Joseph Corasanti - CEO and President Robert Shallish, Jr - CFO

Dalton Chandler - Needham & Company James Sidoti - Sidoti & Company Matt Miksic - PJC Robert Goldman - CL King

Good day ladies and gentlemen. Welcome to the First Quarter Earnings Conference Call. My name is Lumeda and I will be your operator for today. (Operator Instructions). I would now like to turn this conference over to your host for today’s call, Mr. Joseph Corasanti, President and CEO. Please proceed, sir.

Thank you very much. Good morning, everyone, welcome to CONMED Corporation’s First Quarter 2010 Earnings Conference Call. With me today is Rob Shallish, our Chief Financial Officer. After formal remarks the call will be opened for questions. Before we begin, let me remind you that during this call we will be making comments and statements regarding our financial outlook, which represents forward-looking statements that involve risks and uncertainties as those terms are defined under the Federal Securities laws. Our actual results may differ materially from our current expectations. Please refer to the risk factors and other cautionary factors in today’s press release as well as our SEC filings for more details on factors that may cause actual results to differ materially. You will also hear Rob and me refer to certain non-GAAP measurements during this discussion. While these figures are not a substitute for GAAP measurements, company management uses them to aid us 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. Non-GAAP net income and non-GAAP earnings per share measure the income of the company excluding credits or charges that are considered by management to be unusual or outside of the normal ongoing operations of the company. These unusual items are specified in the reconciliation in the press release issued this morning. With these required announcements completed, I can now turn to my comments. 2010 has started off well for CONMED both operationally and financially. Specifically CONMED net income rose 63% over the first quarter of 2009 on a sales increase of 7.5%, adjusting for unusual items in both quarters, non-GAAP net income increased 53%, additionally year-over-year the GAAP gross margin improved to 52% compared to 46.5% and the non-GAAP gross margin improved to 52.4%…

Thanks very much. As Joe mentioned 2010 is off to an excellent start. Sales grew 7.5% year-over-year to $176.4 million, while net income grew 63% on a GAAP basis and 53% on a non-GAAP basis. Importantly we return to year-over-year quarterly profitability growth when measured on GAAP basis for the first time in several quarters. Although the global economic crisis is still having some lingering effects on the company’s performance. We believe the positive results of the last three quarters indicate that the worst is behind us and we can proceed with our goal for increased profitability. Further, the upfront cost associated with the restructuring activities of 2008 and 2009 are beginning to pay dividends. As evidenced by the increased gross margin in the first quarter compared to that of a year ago. Specifically, the GAAP gross margin in the first quarter this year grew to a 52% from 46.5% in the first quarter last year. On a non-GAAP basis excluding the restructuring matters, this year’s first quarter gross margin was 52.4% compared to 48.3% in the March 2009 quarter. While currency was favorable this year compared to last year first quarter and resulted in a little over one half of the improved gross non-GAAP gross margin percentage. The rest of the improvement was due to the more efficient manufacturing operating structure CONMED has been implementing me over the last year as well as product mix to some degree. Our Mexican manufacturing plant is fully operational and as we have discussed on our last conference call, beyond the product lines we have already transferred to that site, we will be moving additional lines there over the next few months. Selling, general and administrative expense for the first quarter of this year was 40% of sales as compared to 37.7% in…

(Operator Instructions). And your first question comes from the line of Dalton Chandler from Needham & Company. Please proceed, sir. Dalton Chandler - Needham & Company: Just with regard to the move of products to the Mexican facility, do you expect this to be somewhat of an ongoing thing? Do you think you’ll be moving additional products there next year as well? And do you have any capacity issues with that facility?

We don’t have plans today for product moves to occur on 2011. There is the possibility that could happen from any number of our factories here in the U.S. but currently we don’t have plans beyond what we are doing today. Dalton Chandler - Needham & Company: I think you touched a little bit on the new tissue sealing device. Just a couple of questions on that. Have you filed for the 510(k) yet? And secondly, you mentioned you expect a limited launch, is there a reason that you’re not going with a broader launch on that product?

Yeah Dalton with the tissue sealing device we have filed for the 510(k), we did that about 30 days ago and when we say limited launches generally what we have been doing at CONMED Corporation with large significant product launches involving new technology which tissue sealing is new technology for us in the market. We did the same thing with our Shoulder restoration System where for the first month it was realized simply to our top sales reps who demonstrated for efficiency at selling number one new technology and had trained extensively on the new technology. So, we will be doing something along those lines with tissue sealing. Dalton Chandler - Needham & Company: How long does it typically take, then, to get to a broad launch on those types of products?

Well with the Shoulder System I think we are out two or three months on a limited basis and then haven’t had an official launch to every sales rep after that.

And your next question comes from the line of James Sidoti from Sidoti & Company. Please proceed, sir. James Sidoti - Sidoti & Company: I’m sorry, but can you repeat what you said about the hedging, what percent of the revenue for the back-end of the year was hedged at this point?

Sure, Jim, it’s approximately 60% for the second quarter, 60% for the third and approximately 40% for the fourth. James Sidoti - Sidoti & Company: Okay and then on the cost savings. It seems like you’re starting to see some of the benefits now. Is this something that should improve throughout the year or is it kind of a steady state situation?

Well I would hope we would see some slightly improvement but I would say that its probably steady state, I think that where we might see some improvement in gross margin this year would result from volume. Assuming relatively stable currency rates, I would say if we are successful in increasing volume of sales and that should have an impact on the gross margin. James Sidoti - Sidoti & Company: You should be able to leverage that?

Right. James Sidoti - Sidoti & Company: Okay. And then, just in terms of volume, some companies have already started to see capital equipment sales pick up. You guys, it seems like it’s taking a little longer. Do you have any thoughts behind that?

It’s interesting with capital Jim, we saw a mixed result. So electrosurgical generators did extremely well growing 7% and 7.5% in the quarter. We have growth in the U.S. and even better growth outside the U.S. and in both our direct markets and export markets for generators and its interesting we really can’t explain why that occurred other than to speculate that there is something perhaps pent up demand for generators because they were so soft in ‘09. With video and with powered instruments we had declines in both those areas of capital. In the UK and in Spain we think there is still capital freeze especially in the UK with government spending which is a bit of a turnaround from the early part of last year when in the UK the government wasn’t spending money on capital. So, they have tightened their belts there this year. So, it’s mixed for us, we are continuing to analyze it but again I think we really need to standby our statements which are about the nature of our capital. The replacement cycle we think is three to five years, at some point these purchase delays they just simply can’t go on forever. James Sidoti - Sidoti & Company: All right. Thank you.

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Hi. Thanks for taking our questions. One follow-up on margins. You had talked a little bit about the contribution of mix and the contribution of sort of restructuring and of currency. Wondering if you could talk a little bit about how much of the non-currency impact in your gross margin, how much is this sort of like ongoing, I would imagine it’s like a step down in your manufacturing costs related to moving products between facilities and how much has to do with this single-use versus capital mix that we saw in the quarter? And then I have one follow-up here on international.

Well yes Matt, most of the improvement non-currency improvement in the gross margin is a result of the changes that we have made to the manufacturing structure. There is a slight component; I would say no more than 20% of the improvement that’s non-currency related that relates to mix because we did see our single-use sales the 78% of our business this quarter which is a little bit higher than the norm, the norm is about 75%. Our capital products well there is again no overall answer but in general and on an overall basis I guess I would say that the video products have a little bit lower margin than the other capital products and lower than the single-use products. In general the capital products tend to have a slightly lower gross margin when we saw them, than the single-use products. So, that would mean that with a little bit less capital product sales in the quarter we would have an improved gross margin because we are selling more single -use products. But I guess I go back to the 80-20 rule, the 80% of the benefit this quarter was a result of cost changes that we have made.

Thanks Rob, it is a very helpful color on the margin. Overseas, I guess we ran into this frustration where market trends are heading in one direction and sometimes not everybody is seeing the same level of benefit. I am just wondering you talked about staying in the UK maybe moving in kind of different direction. Any other regions outside the U.S. where you feel like you got a disproportionate concentration in a particular geography that’s going the wrong way on you and anything that we can look at in terms of trends that will help us understand when the businesses might start to pick up again for you.

Well I would say Matt that the UK is the one that we are watching perhaps more closely than any of the other individual countries and to put that in perspective, the UK is in the neighborhood of 5% or 6% of sales. We actually saw improvement in Canada, Australia, and Japan but in general I would say the UK was the laagered with the rest of Europe being somewhat flat. So, we saw improvement in some countries and flatness I would say the European region in general. So, Europe is the one that we are watching perhaps more closely and off Europe, UK would be the one to that we are focusing on.

The interesting thing is there seems to be negative for orthopedic capital. The electrosurgery products, the generators declined in the UK and the rest of Europe, it’s for been the direct market as well as our export business.

And one follow-up just on the UK. Again, one of the things we’ve seen in some of the other markets is at the beginning of a new fiscal year sometimes things start to pick up a little bit and I believe UK’s fiscal year ends in March. Any sense that we saw sort of like an end-of-year clamp-down on budgets, which may logically ease as we get into their new fiscal year?

We have heard some of that from our sales force Matt and whether then in fact is the case and we will start seeing improvement in the UK sales then that certainly is the possibility.

And your next question comes from the line of Robert Goldman from CL King. Please proceed, sir.

Just looking for guidance on two elements of the income statement. Rob, on R&D, I couldn’t tell if you were saying R&D would be in dollars flat for the rest of the year versus the first quarter or as a percent of sales, and then also if you could provide some guidance on SG&A and perhaps outline any unusual SG&A items that resulted in SG&A being up more than sales in the quarter. Thank you.

On your first question with R&D perhaps I didn’t say it well but the $7.7 million was just so that we did had an R&D this quarter. Roughly should be that amount each quarter as we go forward for this year. So, as a percentage it might change a little bit depending on what the sales number is but and in terms of absolute dollars in that $7.5 million to $8 million range per quarter is what we are anticipating now. With the respect to SG&A I did mention currency as a significant factor because the dollar is weaker in the first quarter of this year compared to last year that creates higher selling expense for us wherever we are direct and we are direct in 12 countries. So, in rough terms about $3.3 million of expense additional expense was incurred in this quarter of 2010 as compared to the first quarter of last year. Other things that impact this are changes in some of our marketing programs; we have added some sales people this year compared to a year ago. Some of employee benefit costs such as workers compensation and then health cost are a little bit higher. I do think that SG&A as a percentage of sales should moderate as we go through the rest of the year. First of all we are watching these lines very carefully and will adjust our spending if necessary to meet our goals and then secondly we expect that sales should improve as we go through the rest of the year and on a percentage basis that would mean that the denominator is greater and therefore the percentage will come down. So, I am hoping and believe that this would be the high point in terms of a percentage.

And there are no questions at this time. I will turn the call over to Mr. Joseph Corasanti for closing remarks.

Well thank you very much everyone for joining us today. CONMED continues to work hard to improve the company’s operations. I look forward to discussing our further progress with you on our next conference call. Thank you very much. Have a good day.

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