international markets, where we have part of the market direct and maybe we didn't have the other part of the portfolio direct, I think, General Surgery, for example, maybe the sole distributor.

And we said we have an opportunity to spend a little money now, take that direct, which means we have hire sales people, we have to hire a marketing resource. Those are costs that come on day 1 and the sales tend to follow.

So, I think as our sales have built this year, we've tried to prudently make investments to set ourselves up for continue momentum on top line, knowing that long-term, we don't want to just to have one great quarter, we want to have a lot of great quarters. And I think we're setting ourselves up to do that..

And our next question comes from the line of Jeffrey Cohen of Ladenburg Thalmann..

So just a couple of issues, if I can drill down just a little bit.

So as far as the procedures impacted from the storms, what percent do you think spill over it? Or what percent of elective that you'll be seeing pull out of third quarter into fourth quarter?.

Yes, we said we had about - best estimate about $2 million and we looked at that number in different ways to come up with that estimate in the 3 geographies, the greater Houston area in Texas, obviously, Florida and then South Carolina. And you think about our Orthopedics business, which had the biggest impact.

A lot of that business is done in surgery centers. They're small standalone facilities, by and large. So, they're going to feel a bigger and longer impact from storm. And say, a hospital, which has a lot of redundancy. We think those are just deferrals.

We think those come back if you're scheduled to have shoulder procedure and storm shut down the center, you didn't want to travel because of the weather. We think that's a matter of rescheduling and coming back. So, we think on the Orthopedics side, we're likely to get the majority of that back. $800,000 was in General Surgery.

We think we'd get pretty much all of that back. So, there may be ones or twos that you're sure that don't show up, but we think we'll get most of that back..

Okay, got it. And could you talk a little bit about the weakness domestically in the Orthopedic business and more granular as far as specific areas. And then could you also discuss a little bit about some of the new product introductions, you did mention $30.4 million in product acquisitions.

Could you give us a little flavor for what types of equipment and devices you've acquired there? And for what types of procedures?.

Yes. I'll start with the second question because it will feed into the first one. On the General Surgery side, we had 2 new products in the quarter. One of which was an acquisition.

It was a specialty specimen bag only in-class product in terms of reusability and one that part of the company and a few select international markets had been distributing and had great results, where do we thought it was very applicable to the rest of the global business.

It took us a while to get that one through the hoop, but we're excited to have it on board. And that really just happened in the third quarter. In addition to the general surgery side. We did a line extension to further support the AirSeal platform. So, we're excited about that one. But that was just introduced.

The other products all came within Orthopedics. One of those was an acquisition, it's the XO-shaped platform. It's really the first new thing we've introduced in the knee. It's for fixation and we're very excited about it.

It is early days our sales rep training customers training, but we think it's an innovative technology and will really help us on the knee side.

And then we had some other products in Orthopedics that we introduced on the shaver line, which I think you probably saw out at Academy, we just started to introduce the stealth and lines of - blade lines and we've - we continue to round out new products in that offering. So really things going into Orthopedic, which has been our focus from day 1.

New products for Orthopedics are critical to getting them back on offense. We think we're getting there. It's demonstrated by the new products as a percentage of revenues that we're starting to see in the quarter. Things like Edge starting to contribute.

It's just getting enough in the bucket to stop the leaks that are going out on the other side, but we're seeing positive reactions from our sales force and most importantly, from our customers. And like I said, I feel good about the way we're going to exit the year here based on everything I see and how trends improved over the quarter..

Okay, perfect. Luke, thanks for your service. We wish you well..

[Operator Instructions] And our next question comes from the line of Matthew Mishan of KeyBanc..

I'll start with the capital misses and - or the capital declines in Orthopedics. Do you have - I know a lot of your capital products, it's kind of a like a blade and razor model.

And if you have capital misses and you're losing, so does that, then not impact several quarters down the road where you lose some of the consumable volumes that would be attached to that as well?.

So, you've got a mix bag of Orthopedic products. We have power tools and we have video, and within video, we have arthroscopy. So, when you think about power tools do you think about arthroscopy. If you're not getting the consumables that go with that capital, yes, that's going to have an impact.

But you also have to think about the fundamentals of Sports Medicine, which are the anchors that have nothing to do with capital, and the MTF tissue and things of that nature. Those are totally independent of capital sales.

So, there is a knock out effect if we're not getting it done on the capital side and some of our third quarter challenges were capital that pushed or capital that we missed. So, we've talked about being better at capital and we still need to demonstrate that..

Okay. And I want to make sure I heard you right on the guidance.

Is SG&A coming in at the high-end of your expectations as well? And why is that?.

It is coming at the high-end of our guidance range and that's because of the investments that we've been making in programs as our top line has permitted..

Congratulations Luke. Thank you for your help for - over the last several years, that's very much appreciated..

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

Thank you, Nova, and thank you, everybody, for your time today. We look forward to speaking with you on our next earnings call, which will be held on January 31, 2018, where we will wrap up the fourth quarter and full year results. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the call. You may now disconnect. Everyone, have a wonderful day..