CONMED Corporation (CNMD) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon, everyone. Before we begin, let me remind you that during this call management will be making comments and statements regarding its financial outlook, which represents forward-looking statements that involve risks and uncertainties. As those terms are defined under the Federal Securities Laws, the company's actual results may differ materially from its current expectations. Please refer to the Risk Factors and other cautionary factors in today's press release as well as the company's SEC filings for more details on factors that may cause actual results to differ materially. You will also hear management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, management will use these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation in the press release issued this afternoon. With these required announcements completed, I will turn the call over to Curt Hartman, CONMED's President and Chief Executive Officer for opening remarks. Mr. Hartman? Curt R. Hartman - President, Chief Executive Officer & Director: Thank you, Denise. Good afternoon, everyone, and thank you for joining us for CONMED's first quarter earnings call. With me on today's call is Luke Pomilio, CONMED's Executive Vice President and Chief Financial Officer. On today's call, I'll provide a brief overview of the financial and operating highlights for the first quarter. Then Luke will provide a detailed analysis of our financial performance and commentary on our updated 2015 guidance. We will then open the call to your questions. For the first quarter of 2015 total sales were $177.9 million, a decrease of 2.2% as reported, but an increase of 0.8% in constant currency versus the first quarter of 2014. GAAP diluted earnings per share were $0.23, a decrease of 26% compared to $0.31 in the prior year period. Adjusted diluted earnings per share for the first quarter of 2015 were $0.42, a decrease of 14% compared to $0.49 for the first quarter of 2014. Overall, we are pleased with our first quarter results marked by positive constant currency sales growth and the continued operational progress to our position our commercial organization for future success. Now, let me briefly review our operating accomplishments for the quarter. First, as I mentioned on our previous conference call, Robert Shallish, our former Executive Vice President-Finance and CFO; and John Hamilton, our former Vice President of CONMED International retired during the first quarter. They both made invaluable contributions to CONMED. I want to express my sincere gratitude to both, Rob and John for their hard work and dedicated service to the company over many years. We are, though, very pleased that Pat Beyer, a 25-year veteran of the device industry is the helm of our international operations and that Luke Pomilio who have spent 19 years at CONMED became our CFO, effective April 1, 2015. So I want to welcome Luke to his first earnings call in his new role and to tell you how excited I am to work with Luke and our entire team on building a new CONMED. Second, following the assessment of our advanced energy and endomechanical domestic businesses at the end 2014, we announced our plans to combine those two businesses. This market represents a substantial growth opportunity for CONMED and our goal is to leverage our offering and infrastructure to provide enhanced customer focus and to achieve better top-line performance. I am pleased to report that effective April 1, we began fully operating under this new model with all critical changes complete. Third, our U.S. orthopedic business is roughly 75% through its transition. As previously discussed, this work cuts across its sales leadership ranks and the marketing, training, and educations areas. On January 16, seven new regional directors were hired bringing our total to eight. All have been executing on the plan to align, enhance our selling efforts. This work is included merging our sports tissue biologic representatives into our full line business, expanding the sports tissue coverage, addressing performance issues and enhancing our internal sales training and clinical support for our customers. In addition, our marketing efforts have been realigned to bolster the new commercial focus with an emphasis on customer and sales support, while at the same time driving more comprehensive and innovative product strategy in the markets we serve. While our results don't yet reflect our efforts, I'm pleased with our progress and urgency in the business. Fourth, during March, as is typical, we participate in both the AORN and AAOS meetings where we presented our products and had a chance to meet with many of our current potential customers. We will take some time to realize sales from these events. We were thrilled by the interest in our products and the renewed relationships that we were able to cultivate. Importantly, both shows set new records for us in terms of leads taken. Finally, as previously announced, company founder Gene Corasanti sadly passed away in early March. Well, I didn't have a chance to work directly with Gene outside of a short period of board service, I can tell you that his entrepreneurial spirit and passion for the business are alive in the company today. Moving forward, our work is dedicated to keeping that spirit and passion alive. While we are pleased with our progress to date, we are focused on making further improvements to our commercial organization, continuing to invest in innovation and ultimately delivering meaningful solutions to our worldwide customer base. Overall, I'm proud of our leaders and the employees of CONMED both for the pace at which they are working and also the tough decisions that they are making to reposition the company for growth and innovation in the markets we serve. Now, I'll turn the call over to Luke for a review of our financial performance. Luke? Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Thank you, Curt. As Curt already mentioned, our total sales for the first quarter of 2015 were $177.9 million, a decrease of 2.2% on a reported basis and an increase of 0.8% on a constant currency basis from the first quarter of 2014. Our growth on a constant currency basis was attributable to the performance of our general surgery and visualization businesses offset by a decline in our orthopedic business. Now let me provide more details on our revenue performance with all growth rates described in constant currency. In the first quarter, revenue from single-use products, which represented 79% of total sales declined 1.4%, while capital product sales posted a 9.9% increase. Domestic sales, which represented 48.9% of total first quarter sales grew slightly compared to the same quarter a year ago driven by capital sales growth. International sales, which represented 51.1% of our total sales, increased 1.5% year-over-year as an increase in capital sales was offset by a slight decline in the sale of single-use products. Foreign currency exchange rates including the benefit from the FX hedging program had a negative impact of $5.5 million on the first quarter sales compared to the first quarter of 2014. We now turn to our three major product lines. Worldwide, orthopedic revenue declined 3.2% in the first quarter due to a decline in our power business as well as general softness in sports medicine. General surgery products increased 5.8% with growth seen across the advanced surgical endoscopic technologies and critical care categories. Lastly, visualization grew 9.6% year-over-year, led primarily by strength in 2D video systems. Domestically, orthopedic revenue declined 9.7% year-over-year. This decline was largely caused by a 31% decrease in capital sales versus a strong first quarter of 2014. General surgery first quarter sales increased 7.6% in the United States with strength across all product categories. Domestic visualization sales increased 18.7% in the first quarter due in part to contribution from the IM8000, which launched in October. Internationally, orthopedic revenue grew 1.1% year-over-year in constant currency with capital sales growth offsetting a decline in single-use sales. General surgery sales increased 2.3% year-over-year in constant currency led by strong performances in the endoscopic technologies and critical care product categories. In our international, visualization sales were up 2.6% for the quarter once again based on IM8000 sales. Turning now to other components of the income statement, GAAP gross margin in the first quarter was 51.9% compared to 56.4% a year ago. Adjusted gross margin for the first quarter excluding restructuring cost was 53.2% compared to 56.9% in the first quarter of 2014. As we have discussed in the past, foreign currency representing 150 basis points and 2014 production variances representing 160 basis points were the primary drivers of the decline in adjusted gross margin. The remaining decline is due to product mix. While we are forecasting the currency impact to continue for the remainder of 2015, variances from 2014 will not impact the second half of 2015. On an adjusted basis, selling and administrative expenses for the first quarter of 2015 were $68.6 million or 38.6% of total sales compared to $75.2 million or 41.3% of total sales in the first quarter of 2014. The decline in selling and administrative expenses as a percentage of sales was due to improved cost controls. Research and development spending decreased slightly year-over-year to $6.5 million, representing 3.7% of total sales for the quarter. Adjusted EBITDA margin in the first quarter of 2015 was 17.3%. I refer you to the schedule on today's press release for the details on margin calculations. Turning now to a discussion of our income tax rate, during the quarter, we experienced some amount of quarterly variation due to legislative changes and the timing of completion of tax authority reviews. Our non-GAAP quarterly tax rate increased to 34.7% compared to 32.3% in the first quarter of 2014. Lower tax rate year ago was due to a tax settlement. For 2015, we are forecasting a tax rate of 33%. I refer you to the press release for details on the current quarter's adjustments. For the first quarter of 2015, our diluted earnings per share on a GAAP basis were $0.23 and our adjusted per share earnings were $0.42. Looking at the balance sheet, our cash balance was $65.7 million consistent with December 2014. Accounts receivable days improved to 64 days versus 65 days a year ago and the inventory balance was $144.2 million compared to $148.1 million at December 2014. Now turning to cash flow. Cash provided by operating activities totaled $14.8 million for the first quarter of 2015 compared to $17 million a year ago. The decrease was due to lower net income. Now, let me briefly discuss our fiscal year 2015 outlook. We are reiterating our previously disclosed constant currency sales guidance, which calls for 2015 organic sales growth to be in the range of 1% to 3%. On a reported basis however if foreign currency exchange rates hold near current levels, we expect our net sales for last three quarters of 2015 to be negatively impacted by $3.9 million as compared to the prior sales guidance based on the January 23, 2015 currency rates. Using exchange rates as of April 17, we now anticipate that our reported sales for 2015 will be in the range of $723 million to $738 million. Despite the worsening FX environment, we are maintaining our 2015 adjusted diluting net earnings per share guidance of $1.82 to $1.92. As a reminder, 51% of CONMED's sales are outside the U.S. And of these international sales, 65% are denominated in local currencies. Accordingly, 33% of our sales are subject to foreign currency exposure. The remaining international sales are sold to international distributors with these sales denominated in U.S. dollars. 80% of our foreign currency exposure is represented by four currieries; the euro, British pound, Canadian dollar, and Australian dollar. We have a hedging program in place, and under hedge accounting rules, we are able to hedge the cash flows from our foreign operations which approximate our local sales less local expense and profit. For 2015, we have hedged approximately 35% of our sales exposure and 75% of our earnings exposure to our four primary currencies. Our ability to hedge beyond these levels is limited under hedge accounting rules. As a result of our hedging activities, we realized a revenue gain of approximately $2.5 million during the first quarter. If exchange rates remain at present levels, we would expect to generate similar quarterly gains for the remainder of 2015. To be clear, our guidance for revenues and EPS on a reported basis already contemplates hedging gains and of course constant currency revenue guidance has always excluded the impact of any hedging activities. While we do not presently have any hedges in place for 2016, we will likely enter into 2016 currency contracts during this year. With that, I would like to open the call to your questions.

Our first question comes from Richard Newitter with Leerink. Please proceed.

Hi. Thanks for taking the questions. Maybe I could just start off with your constant currency growth. In the first quarter you came in positive for the first time, I guess, since the back half of 2013, so congratulations there. My question is you reiterated your 1% to 3% constant currency rate for the full year, and with the first quarter kind of already turning positive, it was a bit above our expectations. Just trying to figure out any changes to the cadence to the year that we should be contemplating, and is there any kind of directional indication you can give between that 1% to 3% range. Is it trending a little bit better, or towards the upper end or any color that would be helpful, Curt? Curt R. Hartman - President, Chief Executive Officer & Director: Sure, Rich, and thanks for joining us tonight. I think I'd point to a couple of things here that give us a little bit of pause to not get too far ahead of ourself. We did have a respectable first quarter, yet one quarter does not a trend make, and we still have a lot of work to do in our largest business, orthopedics, which was evident in the numbers. And while I'm pleased with our progress, as I said in my opening comments about 75% complete, there's still work to be done there. So I don't want to get too far in front of ourself. We also had a couple of things in the first quarter that we'd love to tell you. They're going to repeat again, some quarters within our general surgery business that were – lot of work went into getting those. A good strong finish in the month of March, maybe a little better than what we had anticipated even going back to the beginning of March and we had about $800,000 impact from one extra Tuesday in the month of March which is when large distributors order from us. So we try to factor all that to our forward view and our assessment coming out of the first quarter even with the positive constant currency growth was to leave our guidance where it is. And we'll see how the second quarter plays out. And if it looks like there's room after the second quarter to make adjustments in our guidance, we'd probably take that under consideration at that point. I still think we're pointing towards the back half, a better performance than the first half than to the extent that the first half unfolds a little bit better, then we'll address that at the halfway point.

Okay. That's helpful. And I guess, should we be thinking about the second quarter kind of in line with the first quarter? And then, to the back half just better than the first half or is anything you can give on trends into the second quarter? Curt R. Hartman - President, Chief Executive Officer & Director: I think you're – directionally, that's correct Rich. The second quarter is one where we're going to ensure that our work in orthopedics gets wrapped up. We've got a lot of stuff going on there that has to be in place for us to feel good and we're working diligently to get that done. And so anytime you're doing that, there's potential for disruption and we definitely do not want to disappoint people. So I think your comment, a similar performance in the second quarter is probably a fair assessment and then we'll look for strength in the back half as all the work in the first half starts materializing.

Great. And Luke, maybe – could you just reiterate what exactly impacted the gross margin in the first quarter that no longer will impact you going forward and kind of what is not transient? Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Sure. So the three components for the quarter were FX, 150 basis points, that's with us for the duration of the year based on our forecast for the year. Second piece was the 2014 inventory variance being expensed in this quarter. That represent 160 basis points, that's going to be with us to some degree in the second quarter, but will not be with us in second half of the year. And the third portion, 60 basis points, was mixed and hopefully will have favorability as we move through the year on that.

Okay. And Curt maybe one last one. Any color on where you are with exploring acquisition opportunities. What's the strategy there, timing? Curt R. Hartman - President, Chief Executive Officer & Director: Yeah. The priority is M&A and the priority is finding tuck-in acquisition deals and it starts with being out in the market actively searching. And we've got a lot of activity. So that's very encouraging. People are calling us and we're doing a lot of work to uncover things and we're working diligently. I think everybody probably knows I have two executive openings. One in running the orthopedics business and one is my Head of Business Development and Strategy, and I would just convey to folks on the call we are, meaning me personally, working very hard to close both of those positions and that will greatly facilitate our efforts on M&A. And right now, Luke is serving double duty as both the CFO and the Head of BD and there's no one more motivated to get a business development leader, corporate development leader into the company than Luke because he's got a full time job. So we're working diligently on it Rich both the person side as well as the pursuing deals that are out there and available for us.

Thanks a lot. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Rich.

Our next question comes from Matthew O'Brien with Piper Jaffray. Please proceed. Matt O'Brien - Piper Jaffray & Co (Broker): Afternoon. Thanks for taking the questions. Can you guys hear me, okay? Curt R. Hartman - President, Chief Executive Officer & Director: We can, Matt. Thanks. Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Hey, Matt. Matt O'Brien - Piper Jaffray & Co (Broker): Okay, great. I was hoping, Curt, just to start off on the general surgery side of the business. I think you said as of April 1st, you're now set and ready to go with those two organizations on the endomechanical and energy side of things now selling products. Can you just give us a sense for how that selling process now is going to work. Are the reps going to have to go back to the value-added committees et cetera at these hospitals and get them to review the other products before they can start selling them more aggressively? So we should think about potentially sometime in Q3, if not Q4 where they're starting to see more success or could it be more of a near-term boost to the top-line? Curt R. Hartman - President, Chief Executive Officer & Director: Matt, it's a great question, and I think candidly, the answer is going to be a little of both. Some of the products are just flat out competitive with existing similar products that other competitors have. And if we can go in and get customer attention and show a value story that ties in with the rest of our portfolio, I think that's a fairly straight up competition, if you will, in the OR. Other products where it perhaps is – because they sell both single-use disposables as well as capital, if they're going through a capital evaluation, there may be a pathway through the value add committee. So I think it's going to be a little bit of both. What encourages me about this is just the fundamentals. We've taken two very small sales forces in relative terms, put them together, cut down their geographies yet given our selling organization a greater portfolio to sell and in effect spend more time in the hospital and spend more time covering a lot broader range of procedures with a bigger opportunity. So it's just – it's as much as an efficiency play as anything, efficiency for the rep, efficiency for the customer and efficiency for the company and I think that's starting to bear out. We had a respectable first quarter even in spite of all the transition that was going on in general surgery with all the businesses that make up our general surgery portfolio. So I'm optimistic here and I don't want to get too far ahead of ourselves because we know the market competitors are tough. They're not going to ignore us. So we've got our work cut out for us but I like what we're at right now and we are going to keep plugging away. Matt O'Brien - Piper Jaffray & Co (Broker): Okay. To that end, I was a little bit surprised to see relative strength in general surgery this quarter. Again, given all the reorganization that you're doing. Is there a specific few products that are really driving the performance there? Are you experiencing any benefits from disruption given the consolidation we're seeing in this space, et cetera? Curt R. Hartman - President, Chief Executive Officer & Director: I think, in general, the capital markets are better and our general surgery – our advanced surgical business, the newly named advanced surgical business does sell capital equipment in the form of generators and certainly participated in that in the first quarter. To the extent those trials were wrapped up and the purchase orders were in the pipeline, we were able to secure those. So that was beneficial, and absolutely, there's some market disruption going on but I couldn't point to that as a big benefit in our first quarter results. And keep in mind, we have the advanced surgical business. We also have our endoscopic technologies, the GI business, and they had a nice solid first quarter. That organization, really, the only transition that they went through was the appointment of a full-time dedicated leader. So they just have a lot more focus and dedication and attention and then the final element was our legacy portfolio, the cardiology critical care business, again, full time dedicated leader effective January 1. So we got more attention and favorable results out of that business. So it was really the trifecta, all three of our general surgery assets performing respectively in the first quarter. Matt O'Brien - Piper Jaffray & Co (Broker): Okay. And then on the orthopedics side, can you just remind us what else need to occur, the other 25% of that reorganization. And then as you bring in this Executive VP of Orthopedics, do we start to see a little bit of disruption as the group adjusts to that that individual or do you think it's more a function that once you get through this reorganization, you should be able to stabilize that business and start to get improving results. Curt R. Hartman - President, Chief Executive Officer & Director: Great question. So what's the remaining work to be done there? It started, our Vice President of Sales joined the company, July 1 of last year. And between he and I, we had no skin in the game, so to speak, looking backward. So we said about saying how would we like to structure the organization and that involved an expansion of our regional directors so that we could get more geographic coverage with both our distributors and direct reps. And as I mentioned, we've hired all those regional directors, put them in place, we've asked them to follow somewhat of very scripted playbook and how they deal with their territories going and working with their distributors and working with their sales representatives to help uncover all the needs that our customers may have or that they may need, as I mentioned, with training and their clinical education. So working through that organization to adjust training, clinical education; in some cases we had pockets of the country where they were great on the procedure side, perhaps not so well trained on the capital equipment side. And in other pockets we had the exact opposite. We'd sell a lot of capital and not spend as much time in the procedure. So we're working through the ramp up there so that all reps can sell both procedures and capital. And then as I mentioned in the scripted comments, this integration of our sports tissue biologic so that all of CONMED's orthopedic selling organization can represent that portfolio across the U.S. versus being in just select geographies, and that integration is just getting undertaken. Those changes have been announced. Alignments and training are underway. So that's another part that needs to be completed. And then as we sort through training and education, what's the future state look like? To the second part of the question, when we bring on the leader, I personally believe the work we're doing here, whether it's with the selling organization or the marketing team, our change is that any leader would say those were good changes. I'm glad that they're underway. What I'm looking for out of this new leader is somebody who is confident across all those portfolios and can come in and help really shape the strategy on a go forward basis because it is our largest business, it has a large international component, so this person has to work well with Pat Beyer who runs our international business. So it's a little bit more nuanced in terms of longer-term outlook for the business and how they'll step in. And I would not – and if I do my job and hire the right person here, I would not anticipate disruption. I would anticipate this individual will be able to potentiate the changes we've already made and drive them even faster, because candidly, I'm a part-time General Manager because of my other responsibilities. Matt O'Brien - Piper Jaffray & Co (Broker): Very helpful, Curt. Thank you. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Matt.

Our next question comes from Mike Matson with Needham & Company. Please proceed. Mike S. Matson - Needham & Co. LLC: Hi. Thanks for taking my questions. I guess I just wanted to start with SG&A. This is the second quarter in a row where you're seeing that 38% range. Just wondering – which is down considerably from earlier last year. So I'm assuming there was – this is the result of some restructuring. So was there some low-hanging fruit that you were able to go after fairly quickly, and are there any remaining opportunities to cut costs and drive SG&A even lower in the near-term, say, the remainder of the year? Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Yes. So to talk numbers, we were at 38.6% for the quarter. Full year of 2014 we're at 39.7% for the quarter, and that really resulted from a substantial effort looking internally at where we could reduce our cost structure. So there's been a substantial activity related to head count reductions on the SG&A side. So I suspect we'll continue to see that benefit as we move forward through 2015, although I don't expect in any quarter of 2015 that we'll get dramatically lower than the 38.6%. Curt R. Hartman - President, Chief Executive Officer & Director: And Mike, I'm nuancing here a little bit, but I wouldn't say it's low-hanging fruit. And I commented that we've had to make some tough decisions, because in relation to our top-line, our expense structure had not really been appropriately structured to reflect where the top-line had been in recent years. So you bring in new managers, you bring in some new leaders, and they're going to design the organization slightly different than previous management. And that's really the work we've been undertaking as realigning resources, and we've had to make some tough decisions. And it's part of the responsibility that the leaders coming into the company are undertaking, and we're trying to put the right structure in place so that on a go forward basis we can really leverage those investments and be very efficient here. Mike S. Matson - Needham & Co. LLC: Okay, thanks. That was helpful. And then, I didn't hear any commentary around the edge product. So can you give us an update on the timing when you're expecting to launch that product? Curt R. Hartman - President, Chief Executive Officer & Director: Sure. The timing is consistent with what I've said in probably more recent events is the second half of the year. We're excited about the product. We're anxious to be in the market, but very similar to our approach with the IM8000 camera, we're going to make sure we walk here so that when we get into the market we have the right product that meets all of our customers' needs and allows us to be competitive. It's a new market entrant for us. They're very well established competitors in the marketplace. Customer expectations are very clear on what acceptable performance will be, and we're going to make sure that when we show up, we have the right platform and the right technology to get our fair share of that market. We're new technology, new market, that means we need to be especially cautious as we launch our platform, and I'm very encouraged about the work that's going on and the amount of customer interactions we're having to confirm, or to tell us where we've got it wrong and that's occurring both in the U.S. and in the international markets, and I'm excited for the platform. I'm excited and there's no one pressing harder to get that out than me, but we're going to do it the right way and recognize it. It takes us being a little more patient than we might like to be, but we want to get into this market and be a credible competitor from day one. Mike S. Matson - Needham & Co. LLC: Okay, thanks. And then, just a currency related question. So on your international sales that are in dollars to the distributors, just given the degree of movement we've seen in the U.S. dollar, the degree it's strengthened, I got to imagine that's resulting in some pretty steep price increases. So have you seen any pushback from any of those distributors? Have you seen any of them attempting to switch to maybe local suppliers from Europe that are pricing their products in euros more competitive? Curt R. Hartman - President, Chief Executive Officer & Director: So we're really talking about the one-third of our international business that's sold in U.S. dollars to effectively distributors throughout the world. There are has been I would say, a minor amount of pushback as it relates to certain markets and certain products, but I would say at this point in time that that's not significant. I think when we've had these circumstances before, we've been able to assist our distributors, still keep decent margins but perhaps sharpen the pencil a little from a pricing perspective. Mike S. Matson - Needham & Co. LLC: All right, thanks. That's all I have. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Mike.

Our next question comes from Matthew Mishan with KeyBanc. Please proceed.

Great. Thank you for taking my questions. Curt R. Hartman - President, Chief Executive Officer & Director: Hi, Matt. Thank you. Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Hey, Matt.

I'll just start off with some of the weakness you saw in instruments. Are you surprised that didn't benefit more from some of the improvement in hospital capital spending? And then in line with that question, I think Stryker on their call last night, said they had certain supply chain issues with their instruments and that was supposed to linger for them for another quarter or so. Is that an opportunity for you or something that you saw in your supply chain? Curt R. Hartman - President, Chief Executive Officer & Director: So a couple of comments there, Matt. You know, a year ago the U.S. orthopedics business had a very solid capital equipment quarter in the Power Tool business. Not that our Power Tool revenue is as large as some of our competitors, but the performance last year was pretty outsized and it was a tough comparison to go against, number one. Number two, the capital equipment requires you have a robust pipeline, and I would say, given a lot of what happened in 2014, there were periods when our pipeline was not that robust. So it takes a little bit of time to reestablish those pipelines which is, in large degree, what our new regional directors are working with our teams on, understanding where the opportunities are, understanding how to get an invite to the party, if you will. So I have greater expectations for our capital empowered instruments franchise as the year unfolds. As it relates to our competitors, I can't control what happens to them and we're just going to go out in marketplace and be a good competitor and try to get our fair share of the business. And if there's a disruption in the marketplace so we could take advantage of it, we'll certainly try to do that.

Okay. And then I noticed the med device tax moved off of the income statement. I'm assuming that went to SG&A? Curt R. Hartman - President, Chief Executive Officer & Director: Yeah, went into SG&A.

So, in reality, I mean your SG&A would have been somewhere in the 37.5% of sales if that were called out? Curt R. Hartman - President, Chief Executive Officer & Director: That's correct.

All right. And then, I guess, the question there is how sustainable is that? I mean, my guess is that you're going through these head count reductions but on the same token, you're also replacing a lot of people at the same time. I know the question was already asked, but I'm assuming that's not a level that we should expect going forward? Curt R. Hartman - President, Chief Executive Officer & Director: Well, I think couple of things at a high level. We brought our head count down. If you look at the end of 2013 head count versus where we are today, it's down close to 200 people and I don't see a lot of reason for our head count to expand dramatically outside of the areas that support our commercial organization. We've done a lot of work to consolidate manufacturing footprint. And it's about putting volume over that. The selling organizations, the marketing teams we want to appropriately size them for the opportunity we're pursuing and we'll try to be pretty judicious when we're adding to make sure that it's the right add and we're holding people accountable there. We're not going to get the expense in front of the revenue and our focus right now is on driving the revenue. So I'd like to believe that our SG&A expense is not going to move dramatically as the year unfolds that we can be responsible and keep these rates as a percentage of sales in this range.

Okay. Thank you very much. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Matt.

Our next question comes from Jeffrey Cohen with Ladenburg. Please proceed. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Oh, hi. Thanks for taking the questions. Can you hear me, okay? Curt R. Hartman - President, Chief Executive Officer & Director: We can, Jeff. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Thanks, guys. We've addressed a lot of the issues, but I just want to leave two on the table, and one is if you could talk about any anticipated or what levels of restructuring costs throughout the balance of the year? And secondly, if you could provide any color as far as product launches, or at least give us a little flavor as far as segments going forward, at least for the balance of 2015? Thanks. Curt R. Hartman - President, Chief Executive Officer & Director: Sure. Great question. I'll probably take the product launch. I'll start with that one first. We've discussed within the general surgery segment the newly formed advance surgical has some product launches that were working their way through the pipeline and we're in the very early stages of those. The EntriPort cannulas system, the VCare Pneumo upgrade, they're nice products right now. They're important that we drop new things into the portfolio, but we're in the very early stages of rolling that out, again being very cautious here. We need to be cautious as we go out and approach customers, and ensure that we have the right offering and solution with our new platforms, and then as people walk through the booth at the AORN show, they saw kind of the totality of the general surgery offering and some different things that we think they would benefit from in terms of our smoke portfolio offering and some subtle enhancements that we'll be working on as the year unfolds. In orthopedics, I think we had a good show in at Academy, really starting with the camera, but then talking about an iPad application, going to the Dual Purpose Shaver Blades, the new MicroPower refresh, an expansion of the Y-Knot platform into the hip and the rotator cuff. Those things are all in the works, and as the year unfolds, they're either already in launch or will be shortly and then the back half of the year, the Edge ablation platform. And across all of that, we look to supplement with tuck-in M&A deals and think we can do that as the year unfolds. So I think it'll be a decent cadence. I'm not going to tell you if there's any homerun platforms. They're all things that we need to have to be competitive, and I think we can excite our customers and our selling organization with this renewed focus on putting innovation products, giving them a reason to talk to their customers again. So hopefully, that addresses the product side and I'll let Luke talk about the restructuring piece here. Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Yeah. Jeff, the restructuring activities were largely weighted towards the first quarter. Although we will continue for the remainder of the year and the estimate for the remaining cost both in manufacturing and administrative restructuring, $46 million. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Total $46 million, okay, okay. If I may throw in one more, any commentary you could provide in as far as tissue business? Curt R. Hartman - President, Chief Executive Officer & Director: The only comment I'd point to there, Jeff, is the comment about integrating the tissue opportunity across the entirety of the orthopedic selling organization. That has not been how that product has been represented. We did a lot of work to decide if that was the right approach and it was the consensus view of our sales leadership and marketing leadership, and many of our key distributor principles and high performing reps with long tenures of success that this was the right move. So we began that integration late in the first quarter, and we think that alone, just the added attention and focus on the portfolio will help us take the MTF offering to a different level than what we've experienced in last couple of years, but again, it's going to take time that the tissue sale involves a lot of clinical education and work, but we think we can get there. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Super. Thanks for taking the questions. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Jeff. Luke A. Pomilio - Chief Financial Officer & Executive VP-Finance: Thanks, Jeff.

Our next question comes from Jim Sidoti with Sidoti & Company. Please proceed. James P. Sidoti - Sidoti & Co. LLC: Good afternoon. Can you hear me? Curt R. Hartman - President, Chief Executive Officer & Director: We can, Jim. Thanks for being on the call with us. James P. Sidoti - Sidoti & Co. LLC: Great. Thank you. So the strong performance on the capital side, would you attribute that mostly to the new surgical visualization system? Curt R. Hartman - President, Chief Executive Officer & Director: Certainly we're pleased right now with where the camera is going. Again, the prior year numbers were beaten down pretty far. So we don't want to get ahead of ourselves, but certainly the camera sales were a big component of the capital equipment. But as I mentioned in one of the other responses, in the general surgery portfolio with the energy boxes, if you will, that is counted as a capital item and we did have some nice orders coming in the first quarter that supported the capital equipment side of the business. James P. Sidoti - Sidoti & Co. LLC: Okay. And then conversely on the disposable side, the decline both in the U.S. and internationally, what would you attribute that to? Curt R. Hartman - President, Chief Executive Officer & Director: Look, if you dive into the segments, within our orthopedics business, the items that we count as disposables, some of those, the single-use burs and blades as well as the sports medicine related to implants. We put the organization through a lot in the first quarter in terms of training, education, meeting new regional directors, evaluating business. So we've probably missed some opportunities, and that's just part of the transition work that's going on and little bit of the disruption associated with that. So there is certainly a lot of focus on that aspect of our business, and we think those opportunities will be found again as we get through the rest of the work in orthopedics. And then, outside the U.S., it takes us a little longer to get our hands around the ups and downs, and it's interesting because in some of our markets we have great performance, as you know, if I just kind of go around the globe, our Canadian business, our Australian business, our Spain business, our France business all had great first quarters, but then we had some spots where we were really challenged and we're digging in with the distributors of the direct reps to really understand if we're missing something there. So probably don't want to get too far in front of myself with that until we have the chance to really evaluate those markets. James P. Sidoti - Sidoti & Co. LLC: Okay. But in regard to the U.S., do you think those sales force distractions you said I think they're about 75% complete with that reorganization, so you think those distractions subside in the second, third and fourth quarter of this year? Curt R. Hartman - President, Chief Executive Officer & Director: Certainly in the back half of the year. And if we're successful, I'd like to tell you that as we exit the second quarter, we should be on a different trajectory with respect to eliminating all the distractions and really having things in place and lined up to move forward. James P. Sidoti - Sidoti & Co. LLC: And with the agreement with MTF, are you at all restricted by their capacity to process tissue or is that not an issue? Curt R. Hartman - President, Chief Executive Officer & Director: There are certain limitations, but it really gets into the – I'm trying to use the right words here – the specificity around the graft dimensions, and we're working with MTF to ensure that we maximize our opportunity and fit in well with how they run their business. James P. Sidoti - Sidoti & Co. LLC: Okay, all right. Thank you. Curt R. Hartman - President, Chief Executive Officer & Director: Thanks, Jim.

We have no further questions. I will now turn the call back over to management for any closing remarks. Please proceed. Curt R. Hartman - President, Chief Executive Officer & Director: Thank you, Denise. We're pleased with our first quarter and start to 2015, and I'm proud of what the team at CONMED has accomplished here in the last 90 days and really leading or going back into the end of the fourth quarter of 2014, and I'm thrilled to be leading the company's extremely talented and dedicated team. As I mentioned on many occasions, 2015 is a year of transition and we've got a lot of work ahead of us but we're optimistic about CONMED's future and we believe that we have the right team and strategies in place to drive very profitable growth. So thank you for your time this evening. We look forward to speaking with all of you on our next call which will be held on July 22 of 2015. Thank you, everybody.