Good day ladies and gentlemen and welcome to the Q4 2014 CONMED Earnings Conference Call. My name is Steve and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Bob Yedid of ICR. Please proceed, sir.

Good afternoon and thank you for joining the call today. 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 represent 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 of the normal ongoing operations of the Company. 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 his opening remarks. Curt.

Thank you, Bob and good afternoon everyone and thank you for joining us for CONMED’s fourth quarter earnings call. I’m joined today by Rob Shallish, our Executive Vice President and Chief Financial Officer and Luke Pomilio, Executive Vice President and Controller. As we announced in December Luke will be taking over as our CFO on April 1, upon Rob’s retirement. On today’s call, I will provide opening remarks and Rob will provide a more detailed review of our quarterly financial results. I’ll then ask Luke to provide commentary on our 2015 guidance. We’ll then open the call to your questions. Let me begin today by first pointing everyone to the press release we issued earlier, which provides a summary of our quarterly and full-year financial performance. Looking at our fourth quarter, we are pleased to deliver results that placed our full-year finish at essentially the mid-point of our revised guidance, which represents a first step towards building a culture centered on expectations and accountability throughout the organization. Total company sales for the fourth quarter of 2014 were a $195 million, a decrease of 4.1% as reported and 2.7% in constant currency versus the same prior year period. GAAP diluted earnings per share were $0.41, an increase of 13.9% versus $0.36 in the fourth quarter of 2013. Adjusted diluted earnings per share for the fourth quarter of 2014 were $0.53, which was flat compared to the fourth quarter of 2013. With these results full-year 2014 sales of $740.1 million were right in the middle of our guidance range. This was the decline from 2013 of 3% on a reported basis and a decline of 2.4% in constant currency. Full-year 2014 GAAP diluted earnings per share were $1.16 compared to a $1.28 in 2013, a decline of 9.4%. On an adjusted basis…

Thanks Curt and good afternoon everyone. As Curt mentioned, total sales for the fourth quarter of 2014 came in at $195 million, a decrease of 4.1% from the fourth quarter of 2013 on a reported basis, and a smaller decline of 2.7% on a constant currency basis. For the full year of 2014 sales were $740.1 million, a decrease of 3% on a reported basis and 2.4% in constant currency. So with the exception of a greater negative effect from foreign currency in the fourth quarter, the overall constant currency percentage sales decline in the fourth quarter was the same as what we experienced for the whole year. But as always there are various puts and takes. Let me now provide more specifics on our revenue performance. In the fourth quarter 79% of the sales were single-use products, with the remaining 21% coming from our capital products. For the full year single-use products were 80% of the total with 20% coming from capital. In the United States we had fourth quarter growth of 16% in capital products this compares to a negative 2.5% growth for the full year for capital products in the United States. Internationally capital product sales of the fourth quarter declined 15% in constant currency, primarily due to a very strong fourth quarter a year ago. For the full year our U.S. capital sales decline 5.7% in constant currency. Turning now to our three major product lines in constant currency, orthopedic revenue declined 3.9% in the fourth quarter and 1.3% for the full year. General surgery products declined 0.9% in the quarter and 2% for the year. Lastly, visualization declined 3.7% in the quarter an improvement from the 10.9% declined for the full year. Slightly more than 50% of the quarter sales came from the United States…

Thanks Rob. As we look forward to 2015 we believe the actions we are taking with regard to the commercial organization restructuring, coupled with the benefit of new product launches should result in constant currency sales growth of between 1% and 3% in 2015 as compared to 2014. This represents significant improvement from the constant currency sales declines we experienced in 2013 and 2014. With regard to the commercial restructuring, the changes are not without a certain amount of disruption. As we progress through 2015 we expect that any disruption should be resolved by the beginning of the second half of the year. At this point, I would like to provide some color on the foreign currency headwinds we are facing in 2015. As background, 50% of CONMED sales are outside the U.S. and of these international sales, 65% are denominated in local currency. 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 currencies, 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 earnings exposure to our four primary currencies. Our ability to hedge beyond these levels is limited under Hedge Accounting rules. As you know the January 2015 turmoil in the currency markets is unlike anything we have experienced since 2008. As a result, we have chosen to update our 2015 projections based on currency spot rates as of the close last Friday January 23. Based on Friday’s spot rates the updated negative FX impact is $19 million to revenues and $0.14 to EPS versus our prior estimates of $6 million and $0.04. To be clear, this guidance change is entirely related to FX volatility. Given expected 2015 constant currency revenue growth of 1% to 3% and using January 23 exchange rates and existing hedges, we anticipate that reported sales for 2015 should be in the range of $727 million to $742 million and that adjusted diluted earnings per share will be in the range of $1.82 to $1.92. Before turning the call over to questions, I want to communicate how honored I am to be CONMED’s new CFO. After a very difficult year for the company and our employees, it is exciting to see our entire organization focused on reenergizing our commercial efforts. I look forward to reporting our progress over the course of 2015. With that operator, we would like to turn the call over to your for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Mike Matson of Needham. Please go ahead.

Thanks for taking my questions. I guess I just want to start with the guidance and I know you are not going to be giving quarterly guidance, but should we assume that you kind of come into the year at a run rate or growth rate on a constant currency basis closer to where you are exiting the year?

Mike, number one thanks for being on the call and thanks for the question. I think your assumptions are right and I think we are trying to be cautious, we’ve got a lot of commercial reorganization going on into U.S. markets and if you look at the last several quarters our rates to top line have been declining and we don’t have a magic bullet that turns out overnight. We’ve got to make some organizational transactions which we’ve already initiated and are underway. So we think its going to take at least the first two quarters to get things fully in place and get teams aligned. As we’ve talked about in previous call, we’ve got some new products that will be coming out specifically on the general surgery side, couple items we are pretty excited about and then in orthopedics we got the Edge Ablation system. So getting all that lined up with a new structure we then see the second half of the year were the top line starts moving into more favorable directions. So little bit slower in the first half, little bit better outlook in the second half.

Okay and then just wondering about with the changes to the energy and endomechanical sales teams, how should we think about the impact of that? And I guess, what was the timing of that? Is that something that's already happened or was it in the fourth quarter or was it early in 2015?

Great question. So through 2014, we had two separate entities in the U.S., the advanced energy and the endomechanical business, each having their own dedicated selling forces, each having a different mix of products that fundamentally called in the general surgery market. Each having a requisite amount of overhead sales management et cetera, we’ve been looking at the commercial entities really going back to July 23, and this is one that had been talked about for sometime and after doing further due diligence over the last six months with the leadership team and really diving into the businesses, we made a decision exiting 2014 to make the announcement that we’re going to combine that business. So organizationally the organization was notified the first week in January right after the holiday’s that those two businesses were coming together, we have hired a leader from the outside the organization, he is fully in the role the entire selling organizations for both entities are aware the sales managements teams are aware, now the marketing teams are aware and they’re all collectively working on hashing out what I would call the real tactical details. I would tell you just candidly, the announcement has been met from the feedback I received with enthusiasm, because fundamentally what you have at the street level is the ability to create smaller sales territories to offer broader offering to our customers. So said another way, less windshield time, more customer time and really leveraging the products that we have in both bags now in front of one customer versus having two different selling organizations of CONMED calling on the same customer across greater geography. So work is underway, our plan here is to have this wrapped up by April 1 of this year having all the reps, managers, marketing teams in place, positions filled and aligned and moving forward.

Okay, thanks, that was real helpful. And then just with regard I know one of the other things you’ve talked about is changing the sales compensation plans, just to simplify them. So is that something that took effect at the beginning of the year. Are they on kind of an annual or a calendar year quota et cetera?

Yes, the industry norm is that these are annual compensation programs and where we are right now is for example in the general surgery business with the new leader, the new sales management folks, they are hashing their way through those and discussing the various options, but our intent is to have those programs rolled out here in the first quarter as well.

Okay, and then just with regard to the Altrus product, it seems like a good product and clearly it's a huge market, so it seems like there'd be a lot of opportunity to take some share there. But obviously, the product has been kind of disappointing several years here into its launch. I guess I was just wondering, since you have been there for some time, have you dug into that? Do you feel that there is an opportunity to really reignite the growth of that product and take some meaningful share, and is that maybe - I guess maybe it's related to my earlier question, I guess, with the integration of the sales.

Mike, if you think about the space, the cut and seal space it’s a great space, it’s a high growth space, it’s large space where we’re a tinny, tinny player there and we have a very interesting technology that really gets the seal part right and if you think about what could be annoying to a surgeon it’s that lack of confidence in the seal and I think our technology gets that part right. Where our technology has missed fundamentally is in the ergonomics of the hand piece and we’ve been evaluating potential changes to the ergonomic and are working very quickly to make those adjustments and we believe that in the second half of this year the combination of the realigned general surgery organization and some things we are doing behind the scenes with Altrus could help us start to move forward in that market. Obviously don’t want to be naïve, these are two very large competitors in that market space, we just see to get the right product and the right focus and start getting our piece of the market and I think we can do that we’ve got a lot of execution in front of us to get there though.

Okay. Then just one final question, just on the new camera. Can you give us some feedback on how that is being received? It looked like the US sales in visualization were pretty strong. I understand there was a comp issue outside the U.S., but is that strength driven by the new camera? I mean Is that actual what happened?

Yes, absolutely the new camera helps and I might be a little more conservative Mike, we are happy with the U.S. growth, but I’m going to call limited growth, the prior year comparable wasn’t that great, so I’m not going to get two excited about it yet, we were very conservative when I’ve said this on the last call in terms of rolling the product out it’s been a number of years since we put new technology out like this we want to make sure, we get it right. We don’t want to stumble with our customers. And we are happy with what we saw in the fourth quarter we have bigger expectations in 2015 and we got to do a better job getting more units out in the field and we will do that as our production volumes and confidence in the quality going out the door increase, which it is everyday candidly. So happy with what we saw in the U.S. market in the fourth quarter have higher expectations this year and again its capital equipment the sale cycles are little bit longer, but it’s a good step for us to have the camera in hands and getting broader distribution.

All right, thanks a lot.

Thanks Mike.

And your next question is from the line of Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Oh, hi thanks guys for taking my questions.

Hi, Jeff.

Could you clarify, earlier in the call, an FX comment? So the effect for 2015 FX would be $19 million and $0.40 EPS from $6 million and $0.14 EPS? Is that right?

At JP Morgan it was $6 million on the top and $0.04 on the bottom and now using Friday January 23, spot rates its $19 million on the top and $0.14 on the bottom.

Okay, got it. Curt, could you discuss a little bit about gross margins and kind of goals and aspirations and where we might expect to see those over the coming quarters and years as compared to Q4? Could you also maybe talk a little bit about SG&A leverage over the coming year with some of the initiatives that you put in place, including the consolidation of the surgical unit? And could you talk about the size of the sales force now, at least domestically, for each of the three product lines?

That’s a lot of questions Jeff…

I will take the gross profit, then you guys can pick up flex. As Rob mentioned, fourth quarter two things hurt us. Really, FX hurt us. That was half the impact. The other impact was we talked about the need to slowdown production in the second half of the year due to weak sales. So both those factors hurt us in the tail end of the year. FX is going to continue to hurt us going forward that’s about 50 basis points in 2015. What we have going for us is hopefully getting production levels back to normal levels as well as the Denver consolidations which is expected to be completed towards the tail end of the year and they had a substantial benefit and I think as we also talked about the real opportunity to enhance gross profit every year is to put additional volume to our factories. We have a very leaned footprint right now with three primary production facilities and to an extent we can put additional throughput through those facilities that has a material impact on our gross profit.

And I think your second question Jeff was, well let me backup to Luke’s comment. I think that the underlying message there is gross margins in the first half of the year given where FX is and given some of those manufacturing variances that flow through in the first half of this year from slowing inventory production will probably be under a little bit of pressure in the first half, but arguably as the top line moves and hopefully currency moderates a little bit, some of that pressure should dissipate. Your second question was talking about SG&A and potential leverage and I think intuitively everybody looks at the P&L and says there is SG&A leverage and candidly I don’t disagree. What we’ve done is make a change in the way we're running the businesses, now we’ve got new business leaders stepping in, new business leader running our GI business and new business leader running the combined endomechanical advanced energy and they are sorting through all the parts and pieces and I suspect as we hit the back half of this year, we will start to see some of that benefit materialize in the P&L, probably a little too early for me to call out specifics and I think at JP Morgan we had actually talked about maybe being able to talk more candidly about that as we get to about the middle of the year as these leaders have had a chance to sit in and put their plans together. Your final question was on kind of selling effort and field focus on the new general surgery business, coming into the year we had and I’m rounding because there is always puts and takes, people leaving. We had roughly 85 sales reps between the two selling entities, and we will start the program repositioning territories and have right in that same number about 80, 85 reps. The goal here though is to move the number of reps forward, because they will have a bigger bag and so the number we start with is going to be in the 80s range. I think its safe to assume a year from now we will probably be talking about a number that’s higher than that as we get a better cadence on new products. Remember we have in a perfect world three new precuts sitting in this business this year; we would hope to expand on that with other things that we maybe working on. So more new products, smaller territories, bigger bag means opportunity for more selling professionals in the marketplace.

Okay, as long as you are at it, Curt, could you walk through the size also currently of the orthopedic and visualization sales force domestically?

Yes, the visualization products are actually sold by both our orthopedics and our general surgery group, so not a separate standalone selling force. And in orthopedics that business in the U.S. is a combination of distributors as well as direct reps, so bit of a hybrid model. And right now, the number that cover our orthopedic line is north of 220 and that number has grown when we added six new distributors last year plus our own existing distributors expanding their sales force, so that number is grown by about 20% in the last five months, just shy of 20%, so we’re at about 220 give or take field selling people covering the orthopedics portion of our business, which is power tools, arthroscopy videos, sports medicine and MTF.

Okay, got it. That does it for me. On a personal note, I want to say thanks to Rob Shallish for his leadership.

Well, thanks Jeff. That’s very nice.

Hey, Jeff I need to clarify something I said to you, the 50 basis points that’s the FX impact on EBIT. The FX impact on our gross margin in 2015 is 120 basis points, so I apologize for that.

Okay, for 2015.

Yes.

Thank you.

And your next question comes from the line of Mark Landy from Summer Street. Please go ahead.

Good evening folks, thanks for taking my question. Curt, could you just give us your comments on the CapEx environment and really what you're expecting kind of 2015 versus 2014 and how those thoughts may help or perhaps hurt your endeavors in that area?

I think certainly there is some much large medical device companies that have reported and are reporting or preliminary reported stronger fourth quarter finishes as it relates to capital equipment spending and I think our own video numbers support that a little bit, though I certainly don’t think we participated quite as much as some of the other names that are out there. But certainly a rebound in CapEx market should be beneficial to the company, whether it’s in the power tool and video side of the business or whether it’s in our general surgery business, where we do sell generators of a lot of different shapes and forms and kinds. So assuming the CapEx market stays better than it probably has been in last couple of years, we would hope to participate in that and benefit from that. And I think really when you look at general surgery having a broader bag and been able to talk to the customer through one selling organization, it put us in a much different position than we were in 2014. So I’m hopeful that our folks can capture more of that and as it relates to orthopedics, we got to get in the game and get in the game by having new products and we’ve done a nice job of refreshing the video and the power tool lineup in the last year. So we should participate in that uptick.

So just as a follow-on to that, do you still think 2015 CapEx will be a back-end loaded spend or do you think that perhaps it may be pulled forward into the first half of the year, given some of the better understanding when you see the new seasonality around high deductibles and hospitals preparing earlier for volume?

Having spent a quite a bit of time around CapEx, independent on what’s going on with seasonality it just by its very nature tends to be a little more second half of the year driven and the sales process are little bit longer, the cycles are far more competitive, there is three or four key competitors for the capital equipment, hospitals understand the purchasing of CapEx can be a more competitive environment, so they are patience. So there is just a lot of things that we need to believe that in spite of what’s going on with the overall CapEx spend it’s still more a second half of the year type of business and that’s probably based more on experience than anything I’m reading or seeing or hearing in the market. Could people who have a little bit more CapEx opportunity pull the trigger a little bit earlier in the year, certainly I wouldn’t say they won’t I think that’s certainly a possibility, but I’m not modeling anything large on that side for our business in the first half of the year, it’s more than normal.

If we just move on to the growth rate, the revenue growth rate, I think, or the ones that we've seen. I guess foreign currency plays a little bit into that, and that's a bit of a crap shoot for where the rates are going to fall. But what has to go right to get to the top end and, I guess, what gets you to the bottom end of the range? Looking at it maybe organically, how does that growth have to play out? And then, some of the new products that were delayed last year and have been launched in 2015, how do those layer in? What has to work to get to the top end?

So Mark, two things I want to be really clear our 2015 numbers on a constant currency basis will be one to three, on a reported its negative two to zero. So just want to be really clear on those and whether it’s the zero on the report or the three on the constant currency, what has to go right. Clearly the first half of the year for our U.S. markets the reorganizations and the change that we're making at a very fundamental level in compensation plans and management alignment, things of that nature, we have to execute on those and those are within our control and for example in our orthopedics business. I mentioned this at JP Morgan we brought on a slate of new regional directors that were very excited about proven industry folks who have had demonstrated track records, who we think can step in and really help our selling effort, but it takes time for them to get engrained in their new geographic regions, meet all their selling teams reestablish themselves behind the CONMED name and our products, but I call that basic execution and I have a lot of confidence in these people. General surgery, its about realigning the selling organization and if we can do that quicker that should certainly help us to get to the higher end of the range and absolutely new products matter tremendously and they probably matter more to this company than they may to others, because we’ve had a lack of new product consistency. So the faster we can get those out the door and perhaps even supplement them with some small tuck-in acquisitions to give our selling organizations a reason to talk to our customers on a more frequent basis about something new and exciting that can help drive us to the upper end of those ranges.

Thanks, Curt, and then lastly to Rob. Rob, enjoy your retirement, and, once again, thank you for your professionalism and insights over the past years.

All right, thank you very much Mark. All the best to you.

Thanks.

And your next question is from the line of Jim Sidoti from Sidoti & Company. Please go ahead.

Do you hear me?

We can Jim.

Great. Just a question on the launch of the visualization product. It sounds like you launched that limited -- you had a limited launch here in the US during the quarter. What is the plan for that throughout the US and internationally?

Let me qualify the launch, it was a conservative launch; let's just call it a conservative launch. We wanted to make sure that every camera we shipped that there was a high level of customer satisfaction there were no surprised issue. So as we hit 2015, the goal is to continue to ramp up and expand our launch, fulfill existing orders while also increasing the number of units that are available for field evaluations and doing that both in the U.S. and in the international markets where we have appropriate product registrations at this point in time.

So do you think by the third or fourth quarter of the year you will be available in all the territories in the US and internationally where you have the registrations?

If we are not, you should be asking real hard question why not.

Okay, all right. Then I just want to review the quarter. What was the total growth internationally and US?

Yes, Jim domestically the quarter’s growth was a negative 1.8% and 3.9% for the entire year. And then internationally in constant currency the quarter’s decline was 3.8% and 1% decline for the full year.

Okay. All right, great. And then I, too, want to say thanks to Rob and wish you and your family all the best in retirement. Rob, you have been first class to work with the past 12 years. I hope you enjoy your retirement

Well, thanks Jim. It doesn’t seem like 12-years, to be honest with you, so thanks for all your help over those years.

Thank you. End of Q&A

I would now like to turn the call over to Curt Hartman for closing remarks.

Thank you, Steve and thank you everybody for your time tonight. First of all, I would be remiss if I didn’t publicly thank both Rob Shallish and John Hamilton most of you probably don’t know John, but he has been running our international business for number of years. And I would like to thank them for their many years of dedicated service at CONMED. John has built a great international team and he is working hand-in-hand with Pat Beyer on ensuring a smooth transition, obviously all of you know Rob and Rob has clearly been a company mainstay a voice of reason for many years at this company. And I would like to thank them both for their many years of service to CONMED. Moving on as Luke and I have already mentioned 2015 will be a year of transition and we have some new challenges facing us on the currency front. That said, we expect to make progress and complete the critical initiatives that we expect to lead to both sales and earnings growth in the future. I want to thank everybody for your time today and we look forward to speaking with you on our next call, which will be held on April 21st, 2015. Thank you.