Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 CONMED Earnings Conference Call. My name is Ayesha, and I will be your coordinator for today’s call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I’d now like to turn the conference over to your host for today, Mr. Bob Yedid at ICR. You may proceed, sir.

Thank you, Ayesha. Good morning. Before we begin, let me remind you that during this call, CONMED’s management will be making comments and statements regarding their 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 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 management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, the company’s management uses 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 management to be special or outside the normal ongoing operations of the company. These adjusting items are specified in the reconciliation in the press release issued this morning. With these required announcements completed, I will turn the call over to Joe Corasanti, CONMED’s Chief Executive Officer, and President for his remarks. Joe?

Good morning. Thanks very much, Bob. CONMED sales for the second quarter were $193 million, an increase of 1.7% versus the prior year period. This was in our guidance range for the quarter of $191 million to $196 million. Adjusted earnings per share for the second quarter of 2013 were $0.43, again within our guidance range of $0.41 to $0.46 that we provided to investors on our last call. While adjusted earnings per share was flat compared to the second quarter of 2012, the medical device tax cost us $0.03 this year, so our earnings would have been $0.46 for the current quarter if one excluded the device tax representing a 7% increase year-over-year. On a GAAP basis, diluted EPS was $0.34 per share compared to $0.36 in the second quarter of 2012, but again adding back the $0.03 hit from the medical device tax would have made GAAP earnings per share equal to $0.37, a modest increase year-over-year. Adjusted operating margin expanded 20 basis points to 10.8% compared to the 10.6% during the second quarter of 2012 due to higher gross margins as a result of our continued focus on operational efficiencies across our business units, product mix and lower R&D expenses offset by higher SG&A spending due to planned increases in sales and marketing programs. This improvement would have been even more pronounced if not for the medical device burden of 70 basis points. Adjusted EBITDA margin of 16.9% declined slightly by 20 basis points versus the prior year period due to the 70 basis point medical device tax burden. Cash flow from operations was $17.7 million a slight decrease from last year’s second quarter due to working capital items. Our Board of Directors declared a quarterly cash dividend of $0.15 per share, continuing the dividend initiated by…

Thanks very much, Joe, and good morning everyone. As Joe mentioned, total sales for the June quarter came in at $193 million, a reported increase of 1.7% from the $189.7 million in the second quarter of 2012, with the bulk of the increase due to the sales associated with the September 2012 Viking Systems acquisition. On an organic basis, adjusted for the acquisition of Viking, sales were up 0.1%. In constant currency, the total increase year-over-year was 2.3%. Now, I will review our three categories of product line sales disclosures. Orthopedic surgery, general surgery and surgical visualization. Recall that we’ve revised the sales presentation in our first quarter reporting to simplify our financial disclosures, and make it easier for investors to understand our company. The orthopedic surgery line consists of the sports medicine products plus powered surgical instruments. The surgical visualization products that were previously included in the arthroscopy category have been broken out separately, because our video systems can be used both in general surgery and for orthopedics. This change became increasingly necessary as a result of the Viking acquisition whose 3D systems are primarily used in general surgery. Lastly, we have combined our electrosurgery, endosurgery, endoscopic technologies and patient care product lines into the general surgery category. Our orthopedic surgery product line experienced the sales decline of 1.9% versus the prior year period. While exports biologics business, which includes the dedicated marketing with MTF grew nicely at over 4%. Sports medicine products declined by 3.3%, and powered surgical instruments declined by a modest 0.9%. The sports medicine decline was due to three reasons, governmental controls on procedures and spending in Europe, particularly the UK. Our discontinuance of the small line of Craniofacial devices and the effects of currency translation. Sales in the general surgery product group had an…

Thanks very much, Rob. I’d like to make a few closing remarks regarding our long-term goals and our track record of growing earnings here at CONMED. We met our revenue and EPS goals in the second quarter and believe we have now set achievable and more realistic revenue and earnings guidance for the full year of 2013. I would like to remind everyone that CONMED was able to deliver EPS growth of 15% or greater from 2010 to 2012 on low single digit sales growth. The impact of the medical device tax, and changes in foreign exchange rates were headwinds in 2013 that we expected. Healthcare utilization has been modest in 2013 to-date as well. However, looking forward to 2014, we believe that with modest organic sales growth and neutral FX, we expect to get back to our long-term goal of annual double-digit EPS growth. We look forward to updating you on our business initiatives during the third quarter 2013 conference call and upcoming investor events appearances. All of the 3,600 employees at CONMED on a worldwide basis are working to achieve our operational and financial objectives for 2013. Thank you for participating in today’s call and so at this point operator, I’d like to open up the call for questions. Thank you.

(Operator Instructions) Your first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. You may proceed. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Hi, thanks for taking my questions. Can you discuss any new products that have been introduced over the past few quarters or any soon to be introduced products as far as the R&D pipeline goes?

Well, Jeff, we usually launch a lot of new products at the academy, at the AAOS, association with the surgeons. And this year, one of the big launches for us is the lithium-ion battery for the power instruments that’s doing extremely well for us. We’ve got some competitive advantage with that product, it’s able to expand very long autoclave cycle up to 18 minutes. So we think we can take some share in our European markets with that products, so that’s doing very well. Coming up, I would say by the end of the year and by Q1, we are launching about eight new products. Probably not going to tell you exactly what they are, but I can tell you the categories that they are in. We will be coming out with something new in video and advanced visualization, in general surgery, the Endosurgery product line area we will be launching probably about three new products. In sports medicine, we have got three new products coming out there as well and also in general surgery, the advanced energy group is coming up with a new piece of capital equipment probably by Q1, Q2. So those are the top areas for the new product development to look forward to. Jeffrey S. Cohen – Ladenburg Thalmann Securities: That’s superb. It’s very helpful. Has there been any change in pricing of Altrus?

Well, with Altrus, we are seeing pricing come down slightly, particularly with the five millimeter device. We are very pleased with the Altrus’ it’s growing, we are getting new accounts on every quarter, the sales that we have are sticky, surgeons that have converted like this product and desired to continue to use the product. Our cost is coming down, which of course we talked about that over the last several quarters, so with increased volume and with other manufacturing efficiencies and other factors, we are able to bring the cost of the product down, and so that’s one of the reasons where we are hopeful to get some traction outside of the United States and some markets where pricing is actually even more of a factor. So as we mentioned in our prepared remarks, we are initiating the sales of Altrus in several of our direct markets and even in some of our dealer markets where we are starting the selling process. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay, that’s very helpful. And could you talk about generally speaking how the environment is out there as far as acquisition targets or any pipeline or any M&A activity this market are less fertile more fertile than you are seeing a few quarters ago?

I think we actually have seen a slight pickup in activity there. We think that, I mean with the acquisition history this company has had 24, 25 deals since 1993. We are shocked quite a bit of properties, and so we do get a lot of offerings across our desk. I would say, yeah, the activity has picked up in the last probably two quarters. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. I am not sure if I missed it or if you folks talks about it, specific numbers or growth rates on the MTF business for the quarter?

Yeah Jeff, MTF was up about 4% compared to the second quarter last year. So we are slightly seeing some traction from some of the changes we have made in the marketing structure. So I think as we have talked in the past, we have added sales people into that particular category and that seems to be working out pretty well for us. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. And could you comment a little bit on, so your forecast for this coming quarter Q3, you’ve got $184 million to $189 million and $0.37 to $0.42, adjusted correct or I just wanted to confirm that.

Yes, correct. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay, so it’s adjusted?

Yeah, the restructuring or other costs. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. Q2 2012 was $0.43. You have a little bit of seasonality in the third quarter typically?

That’s correct. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. And no reason to expect otherwise, expect similar type of seasonality for the quarter?

Yeah, you are correct. The third quarter historically has been the softest vacations in Europe, surgeon vacations here in the U.S. all cause surgeries to be a little bit less. I think other orthopedic companies have the same profile.

Yeah, I mean our experience that seasonality trend is very consistent. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. Could you just briefly discuss – you are talking about $6.5 million to $7.5 million of consolidation costs for the third and fourth quarter? Could you besides the device tax, what are the special costs that you see associated with that and is that inclusive of the two facility consolidations, are they close to complete or when do you expect both to complete?

So those are the two consolidations that are going on at the moment with regard to manufacturing. There are some costs on the administrative function in both of those situations too, so that’s why we have got a couple of different categories for those costs. And the final thing is patent litigation that we have disclosed in our filings with regard to that was some sports medicine products. So those three things are the total of those special charges. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay. Could you be more specific on the time issues as far as the cost and the total costs that are allocated for that?

Of the total, for the remainder of the year, it would be between $1 million and $1.5 million. Jeffrey S. Cohen – Ladenburg Thalmann Securities: Okay, got it. And lastly I am sorry for all the questions. Just one more, just from 30,000 foot standpoint as far as the macro level, when you look at the disposable products versus the capital equipment products, this is really in the first quarter and quite a number of quarters, where are you seeing an uptick in the not the disposable side, but the capital equipment side, do you think this is sustainable or are you seeing it bottom put in here or there are any kind of macro trends that you can read from the data?

The capital equipment business is volatile and we have had as you pointed out, quite a few quarters of negative results. So the comparative numbers are rather favorable I guess you might say because of prior year weaknesses, and when we have one or two large orders for $1 million here, $2 million there, that can really spike the trend one way or the other. In this particular quarter, we had benefit of some of those kinds of things. So I don’t know if I can see any change and trend, but it’s a volatile situation. Jeffrey S. Cohen – Ladenburg Thalmann & Co. Inc.: Okay, perfect. That does it for me. Thanks again for all the questions.

Your next question comes from the line of Matt Miksic with Piper Jaffray. You may proceed. Matt Miksic, your line is open. Please proceed. Matt S. Miksic – Piper Jaffray, Inc.: Sorry, I had you on mute there. Thanks and good morning. I wanted to follow-up on a number of questions here, but the last one on hospital capital. I guess when you started, or Joe, when you talk about where you expected trends to be, I think maybe and where you set out your business planning assumptions for the year, it felt a lot more uncertain I guess than the results that we’re seeing here in Q1 and Q2 and the trend that we've seen across some other players. I mean is it fair, I understand it’s volatile and the orders can move it around, but is it fair to say that it’s maybe not as bad as you thought it would be? What are your thoughts on that? And I have a number of other questions.

Well, I think our expectations for video for the year was that it would be flat. For this quarter, the organic video capital growth was 4%. The remainder is the Viking product line, which when we say we expected Viking sales to come in as expected, that’s focused on Viking. And we are pleased with the 3D technology and we’re very pleased with the pull through of that. It’s doing a couple of things for us. It’s giving us pull through on the endomechanical products and some of the other disposables, but then it’s also, if you will, a deal sweetener with your standard 2D type of deals and request for proposals. So it’s helping us with 2D capital as well. Matt S. Miksic – Piper Jaffray, Inc.: And is it fair to say just having that, being in front of accounts with that is maybe sort of putting you into more situations to drive growth in some of the other products as well?

Exactly. Yeah, and so we’ve got the sales force. Pretty excited about the fact they’ve got the 3D system to pull through their endomechanical products and some other disposables. It gives an opportunity. It’s a door opener to get into some accounts that might not otherwise be invited into for customers that have enjoyed the use of robotic surgery products that come with 3D technology. We think there is opportunity to offer both customers 3D technology who want to do standard laparoscopic surgery with it, all right, who have just tried the robot and maybe feel that they don’t need the robot any longer, but they still don’t want to give up 3D technology. We have that offering for them now. So we think that’s an opportunity as well. Matt S. Miksic – Piper Jaffray, Inc.: I don’t want to make too much of this and there’s a lot of other things obviously going on in your business, but I mean, the place where you fit in and what has become a little bit of a debate between sort of the endoscopic approach to general surgery and the recent push into that segment by some of the larger robotic surgery players. I mean I know that was some of the rationale, Joe, for doing this deal was that you offered this sort of mid-ground alternative. But, I mean, it feels like from a distance that that’s a hot debate among I guess purchasing managers, CEOs and clinicians. Are you finding that you are getting pulled into that this sort of first half?

I don’t believe we’re being pulled into the debate. I think we’re just simply being offered an opportunity to show 3D technology to customers who have previously enjoyed the benefits of 3D, and one of the benefits of 3D in laparoscopic surgery is time savings and we’ve heard reports now from the field that it can save up to 30 minutes sometimes in certain laparoscopic procedures when you’re doing standard laparoscopic surgery without robotic systems. So that, I guess, we’re just looking at the upside rather. We haven’t looked at any negatives, and I don’t think the negatives really presented themselves to us just yet, very, very new to us. So here we are. Matt S. Miksic – Piper Jaffray, Inc.: Well, yes, just to be clear, I mean I pulled that in a good way, not as part of the solution maybe. But that’s helpful. On utilization trends I think, Rob, you mentioned a craniofacial product that was discontinued. I understand the OU.S. pressure. Can you talk, maybe quantify the impact of the craniofacial product in terms of the impact in the quarter or how much longer it would impact the growth there? And what other U.S. factors are you seeing?

Well, that one particular product line, Matt, was under $100 million of sales in the second quarter last year. We had no sales at that particular line this year. So that, I mean, marginally that was a factor in the softness in the orthopedic group and we decided that it just wasn’t profitable for us to maintain that business and that’s why we’ve discontinued it. I don’t think any other factors in the United States have changed it all from our general – from our comments in the past and what we said this morning. We see general stability, if not weakness, in procedures. New products, I think are well doing for us. But in some of the products areas, which are tried and true, more of a commodity-based than the actual number of procedures being done such as mechanical shaver blades, we’re seeing declines in that particular business, because of a number of procedures that are being done. So, all I think that the economy is still affecting us and we would like get back to higher percentage growth rates here. Some of the new products that Joe mentioned or alluded to, a few moments ago, I think will help us as we go into the future, but we need the economy to help us as well.

And I think the most interesting information for us is to hear about, essentially European governments limiting the procedures that are allowed to be performed in a given quarter, given year. Mandated slowdowns in surgical procedures, that is a bit troubling for us. We don’t think it’s a permanent situation, but for the time being at recent, say, first and second quarter that was something that is very interesting to us. Matt S. Miksic – Piper Jaffray, Inc.: And to drill down, Rob, just a little further on that slowness, these are things like ACL repair, meniscal repair, your sort of bread-and-butter sports medicine procedures?

Well, that will be right. Our shoulder business still continues to expand. But I think that’s becaseu some of the new products, very frankly, and the pricing. So we are probably taking a little bit of market share result. It’s hard for me to determine whether it’s procedures or what’s happening on procedures exactly there because the shoulder business is growing. The knee business is a little bit weaker and that maybe just due to procedure growth frankly. Matt S. Miksic – Piper Jaffray, Inc.: Okay. And one on Altrus, just to clarify, Joe. I didn’t understand whether you were saying that by midyear you’d be on track to hit the middle of the range you had laid out for 2013 or whether at midyear you feel like you are on track.

No, we know that we’re on track to give guidance for the year, yes. Matt S. Miksic – Piper Jaffray, Inc.: Okay. And any color there on what the supply performance has been like or what you see as the key catalyst to continuing to hit that number?

Well, supply is very good. Performance remains very good. We continue to get very good reports regarding the non-stick performance of Altrus and we’re finding that in certain procedures. It’s truly the preferred device because the competitive device is just simply don’t perform as well in certain procedures. The key for us in growing this business is to continue to have surgeons identify Altrus as the preferred device not – so we need clinical preference, not just clinical acceptance. So what happens and as probably goes back this will be a comment that was probable applicable 12 months ago or eight months ago or so would be that our sales force would seek clinical acceptance from their surgeon customers. And so, then when you get in front of materials management, well, then the decision is completely in materials manager’s hand, and so they compare two products that are clinical acceptable and they just start talking about price at that point. So we really need to drive clinical preference without surgeon customers and we’re doing that now. Matt S. Miksic – Piper Jaffray, Inc.: Okay. Rob, on the SG&A line, you talked a few times earlier in the year and today about the investment in sales. Can you quantify that in terms of basis points or dollars annualized or in the quarter?

Matt, we’ll have to do that because there’s lot of moving parts. So let me just say that we have added sales people in our organization, particularly in the Sports Tissue & Biologics area and I think that’s been helpful in seeing growth with the sports medicine tissue products. Internationally, we’ve added people over the course of the last several months. So that accumulates, if you will. So there’s no one thing to point to a net increase just in general. More sales people, which we think is beneficial in the longer term, as well as our medical education programs that we have. So we’ve expanded that over the last several months. And I think you were there, Matt, when we opened or had the Analyst Day in Largo, Florida at our medical education center, and we’ve also opened one in New York City now. So, longer term we think those things will be very beneficial to us. Matt S. Miksic – Piper Jaffray, Inc.: And maybe just in terms of percentage increase in the sales heads or the heads approximately to give us an idea?

I don’t know if I have that figure to be honest with you, Matt. Matt S. Miksic – Piper Jaffray, Inc.: Okay, that’s all right. And then I just have a couple on the cash side. You’ve been repurchasing, as you talked about, you continue to pay a dividend. It would be helpful to maybe just understand is the next change that we see given the environment, Joe, as you described in assets on the market. Is the next significant change we see a strategic investment? Or given the environment and what you’re seeing in the pipeline are you stepping up repurchase? Maybe something on your priority there?

Well, I think the priorities remained the same, absent a really good – to make that strategic, use cash the way we have been using cash for our dividend and buying back stock. Matt S. Miksic – Piper Jaffray, Inc.: And last, just a clarification on this restructuring cost you mentioned, Rob. Obviously the patent litigation I would imagine is cash that $1 million to $1.5 million. How much of the rest of that is cash?

The whole thing would be cash. It’s the cost of moving stuff from one place to another and the cost of travel, severance cost. So it’s by and large all cash. Matt S. Miksic – Piper Jaffray, Inc.: Got it. Thanks so much.

Your next question comes from the line of Robert Goldman with CL King. You may proceed. Robert Goldman – CL King & Associates, Inc.: Joe, it sounded to me as if you lowered your growth expectations on EPS beyond this year. Previously you spoke about 15% annually. Today I heard double-digit. Did you mean to downscale the projection or are we still at 15%?

Our long-term goal is to remain it 15%, and I suppose we just choose to say double-digit today. But thanks for the clarification. We’re with low-single digit top line sales growth we should be able to do. We’ve done in the past, deliver 15% EPS growth. Robert Goldman – CL King & Associates, Inc.: Are you talking about annually or some annualized period multi-year in the future?

So when I say so. But three years before this year, so 2010, 2011, 2012 on low-single digit top line growth, sales growth we deliver 15% or better EPS growth. So we think we can have that same performance in 2014, 2015, that type of – those are our goals and we think the business is setup and positioned to do that. Robert Goldman – CL King & Associates, Inc.: Okay, so since you are still looking at 15% earnings per share growth next year, I need some help in getting there. X the medical device excise tax you did about half that in the second quarter. Where are you going to be doubling your growth next year?

Well, on a cost side, as I was mentioning, we’ve made some investments in sales and marketing programs that have caused our SG&A to increase more than it normally would. So from next year, I don’t think we would see those same kinds of increases so on the cost side, from an SG&A perspective, SG&A should remain – I am sure it will go up because of inflation, but it’s not going to be the kinds of increases then we’ve been having. Therein addition, we expect traction from some of these newer products that Joe alluded to, so a combination of greater topline growth and moderation in SG&A costs. Robert Goldman – CL King & Associates, Inc.: And give us some anecdotal evidence that increasing the sales force will result in leverage, so that you can ramp up your earnings per share growth?

Well, I think our experience has been in the past Bob where we have added sales people, it just provides greater coverage to our hospital customers on a geographical basis very frankly. So to the extent that there is more time and our sales people can spend with individual customers, we found that that increases the overall performance. Initially, when we had sales people, they tend to be not as much of a payback, because there is usually extra costs with the new people, we tend to guarantee commissions for a period of time, which is a sunk cost if you will before they really get going with increased sales. So, the investments that we’re making now, we believe will be beneficial to us in future periods. Robert Goldman – CL King & Associates, Inc.: And then finally on the share repurchases, based on your guidance, your shares will have gone a net from about 28.7 million in the fourth quarter of last year to 27.6 million at the end of this year. What should we expect it to be by the end of next year?

Well, I think for now Bob, we’ve pretty much hit our goal of repurchasing at $50 million. So except for perhaps some small purchase in stock that we anticipate over the next several weeks and months, I’m not expecting the share count to change dramatically from the, let’s say 27.5 million, 27.6 million that you mentioned. We’ll continue to review that obviously based upon the cash flow of the business and whatever may happen on an acquisition front, but for now, I’d say that our goal would be to pay our dividends, review acquisitions and to the extent that there is casual October then think about stock repurchases. Robert Goldman – CL King & Associates, Inc.: So at this juncture there is no target for share repurchases for next year?

Correct. Robert Goldman – CL King & Associates, Inc.: Okay. That’s it.

Your next question comes from the line of Brad Evans with Heartland. You may proceed. Brad A. Evans – Heartland Advisors, Inc.: Joe, Rob, good morning.

Good morning, Brad.

Good morning, Brad. Brad A. Evans – Heartland Advisors, Inc.: How are you guys doing?

Good, kind of cold. Brad A. Evans – Heartland Advisors, Inc.: Get well, I just want to preface my question by just applauding the management and the Board of CONMED. I think you guys have done an admirable job of pulling the levers that you have in front of you, being proactive on the cost front, taking costs out. The dividend I think was a huge step in the right direction and we just applaud that. The share repurchase program, I think that the organic growth obviously has been – I think we are all frustrated by that, but there have been some internal missteps to be fair, but the macro hasn't been terribly conducive either. So the bottom line is that I think you all have done a great job and the question that I have really is, you look at how the Company is valued in the public markets today and so on a forward basis maybe next year you are trading less than call it 7 times, 7.5 times forward EBITDA, I mean its silly season in medical device M&A these days, guys. I mean we are seeing multiples that are routinely 14 times, 15 times EBITDA. And you guys have an incredibly valuable franchise that I think the public markets are just massively mispricing. And I guess the question I have for you all is – I mean this very respectfully because I just – I want to understand what your thoughts are. But I just wonder why it’s not in the shareholder's best interest to maybe, hire a bank and see whether a strategic surface that would rectify the 50% or greater discount of the company is currently bearing in the public markets versus what the private markets might bear? So I don't mean to be – this is not a bombastic or confrontational question, I am just curious what your thoughts are and why that’s not the path we should go down?

Well, we don’t know if that’s not the path we should go down. It’s a question for our board. And the strategists are well aware of the company as we are well aware of strategists and I am assuming well the companies do what we do and now we routinely look at other companies and I guess the plan is to sort down, but the opportunity always exist, I mean for anything to happen. And I am not as accelerated by hiring a banker or doing anything else. So, but again, its kind of difficult, so I think to talk about that on an earnings conference call, just for our board to discuss, and I really will prefer to leave it at that. I guess I’m really not prepared to talk about that at this point and I don’t know if this is the right kind of a topic for our quarterly earnings conference call. Brad A. Evans – Heartland Advisors, Inc.: Well, you guys keep on doing the right things that you’re doing and hopefully if that valuation discount will rectify itself, it’s a massive dislocation relative to the private market, so keep up the good work you guys, we appreciate it.

Thank you. Brad, the only thing I guess I would add is that we have seen a very nice appreciation in our share price over the last 12 months. And so I do think we’re getting recognized. I wish our bottom-line earnings were increasing substantially like we think they and we’ve talked about headwinds. But even with minor increases in our earnings, I think the stock is appreciated quite nicely. So I think we’re getting recognized in the public market and I think our board does take that into consideration when they look at what the future appreciation might be just running the business as we’re doing.

Your next question comes from the line of Jim Sidoti with Sidoti & Company. You may proceed. James Sidoti – Sidoti & Company: Good morning.

Good morning. James Sidoti – Sidoti & Company: It’s kind of tough to follow Brad's question, but I will give it a shot. Last six quarters or so you've done a real good job with MTF. And I am just curious, are there other opportunities with MTF or possibly other firms to distribute biologic materials?

Yeah, the MTF partnership has been very good for us. We’re very happy to have that, it’s been working out extremely well for us. We’ve had some growth in this quarter. We had our recent review from our international organizations that they’re beginning the sales process for the Cascade product, which is that PRP product. So that – it’s registered in our international and foreign countries and so that will present some up sight for us as well. But nothing surfaced so far, Jim regarding any other biologics you never know. I can’t say, we’re spending lot of time seeking other things out in that area but nothing surfaced so far, but something if something does, we’d probably take a look. James Sidoti – Sidoti & Company: I guess the other part of that was, is there anything else that MTF has now that they are looking for a distribution partner for?

Now that we’re aware of and they have several distribution partners for others tissue, now we have – just to remind everyone on the call, we have the exclusive right to promote and sell the sports tissue in biologics and they have partnerships for derma and I believe neural, spine, or other area. So, I think they’ve got most of their partnerships taking care of. James Sidoti – Sidoti & Company: Okay. And then as you look ahead, you mentioned some weakness in US procedure rates and also some weakness with government budgets overseas. Of the two, which one do you think is most likely to start to turn around first, the U.S. situation or the European situation?

I probably would imagine that the European situation turns around first. I think that what we’ll see there and we’ve seen this in the past as there is a backlog of procedures and well once case comes to mind and that was in the UK about five years ago and that had huge, huge backlog of – I think I was shifting new procedures and they ended up, in fact, they ended up bringing in surgeons from South Africa and they set up a special clinic to relieve the backlog of cases that had built up and that was a nice spike in business for us, because we opted in that special clinic with a lot of products. So I would guess that release is our first. James Sidoti – Sidoti & Company: Okay and thank you.

(Operator Instructions) Your next question comes from the line of Mark Landy with Summer Street Research. You may proceed. Mark Landy – Summer Street Research: Good morning folks and I apologize, I have been juggling three calls this morning. I think just generally an overall question, you've spoken about slowing down of kind of a single use and then this quarter a surprise uptick in capital. In terms of the high deductible plans, et cetera, how should we start thinking about the second half versus the first half? And then, specifically with hospital budgets, you get to the second half of the year and it becomes a use it or lose it capital environment. So, I mean, should we start thinking about the second half of the year being materially stronger than the first half for CONMED or is it just too early to start thinking that way?

Well, do we believe that the second half should be stronger than the first half. It’s a little bit difficult to exactly trend that out between the third and fourth quarters because there is, the third quarter as we mentioned, is always a little bit soft and the fourth quarter tends to be the best. So, between those two quarters, if we total the both together, we do think that the second half should be better than the first, particularly because the first quarter was a much weaker than what we had expected. So we saw a nice come back here in the second. So, but I don’t know if that’s because of just the overall economy or high deductible plans as you mentioned, European controls, all these things are factors that are very difficult for us to forecast.

Yes, the only thing I can add is that one thing is certain is that, in the second half of this year, we will have more experience with lithium-ion batteries, our Y-Knot product, 3D videos. And so, there is a pipeline for all of that and hopefully we can -- in recent terms of the 3D capital items and closed some of the deals and pipeline and then of course just gain some more traction with batteries and Y-Knot, some of the other products that we’ve launched. Mark Landy – Summer Street Research: So I guess as I am looking at the second half of this year, suppose I look at my model and perhaps some of the guidance that you have given, with the single use probably leading the way versus capital products. Should we think about perhaps capital being more of a contributor versus single use products as you were entering the year and looked at this new way of reporting? Or do you still think that single use is going to significantly outperform capital products as contributors grow?

No, I think that there is some likelihood of the capital products, that might do better than what we had anticipated at the beginning of the year. We’ve got the Viking systems, 3D systems, and the lithium-ion battery as Joe mentioned. So I think that those gain traction, we could see benefit in the capital products. But as I mentioned, it’s a very volatile area, a few transactions of $1 million, $2 million each can definitely skew the percentages. Mark Landy – Summer Street Research: And then with respect to Altrus, how much of that is product replacements or being caught up in the product cycle versus the hospital is willing to just buy the new equipment?

In the case of Altrus’s that best fits in our disposable products category. So, there is an energy source, piece of capital but that’s placed with the customer who is using our very expensive single use disposable. Mark Landy – Summer Street Research: Hence, so basically the use of Altrus essentially isn't – our electrosurgery is kind of getting older, you are placing it and so there is absolutely no kind of product cycle there with respect to placing it?

That’s correct. There is no capital that we’re charging for Altrus. Mark Landy – Summer Street Research: Okay. And then, Joe, little bit I think on Bob's question kind of looking at to get to the 15%. I guess one of the areas you didn't touch on is kind of the R&D and the regulatory environment. Do you see that picking up much for CONMED or do you think that it's kind of a growth in an R&D budget that is slower than the overall revenue growth?

Well, the R&D budget as everyone recognized has come down slightly over the last three years. We are still getting really good production on of our R&D group. So it’s simply much more efficient. We’re developing the right products and we’re getting them right the first time out to market. So, I just think we’re doing a better job of less dollars in R&D. We’re also getting and we’re focusing our attention on some of the products that are already launched and getting those products registered in countries faster and China is a great example, you know the registration process there is one year and we haven’t done a great job there. In the past, we’ve had some starts and stops with getting products registered there. So we have a number of new products and I am talking about products that have been launched three years ago, they’re not still not being sold in China. Well that is a big error for us and so we need to get that corrected and we’re doing that. So again that just improves the return on investment that we made for our R&D efforts. Mark Landy – Summer Street Research: All right, so you spoke a little bit about regulatory, but what about the QC QA side with Global Harmonization Act, et cetera, given that you are global? How does the budget for that kind of look relative to what it has been because that is certainly – the cost there certainly should be going up?

Yes, you’re correct in pointing that out. We have increased the size of our QA department for the corporation and again it’s more focused on registrations. I think we were a little bit behind in that area and we paid the price there, because we have not had new products being sold in some of these growth markets, emerging markets if you will, I mean even Brazil, it’s a great market for us. We had tremendous growth on Brazil. We could be doing better if we get some products registered there and China and some other Asian countries. Mark Landy – Summer Street Research: In terms of Brazil, I mean you did mention it, did you have any products that have been brought in through Europe under country of origin reciprocity or they all being approved through (inaudible) in visa system?

No, I think it’s the latter, I don’t recall bringing anything in under European type of approval. Mark Landy – Summer Street Research: Okay, so there is no risk to any other products in Brazil, just basically upgrading of their regulatory environment.

Not that we are aware of. Mark Landy – Summer Street Research: Okay, that’s all. Thanks very much.

Thanks.

Your next question comes from the line of Dale Dutile with The Boston Company. You may proceed. Dale A. Dutile – The Boston Company Asset Management LLC: Good morning, can you hear me.

Yes, fine Dale. Dale A. Dutile – The Boston Company Asset Management LLC: Census brought up earlier, I just want to confirm my understanding, the lion share of what you call amortization is really related to equipment placed in the hospital where it gets amortized, I’d call it depreciation, but you call it amortization over a period of time. Is that correct?

Yes, that’s right. Dale A. Dutile – The Boston Company Asset Management LLC: But, it doesn’t hit capital expenditures, it hits your working capital accounts.

Its effects inventory, yes. Dale A. Dutile – The Boston Company Asset Management LLC: Inventory, so even though it lasts longer than a year, it’s considered inventory as a current asset.

Correct. If we get the equivalent back, we made solid… Dale A. Dutile – The Boston Company Asset Management LLC: Right.

It’s just like historically how we’ve done that. Dale A. Dutile – The Boston Company Asset Management LLC: But I mean, generally amortization is a non-cash expense type of thing, but really this is a cash expense, it just gets amortized over few years, so I would argue that your EBITDA multiple is actually higher than it looks around the surface because of the cash expense that people are considering non-cash and it doesn’t hit CapEx, if you adjust for that, I would argue, your EBITDA multiple of 0.5 to 2 points higher than what it looks. So I just want to make sure my understanding of the accounting treatment is correct.

Well, you are absolutely correct on the accounting treatment, I think that – I guess you and I have talked about this in the past and I had arguments going the other way, which none of which come to mind at the moment. Dale A. Dutile – The Boston Company Asset Management LLC: Right. If it is equipment that you're placing that's going to last a few years it probably should be considered CapEx and so, we could think of cash flow as either free cash, but EBITDA – I mean it is like getting included nowhere. There is a real cash expense you are spending on an ongoing basis, it's not picked up in EBITDA and it's not picked up in free cash flow, if people look, it's not in your CapEx.

It isn’t free cash flow, because… Dale A. Dutile – The Boston Company Asset Management LLC: Right, but not EBITDA.

But not EBITDA, yes. Dale A. Dutile – The Boston Company Asset Management LLC: Okay. It is unique.

Take a look at the cash flow statement. You will see that inventory was a negative item in the working capital section of the income statement. Dale A. Dutile – The Boston Company Asset Management LLC: Exactly, right. And it is (inaudible).

But inventory dollars are actually down this quarter, which were typically mean that we have plus to the cash flow statement, the difference is the amortization. Dale A. Dutile – The Boston Company Asset Management LLC: All right. Fair enough. Okay, it's a little trickier than most and I think it gets hidden and it is ignored if you're just looking at EBITDA. And it is a big number every quarter, every year it is more than $10 million. So I just wanted to clarify my understanding. Thank you.

That’s okay.

There no further questions in the queue at this time, I’d now like to turn the call over to Joe Corasanti, Chief Executive Officer for closing remarks. Please proceed.

I’d like to thank everyone for joining us today on CONMED’s second quarter earnings conference call. We look forward to talking to you for the third quarter conference call. Thank you very much. Goodbye.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.