CONMED Corporation (CNMD) Q2 2016 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 now 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, Liz. Good afternoon, and thank you for joining us for CONMED's second quarter 2016 earnings call. With me on the call is Luke Pomilio, CONMED's Executive Vice President and Chief Financial Officer. Today, I'll provide a brief overview of the financial and operating highlights for the quarter. Luke will then provide a more detailed analysis of our financial performance and an update to our fiscal 2016 financial guidance. After that, we'll open the call to your questions. In the second quarter, sales totaled $193.4 million, representing an increase of 6.9% compared to the second quarter of 2015. On a constant currency basis, our sales increased 9.2%. Excluding the AirSeal acquisition, organic sales decreased 3.4% as reported and 1.2% on a constant currency basis compared to the second quarter a year ago. From an earnings perspective, our reported GAAP net earnings totaled $2.9 million or $0.10 per diluted share compared to reported net earnings of $7.5 million or $0.27 per diluted share a year ago. Our adjusted net earnings of $13.2 million increased 9.8% year-over-year and adjusted diluted net earnings per share of $0.47 increased 9.3% year-over-year. At a fundamental level, I divide the quarter into two simple themes, the first being the positives which include the following: During the second quarter, we recorded our highest total revenue over the last six quarters. We reported a solid increase in our adjusted gross margin. AirSeal global sales totaled $18.5 million, representing 36% growth on a pro forma basis versus 2015. Performance was strong both domestically and in the international markets, and fueled another strong quarter of overall General Surgery growth. Through the first six months of the fiscal year, AirSeal has recorded $31.2 million of sales, exceeding our expectations. This has been a very favorable acquisition for CONMED and our customers. The domestic Endoscopic Technology business posted its second consecutive quarter of mid-single-digit growth and we also launched two new products. We saw continued improvement in our international markets with all three of our reporting business segments posting year-over-year constant currency organic growth and capital sales improving after a soft first quarter. In our direct international markets, we were pleased with another quarter of solid constant currency growth, and importantly, we delivered improved growth in Canada and Australia, both important markets for CONMED. In our export markets, while still slightly negative, sales improved on an organic basis. As I mentioned on our first quarter call, our Japanese performance had been constrained as we worked through contract renewals with our key distribution partners. With the new arrangements in place during the second quarter, we were pleased to see Japan return to growth. Outside of Japan, we also saw solid performance across our Asia export markets, while EMEA and China remained soft. More broadly, we continue to see our partners in the export markets moving toward stability. The combination of strengthened management and partnerships, new products and reduced market volatility give us increased confidence and opportunities for growth within our export markets. Finally, cash from operations in the quarter was $17.2 million and I'm pleased to see our newly found focus here paying early dividends. Counteracting the positives were certain challenges we faced during the second quarter that we view as opportunities, which includes the following: The disappointing decline in domestic Orthopedics after three quarters of growth, an outcome driven by a decline in capital sales which also impacted our Visualization business. We simply missed on our expectations which is obviously very frustrating. We saw progress with an improvement sequentially in the organic performance of domestic Advanced Surgical business, however, consistent with our first quarter comments, organic growth remained negative in the quarter, but we anticipate this moving into positive territory in Q3, again consistent with our comments in the first quarter. As a result of the above, we updated our outlook for the fiscal year and lowered our organic constant currency growth expectation, which is partially offset by an increase in our AirSeal expectations. Luke will discuss this in more detail during his comments. Looking forward as you all know, at AAOS in March, we showcased a number of new products including Edge. Coming into the year, we noted that Edge was our number one global new product priority, and we anticipated and initiated a June-July phased introduction. I'm very pleased to say that today we have multiple sites up and running across Canada, Spain and the United States. We continue to see very positive feedback from our customers and area moving forward with a continued launch on a global basis throughout the quarter. Finally, while technically a July event, I am pleased to announce the appointment of Kurt Azarbarzin, the former Chief Executive Officer and Founder of SurgiQuest, as CONMED's new Chief Technology Officer and Vice President of R&D. As a senior medical device executive with a proven track record of R&D innovation, Kurt's leadership and passion will be instrumental in our continued focus of reinvigorating our product portfolio to accelerate the ongoing introduction of innovative solutions to the marketplace. Brett Poole, a 16-year veteran who led our R&D effort for the last four years, has retired and I want to personally thank him for all his hard work and contributions during his time with CONMED. In conclusion, as we look to the remainder of the year, we remain focused on restoring growth while expanding our portfolio of innovative products to enhance our presence in the markets we serve. Overall, we remain steadfast in building a sustainable and profitable business that delivers true solutions to our global customer base. I'll now turn the call over to Luke. Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Thank you, Curt. As Curt mentioned, our total sales for the second quarter of 2016 were $193.4 million, an increase of 6.9% on a reported basis and an increase of 9.2% on a constant currency basis versus the second quarter of 2015. Our top line growth during the quarter was driven by strong performance in our General Surgery business due to better-than-expected sales from our AirSeal System. We also saw improving growth trends across all three of our international reporting categories, with each delivering constant currency organic growth in the quarter. This growth was offset by weaker-than-expected organic performance in the U.S. particularly from a capital sales standpoint. Domestic sales, which represented 51.0% of our total revenue, increased 10.9% as strong growth in General Surgery more than offset declines in both Orthopedics and Visualization. International sales, which represented 49.0% of total revenue, increased 2.9% compared to the second quarter of 2015 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a negative impact of $4.3 million on second quarter sales. In constant currency, international sales increased 7.5% versus the prior-year period. I will now review our three reporting categories with all growth rates stated in constant currency. Worldwide Orthopedic revenue decreased 1.3% in the second quarter. Domestically, second quarter Orthopedic revenue decreased 5.1% year-over-year following three consecutive quarters of growth. The decline was primarily attributable to a reversal of recent positive capital sales trend. Internationally, Orthopedic revenue increased 1.1% year-over-year as growth in single-use products offset declines in capital sales in both our direct and export markets. Worldwide General Surgery revenue grew 24.5% year-over-year. The AirSeal System contributed $18.5 million to General Surgery sales in the quarter. Excluding AirSeal, worldwide General Surgery revenue decreased 1.7% compared to the prior-year period. Domestically, second quarter General Surgery sales increased 26.5% and were driven by AirSeal. Excluding AirSeal, domestic General Surgery revenue decreased 3.0% year over year due to weaker capital sales compared to our particularly strong second quarter a year ago. Internationally, General Surgery sales were up 21.0% and benefited from a strong contribution from AirSeal. Excluding AirSeal, General Surgery sales increased 0.6% and were driven by capital sales strength in our export markets. Worldwide Visualization sales increased 2.6% during the second quarter. Domestically, second quarter Visualization sales decreased 5.7%. International Visualization sales were up 12.1%, driven by a return to growth in our export markets. Now turning to other components of the income statement. Adjusted gross margin for the second quarter, excluding restructuring costs, expanded 290 basis points year-over-year to 55.4% compared to 52.5% in the second quarter of 2015. Adjusted gross margin benefited from production variances of approximately 270 basis points, as well as from mix and pricing of approximately 120 basis points, partially offset by the negative impact from foreign exchange of approximately 100 basis points. We continue to expect full-year 2016 adjusted gross margin, excluding restructuring costs, to be in the range of 54.5% to 55.5%. As we discussed on our first quarter call, effective January 1, 2016, we began to include certain regulatory costs such as foreign market product registrations as other product development costs within research and development. Historically, we had reflected such costs in SG&A. For the second quarter, these costs amounted to $699,000, and we continue to anticipate these costs will approximate $3.3 million for the full year 2016. From a historical perspective, these costs totaled $625,000 for the second quarter of 2015 and $2.5 million for the full year 2015. On an adjusted basis, which excludes the impact of amortization but includes the accounting reclassification for both periods, selling and administrative expenses for the second quarter increased to $77.3 million or 40.0% of total sales, compared to $68.9 million or 38.1% of total sales in the second quarter of 2015. The year-over-year increase is due to increased investment in sales and marketing. As we progress through the second half of 2016, we continue to forecast quarterly adjusted SG&A in the range of 38.0% to 40.5%, with our full-year estimate in the range of 38.5% to 39.5% of sales. Based on the seasonality of our sales, we expect to be at the high end of this quarterly range in the third quarter and at the low end in the fourth quarter. Given our year-to-date results and current forecast, we expect that our full-year SG&A as a percentage of sales will be at the higher end of our annual guidance range. Including the accounting reclassification, research and development expenses for the second quarter totaled $8.0 million, which was comparable to the prior-year expense when adjusted for the reclassification. With the SurgiQuest acquisition and planned incremental investment, we expect a ramp up in R&D spend in the second half of the year that is roughly evenly split between the third and fourth quarters. Due to the lower-than-expected R&D spend in the first half of the year, we are now targeting 2016 R&D expense in the range of $34 million to $36 million as compared to our previous range of $36 million to $38 million. Adjusted EBITDA margin in second quarter of 2016 was 17.7% compared to 15.9% a year ago. The unfavorable impact of foreign exchange reduced second quarter 2016 EBITDA margin by 130 basis points. Please see the schedule on today's press release for details on the margin calculations. Turning now to a discussion of our income tax rate, our adjusted effective quarterly tax rate decreased to 31.7% compared to 32.8% in the second quarter of 2015. The rate this quarter reflects the R&D credit, which was not yet extended in the second quarter of 2015. For the full year, we continue to estimate a non-GAAP tax rate of approximately 32.0%. Our diluted net earnings per share on a GAAP basis were $0.10 compared to diluted net earnings per share of $0.27 in the second quarter of 2015. As previously discussed and as outlined in today's press release, we exclude the cost of special items, including acquisition costs, restructuring costs and debt refinancing net of tax, as well as amortization of intangible assets net of tax in our calculation of adjusted diluted net earnings per share. Excluding the impact of these items, our second quarter adjusted diluted net earnings per share were $0.47 versus $0.43 in the prior year period. The special items in today's press release include the discontinuation of the Altrus tissue sealing device. Altrus sales had a negative $500,000 impact on second quarter sales versus the second quarter of 2015, and will have a negative $900,000 impact for the second half of this year versus the second half of 2015. Non-cash costs associated with this discontinuation are included in today's press release. Looking at the balance sheet, our cash balance as of the end of the second quarter of 2016 was $23.3 million, compared to $19.9 million at March 31, 2016 and $72.5 million as of December 31, 2015. During the first quarter, a portion of the SurgiQuest purchase price was funded by available cash on hand. Accounts receivable days were 66 days as of June 30 compared to 64 days a year ago. The inventory balance was $179.9 million compared to $185.1 million at March 31, 2016 and $166.9 million as of December 31, 2015. Inventory days at quarter-end were 190. A significant portion of first quarter inventory build was related to SurgiQuest production field inventories. We were able to bring overall inventories down in the second quarter with enhanced management focus. Now turning to cash flow, cash generated by operating activities totaled $17.2 million for the second quarter of 2016 compared to $10.2 million a year ago. The increase in operating cash flow was due to better working capital management despite lower GAAP net income. Currency rates had a significant impact on our financial results, so I'd like to provide an overview of this area. Similar to many of our peers, we have a hedging program in place in which we were able to hedge the cash flows from our foreign operations. This does not however eliminate all the impacts from foreign exchange fluctuations. Approximately 30% of our worldwide sales are subject to foreign currency exposure, which are the direct sales portion of our international sales. For the direct markets, the majority of our foreign currency exposure is represented by four primary currencies: The euro represents approximately 33% of the exposure, the Canadian dollar approximately 25%, the Australian dollar approximately 14%, and the British pound approximately 10%. To be clear, our guidance for revenue and earnings per share on a reported basis already contemplates the impact of foreign exchange, including the gains and the future realized losses associated with our hedging program. Constant currency revenue guidance, as always, excludes the impact of any hedging activities. Finally, with regard to our stated guidance as described in today's press release, we're reducing our 2016 constant currency organic sales growth estimate to a range of negative 1% to positive 1% compared to the previous range of 1% to 3%. Additionally, based on foreign currency exchange rates, as of July 22, 2016, we are updating the anticipated negative impact of foreign exchange for the year to $17 million to $19 million compared to the previous range of $13 million to $15 million. Also, due to stronger-than-expected year-to-date performance of AirSeal, we are increasing our sales forecast related to the SurgiQuest acquisition to $62 million to $67 million, compared to the previous range of $55 million to $60 million. As a result, we are revising our 2016 guidance for reported sales and adjusted diluted net earnings per share. We are forecasting reported 2016 sales in the range of $757 million to $767 million, which represents growth of 5.3% to 6.7% over reported 2015 revenue of $719 million, compared to the previous range of $768 million to $778 million. Based on our revised 2016 reported sales estimate range, we now forecast 2016 adjusted diluted net earnings per share in the range of $1.83 to $1.93 compared to the previous range of $1.95 to $2.05. $0.05 in the earnings per share reduction is attributable to foreign exchange and the remaining $0.07 reduction is due to the decrease in organic sales net of the SurgiQuest increase. The adjusted diluted net earnings per share estimates for 2016 exclude the cost of special items, including acquisition costs, restructuring costs and debt refinancing, which are now estimated to be in the range of $21 million to $23 million net of tax, versus the previous range of $18 million to $20 million, and translates into approximately $0.75 to $0.82 per adjusted diluted share. Additionally, these estimates exclude the amortization of intangible assets, which are still estimated in the range of $12 million to $14 million net of tax, or approximately $0.43 to $0.50 per adjusted diluted share. And now, I'd like to turn the call over to Liz for Q&A.

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

Hi. Good afternoon. This is Ravi in for Rich. Can you hear me? Curt R. Hartman - President, Chief Executive Officer & Director: We can, Ravi. How are you?

Hi. Good. Thanks, Curt. Thanks for taking the call. A couple of questions on the guidance if I can just start there, you say you anticipate – continue to anticipate organic growth moving positive in the back half. Just a little bit more color on the cadence of that revenue would be helpful, and then sort of how that flows through the EPS as well. And then maybe if I could follow up just with the new R&D announcements, are you still going through the management transition? Can you just maybe remind us what is remaining in terms of any sort of open seats on the senior management team and sort of what you need to add or change there? Thanks. Curt R. Hartman - President, Chief Executive Officer & Director: Yeah. Let me start with the R&D announcement that went out today. That's – that really had – that really was not planned. Brett Poole who had been with us for 16 years and had been running R&D literally notified us first part of April that he intended to retire, and he gave us plenty of advance notice and was not scheduling to depart until mid-June. We did a comprehensive search and obviously, we're very fortunate via the acquisition to have a gentleman like Kurt Azarbarzin onboard. And it was a thumbs up vote from everybody that Kurt should be our next Chief Technology Officer and Head of R&D for the company. So I wouldn't call that part of a company people staffing transition. I think, as you look across the leadership ranks of the company, we've done the majority of that work in a meaningful form in 2015. And this is just kind of the normal progression of transition. And candidly, we were very fortunate to have somebody as equipped as Kurt with his experiences and background in R&D to step in, and I think he will bring a fresh and unique perspective to innovation for CONMED. I'm going to let Luke take the guidance, how that's going to fall out over the third and fourth quarter. Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah. Ravi, let me take it from a – I guess from an overall numbers perspective. So at the midpoint of our guidance of $752 million, we're looking at a first half/second half breakdown of 49.2% in the first half with the back half representing 50.8%. If I look at what I anticipate from a revenue split in the second half, I think it's going to be really consistent with what we saw last year. Last year, we saw 46% of second half revenue in the third quarter, 54% in the fourth quarter. So that's the way I'd see revenue coming together for the second half of the year. And I think as we think about organic growth, I think that's going to accelerate in the third and fourth quarters. So as you build your model, fourth quarter organic constant currency growth should be greater than third quarter. From an EPS standpoint, we've talked about leverage and how the impact is even greater from an EPS standpoint. As we looked at last year on the second half, third quarter was 43%, fourth quarter was 57%, and I think this year it can even be more pronounced with anywhere from 40% to 43% of EPS in the third quarter and the remainder in the fourth quarter.

And that's referring to second half. So that just sort of like rings out to $178 million on 3Q and $210 million on 4Q, if I'm thinking about it right? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah. If you follow those, the percentages I gave are – if you calculate those amounts, those are the appropriate amounts.

Sure. And then sort like the guidance reductions, a little bit of a reminder of what happened in last year. Anything that you want to say around planning? I mean is there anything that needs revising here or anything that you have in terms of visibility on the business to avoid these resets? Thanks. Curt R. Hartman - President, Chief Executive Officer & Director: Yeah. I think the guidance revision last year and this year, there's a little bit of apples and oranges there. Last year, a big part of the guidance revision in the third quarter was what happened in Latin America, specifically with Brazil and a pretty dramatic drop-off. Further, as we looked at the rest of the underlying organic business and product introduction scales, sales force transition – and just to remind everybody, Advanced Surgical last year during that third quarter period was an all-hands-on-deck going after SurgiQuest, and we had strategically opted to not backfill a bunch of sales territories because we knew with SurgiQuest acquisition we'd be bringing additional sales people onboard. This year as we look at the organic growth, a portion obviously is attributable to this swing in capital in the second quarter in our Orthopedics business. And as Luke noted in his script, we had soft capital both internationally and domestically, and capital's a lot harder to predict. That just takes time. It takes more experience, and we've been pretty consistent at it, and obviously the third quarter was a miss. I feel pretty good about where our projection processes are, where our planning and forecasting methodologies are evolving to. Again, I would just remind everybody those are now in their sixth quarter, so we're continuing to evolve those on a global basis, but I feel like we're making great progress. And as I look up and down the income statement, I feel pretty good about every number on the income statement this quarter. We're a couple of million dollars off of where I would have liked to have been in Orthopedics, specifically in the domestic market, and obviously we spent a little more money in selling and marketing and a little less in R&D. I don't worry so much about the R&D because that's more attributable to the projects and priorities and a little bit of timing, and I think we've got a good schedule in front of us to get back on the R&D spend. And the sales and marketing is just a little tighter management and getting some of the training programs and things behind us in the first half.

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

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

Hi. Good afternoon. I just wanted to go back to I guess the Orthopedics business and just wanted to further I guess get some color on that. I know it's not what you expected and I just wanted to get the sense of how – I guess longer do you think some of these trends could continue, and what specifically I guess went wrong. It sounds like it was more execution, but I guess do you have your hands around it? More recently, I guess as you've closed the quarter and have had the opportunity to see some of the numbers through July, do you feel like this is something that can persist, or is this something that's likely to get turned around in pretty short order? Curt R. Hartman - President, Chief Executive Officer & Director: Well, the comment specifically on Ortho is the bigger challenge here was in U.S. Orthopedics and its focus on a capital deficiency versus the prior run rates that we've been experiencing, and capital was obviously harder to predict and as you spend more time focused on capital, more deals, the better because your probability of delivering the numbers is that much better. And so, we just did not have a good close rate in the second quarter as we came to the end of that quarter. Obviously, we're hoping to reverse that as we get back in the third quarter, get into a more of a normal capital close cycle, consistent with what we've had in many of the previous quarters. A little hard to predict or give a high degree of confidence that it's going to happen until we actually see the deals close. But, if you look at the international Orthopedics business, it's a solid business. It has been for a long time. We've had a lot of transition in our U.S. Orthopedics business. I have a lot of confident in our General Manager there and a lot of confidence in our sales leadership team, and we're going to get there, Kristen. It's a little harder to predict but we're going to get there.

I guess what do you think is the reason why there's the capital deficiency? I assume it's in the power tools business. Is it more of a competitive issue? Is it a lack of products? I guess, what is the heart of the reason as to why you're starting to see it now? Is it the end markets? Curt R. Hartman - President, Chief Executive Officer & Director: Well, you've got to remember a couple of things about our Orthopedics business. The distribution channel here is, people are covering both sports medicine, procedures as well as chasing capital and that can be at times a challenging dichotomy of responsibility, and sometimes we're a little better chasing the capital and a little better supporting sports medicine and I think we didn't call it out in the quarter, but we had a really nice improvement in our MTF business which has been struggling for many, many quarters and we are really putting all-hands in charge on getting the MTF franchise realigned. We've got positive growth in MTF, it obviously was not enough to overcome the deficit that was created in capital. So, we're just trying to build the underlying franchise to get consistency across everything here and capital happened to be one that suffered this quarter.

Okay. And then just going on SurgiQuest obviously and AirSeal, that's obviously going very positive. Do you get the sense that some of the, I guess, weakness in the quarter on Surgery is due to sales forces focusing on that since that seems to be a hot sell? And so, maybe some of the slower organic growth is coming, I guess, at the expense of better SurgiQuest sales? Curt R. Hartman - President, Chief Executive Officer & Director: I would just go back to my first quarter comments and say with an absolute affirmative, the innovative nature of the product, the market interest is clearly consuming a lot of our sales force time. And sales representatives are going to go where the product is hottest and right now, the AirSeal platform is very, very hot. With that said, I need to give credit to that organization because in the first quarter, they were negative. I commented on the call that I thought in the second half of the year, they would return to positive growth and they did move the needle. They were not as negative in the second quarter as they were in the first quarter. And the trends would indicate that in the third quarter, we will get to positive growth in the Advance Surgical business on the organic business. Again, I'm going to qualify that a little bit because AirSeal is very hot and there's only so much time in a day and that the AirSeal orders are, both capital and disposable nature, are very attractive for our sales force. But, I can assure you our sales management, our marketing teams and our general manager are all very focused on building great a business here means sell the organic portfolio along with the AirSeal franchise.

Our next question comes from the line of Mike Matson with Needham & Company. Your line is now open. Mike S. Matson - Needham & Co. LLC: Hi. Thanks for taking my questions. I guess I just wanted to start with the currency impact. So, it seems like from other companies that have reported so far that, if anything, the currency impacts may be getting a little less severe as they get into the latter part of the year here. And I was just wondering what's really driving this. Is it more of an issue, you do a lot of exposure to the pound, so is it – is that the source of this? And just trying to understand what – why this impact is so large when other companies seem to be seeing smaller than expected impacts for the remainder of the year? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah. Mike, as I pointed out in the prepared remarks, for us, currency is a large – euro was a large impact for us. I think, compared to other companies, we even have a greater impact with the Canadian dollar and the Australian dollar, and to a lesser degree the pound. Plus you know, three months ago, we actually took the numbers up $8 million for currency and unfortunately, given the change in rates over the last three months, something like $4 million is going back the other way. Mike S. Matson - Needham & Co. LLC: Okay. And then just staying on the topic of currency, at this point with rates where they currently are, if you assume that they stayed at these levels, what would 2017 look like? Would you expect the headwind, the tailwind, and what would the magnitude of that be relative to this year, bigger or smaller, et cetera? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah. I would actually anticipate that overall rates will be fairly flat. So, the largest thing driving our year-over-year impact today is some of the hedges that we benefit from last year. But, as of today, I would say it's flat.

Our next question comes from the line of Matt O'Brien with Piper Jaffray. Your line is now open. J. P. McKim - Piper Jaffray & Co. (Broker): Hi. Good afternoon. This is J.P. in for Matt. Thanks for taking the question. I just want to dig deeper into Orthopedics. I mean just trying to get at the root of the issue here. Is it more of a distribution issue, or is it more of a product? I mean, are you lacking a product to sell, or is it on the distribution side? Curt R. Hartman - President, Chief Executive Officer & Director: It's fundamental execution. I think we have a great product offering in our Orthopedics business, specifically on the capital side, and we had a pipeline and we just fundamentally didn't close what we thought we were going to close in the pipeline. So, I see it as an execution issue. Some of that, we do expect to close. Some of it, competitive issues, we lost business and didn't close the deals we thought we were going to close. So I put both of those on the execution topic. J. P. McKim - Piper Jaffray & Co. (Broker): Okay. But in your mind, the pipeline remains okay. It's not like the pipeline is falling off a cliff, it's just when some of these deals close. And then a follow-up to that is just, when do you feel comfortable about returning to market growth, especially in Orthopedics? Is that now, next year, middle of next year? Curt R. Hartman - President, Chief Executive Officer & Director: There's pipelines that are built and deals going to those pipelines and the deals close or they go to a competitor. So, once the deals in the pipeline are done, they're done. The pipeline is constantly building as new hospitals, whether in the U.S. or on a global basis, elect to purchase more capital and our job is to be aware of those and continue to build our pipeline. So, we lost some orders in the second quarter. We had some orders pushed. Hopefully those orders that pushed, will close and they'll come back into the CONMED portfolio. As far as the longer-term outlook on Orthopedics, right now, the international Orthopedics business on direct standpoint appears to be trending in the right direction. We've got some good products coming out, things like Edge, TenoLok device that we introduced is now in full launch. Those are very much additive to the overall effort and I feel good about the international Orthopedic effort, direct – a little further forward ahead in export, but export is starting to show signs of progress as well. Domestically, this quarter is clearly a step backwards for us. But I'm not going to let one quarter take us off the track toward progress and improvement. And again, this is an organization that hasn't had a lot of new products, so the Edge platform is very important for them. TenoLok is now in a full U.S. launch as well. Those are important items. The AssistArm, both U.S. and internationally, that we showed at academy is out. So, new products are critical to the entire organization. And then as we look forward, we'll continue to move the business forward. I don't see us getting to market growth rates this year. A majority of this market, sports medicine grows 5% to 7%, 6% to 8%; the capital equipment is probably a 3% to 5% grower. So, we're ways behind getting to that. So, we haven't put out guidance for next year, so I have to wait on any pronouncement, let's not get into market growth rates in Orthopedics until we do that. J. P. McKim - Piper Jaffray & Co. (Broker): Good. Thank you.

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

Hey. Good afternoon and thank you for taking my questions. Curt R. Hartman - President, Chief Executive Officer & Director: Hi, Matt. Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Hi, Matt.

Hey, Curt and Luke. I'm looking at your slide, the reconciliation to the 2016 sales forecast. And as I'm running those numbers at the midpoint, I'm coming to really the high end of your guidance, coming to about $766 million. Is that – or are you pointing us towards the high end of your guidance at the midpoint of those numbers, or am I missing something? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: No, I think we're not pointing you towards the high part of the guidance. We're giving you the revenue guidance that I laid out in my prepared remarks, and that supplemental schedule should reflect that.

Okay. I'll talk later offline with you guys. On AirSeal, were there any kind of one-time nonrecurring orders there, and can you give us the breakdown of what capital was versus single-use for AirSeal in the quarter? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah, I think when we look at the quarter, the issue number one is a reminder last year in the second quarter is when SurgiQuest really ramped up their international distributors. So the international performance was going against a big number. So international had a good quarter in that – finally got our distributor partners managed and started to ramp up the business there. We had one large order out of Japan for AirSeal, not likely to repeat but we're pretty early in our international experience with AirSeal. So I think there's still runway ahead. On the U.S. side, it was just another quarter of very solid, strong performance on both capital and disposables. Probably not going to get into a great amount of detail on capital versus disposable. But suffice it to say the disposable run rates obviously are predicated on the amount of iFS units that are placed. So disposable growth is higher than the capital number all the way around; disposable growth rates are higher. We expect that trend to continue, though we've had pretty good capital placements in the second quarter here in the U.S. So that definitely helped the number. But we're still very early in the market. So I don't see that slowing down, and I think our guidance reflects our enthusiasm for the product. And I think it's a responsible number given that we only have six months of this under our belt.

Our next question comes from the line of Jeff Cohen with Ladenburg Thalmann. Your line is now open. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Hi, guys. Firstly, just a couple clarifications. Thanks for taking the questions. Luke, on the 2017 hedging, what percentage has been completed at this point? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Yeah. We're about 70% complete. Jeffrey S. Cohen - Ladenburg Thalmann & Co., Inc. (Broker): Okay. And if I can follow up, I think you were asked on the Orthopedics, but following up on Kristen's question and some of the follow-on commentary, were the sales pushed out during the second quarter more so than you expected, or simply you didn't get them? I guess the question is, were they closing as you expected them to close on the sales, or were they getting pushed out to a larger degree? Luke A. Pomilio - Executive Vice President-Finance & Chief Financial Officer: Jeff, candidly, it was both. Some of them went to competitors; some of them did push into the third quarter. And our job is to pursue the ones that moved into the third quarter, close those, while also rebuilding the pipelines. And again, at CONMED, we spend a lot of time focused on MTF and re-establishing our presence there, and our relationships with customers, and we saw positive trends on that. But that came at the expense of some of our focus on capital. And shame on us, we got to learn to do two things at once. But we will. We'll get there. So it's a little bit of both.

We have a follow-up question from the line of Mike Matson with Needham & Company. Your line is now open. Mike S. Matson - Needham & Co. LLC: Hi. Just on AirSeal, I was curious how much of that growth is currently being driven by the robotics related procedures versus conventional laparoscopy, because I think it was mostly a robotics business to begin with. But are you having success in converting the regular laparoscopic business as well? Curt R. Hartman - President, Chief Executive Officer & Director: That's a great question, Mike. And I don't have an exact percentage. We don't ultimately track them by whether they go to robotics user or into general laparoscopic procedure base. And you're correct, SurgiQuest really built their business by first focusing on intuitive surgical robotics placements because the technology is a robotics-enabling technology. So that's where the majority of disposable revenue comes from. In addition, there's still opportunity to sell some more capital into that market. We're not at a 100% market share there. But I would say with the expanded sales force, the ongoing education, the growing clinical awareness, we're starting to see more participation in the general laparoscopic market. And I think, as I showed in one of my slides back in January, that's where the big volume is. That's where the long play is. And the ability to generate and create a low-impact procedure for general laparoscopic cases is really the long game here. Not that robotics is unimportant; it's very, very important, and we're still going to be a big participant there and that's where the company was built. But, the bigger market, as my slides indicated back in January, is really around general laparoscopic procedure base and the low-impact nature.

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

Hi. Thanks for taking the follow-up. Just wondering if – I know it's still kind of early, but are you seeing any evidence in some of the accounts with SurgiQuest, any pull-through of other products that you've had? Curt R. Hartman - President, Chief Executive Officer & Director: Yes. I would say, we talked about that as being a driver for 2017. We anticipate, however, though that anecdotally and in a few specific examples, we are starting to see the opportunity for pull through existing CONMED products. In many cases, these large institutions, clinical thought leaders don't have a lot of past experience with CONMED. By virtue of having AirSeal in the room, our reps have an opportunity to be present and just inherently in that presence, conversations occur, opportunities are presented and we're doing our best to take advantage of those. So, I think we're starting to get some of that activity initiated and it will be our job to follow up and continue to grow that. And as I've said, 2017 is where we really see the synergy sales on our legacy AirSeal, our Advanced Surgical portfolio beginning to occur.

And I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Hartman for closing remarks. Curt R. Hartman - President, Chief Executive Officer & Director: Okay. Thank you, Liz. And everybody, I want to thank you for your time today. We look forward to speaking with you on our next earnings call, which will be held on October 27, 2016. Thank you.

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