UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedCommission File Number
SeptemberJune 30, 20222023001-39218
CONMED CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware16-0977505
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
11311 Concept BlvdLargo,Florida33773
(Address of principal executive offices)(Zip Code)
(727) 392-6464
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueCNMDNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer     Accelerated filer     Non-accelerated filer

Smaller reporting company     Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

The number of shares outstanding of registrant's common stock, as of OctoberJuly 24, 20222023 is 30,482,41230,739,751 shares.



CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20222023
PART I FINANCIAL INFORMATION
Item NumberPage
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
PART II OTHER INFORMATION
   
   
   


Table of Contents
PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands except per share amounts)
 
Three Months EndedNine Months Ended Three Months EndedSix Months Ended
September 30,September 30, June 30,June 30,
2022202120222021 2023202220232022
Net salesNet sales$275,088 $248,827 $794,605 $736,665 Net sales$317,652 $277,190 $613,121 $519,516 
Cost of salesCost of sales123,473 106,521 355,222 324,485 Cost of sales146,962 125,413 287,110 231,748 
Gross profitGross profit151,615 142,306 439,383 412,180 Gross profit170,690 151,777 326,011 287,768 
Selling and administrative expenseSelling and administrative expense114,600 104,736 333,302 307,476 Selling and administrative expense129,700 115,826 259,784 218,701 
Research and development expenseResearch and development expense12,767 10,859 34,932 32,203 Research and development expense13,572 11,493 26,110 22,165 
Operating expenses Operating expenses127,367 115,595 368,234 339,679  Operating expenses143,272 127,319 285,894 240,866 
Income from operationsIncome from operations24,248 26,711 71,149 72,501 Income from operations27,418 24,458 40,117 46,902 
Interest expenseInterest expense8,536 8,145 19,462 27,917 Interest expense9,997 5,928 20,252 10,926 
Other expense— 1,127 112,011 1,127 
Other expense (See Note 11)Other expense (See Note 11)— 112,011 — 112,011 
Income (loss) before income taxesIncome (loss) before income taxes15,712 17,439 (60,324)43,457 Income (loss) before income taxes17,421 (93,481)19,865 (76,035)
Provision (benefit) for income taxes(30,438)2,491 46,842 5,359 
Provision for income taxesProvision for income taxes3,689 74,810 4,314 77,281 
Net income (loss)Net income (loss)$46,150 $14,948 $(107,166)$38,098 Net income (loss)$13,732 $(168,291)$15,551 $(153,316)
Comprehensive income (loss)Comprehensive income (loss)$43,125 $13,756 $(113,096)$42,242 Comprehensive income (loss)$15,767 $(172,636)$20,462 $(156,221)
Per share data:Per share data: Per share data: 
Net income (loss)Net income (loss) Net income (loss) 
BasicBasic$1.51 $0.51 $(3.59)$1.31 Basic$0.45 $(5.65)$0.51 $(5.18)
DilutedDiluted1.48 0.47 (3.59)1.19 Diluted0.43 (5.65)0.49 (5.18)
Weighted average common sharesWeighted average common sharesWeighted average common shares
BasicBasic30,473 29,179 29,892 29,097 Basic30,662 29,775 30,587 29,601 
DilutedDiluted31,103 32,143 29,892 32,020 Diluted31,795 29,775 31,499 29,601 

 See notes to consolidated condensed financial statements.
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Table of Contents
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in thousands except share and per share amounts)
 
September 30,
2022
December 31,
2021
June 30,
2023
December 31,
2022
ASSETSASSETS ASSETS 
Current assets:Current assets: Current assets: 
Cash and cash equivalentsCash and cash equivalents$33,354 $20,847 Cash and cash equivalents$27,848 $28,942 
Accounts receivable, netAccounts receivable, net197,287 183,882 Accounts receivable, net229,256 191,345 
InventoriesInventories304,813 231,644 Inventories327,309 332,320 
Prepaid expenses and other current assetsPrepaid expenses and other current assets38,789 23,750 Prepaid expenses and other current assets31,109 28,619 
Total current assetsTotal current assets574,243 460,123 Total current assets615,522 581,226 
Property, plant and equipment, netProperty, plant and equipment, net113,720 108,863 Property, plant and equipment, net116,788 115,611 
GoodwillGoodwill814,260 617,528 Goodwill815,634 815,429 
Other intangible assets, netOther intangible assets, net689,453 471,049 Other intangible assets, net665,584 681,799 
Other assetsOther assets100,368 108,454 Other assets109,194 103,527 
Total assetsTotal assets$2,292,044 $1,766,017 Total assets$2,322,722 $2,297,592 
LIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:Current liabilities: Current liabilities: 
Current portion of long-term debtCurrent portion of long-term debt$237 $12,249 Current portion of long-term debt$69,632 $69,746 
Accounts payableAccounts payable74,228 58,197 Accounts payable78,577 73,393 
Accrued compensation and benefitsAccrued compensation and benefits54,095 60,488 Accrued compensation and benefits55,052 54,733 
Other current liabilitiesOther current liabilities80,019 65,712 Other current liabilities149,908 98,680 
Total current liabilitiesTotal current liabilities208,579 196,646 Total current liabilities353,169 296,552 
Long-term debtLong-term debt1,036,438 672,407 Long-term debt971,475 985,076 
Deferred income taxesDeferred income taxes112,578 68,537 Deferred income taxes66,081 66,725 
Other long-term liabilitiesOther long-term liabilities218,112 42,992 Other long-term liabilities151,803 203,694 
Total liabilitiesTotal liabilities1,575,707 980,582 Total liabilities1,542,528 1,552,047 
Commitments and contingenciesCommitments and contingenciesCommitments and contingencies
Shareholders' equity:Shareholders' equity: Shareholders' equity: 
Preferred stock, par value $0.01 per share;Preferred stock, par value $0.01 per share; Preferred stock, par value $0.01 per share; 
authorized 500,000 shares; none outstandingauthorized 500,000 shares; none outstanding— — authorized 500,000 shares; none outstanding— — 
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 31,299,194 shares
issued in 2022 and 2021, respectively
313 313 
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 31,299,194 shares
issued in 2023 and 2022, respectively
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 31,299,194 shares
issued in 2023 and 2022, respectively
313 313 
Paid-in capitalPaid-in capital407,095 396,771 Paid-in capital432,780 413,235 
Retained earningsRetained earnings392,144 496,605 Retained earnings415,924 412,631 
Accumulated other comprehensive lossAccumulated other comprehensive loss(60,133)(54,203)Accumulated other comprehensive loss(52,947)(57,858)
Less: 822,438 and 1,925,893 shares of common stock
in treasury, at cost, in 2022 and 2021, respectively
(23,082)(54,051)
Less: 565,685 and 811,532 shares of common stock
in treasury, at cost, in 2023 and 2022, respectively
Less: 565,685 and 811,532 shares of common stock
in treasury, at cost, in 2023 and 2022, respectively
(15,876)(22,776)
Total shareholders’ equityTotal shareholders’ equity716,337 785,435 Total shareholders’ equity780,194 745,545 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$2,292,044 $1,766,017 Total liabilities and shareholders’ equity$2,322,722 $2,297,592 

 See notes to consolidated condensed financial statements.
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CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited, in thousands except per share amounts)
Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
SharesAmount SharesAmount
Balance at December 31, 202131,299 $313 $396,771 $496,605 $(54,203)$(54,051)$785,435 
Balance at December 31, 2022Balance at December 31, 202231,299 $313 $413,235 $412,631 $(57,858)$(22,776)$745,545 
Common stock issued under employee plansCommon stock issued under employee plans 2,232  4,020 6,252 Common stock issued under employee plans 556  2,044 2,600 
Stock-based compensationStock-based compensation 4,463  4,463 Stock-based compensation 5,726  5,726 
Dividends on common stock ($0.20 per share)Dividends on common stock ($0.20 per share)(5,899)(5,899)Dividends on common stock ($0.20 per share)(6,113)(6,113)
Comprehensive income (loss):
Comprehensive income:Comprehensive income:
Cash flow hedging gain, netCash flow hedging gain, net1,082 Cash flow hedging gain, net877 
Pension liability, netPension liability, net521 Pension liability, net403 
Foreign currency translation adjustmentsForeign currency translation adjustments(163)Foreign currency translation adjustments1,596 
Net incomeNet income14,975 Net income1,819 
Total comprehensive incomeTotal comprehensive income16,415 Total comprehensive income4,695 
Cumulative effect of change in accounting principle(1)
(37,911)20,791 (17,120)
Balance at March 31, 202231,299 $313 $365,555 $526,472 $(52,763)$(50,031)$789,546 
Balance at March 31, 2023Balance at March 31, 202331,299 $313 $419,517 $408,337 $(54,982)$(20,732)$752,453 
Common stock issued under employee plansCommon stock issued under employee plans611 633 1,244 Common stock issued under employee plans6,841 4,856 11,697 
Stock-based compensationStock-based compensation5,755 5,755 Stock-based compensation6,422 6,422 
Dividends on common stock ($0.20 per share)Dividends on common stock ($0.20 per share)(6,092)(6,092)Dividends on common stock ($0.20 per share)(6,145)(6,145)
Shares issued for the settlement of convertible notes(25,890)25,890 — 
Convertible note premium on extinguishment103,125 103,125 
Settlement of convertible notes hedge transactions118,912 118,912 
Settlement of warrants(96,758)(96,758)
Issuance of convertible notes hedge transactions, net of tax(142,128)(142,128)
Issuance of warrants72,000 72,000 
Comprehensive income (loss):
Cash flow hedging gain, net4,662 
Pension liability, net490 
Foreign currency translation adjustments(9,497)
Net loss(168,291)
Total comprehensive loss(172,636)
Balance at June 30, 202231,299 $313 $401,182 $352,089 $(57,108)$(23,508)$672,968 
Common stock issued under employee plans159 426 585 
Stock-based compensation5,754 5,754 
Dividends on common stock ($0.20 per share)(6,095)(6,095)
Comprehensive income (loss):
Comprehensive income:Comprehensive income:
Cash flow hedging gain, netCash flow hedging gain, net4,833 Cash flow hedging gain, net503 
Pension liability, netPension liability, net490 Pension liability, net403 
Foreign currency translation adjustmentsForeign currency translation adjustments(8,348)Foreign currency translation adjustments1,129 
Net incomeNet income46,150 Net income13,732 
Total comprehensive incomeTotal comprehensive income43,125 Total comprehensive income15,767 
Balance at September 30, 202231,299 $313 $407,095 $392,144 $(60,133)$(23,082)$716,337 
Balance at June 30, 2023Balance at June 30, 202331,299 $313 $432,780 $415,924 $(52,947)$(15,876)$780,194 
(1)We recorded the cumulative impact of adopting ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in 2022. Refer to Note 3 for further detail.

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Table of Contents
Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
SharesAmount SharesAmount
Balance at December 31, 202031,299 $313 $382,628 $457,417 $(63,681)$(67,639)$709,038 
Balance at December 31, 2021Balance at December 31, 202131,299 $313 $396,771 $496,605 $(54,203)$(54,051)$785,435 
Common stock issued under employee plansCommon stock issued under employee plans 2,944  5,271 8,215 Common stock issued under employee plans 2,232  4,020 6,252 
Stock-based compensationStock-based compensation 3,387  3,387 Stock-based compensation 4,463  4,463 
Dividends on common stock ($0.20 per share)Dividends on common stock ($0.20 per share)(5,813)(5,813)Dividends on common stock ($0.20 per share)(5,899)(5,899)
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Cash flow hedging gain, netCash flow hedging gain, net3,926 Cash flow hedging gain, net1,082 
Pension liability, netPension liability, net631 Pension liability, net521 
Foreign currency translation adjustmentsForeign currency translation adjustments(3,674)Foreign currency translation adjustments(163)
Net incomeNet income9,860 Net income14,975 
Total comprehensive incomeTotal comprehensive income10,743 Total comprehensive income16,415 
Balance at March 31, 202131,299 $313 $388,959 $461,464 $(62,798)$(62,368)$725,570 
Cumulative effect of change in accounting principle(1)
Cumulative effect of change in accounting principle(1)
(37,911)20,791 (17,120)
Balance at March 31, 2022Balance at March 31, 202231,299 $313 $365,555 $526,472 $(52,763)$(50,031)$789,546 
Common stock issued under employee plansCommon stock issued under employee plans 414  2,312 2,726 Common stock issued under employee plans 611  633 1,244 
Stock-based compensationStock-based compensation 4,290  4,290 Stock-based compensation 5,755  5,755 
Dividends on common stock ($0.20 per share)Dividends on common stock ($0.20 per share)(5,830)(5,830)Dividends on common stock ($0.20 per share)(6,092)(6,092)
Shares issued for the settlement of convertible notesShares issued for the settlement of convertible notes(25,890)25,890 — 
Convertible note premium on extinguishmentConvertible note premium on extinguishment103,125 103,125 
Settlement of convertible notes hedge transactionsSettlement of convertible notes hedge transactions118,912 118,912 
Settlement of warrantsSettlement of warrants(96,758)(96,758)
Issuance of convertible notes hedge transactions, net of taxIssuance of convertible notes hedge transactions, net of tax(142,128)(142,128)
Issuance of warrantsIssuance of warrants72,000 72,000 
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Cash flow hedging gains, netCash flow hedging gains, net1,221 Cash flow hedging gains, net4,662 
Pension liability, netPension liability, net631 Pension liability, net490 
Foreign currency translation adjustmentsForeign currency translation adjustments2,601 Foreign currency translation adjustments(9,497)
Net income13,290 
Total comprehensive income17,743 
Balance at June 30, 202131,299 $313 $393,663 $468,924 $(58,345)$(60,056)$744,499 
Common stock issued under employee plans (3,180) 2,118 (1,062)
Stock-based compensation 4,327  4,327 
Dividends on common stock ($0.20 per share)(5,837)(5,837)
Comprehensive income (loss):
Cash flow hedging gain, net2,917 
Pension liability, net631 
Foreign currency translation adjustments(4,740)
Net income14,948 
Total comprehensive income13,756 
Balance at September 30, 202131,299 $313 $394,810 $478,035 $(59,537)$(57,938)$755,683 
Net lossNet loss(168,291)
Total comprehensive lossTotal comprehensive loss(172,636)
Balance at June 30, 2022Balance at June 30, 202231,299 $313 $401,182 $352,089 $(57,108)$(23,508)$672,968 
(1)We recorded the cumulative impact of adopting Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in 2022.
(1)We recorded the cumulative impact of adopting Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in 2022.

See notes to consolidated condensed financial statements.

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CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended Six Months Ended
September 30, June 30,
20222021 20232022
Cash flows from operating activities:Cash flows from operating activities: Cash flows from operating activities: 
Net income (loss)Net income (loss)$(107,166)$38,098 Net income (loss)$15,551 $(153,316)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:Adjustments to reconcile net income (loss) to net cash provided by operating activities: Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
DepreciationDepreciation12,028 12,519 Depreciation8,222 8,090 
Amortization of debt discount— 7,611 
Amortization of deferred debt issuance costsAmortization of deferred debt issuance costs3,404 2,946 Amortization of deferred debt issuance costs3,012 1,916 
AmortizationAmortization39,754 40,747 Amortization27,777 26,065 
Stock-based compensationStock-based compensation15,972 12,003 Stock-based compensation12,148 10,218 
Deferred income taxesDeferred income taxes38,442 (1,311)Deferred income taxes(607)70,402 
Non-cash adjustment to fair value of contingent consideration liabilityNon-cash adjustment to fair value of contingent consideration liability3,799 — 
Loss on early extinguishment of debtLoss on early extinguishment of debt3,426 899 Loss on early extinguishment of debt— 3,426 
Loss on convertible notes conversion premiumLoss on convertible notes conversion premium103,125 — Loss on convertible notes conversion premium— 103,125 
Loss on convertible notes hedge transactions settlementLoss on convertible notes hedge transactions settlement5,460 — Loss on convertible notes hedge transactions settlement— 5,460 
Increase (decrease) in cash flows from changes in assets and liabilities:Increase (decrease) in cash flows from changes in assets and liabilities:  Increase (decrease) in cash flows from changes in assets and liabilities:  
Accounts receivableAccounts receivable(16,092)9,890 Accounts receivable(35,184)(17,779)
InventoriesInventories(52,126)(34,679)Inventories4,468 (35,549)
Accounts payableAccounts payable14,475 (6,223)Accounts payable4,453 13,724 
Accrued compensation and benefitsAccrued compensation and benefits(8,261)5,030 Accrued compensation and benefits(253)(12,260)
Other assetsOther assets(11,710)(15,915)Other assets(11,907)(11,388)
Other liabilitiesOther liabilities4,232 6,370 Other liabilities(8,653)6,936 
Net cash provided by operating activitiesNet cash provided by operating activities44,963 77,985 Net cash provided by operating activities22,826 19,070 
Cash flows from investing activities:Cash flows from investing activities: Cash flows from investing activities: 
Purchases of property, plant and equipmentPurchases of property, plant and equipment(16,109)(11,678)Purchases of property, plant and equipment(8,783)(9,398)
Payments related to business acquisition, net of cash acquiredPayments related to business acquisition, net of cash acquired(227,102)— Payments related to business acquisition, net of cash acquired— (142,555)
OtherOther(1,000)— 
Net cash used in investing activitiesNet cash used in investing activities(243,211)(11,678)Net cash used in investing activities(9,783)(151,953)
Cash flows from financing activities:Cash flows from financing activities: Cash flows from financing activities: 
Payments on term loanPayments on term loan(92,981)(63,673)Payments on term loan— (92,981)
Proceeds from term loan— 52,411 
Payments on revolving line of creditPayments on revolving line of credit(404,000)(272,753)Payments on revolving line of credit(347,000)(312,000)
Proceeds from revolving line of creditProceeds from revolving line of credit317,000 236,753 Proceeds from revolving line of credit331,000 172,000 
Payments to redeem convertible notesPayments to redeem convertible notes(275,000)— Payments to redeem convertible notes— (275,000)
Proceeds from issuance of convertible notesProceeds from issuance of convertible notes800,000 — Proceeds from issuance of convertible notes— 800,000 
Payments related to debt issuance costsPayments related to debt issuance costs(21,830)(2,000)Payments related to debt issuance costs— (21,187)
Dividends paid on common stockDividends paid on common stock(17,865)(17,418)Dividends paid on common stock(12,208)(11,773)
Purchases of convertible notes hedge transactionsPurchases of convertible notes hedge transactions(187,600)— Purchases of convertible notes hedge transactions— (187,600)
Proceeds from issuance of warrantsProceeds from issuance of warrants72,000 — Proceeds from issuance of warrants— 72,000 
Proceeds from settlement of convertible notes hedge transactionsProceeds from settlement of convertible notes hedge transactions86,228 — Proceeds from settlement of convertible notes hedge transactions— 86,228 
Payment for settlement of warrantsPayment for settlement of warrants(69,534)— Payment for settlement of warrants— (69,534)
Other, netOther, net7,067 5,921 Other, net13,771 6,457 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities213,485 (60,759)Net cash provided by (used in) financing activities(14,437)166,610 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(2,730)(1,393)Effect of exchange rate changes on cash and cash equivalents300 (1,422)
Net increase in cash and cash equivalents12,507 4,155 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents(1,094)32,305 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period20,847 27,356 Cash and cash equivalents at beginning of period28,942 20,847 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$33,354 $31,511 Cash and cash equivalents at end of period$27,848 $53,152 
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Contingent considerationContingent consideration$183,914 $— Contingent consideration$— $69,402 
Dividends payableDividends payable$6,095 $5,837 Dividends payable$6,145 $6,092 
See notes to consolidated condensed financial statements.
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CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands except per share amounts)

Note 1 - Operations

CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides surgical devices and equipment for minimally invasivesurgical procedures.  The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology.

Note 2 - Interim Financial Information

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary to fairly present the results for the periods presented. The consolidated condensed financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated. Results for the period ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.

The consolidated condensed financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 20212022 included in our Annual Report on Form 10-K.

Use of Estimates

Preparation of the consolidated condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenue and expenses during the reporting period.

Due to the COVID-19 pandemic,While there has been uncertainty and disruption in the global economy and financial markets. Wemarkets, we are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of OctoberJuly 27, 2022,2023, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Note 3 - New Accounting Pronouncements
    
Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by removing certain separation models requiring separate accounting for embedded conversion features which will result in more convertible debt instruments accounted for as a single liability. The ASU eliminates certain settlement conditions that are required for equity classification to qualify for the derivative scope exception. The ASU addresses how convertible instruments are accounted for in the calculation of diluted earnings per share by using the if-converted method. The ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2022 using the modified retrospective method. The adoption of this new guidance resulted in:

an increase of approximately $22.6 million to long-term debt in the consolidated condensed balance sheets, to reflect the full principal amount of the convertible notes then outstanding net of issuance costs (the "2.625% Notes" described more fully in Note 11);
a reduction of approximately $37.9 million to additional paid-in capital, net of income tax effects, to remove the equity component separately recorded for the conversion features associated with the 2.625% Notes;
a decrease to deferred income tax liabilities of approximately $5.5 million, and
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a cumulative-effect adjustment of approximately $20.8 million, net of income tax effects, to the beginning balance of retained earnings as of January 1, 2022.

The adoption of this new guidance reduced interest expense related to amortization of debt discount on the 2.625% Notes by approximately $2.6 million during the three months ended March 31, 2022. Additionally, the dilutive share count increased by approximately 2.5 million shares as a result of calculating the impact of dilution from the 2.625% Notes using the if-converted method. During the nine months ended September 30, 2022, the Company repurchased and extinguished $275.0 million principal value of the 2.625% Notes as further discussed in Note 11. Concurrently, the Company entered into a Supplemental Indenture related to the remaining $70.0 million in 2.625% Notes, pursuant to which the Company irrevocably elected to settle the principal value of those 2.625% Notesin cash. As a result, in periods in which the Company has net income, only the conversion premium will affect the dilutive share count. During the three months ended September 30, 2022, our average share price exceeded the conversion price of the 2.625% Notes and we included such shares assumed to be issued if the Notes were converted in our diluted share count. Refer to Note 9 for further details. As the Company was in a net loss position for the nine months ended September 30, 2022, there were no dilutive potential shares included in the computation of diluted shares outstanding for the nine months ended September 30, 2022.

Recently Issued Accounting Standards, Not Yet Adopted
    
In March 2020, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance if certain criteria are met for entities that have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022.2022 and was extended through December 31, 2024 by ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The Company has not adopted this ASUthese ASUs as of SeptemberJune 30, 2022.2023. Our seventh amended and restated senior credit agreement includes language to address the change from LIBOR to SOFR, an alternative base rate, therefore we do not believe reference rate reform will have a significant impact on our consolidated financial statements, however will continue to monitor our transition away from LIBOR and the potential to elect to apply this guidance in our consolidated financial statements in the event that we are impacted by reference rate reform.statements.

Note 4 - Business Combinations

On June 13, 2022, we acquired In2Bones Global, Inc. ("In2Bones") and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash. In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022. In2Bones is a global developer, manufacturer and distributor of medical devices for the treatment of disorders and injuries of the upper (hand, wrist and elbow) and lower extremities (foot and ankle) extremities.. The
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In2Bones Acquisition was funded through a combination of cash on hand and long-term borrowings as further described in Note 11. Proforma information for In2Bones is immaterial for disclosure for the three and six months ended June 30, 2023 and 2022.

We incurred costs for the amortization of inventory step-up to fair value of $2.2 million and $4.3 million during the three and six months ended June 30, 2023, respectively, and $0.3 million during both the three and six months ended June 30, 2022 related to the In2Bones acquisition, which were recorded in cost of sales. During the three and six months ended June 30, 2023, we recognized $0.2 million and $0.5 million, respectively, in integration costs and professional fees related to the acquisition that were included in selling and administrative expense. During the three and six months ended June 30, 2022, we recognized $2.6 million in consulting and legal related fees associated with the acquisition of In2Bones, which were included in selling and administrative expense.

On August 9, 2022, we acquired Biorez, Inc. ("Biorez") and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.9$85.5 million in cash. We paid $83.1$83.9 million upon closing,as of June 30, 2023, with a $2.8$1.6 million purchase price adjustment holdback, pursuant to the merger agreement for the Biorez Acquisition. In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. Biorez is a medical device start-up focused on advancing the healing of soft tissue using its proprietary BioBrace® implant technology. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the In2Bones and Biorez Acquisitions that were accounted for as business combinations. The assessment of fair value is based on preliminary valuations and estimates that were available to management at the time the consolidated condensed financial statements were prepared. Accordingly, the allocation of purchase price is preliminary and therefore subject to adjustment during the measurement adjustment period.
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In2BonesBiorez
Cash$445 $742 
Accounts receivable, net5,036 318 
Inventories24,247 61 
Prepaid expenses and other current assets403 118 
Current assets30,131 1,239 
Goodwill139,816 59,176 
Developed technology37,300 176,300 
Distributor relationships27,600 — 
Trademarks and tradenames— 1,600 
Other long-term assets2,875 112 
Total assets acquired$237,722 $238,427 
Current liabilities assumed5,972 1,441 
Deferred income taxes16,699 36,621 
Contingent consideration69,402 114,512 
Other long-term liabilities466 — 
Total liabilities assumed$92,539 $152,574 
Net assets acquired$145,183 $85,853 
The goodwill recorded as part of the In2Bones Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the In2Bones assembled workforce. Goodwill is not deductible for tax purposes. In2Bones distributor relationships and developed technology are each being amortized over a weighted average life of 15 years.

The goodwill recorded as part of the Biorez Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the Biorez assembled workforce. Goodwill is not deductible for tax purposes. Biorez developed technology and trademarks and tradenames are each being amortized over a weighted average life of 20 years.

The contingent consideration was recorded at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues. The recurring Level 3 fair value measurements of contingent consideration for which the liability is recorded include the following significant unobservable inputs:

Assumptions
Unobservable InputIn2BonesBiorez
Discount rate5.67%10.34%
Revenue volatility12.75%18.87%
Projected year of payment2023-20262023-2026

We recorded $10.0 million in net sales for In2Bones products during the third quarter and a total of $12.1 million in net sales since the date of acquisition, June 13, 2022. The net sales were recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022, respectively. Earnings recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022 were not material. We also believe the proforma Proforma information is immaterial for disclosure for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.

Net sales and earnings for Biorez were immaterial to both the three and nine months ended September 30, 2022. We also believe the proforma information is immaterial for disclosure for the three and nine months ended September 30, 2022 and 2021.


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Note 5 - Revenues
    
The following tables present revenue disaggregated by primary geographic market where the products are sold, by product line and timing of revenue recognition:
Three Months EndedThree Months EndedThree Months EndedThree Months Ended
September 30, 2022September 30, 2021June 30, 2023June 30, 2022
Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic MarketsPrimary Geographic MarketsPrimary Geographic Markets
United StatesUnited States$45,688 $110,033 $155,721 $37,957 $98,444 $136,401 United States$52,339 $122,328 $174,667 $40,461 $108,721 $149,182 
Europe, Middle East & AfricaEurope, Middle East & Africa26,914 20,300 47,214 24,155 19,905 44,060 Europe, Middle East & Africa32,582 25,700 58,282 32,060 22,468 54,528 
Asia PacificAsia Pacific28,242 17,223 45,465 27,517 16,113 43,630 Asia Pacific33,249 19,357 52,606 27,674 16,201 43,875 
Americas (excluding the United States)Americas (excluding the United States)17,774 8,914 26,688 16,122 8,614 24,736 Americas (excluding the United States)22,620 9,477 32,097 19,987 9,618 29,605 
Total sales from contracts with customersTotal sales from contracts with customers$118,618 $156,470 $275,088 $105,751 $143,076 $248,827 Total sales from contracts with customers$140,790 $176,862 $317,652 $120,182 $157,008 $277,190 
Timing of Revenue RecognitionTiming of Revenue RecognitionTiming of Revenue Recognition
Goods transferred at a point in timeGoods transferred at a point in time$108,875 $154,856 $263,731 $96,389 $141,798 $238,187 Goods transferred at a point in time$130,274 $175,025 $305,299 $110,060 $155,451 $265,511 
Services transferred over timeServices transferred over time9,743 1,614 11,357 9,362 1,278 10,640 Services transferred over time10,516 1,837 12,353 10,122 1,557 11,679 
Total sales from contracts with customersTotal sales from contracts with customers$118,618 $156,470 $275,088 $105,751 $143,076 $248,827 Total sales from contracts with customers$140,790 $176,862 $317,652 $120,182 $157,008 $277,190 

Nine Months EndedNine Months EndedSix Months EndedSix Months Ended
September 30, 2022September 30, 2021June 30, 2023June 30, 2022
Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic MarketsPrimary Geographic MarketsPrimary Geographic Markets
United StatesUnited States$124,097 $312,034 $436,131 $115,864 $288,069 $403,933 United States$101,284 $237,973 $339,257 $78,408 $202,001 $280,409 
Europe, Middle East & AfricaEurope, Middle East & Africa88,955 63,093 152,048 77,327 58,594 135,921 Europe, Middle East & Africa65,702 48,596 114,298 62,041 42,794 104,835 
Asia PacificAsia Pacific79,333 46,379 125,712 80,403 44,911 125,314 Asia Pacific63,370 35,343 98,713 51,091 29,155 80,246 
Americas (excluding the United States)Americas (excluding the United States)53,932 26,782 80,714 47,215 24,282 71,497 Americas (excluding the United States)41,610 19,243 60,853 36,158 17,868 54,026 
Total sales from contracts with customersTotal sales from contracts with customers$346,317 $448,288 $794,605 $320,809 $415,856 $736,665 Total sales from contracts with customers$271,966 $341,155 $613,121 $227,698 $291,818 $519,516 
Timing of Revenue RecognitionTiming of Revenue RecognitionTiming of Revenue Recognition
Goods transferred at a point in timeGoods transferred at a point in time$317,140 $443,629 $760,769 $291,728 $412,298 $704,026 Goods transferred at a point in time$251,397 $337,614 $589,011 $208,264 $288,773 $497,037 
Services transferred over timeServices transferred over time29,177 4,659 33,836 29,081 3,558 32,639 Services transferred over time20,569 3,541 24,110 19,434 3,045 22,479 
Total sales from contracts with customersTotal sales from contracts with customers$346,317 $448,288 $794,605 $320,809 $415,856 $736,665 Total sales from contracts with customers$271,966 $341,155 $613,121 $227,698 $291,818 $519,516 

Contract liability balances related to the sale of extended warranties to customers are as follows:

September 30, 2022December 31, 2021
Contract liability$17,551 $16,760 
June 30, 2023December 31, 2022
Contract liability$18,604 $19,114 
    
Revenue recognized during the ninesix months ended SeptemberJune 30, 20222023 and SeptemberJune 30, 20212022 from amounts included in contract liabilities at the beginning of the period were $9.5$7.6 million and $8.4$7.0 million, respectively. There were no material contract assets as of SeptemberJune 30, 20222023 and December 31, 2021.2022.

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Note 6 - Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following:
 
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
2022202120222021 2023202220232022
Net income (loss)Net income (loss)$46,150 $14,948 $(107,166)$38,098 Net income (loss)$13,732 $(168,291)$15,551 $(153,316)
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Cash flow hedging gain, net of income tax (income tax expense of $1,546 and $929 for the three months ended September 30, 2022 and 2021, respectively, and $3,384 and $2,568 for the nine months ended September 30, 2022 and 2021, respectively)4,833 2,917 10,577 8,064 
Pension liability, net of income tax (income tax expense of $157 and $201 for the three months ended September 30, 2022 and 2021, respectively, and $439 and $603 for the nine months ended September 30, 2022 and 2021, respectively)490 631 1,502 1,893 
Cash flow hedging gain, net of income tax (income tax expense of $161 and $1,491 for the three months ended June 30, 2023 and 2022, respectively, and $442 and $1,838 for the six months ended June 30, 2023 and 2022, respectively)Cash flow hedging gain, net of income tax (income tax expense of $161 and $1,491 for the three months ended June 30, 2023 and 2022, respectively, and $442 and $1,838 for the six months ended June 30, 2023 and 2022, respectively)503 4,662 1,381 5,744 
Pension liability, net of income tax (income tax expense of $129 and $158 for the three months ended June 30, 2023 and 2022, respectively, and $258 and $284 for the six months ended June 30, 2023 and 2022, respectively.)Pension liability, net of income tax (income tax expense of $129 and $158 for the three months ended June 30, 2023 and 2022, respectively, and $258 and $284 for the six months ended June 30, 2023 and 2022, respectively.)403 490 806 1,012 
Foreign currency translation adjustmentForeign currency translation adjustment(8,348)(4,740)(18,009)(5,813)Foreign currency translation adjustment1,129 (9,497)2,724 (9,661)
Comprehensive income (loss)Comprehensive income (loss)$43,125 $13,756 $(113,096)$42,242 Comprehensive income (loss)$15,767 $(172,636)$20,462 $(156,221)

Accumulated other comprehensive loss consists of the following:

Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2021$3,656 $(29,671)$(28,188)$(54,203)
Other comprehensive income (loss) before reclassifications, net of tax18,711 — (18,009)702 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(10,736)1,941 — (8,795)
Income tax2,602 (439)— 2,163 
Net current-period other comprehensive income (loss)10,577 1,502 (18,009)(5,930)
Balance, September 30, 2022$14,233 $(28,169)$(46,197)$(60,133)
Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2022$2,497 $(23,749)$(36,606)$(57,858)
Other comprehensive income before reclassifications, net of tax4,010 — 2,724 6,734 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(3,471)1,064 — (2,407)
Income tax842 (258)— 584 
Net current-period other comprehensive income1,381 806 2,724 4,911 
Balance, June 30, 2023$3,878 $(22,943)$(33,882)$(52,947)

Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2020$(5,945)$(36,620)$(21,116)$(63,681)
Balance, December 31, 2021Balance, December 31, 2021$3,656 $(29,671)$(28,188)$(54,203)
Other comprehensive income (loss) before reclassifications, net of taxOther comprehensive income (loss) before reclassifications, net of tax5,141 — (5,813)(672)Other comprehensive income (loss) before reclassifications, net of tax9,851 — (9,661)190 
Amounts reclassified from accumulated other comprehensive income before taxa
3,854 2,496 — 6,350 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(5,421)1,296 — (4,125)
Income taxIncome tax(931)(603)— (1,534)Income tax1,314 (284)— 1,030 
Net current-period other comprehensive income (loss)Net current-period other comprehensive income (loss)8,064 1,893 (5,813)4,144 Net current-period other comprehensive income (loss)5,744 1,012 (9,661)(2,905)
Balance, September 30, 2021$2,119 $(34,727)$(26,929)$(59,537)
Balance, June 30, 2022Balance, June 30, 2022$9,400 $(28,659)$(37,849)$(57,108)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income (loss)loss components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. Refer to Note 7 and Note 13, respectively, for further details.

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Note 7 - Fair Value of Financial Instruments
 
 We enter into derivative instruments for risk management purposes only. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.
 
By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
 
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts.  We account for these forward contracts as cash flow hedges.  To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings (loss) but are included in accumulated other comprehensive loss.  These changes in fair value will be recognized into earnings (loss) as a component of sales or cost of sales when the forecasted transaction occurs.  

We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables designated in foreign currencies.  These forward contracts settle each month at month-end, at which time we enter into new forward contracts.  We have not designated these forward contracts as hedges and have not applied hedge accounting to them.  

The following table presents the notional contract amounts for forward contracts outstanding:

As ofAs of
FASB ASC Topic 815 DesignationSeptember 30, 2022December 31, 2021FASB ASC Topic 815 DesignationJune 30, 2023December 31, 2022
Forward exchange contractsForward exchange contractsCash flow hedge$196,749 $172,894 Forward exchange contractsCash flow hedge$214,933 $198,473 
Forward exchange contractsForward exchange contractsNon-designated37,057 38,897 Forward exchange contractsNon-designated80,528 81,929 

The remaining time to maturity as of SeptemberJune 30, 20222023 is within two years for hedge designated foreign exchange contracts and approximately one month for non-hedge designated forward exchange contracts.

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Statement of comprehensive income (loss) presentation

Derivatives designated as cash flow hedges

Foreign exchange contracts designated as cash flow hedges had the following effects on accumulated other comprehensive income (loss) ("AOCI") and net earnings (loss) on our consolidated condensed statements of comprehensive income (loss) and our consolidated condensed balance sheets:

Amount of Gain Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain (Loss) Reclassified from AOCI
Three Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20222021Location of amount reclassified2022202120222021
Foreign exchange contracts$11,695 $3,188 Net Sales$275,088 $248,827 $5,090 $(1,077)
 Cost of Sales123,473 106,521 225 419 
Pre-tax gain (loss)$11,695 $3,188 $5,315 $(658)
Tax expense (benefit)2,835 770 1,288 (159)
Net gain (loss)$8,860 $2,418 $4,027 $(499)
Amount of Gain Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain Reclassified from AOCI
Three Months Ended June 30,
Total Amount of Line Item Presented
Derivative Instrument20232022Location of amount reclassified2023202220232022
Foreign exchange contracts$2,753 $9,756 Net Sales$317,652 $277,190 $915 $3,403 
 Cost of Sales146,962 125,413 1,175 199 
Pre-tax gain$2,753 $9,756 $2,090 $3,602 
Tax expense667 2,365 507 873 
Net gain$2,086 $7,391 $1,583 $2,729 

Amount of Gain Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain (Loss) Reclassified from AOCI
Nine Months Ended September 30,
Total Amount of Line Item Presented
Derivative Instrument20222021Location of amount reclassified2022202120222021
Foreign exchange contracts$24,698 $6,778 Net Sales$794,605 $736,665 $10,237 $(4,948)
Cost of Sales355,222 324,485 499 1,094 
Pre-tax gain (loss)$24,698 $6,778 $10,736 $(3,854)
Tax expense (benefit)5,987 1,637 2,602 (931)
Net gain (loss)$18,711 $5,141 $8,134 $(2,923)
Amount of Gain Recognized in AOCIConsolidated Condensed Statements of Comprehensive Income (Loss)Amount of Gain Reclassified from AOCI
Six Months Ended June 30,
Total Amount of Line Item Presented
Derivative Instrument20232022Location of amount reclassified2023202220232022
Foreign exchange contracts$5,291 $13,003 Net Sales$613,121 $519,516 $1,490 $5,147 
Cost of Sales287,110 231,748 1,981 274 
Pre-tax gain$5,291 $13,003 $3,471 $5,421 
Tax expense1,281 3,152 842 1,314 
Net gain$4,010 $9,851 $2,629 $4,107 

At SeptemberJune 30, 2022, $11.92023, $3.5 million of net unrealized gains on forward contracts accounted for as cash flow hedges, and included in accumulated other comprehensive loss, are expected to be recognized in earnings in the next twelve months.

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Derivatives not designated as cash flow hedges

Net gains and losses from derivative instruments not accounted for as hedges and losses on our intercompany receivables on our consolidated condensed statements of comprehensive income (loss) were:

Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
Derivative InstrumentDerivative InstrumentLocation on Consolidated Condensed Statements of Comprehensive Income (Loss)2022202120222021Derivative InstrumentLocation on Consolidated Condensed Statements of Comprehensive Income (Loss)2023202220232022
    
Net gain (loss) on currency forward contractsSelling and administrative expense$892 $(48)$1,088 $(398)
Net gain on currency forward contractsNet gain on currency forward contractsSelling and administrative expense$768 $1,155 $403 $196 
Net loss on currency transaction exposuresNet loss on currency transaction exposuresSelling and administrative expense$(1,110)$(441)$(2,874)$(1,320)Net loss on currency transaction exposuresSelling and administrative expense$(1,355)$(2,178)$(1,279)$(1,764)

Balance sheet presentation

We record these forward foreign exchange contracts at fair value. The following tables summarize the fair value for forward foreign exchange contracts outstanding at SeptemberJune 30, 20222023 and December 31, 2021:2022:

September 30, 2022Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
June 30, 2023June 30, 2023Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:Derivatives designated as hedged instruments:   Derivatives designated as hedged instruments:   
Foreign exchange contractsForeign exchange contractsPrepaid expenses and other current assets$15,922 $(172)$15,750 Foreign exchange contractsPrepaid expenses and other current assets$6,845 $(2,283)$4,562 
Foreign exchange contractsForeign exchange contractsOther long-term assets3,097 (59)3,038 Foreign exchange contractsOther assets1,240 (684)556 
$19,019 $(231)$18,788 $8,085 $(2,967)$5,118 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:   Derivatives not designated as hedging instruments:   
Foreign exchange contractsForeign exchange contractsOther current liabilities53 (124)(71)Foreign exchange contractsOther current liabilities15 (224)(209)
Total derivativesTotal derivatives$19,072 $(355)$18,717 Total derivatives$8,100 $(3,191)$4,909 

December 31, 2021Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
December 31, 2022December 31, 2022Location on Consolidated Condensed Balance SheetAsset Fair ValueLiabilities Fair ValueNet
Fair
Value
Derivatives designated as hedged instruments:Derivatives designated as hedged instruments:  Derivatives designated as hedged instruments:  
Foreign exchange contractsForeign exchange contractsPrepaid expenses and other current assets$5,331 $(430)$4,901 Foreign exchange contractsPrepaid expenses and other current assets$6,757 $(3,121)$3,636 
Foreign exchange contractsForeign exchange contractsOther long-term liabilities82 (161)(79)Foreign exchange contractsOther long-term liabilities60 (400)(340)
$5,413 $(591)$4,822 $6,817 $(3,521)$3,296 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:  Derivatives not designated as hedging instruments:  
Foreign exchange contractsForeign exchange contractsOther current liabilities38 (180)(142)Foreign exchange contractsOther current liabilities48 (395)(347)
Total derivativesTotal derivatives$5,451 $(771)$4,680 Total derivatives$6,865 $(3,916)$2,949 

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Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated condensed balance sheets.
 
Fair Value Disclosure. FASB guidance defines fair value and establishes a framework for measuring fair value and related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is defined based upon an exit price model.

Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been no significant changes in the assumptions.
 
Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of SeptemberJune 30, 20222023 consist of forward foreign exchange contracts.contracts and contingent consideration. The Company values its forward foreign exchange contracts using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward foreign exchange contract assets and liabilities were valued using Level 2 inputs and are listed in the table above.  

The Company values contingent consideration from the In2Bones and Biorez acquisitions using Level 3 inputs. TheseThe contingent consideration was recorded at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, revenue volatilities and projected revenues. The recurring Level 3 fair value measurements of contingent consideration for which the liabilities are recorded include pricing models, discounted cash flow methodologies, or similar techniques,the following significant unobservable inputs as of June 30, 2023:

Assumptions
Unobservable InputIn2BonesBiorez
Discount rate7.41%12.02%
Revenue volatility13.56%20.62%
Projected year of payment2023-20262023-2026

Adjustments to the fair value of contingent consideration relate to the passage of time and at least one significant model assumption or input that is unobservable.changes in market assumptions. Changes in the fair value of contingent consideration liabilities for the six months ended June 30, 2023 are as follows:

In2BonesBiorezLocation in Financial Statements
Balance as of January 1, 2023$70,198 $116,234 
Changes in fair value of contingent consideration136 3,663 Selling and administrative expense
Balance as of June 30, 2023$70,334 $119,897 
Contingent consideration of $73.1 million and $117.1 million is included in other current liabilities and other long-term liabilities, respectively, in the consolidated condensed balance sheet at June 30, 2023. Contingent consideration of $18.6 million and $167.8 million is included in other current liabilities and other long-term liabilities, respectively, in the consolidated condensed balance sheet at December 31, 2022.

The carrying amounts reported in our consolidated condensed balance sheets for cash and cash equivalents, accounts receivable, accounts payable and variable long-term debt approximate fair value.  

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Note 8 - Inventories

Inventories consist of the following:

September 30,
2022
December 31,
2021
June 30,
2023
December 31,
2022
Raw materialsRaw materials$111,431 $83,386 Raw materials$123,951 $110,677 
Work-in-processWork-in-process26,967 17,449 Work-in-process27,797 26,166 
Finished goodsFinished goods166,415 130,809 Finished goods175,561 195,477 
TotalTotal$304,813 $231,644 Total$327,309 $332,320 
 
Note 9 - Earnings (Loss) Per Share

Basic earnings (loss) per share (“basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the reporting period. Diluted earnings (loss) per share for the three and six months ended June 30, 2023 (“diluted EPS”) gives effect to all dilutive potential shares. As the Company was in a net loss position for the ninethree and six months ended SeptemberJune 30, 2022, there were no dilutive potential shares included in the computation of diluted shares outstandingoutstanding.

The following tables set forth the computation of basic and diluted earnings (loss) per share, as applicable, for the ninethree and six months ended SeptemberJune 30, 2022.2023 and 2022:

Three Months Ended June 30, 2023Three Months Ended June 30, 2022
 Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS
Net income (loss)$13,732 $— $13,732 $(168,291)$— $(168,291)
Weighted average shares outstanding30,662 — 30,662 29,775 — 29,775 
Stock compensation— 874 874 — — — 
Warrants— 45 45 — — — 
Convertible notes— 214 214 — — — 
30,662 1,133 31,795 29,775 — 29,775 
EPS$0.45 $0.43 $(5.65)$(5.65)
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The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, 2022Three Months Ended September 30, 2021
 Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS
Net income$46,150 — $46,150 $14,948 — $14,948 
Weighted average shares outstanding30,473 — 30,473 29,179 — 29,179 
Employee stock compensation— 585 585 — 1,252 1,252 
Warrants— — — — 468 468 
Convertible notes— 45 45 — 1,244 1,244 
30,473 630 31,103 29,179 2,964 32,143 
EPS$1.51 $1.48 $0.51 $0.47 
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS Basic EPSAdjustmentsDiluted EPSBasic EPSAdjustmentsDiluted EPS
Net income (loss)Net income (loss)$(107,166)— $(107,166)$38,098 — $38,098 Net income (loss)$15,551 — $15,551 $(153,316)— $(153,316)
Weighted average shares outstandingWeighted average shares outstanding29,892 — 29,892 29,097 — 29,097 Weighted average shares outstanding30,587 — 30,587 29,601 — 29,601 
Employee stock compensation— — — — 1,283 1,283 
Stock compensationStock compensation— 751 751 — — — 
WarrantsWarrants— — — — 427 427 Warrants— 22 22 — — — 
Convertible notesConvertible notes— — — — 1,213 1,213 Convertible notes— 139 139 — — — 
29,892 — 29,892 29,097 2,923 32,020 30,587 912 31,499 29,601 — 29,601 
EPSEPS$(3.59)$(3.59)$1.31 $1.19 EPS$0.51 $0.49 $(5.18)$(5.18)

The shares used in the calculation of diluted EPS exclude employee stock options and stock appreciation rights to purchase shares where the exercise price was greater than the average market price of common shares for the period and the effect of the inclusion would be anti-dilutive. Such shares aggregated approximately 2.0 million for the three months ended September 30, 2022 and 0.71.8 million and 0.51.7 million for the three and ninesix months ended SeptemberJune 30, 2021,2023, respectively. As the Company was in a net loss position for the ninethree and six months ended SeptemberJune 30, 2022, there were no anti-dilutive shares.

The 2.625% Notes and 2.250% convertible notes due in 2027 (the "2.250% Notes"), more fully described in Note 11, are convertible under certain circumstances, as defined in the respective indentures for each series of notes, into a combination of cash and CONMED common stock.  The following is intended to describe the impact of the 2.625% Notes and 2.250% Notes and related hedge transactions on the calculation of diluted EPS. Additional shares to be issued pursuant to the terms of the 2.625% Notes, the 2.250% Notes and related hedge transactions, if any, would occur at settlement.

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Effective with our adoption of ASU 2020-06 on January 1, 2022 (see Note 3), the Company began using the if-converted method to compute diluted EPS. Under the if-converted method, in the calculation of diluted EPS, the numerator is adjusted for interest expense applicable to the convertible notes (net of tax) and the denominator is adjusted to include additional common shares assuming the principal portion of the notes and the conversion premium are settled in common shares, when permitted or required.Under the if-converted method, when convertible notes require the principal to be paid in cash, then only the conversion premium affects the calculation of diluted EPS.

On June 6, 2022, the Company repurchased and extinguished $275.0 million principal value of 2.625% Notes as further discussed in Note 11. Concurrently, the Company entered into a Supplemental Indenture related to the remaining $70.0 million in 2.625% Notes, pursuant to which the Company irrevocably elected to settle the principal value of the 2.625% Notes in cash. Similarly, the 2.250% Notes, issued on June 6, 2022, require the principal to be paid in cash. As a result, in periods in which the Company has net income, only the conversion premium will affect dilutive share count. Accordingly, for periods prior to adoption of ASU 2020-06 on January 1, 2022 and after June 6, 2022, in periods in which the Company has net income, the calculation of diluted EPS includes potential diluted shares upon conversion of the 2.625% Notes and the 2.250% Notes, only when the average market price per share of our common stock for the period is greater than the conversion price and only for the conversion premium, with the principal portion required to be settled in cash.

We have entered into convertible notes hedge transactions to increase the effective conversion price of the 2.625% Notes from $88.80 to $114.92.  However, our convertible notes hedges are not included when calculating potential dilutive shares since their effect is always anti-dilutive. Concurrent with entering into the hedge transactions, we entered into warrant transactions under which we agreed to sell shares of our common stock at $114.92. In periods in which the Company has net income, the calculation of diluted EPS includes potential diluted shares to be issued under the warrants when the average market price per share of our common stock for the period is greater than $114.92, calculated under the treasury stock method.

On June 6, 2022, we entered into convertible notes hedge transactions to increase the effective conversion price of the 2.250% Notes from $145.33 to $251.53. However, our convertible notes hedges are not included when calculating potential dilutive shares since their effect is always anti-dilutive. Concurrent with entering into the hedge transactions, we entered into warrant transactions under which we agreed to sell shares of our common stock at $251.53. In periods in which the Company has net income, the calculation of diluted EPS includes potential diluted shares to be issued under the warrants when the average market price per share of our common stock for the period is greater than $251.53, calculated under the treasury stock method.


Note 10 - Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill for the ninesix months ended SeptemberJune 30, 20222023 are as follows:

Balance as of December 31, 20212022$617,528815,429 
Goodwill resulting from business acquisitions198,992 
Foreign currency translation(2,260)205 
Balance as of SeptemberJune 30, 20222023$814,260815,634 
Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition.  Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. During the nine months ended September 30, 2022, the Company acquired In2Bones Global, Inc. and Biorez, Inc. as further described in Note 4. Goodwill resulting from the In2Bones Acquisition amounted to $139.8 million and acquired intangible assets including distributor relationships and developed technology amounted to $64.9 million. Goodwill resulting from the Biorez Acquisition amounted to $59.2 million and acquired intangible assets including developed technology and trademarks and tradenames amounted to $177.9 million.

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Other intangible assets consist of the following:

September 30, 2022December 31, 2021 June 30, 2023December 31, 2022
Weighted Average Amortization Period (Years)Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Weighted Average Amortization Period (Years)Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Intangible assets with definite lives:Intangible assets with definite lives:21Intangible assets with definite lives:22
Customer and distributor relationshipsCustomer and distributor relationships24$369,643 $(166,190)$342,452 $(152,934)Customer and distributor relationships24$369,888 $(179,698)$369,854 $(170,870)
Sales representation, marketing and promotional rightsSales representation, marketing and promotional rights25149,376 (64,500)149,376 (60,000)Sales representation, marketing and promotional rights25149,376 (69,000)149,376 (66,000)
Developed technologyDeveloped technology18320,204 (32,368)106,604 (26,495)Developed technology18320,204 (39,616)320,204 (34,675)
Patents and other intangible assetsPatents and other intangible assets1578,808 (52,064)76,392 (50,890)Patents and other intangible assets1681,139 (53,253)79,838 (52,472)
Intangible assets with indefinite lives:Intangible assets with indefinite lives:    Intangible assets with indefinite lives:    
Trademarks and tradenamesTrademarks and tradenames86,544 — 86,544 — Trademarks and tradenames86,544 — 86,544 — 
$1,004,575 $(315,122)$761,368 $(290,319)$1,007,151 $(341,567)$1,005,816 $(324,017)

Customer and distributor relationships, trademarks and tradenames, developed technology and patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”).

Amortization expense related to intangible assets which are subject to amortization totaled $8.7$8.8 million and $8.3$8.2 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $24.9$17.6 million in bothand $16.2 million for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021respectively, and is included as a reduction of revenue (for amortization related to our sales representation, marketing and promotional rights) and in selling and administrative expense (for all other intangible assets) in the consolidated condensed statements of comprehensive income (loss).
 
The estimated intangible asset amortization expense remaining for the year ending December 31, 20222023 and for each of the five succeeding years is as follows:
 
Amortization included in expenseAmortization recorded as a reduction of revenueTotalAmortization included in expenseAmortization recorded as a reduction of revenueTotal
Remaining, 2022$7,487 $1,500 $8,987 
202329,263 6,000 35,263 
Remaining, 2023Remaining, 2023$14,671 $3,000 $17,671 
2024202428,947 6,000 34,947 202428,810 6,000 34,810 
2025202529,423 6,000 35,423 202529,632 6,000 35,632 
2026202629,196 6,000 35,196 202629,396 6,000 35,396 
2027202730,235 6,000 36,235 202730,436 6,000 36,436 
2028202833,568 6,000 39,568 

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Note 11 - Long-Term Debt

Long-term debt consists of the following:

September 30, 2022December 31, 2021 June 30, 2023December 31, 2022
Revolving line of creditRevolving line of credit$53,000 $140,000 Revolving line of credit$54,000 $70,000 
Term loan, net of deferred debt issuance costs of $781 and $1,373 in 2022 and 2021, respectively133,807 226,196 
2.625% convertible notes, net of deferred debt issuance costs of $531 and $3,700 in 2022 and 2021, respectively, and unamortized discount of $23,404 in 202169,469 317,896 
2.250% convertible notes, net of deferred debt issuance costs of $19,898 in 2022780,102 — 
Term loan, net of deferred debt issuance costs of $627 and $729 in 2023 and 2022, respectivelyTerm loan, net of deferred debt issuance costs of $627 and $729 in 2023 and 2022, respectively133,961 133,858 
2.625% convertible notes, net of deferred debt issuance costs of $232 and $432 in 2023 and 2022, respectively2.625% convertible notes, net of deferred debt issuance costs of $232 and $432 in 2023 and 2022, respectively69,768 69,568 
2.250% convertible notes, net of deferred debt issuance costs of $16,708 and $18,834 in 2023 and 2022, respectively2.250% convertible notes, net of deferred debt issuance costs of $16,708 and $18,834 in 2023 and 2022, respectively783,292 781,166 
Financing leasesFinancing leases297 564 Financing leases86 230 
Total debtTotal debt1,036,675 684,656 Total debt1,041,107 1,054,822 
Less: Current portionLess: Current portion237 12,249 Less: Current portion69,632 69,746 
Total long-term debtTotal long-term debt$1,036,438 $672,407 Total long-term debt$971,475 $985,076 

Seventh Amended and Restated Senior Credit Agreement

On July 16, 2021, we entered into a seventh amended and restated senior credit agreement consisting of: (a) a $233.5 million term loan facility and (b) a $585.0 million revolving credit facility. The revolving credit facility will terminate and the loans outstanding under the term loan facility will expire on July 16, 2026. The term loan was payable in quarterly installments increasing over the term of the facility. During the nine months ended September 30, 2022, we made a $90.0 million prepayment on the term loan facility resulting in the elimination of such quarterly payments with the remaining balance due upon the expiration of the term loan facility. The $90.0 million prepayment was accounted for as an extinguishment and resulted in a write-off to other expense of unamortized debt issuance costs of $0.5 million.million for the three and six months ended June 30, 2022. Proceeds from the term loan facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement. Interest rates are at LIBOR (3.125%the term Secured Overnight Financing Rate plus 0.114% ("Adjusted Term SOFR") (5.239% at SeptemberJune 30, 2022)2023) plus an interest rate margin of 1.125% (4.250%(6.364% at SeptemberJune 30, 2022)2023). For borrowings where we elect to use the alternate base rate, the initial base rate is the greatest of (i) the Prime Rate, (ii) the Federal Funds Rate plus 0.50% or (iii) the one-month Adjusted LIBORTerm SOFR plus 1.00%, plus, in each case, an interest rate margin.

There were $134.6 million in borrowings outstanding on the term loan facility as of SeptemberJune 30, 2022.2023. There were $53.0$54.0 million in borrowings outstanding under the revolving credit facility as of SeptemberJune 30, 2022.2023. Our available borrowings on the revolving credit facility at SeptemberJune 30, 20222023 were $530.2$529.4 million with approximately $1.8$1.6 million of the facility set aside for outstanding letters of credit. The carrying amounts of the term loan and revolving credit facility approximate fair value.
    
The seventh amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The seventh amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of SeptemberJune 30, 2022.2023. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.

2.625% Convertible Notes

On January 29, 2019, we issued $345.0 million inaggregate principal amount of 2.625% convertible notes due in 2024 (the "2.625% Notes"). Interest is payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2019. The 2.625% Notes will mature on February 1, 2024, unless earlier repurchased or converted. The 2.625% Notes represent subordinated unsecured obligations and are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common stock.  The 2.625% Notes may be converted at an initial conversion rate of 11.2608 shares of our common stock per $1,000 principal amount of 2.625% Notes (equivalent to an initial conversion price of approximately $88.80 per share of common stock). Holders of the 2.625% Notes may convert the 2.625% Notes at their option at any time on or after November 1, 2023 through the second scheduled trading day preceding the maturity date. Holders of the 2.625% Notes will also have the right to convert the 2.625% Notes prior to November 1, 2023, but only upon the occurrence of specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur. A portion of the net
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proceeds from the offering of the 2.625% Notes were used as part of the financing for the Buffalo Filter acquisition and $21.0 million were used to pay the cost of certain convertible notes hedge transactions as further described below.
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On June 6, 2022, the Company repurchased and extinguished $275.0 million principal amount of the 2.625% Notes for aggregate consideration consisting of $275.0 million in cash and approximately 0.9 million shares of the Company's common stock. During the ninethree and six months ended SeptemberJune 30, 2022, the Company recorded a loss on extinguishment of $103.1 million to other expense based on the fair value of the shares of the Company’s common stock issued in connection with the extinguishment. This loss was not deductible for tax purposes. We also recorded a write-off to other expense of unamortized debt issuance costs related to the 2.625% Notes of $2.9 million. Concurrently, the Company entered into a Supplemental Indenture related to the remaining $70.0 million in 2.625% Notes, in which the Company irrevocably elected to settle the principal value of those 2.625% Notes in cash. The $70.0 million in 2.625% Notes are reflected in the current portion of long-term debt at June 30, 2023.

Our effective borrowing rate for nonconvertible debt at the time of issuance of the 2.625% Notes was estimated to be 6.14%, which resulted in $51.6 million of the $345.0 million aggregate principal amount of Notes issued, or $39.1 million after taxes, being attributable to equity.  For the three and nine months ended September 30, 2021, we recorded interest expense related to the amortization of debt discount on the 2.625% Notes of $2.6 million and $7.6 million, respectively, at the effective interest rate of 6.14%.  On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective approach as further described in Note 3. This ASU eliminated the equity component separately recorded for the conversion features associated with the convertible notes and related debt discount. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, we have recorded interest expense on the 2.625% Notes of $0.5 million and $2.3$1.7 million, respectively, and for the ninesix months ended SeptemberJune 30, 20222023 and 20212022, we have recorded interest expense on the 2.625% Notes of $4.4$0.9 million and $6.8$3.9 million, respectively, at the contractual coupon rate of 2.625%.

The estimated fair value of the 2.625% Notes was approximately $77.1$105.9 million as of SeptemberJune 30, 20222023 based on a market approach which represents a Level 2 valuation in the fair value hierarchy. The estimated fair value was determined based on the estimated or actual bids and offers of the 2.625% Notes in an over-the-counter market transaction on the last business day of the period.

2.250% Convertible Notes

On June 6, 2022, we issued $800.0 million inaggregate principal amount of 2.250% Notes. Interest is payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2022. The 2.250% Notes will mature on June 15, 2027, unless earlier repurchased or converted. The 2.250% Notes represent subordinated unsecured obligations and are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common stock, with the principal required to be paid in cash. The 2.250% Notes may be converted at an initial conversion rate of 6.8810 shares of our common stock per $1,000 principal amount of the 2.250% Notes (equivalent to an initial conversion price of approximately $145.33 per share of common stock). Holders of the 2.250% Notes may convert the 2.250% Notes at their option at any time on or after March 15, 2027 through the second scheduled trading day preceding the maturity date. Holders of the 2.250% Notes will also have the right to convert the 2.250% Notes prior to March 15, 2027, but only upon the occurrence of specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur. A portion of these proceeds were used to repurchase and extinguish a portion of the 2.625% Notes, pay off our then outstanding balance on our revolving line of credit, pay down of $90.0 million of our term loan and partially pay for the In2Bones Acquisition. In addition, approximately $115.6 million of the proceeds were used to pay the cost of certain convertible notes hedge transactions related to the 2.250% Notes.

For the three and nine months ended SeptemberJune 30, 2023 and 2022, we have recorded interest expense on the 2.250% Notes of $4.5 million and $5.8$1.3 million, respectively, and for the six months ended June 30, 2023 and 2022, we have recorded interest expense on the 2.250% Notes of $9.0 million and $1.3 million, respectively, at the contractual coupon rate of 2.250%.

The estimated fair value of the 2.250% Notes was approximately $690.3$900.9 million as of SeptemberJune 30, 20222023 based on a market approach which represents a Level 2 valuation in the fair value hierarchy. The estimated fair value was determined based on the estimated or actual bids and offers of the 2.250% Notes in an over-the-counter market transaction on the last business day of the period.

Convertible Notes Hedge Transactions

In connection with the offeringofferings of the 2.625% and 2.250% Notes, we entered into convertible notes hedge transactions with a number of financial institutions (each, an “option counterparty”). The convertible notes hedge transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the respective Notes, the number of shares of our common stock underlying the 2.625% and 2.250% Notes. Concurrent with entering into the convertible notes hedge transactions, we also entered into separate warrant transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to customary anti-dilution adjustments, the same number of shares of our common stock.
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In connection with the repurchase and extinguishment of $275.0 million principal amount of the 2.625% Notes, the
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Company entered into agreements with the option counterparties to terminate a corresponding portion of the hedges on the 2.625% Notes. The transactions had a net fair value due the Company on execution date of $22.2 million which was recorded as an adjustment to Paid-in Capital. The Company recorded a $5.5 million charge to other expense as a result of a subsequent decline in fair value between execution date and settlement date withduring the Company receiving net cash of $16.7 million. The termination of the convertible notes hedge resulted in the release of the related deferred tax asset. In connection with the issuance of 2.250% Notes, the Company purchased hedges for $187.6 million ($142.1 million net of tax)three and received proceeds from the issuance of warrants totaling $72.0 million, recorded to paid-in capital.six months ended June 30, 2022.

The convertible notes hedge transactions are expected generally to reduce the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, in the event that the market price per share of our common stock, as measured under the terms of the convertible notenotes hedge transactions, is greater than the strike price of the convertible notes hedge transactions, which initially corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes. If, however, the market price per share of our common stock, as measured under the terms of the warrant transactions, exceeds the strike price ($114.92 for the 2.625% Notes and $251.53 for the 2.250% Notes) of the warrants, there would nevertheless be dilution to the extent that such market price exceeds the strike price of the warrants, as noted in Note 9, unless we elect to settle the warrants in cash.

The scheduled maturities of long-term debt outstanding at SeptemberJune 30, 20222023 are as follows:

Remaining 2022$— 
2023— 
Remaining, 2023Remaining, 2023$70,000 
2024202470,000 2024— 
20252025— 2025— 
20262026187,588 2026188,588 
20272027800,000 2027800,000 
20282028— 
The above amounts exclude deferred debt issuance costs and financing leases.

Note 12 - Guarantees

We provide warranties on certain of our products at the time of sale and sell extended warranties. The standard warranty period for our capital equipment is generally one year and our extended warranties typically vary from one to three years. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.

Changes in the liability for standard warranties for the ninesix months ended SeptemberJune 30, are as follows:

20222021 20232022
Balance as of January 1,Balance as of January 1,$2,344 $1,826 Balance as of January 1,$1,944 $2,344 
Provision for warrantiesProvision for warranties297 1,235 Provision for warranties304 113 
Claims madeClaims made(624)(683)Claims made(377)(369)
Balance as of September 30,$2,017 $2,378 
Balance as of June 30,Balance as of June 30,$1,871 $2,088 
 
Costs associated with extended warranty repairs are recorded as incurred and amounted to $4.6$2.6 million and $5.2$3.2 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.

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Note 13 - Pension Plan

Net periodic pension cost consists of the following: 

Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
2022202120222021 2023202220232022
Service costService cost$269 $248 $807 $744 Service cost$194 $269 $388 $538 
Interest cost on projected benefit obligationInterest cost on projected benefit obligation537 451 1,611 1,353 Interest cost on projected benefit obligation911 537 1,822 1,074 
Expected return on plan assetsExpected return on plan assets(1,324)(1,289)(3,972)(3,867)Expected return on plan assets(1,032)(1,324)(2,064)(2,648)
Net amortization and deferralNet amortization and deferral647 832 1,941 2,496 Net amortization and deferral532 648 1,064 1,296 
Net periodic pension costNet periodic pension cost$129 $242 $387 $726 Net periodic pension cost$605 $130 $1,210 $260 
 
We do not expect to make any pension contributions during 2022.2023. Non-service pension cost/(benefit) was immaterial for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.


Note 14 – Acquisition and Other Expense

Acquisition and other expense consists of the following:

Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Acquisition costs included in cost of sales$2,096 $— $2,445 $— 
Acquisition costs$3,706 $— $6,306 $— 
Legal matters— — 775 — 
Restructuring and related costs— — — 414 
Acquisition and other costs included in selling and administrative expense$3,706 $— $7,081 $414 
Convertible notes premium on extinguishment$— $— $103,125 $— 
Change in fair value of convertible notes hedges upon settlement— — 5,460 — 
Loss on early extinguishment of debt— 1,127 3,426 1,127 
Debt related costs included in other expense$— $1,127 $112,011 $1,127 

During the three and nine months ended September 30, 2022 we recognized $2.1 million and $2.4 million, respectively, in costs for inventory step-up adjustments associated with the In2Bones Acquisition, as further described in Note 4.

During the three and nine months ended September 30, 2022 we recognized $3.7 million and $6.3 million, respectively, in consulting fees, legal fees and other integration related costs associated with the acquisitions of In2Bones and Biorez, as further described in Note 4. These costs were included in selling and administrative expense.

During the nine months ended September 30, 2022, we recognized $0.8 million in costs related to the settlement of litigation. These costs were included in selling and administrative expense.

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During the nine months ended September 30, 2021 we recorded a charge of $0.4 million related to the restructuring of our sales force which consisted primarily of termination payments to Orthopedic distributors made in exchange for ongoing assistance to transition to employee-based sales representatives and severance. These costs were charged to selling and administrative expense.

During the nine months ended September 30, 2022, we recorded expense of $103.1 million related to the conversion premium on the repurchase and extinguishment of $275.0 million of the 2.625% Notes, $5.5 million related to the settlement of the associated convertible notes hedge transactions and $3.4 million related to the write-off of deferred financing fees associated with the repurchase and extinguishment of $275.0 million of the 2.625% Notes and the pay down of $90.0 million on our term loan. These costs were recorded in other expense as further discussed in Note 11.

During the three and nine months ended ended September 30, 2021, we recorded $1.1 million related to a loss on early extinguishment and third party fees associated with the seventh amended and restated senior credit agreement. These costs were included in other expense.

Note 15 —- Business Segment
We are accounting and reporting for our business as a single operating segment entity engaged in the development, manufacturing and sale on a global basis of surgical devices and related equipment. Our chief operating decision maker (the CEO) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment, cash flow metrics and allocates resources on a consolidated worldwide basis due to shared infrastructure and resources. Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine and lower extremities instrumentation and implants, small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgery procedures and fees related to the sales representation, promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, smoke evacuation devices, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. These product lines' net sales are as follows:

Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
2022202120222021 2023202220232022
Orthopedic surgeryOrthopedic surgery$118,618 $105,751 $346,317 $320,809 Orthopedic surgery$140,790 $120,182 $271,966 $227,698 
General surgeryGeneral surgery156,470 143,076 448,288 415,856 General surgery176,862 157,008 341,155 291,818 
Consolidated net salesConsolidated net sales$275,088 $248,827 $794,605 $736,665 Consolidated net sales$317,652 $277,190 $613,121 $519,516 

Note 16 –15 - Legal Proceedings

From time to time, the Company may receive an information request, subpoena or warrant from a government agency such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the United States Food and Drug Administration, the Department of Labor, the Treasury Department or other federal and state agencies or foreign governments or government agencies. These information requests, subpoenas or warrants may or may not be routine inquiries, or may begin as routine inquiries and over time develop into enforcement actions of various types. Likewise, if we receive reports of alleged misconduct from employees and third parties, we investigate as appropriate.

Manufacturers of medical devices have been the subject of various enforcement actions relating to interactions with health care providers domestically or internationally whereby companies are claimed to have provided health care providers with inappropriate incentives to purchase their products. Similarly, the Foreign Corrupt Practices Act ("FCPA") imposes
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obligations on manufacturers with respect to interactions with health care providers who may be considered government officials based on their affiliation with public hospitals. The FCPA also requires publicly listed manufacturers to maintain accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance with management's authorization. The FCPA poses unique challenges both because manufacturers operate in foreign cultures in which conduct illegal under the FCPA may not be illegal in local jurisdictions, and because, in some cases, a United States manufacturer may face risks under the FCPA based on the conduct of third parties over whom the manufacturer may not have complete control. While CONMED has not experienced any material enforcement action to date, there can be no assurance that the Company will not be subject to a material enforcement action in
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the future, or that the Company will not incur costs including, in the form of fees for lawyers and other consultants, that are material to the Company’s results of operations in the course of responding to a future inquiry or investigation.

Manufacturers of medical products may face exposure to significant product liability claims, as well as patent infringement and other claims incurred in the ordinary course of business. To date, we have not experienced any claims that have been material to our financial statements or financial condition, but any such claims arising in the future could have a material adverse effect on our business, results of operations or cash flows. We currently maintain commercial product liability insurance of $35 million per incident and $35 million in the aggregate annually, which we believe is adequate. This coverage is on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be solvent or that such insurance will be available to us in the future at a reasonable cost.

Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations governing, among other things, air emissions; wastewater discharges; the use, handling and disposal of hazardous substances and wastes; soil and groundwater remediation and employee health and safety. Likewise, the operations of our suppliers and sterilizers are subject to similar environmental laws and regulations. In some jurisdictions, environmental requirements may be expected to become more stringent in the future. In the United States, certain environmental laws can impose liability for the entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or the lawfulness of the party’s activities. While we do not believe that the present costs of environmental compliance and remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material adverse effect on our financial condition, results of operations or cash flows.

In 2014, the Company acquired EndoDynamix, Inc. The agreement governing the terms of the acquisition provides that, if various conditions are met, certain contingent payments relating to the first commercial sale of the products (the milestone payment), as well as royalties based on sales (the revenue based payments), are due to the seller. In 2016, we notified the seller that there was a need to redesign the product, and that, as a consequence, the first commercial sale had been delayed. Consequently, the payment of contingent milestone and revenue-based payments were delayed. On January 18, 2017, the seller provided notice (the "Notice") seeking $12.7 million under a liquidated damages clause, which essentially represented the seller's view as to the sum of the projected contingent milestone and revenue-based payments on an accelerated basis. CONMED responded to the Notice denying that there was any basis for acceleration of the payments due under the acquisition agreement. On February 22, 2017, the representative of the former shareholders of EndoDynamix filed a complaint in Delaware Chancery Court claiming breach of contract with respect to the duty to commercialize the product and seeking the contingent payments on an accelerated basis. In the third quarter of 2018, the Company decided to halt the development of the EndoDynamix clip applier and recorded a charge to write off assets and released a previously accrued contingent consideration liability. In court filings the Plaintiffs claim to seek liquidated damages, as well as additional damages up to $24.8 million. A non-jury trial in the Delaware Chancery Court commenced on March 18, 2021, and testimony concluded on April 7, 2021. On June 30, 2022, the Court issued a ruling that CONMED had presented overwhelming evidence that it had not breached its obligations under the acquisition agreement, and that CONMED was entitled to judgement on all claims asserted against it. The Company had not recorded any expense related to potential damages in connection with this matter and the period within which the former shareholders of EndoDynamix could have appealed expired without any appeal being filed.

CONMED is defending two Georgia State Court actions. The first action was filed in Cobb County by various employees, former employees, contract workers and others against CONMED and against a contract sterilizer (the "Cobb County Action"). The second action was filed in Douglas County against CONMED’s landlord and other allegedly related entities (the "Douglas County Action"). Plaintiffs in the lawsuits allege personal injury and related claims purportedly arising from or relating to exposure to Ethylene Oxide, a chemical used to sterilize certain products. CONMED is defending the claims asserted directly against it and is providing indemnification for certain other defendants for these claims based on contractual provisions.

Both actions are in their early stages. The Company's motion to dismiss in the Cobb County action was heard on January 10, 2022, and the Court issued a ruling on June 15, 2022 dismissing 44 of the 5351 plaintiffs' claims as precluded by the exclusive workers' compensation remedy, as well as one claim from a non-employee plaintiff. As to the remaining claims that were not the subject of the motion to dismiss, CONMED believes it has strong defenses and will vigorously defend itself and all parties it is indemnifying. As with any litigation, there are risks, including the risk that CONMED may not prevail with respect to the defense of the underlying claims, or with respect to securing adequate insurance coverage for the indemnification claims. The Company is unable to estimate anya range of possible loss at this time, and has not recorded any expense related to potential damages in connection with this matter because the Company does not believe any potential loss is probable.

CONMED has submitted the foregoing claims for insurance coverage. One insurer is providing coverage for certain of the claims asserted directly against the Company. CONMED is currently litigatinglitigated two lawsuits in the United States District
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Court for the Northern District of New York ("the Northern District") with Federal Insurance Company (“Chubb”): one involving CONMED’s claim for coverage for the indemnification claims arising from the Cobb County Action, and the other concerning CONMED’s claim for coverage for the indemnification claims arising from the Douglas County Action. On March 10, 2022, the Court ruled in favor of CONMED with respect to coverage for the indemnification claims arising from the Cobb County Action. Chubb's motion for reconsideration was denied, and Chubb filed a notice of appeal. On August 9, 2022, CONMED won a similar ruling finding in its favor and against Chubb as to the coverage case concerning the Douglas County Action. Chubb has appealed that decision as well. Chubb subsequently withdrew its appeal in connection with a settlement between the parties.Chubb disputes the amount it owes in fees incurred by the Company's attorneys defending the Douglas County action going forward.Accordingly, CONMED believes its position is well-groundedhas commenced a third action against Chubb in the facts andNorthern District to enforce the law, butterms of the settlement agreement, although there can be no assurance that CONMED will prevail in either of the two coverage cases.prevail.

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In addition, one of CONMED’s contract sterilizers, which is defending toxic tort claims asserted by various residents in the areas around its processing facility, has placed CONMED on notice of a claim for indemnification relating to some of those claims. CONMED is reviewing the notice, and has not at this time taken any position on the notice.

The government of Italy passed a law in late 2015 to tax medical device companies on revenue derived from sales to public hospitals. The tax is calculated and based on provincial spending over and above certain thresholds. Since the law was enacted, the Italian government essentially made no effort to administer or collect the tax. A lack of interpretative guidance and complexity of the law resulted in uncertainty as to the actual amount of liability. In September 2022, the Italian government passed a further decree which, amongst other provisions, delegated administration and collection to the provincial level for the years 2015 – 2018. The Italy medical device tax represents variable consideration in the form of a retroactive discount potentially owed to the customer, which is ultimately the Italian government. The Company is challenging the imposition of the medical device tax in Italy, as have many other medical device companies, on the ground that the law was never implemented properly with regulations. While the Company is informed that its position is well-grounded in the law, there can be no assurance that the Company will prevail. No amounts have been remitted to date.

From time to time, we are also subject to negligence and other claims arising out of the ordinary conduct of our business, including, for example, automobile or other accidents our employees may experience within the course of their employment or otherwise. We are currently defending one such claim,otherwise and which we expect to be fully covered by insurance, involvingmay, on occasion, involve potentially significant personal injuries. The Company is unable to estimate any range of possible loss at this time, and therefore has not recorded any liability related to potential damages in connection with this matter.injuries or other exposures.

We record reserves sufficient to cover probable and estimable losses associated with any such pending claims. We do not expect that the resolution of any pending claims, investigations or reports of alleged misconduct will have a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future claims or investigations, or the costs associated with responding to such claims, investigations or reports of misconduct, especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition, results of operations or cash flows.

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
In this Report on Form 10-Q, we make forward-looking statements about our financial condition, results of operations and business. Forward-looking statements are statements made by us concerning events that may or may not occur in the future. These statements may be made directly in this document or may be “incorporated by reference” from other documents. Such statements may be identified by the use of words such as “anticipates”, “expects”, “estimates”, “intends” and “believes” and variations thereof and other terms of similar meaning.

Forward-Looking Statements are not Guarantees of Future Performance
 
Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that may cause our actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include those identified under “Risk Factors” in our Annual Report on Form 10-K for the year-endedyear ended December 31, 20212022 and the following, among others:

general economic and business conditions;conditions, including, without limitation, a potential economic downturn, supply chain challenges and constraints, including the availability and cost of materials, the effects of inflation, and increased interest rates;
compliance with and changes in regulatory requirements;
the failure of any enterprise-wide software programs or information technology systems, or potential disruption associated with updating or implementing new software programs or information technology systems;
the risk of an information security breach, including a cybersecurity breach;
the COVID-19 global pandemic, which poses significant risks to our business, financial condition and results of operations which may be heightened as the pandemic and government and hospital responses to it, continue;
the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors;
the introduction and acceptance of new products;
the riskability to advance our product lines, including challenges and uncertainties inherent in product research and development, and the uncertain impact, outcome and cost of an information security breach, including a cybersecurity breach;ongoing and future clinical trials and market studies;
competition;
changes in customer preferences;
changes in technology;
the availability and cost of materials, including inflation and ongoing supply chain challenges;
cyclical customer purchasing patterns due to budgetary, staffing and other constraints;
environmental compliance risks, including lack of availability of sterilization with Ethylene Oxide (“EtO”) or other compliance costs associated with the use of EtO;
the quality of our management and business abilities and the judgment of our personnel, as well as our ability to attract, motivate and retain employees at all levels of the Company;
the availability, terms and deployment of capital;
current and future levels of indebtedness and capital spending;
changes in foreign exchange and interest rates;
the ability to evaluate, finance and integrate acquired businesses, products and companies;
changes in business strategy;
the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues;
the ability to defend and enforce intellectual property, including the risks related to theft or compromise of intellectual property in connection with our international operations;
the risk of patent, product and other litigation, as well as the cost associated with such litigation;
trade protection measures, tariffs and other border taxes, and import or export licensing requirements; and
weather related events which may disrupt our operations.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and “Risk Factors” and “Business” in our Annual Report on Form 10-K for the year-endedyear ended December 31, 20212022 for a further discussion of these factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect
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events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.



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Overview

CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides devices and equipment for surgical procedures. The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology.

Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine and lower extremities instrumentation and implants, small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgery procedures and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, smoke evacuation devices, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. These product lines as a percentage of consolidated net sales are as follows:
 
Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
2022202120222021 2023202220232022
Orthopedic surgeryOrthopedic surgery43 %42 %44 %44 %Orthopedic surgery44 %43 %44 %44 %
General surgeryGeneral surgery57 %58 %56 %56 %General surgery56 %57 %56 %56 %
Consolidated net salesConsolidated net sales100 %100 %100 %100 %Consolidated net sales100 %100 %100 %100 %

A significant amount of our products are used in surgical procedures with approximately 83%84% of our revenues derived from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related single-use products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 45% and 46% of our consolidated net sales during both the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021.respectively.

Business Environment
    
On June 13, 2022, we acquired In2Bones Global, Inc. ("In2Bones") and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash. In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022. We financed the purchase through a combination of the issuance of $800.0 million in 2.250% Notes due in 2027 as further described in Note 11 and cash on hand.

On August 9, 2022, we acquired Biorez, Inc. ("Biorez") and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.9 million in cash. We paid $83.1 million upon closing, with a $2.8 million purchase price adjustment holdback, pursuant to the merger agreement for the Biorez Acquisition. In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings.

Refer to Note 4 for further information on the business acquisitions.

Our businessCompany has been and may continuecontinues to be impacted by the COVID-19 pandemic as variants of the virus emerge.  We believe we will continue to experience market variability as a result of the pandemic that could influence sales, suppliers, patients and customers. There remains uncertainty related to the COVID-19 pandemic, including the duration and severity of future impacts to the business and we continue to see our customers and suppliers impacted in a variety of ways. The Company is also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. We continuously work with suppliers to mitigate these impacts; however, we expect these challenges to continue throughout 2022.through 2023. This will likely impact our results of operations.

During the first three quarters of 2022, the world experienced, and continues to experience, the impact of Russia's invasion of Ukraine. The Company has no direct operations in either Russia or Ukraine and our business is limited to selling to third party distributors. Total revenues associated with sales to third party distributors in these countries are not material to the consolidated financial results, and we have fully reserved the outstanding accounts receivable from distributors in these
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territories which are not material. We will continue to monitor and adjust our business strategy in this region as necessary. While

During the direct impact onfourth quarter of 2022, we implemented a warehouse management system to increase capacity and efficiency, however this also caused significant delays in shipping and increased costs. During the Companyfirst half of Russia's invasion2023, we made significant progress and improvement with the performance of Ukraine is limited, we are being affected by increases inour warehouse management system and the priceshipping delays that existed at year-end 2022 were substantially reduced.However, there remains a risk of oilloss of sales and customers as a result of sanctions on Russia,the shipping disruptions which contributes to overall inflation and increased costs.occurred.

Critical Accounting Policies

Preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year-endedyear ended December 31, 20212022 describes the significant accounting policies used in preparation of the Consolidated Financial Statements. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, those related to goodwill and intangible assets, contingent consideration and our pension benefit obligation.
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As described above and in Note 4, the In2Bones and Biorez Acquisitions involve potential payments of future consideration that is contingent upon the acquired business reaching certain performance milestones. The Company records contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues. Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies. Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurements. Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized as income or expense within operating expense in the consolidated condensed statements of comprehensive income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated condensed statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

Consolidated Results of Operations

The following table presents, as a percentage of net sales, certain categories included in our consolidated condensed statements of comprehensive income (loss) for the periods indicated:

Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
2022202120222021 2023202220232022
Net salesNet sales100.0 %100.0 %100.0 %100.0 %Net sales100.0 %100.0 %100.0 %100.0 %
Cost of salesCost of sales44.9 42.8 44.7 44.0 Cost of sales46.3 45.2 46.8 44.6 
Gross profitGross profit55.1 57.2 55.3 56.0 Gross profit53.7 54.8 53.2 55.4 
Selling and administrative expenseSelling and administrative expense41.7 42.1 41.9 41.7 Selling and administrative expense40.8 41.8 42.4 42.1 
Research and development expenseResearch and development expense4.6 4.4 4.4 4.4 Research and development expense4.3 4.1 4.3 4.3 
Income from operationsIncome from operations8.8 10.7 9.0 9.8 Income from operations8.6 8.8 6.5 9.0 
Interest expenseInterest expense3.1 3.3 2.4 3.8 Interest expense3.1 2.1 3.3 2.1 
Other expenseOther expense— 0.5 14.1 0.2 Other expense— 40.4 — 21.6 
Income (loss) before income taxesIncome (loss) before income taxes5.7 7.0 (7.6)5.9 Income (loss) before income taxes5.5 (33.7)3.2 (14.6)
Provision (benefit) for income taxes(11.1)1.0 5.9 0.7 
Provision for income taxesProvision for income taxes1.2 27.0 0.7 14.9 
Net income (loss)Net income (loss)16.8 %6.0 %(13.5)%5.2 %Net income (loss)4.3 %(60.7)%2.5 %(29.5)%

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Net Sales

The following table presents net sales by product line for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:

Three Months EndedThree Months Ended
% Change% Change
20222021As ReportedImpact of Foreign CurrencyConstant Currency20232022As ReportedImpact of Foreign CurrencyConstant Currency
Orthopedic surgeryOrthopedic surgery$118.6 $105.7 12.2 %1.8 %14.0 %Orthopedic surgery$140.8 $120.2 17.1 %2.7 %19.8 %
General surgeryGeneral surgery156.5 143.1 9.4 %1.3 %10.7 %General surgery176.9 157.0 12.6 %1.5 %14.1 %
Net sales Net sales$275.1 $248.8 10.6 %1.5 %12.1 % Net sales$317.7 $277.2 14.6 %2.0 %16.6 %
Single-use productsSingle-use products$231.3 $200.9 15.1 %1.6 %16.7 %Single-use products$264.8 $230.3 14.9 %2.0 %16.9 %
Capital productsCapital products43.8 47.9 -8.5 %1.2 %-7.3 %Capital products52.9 46.9 12.9 %2.2 %15.1 %
Net sales Net sales$275.1 $248.8 10.6 %1.5 %12.1 % Net sales$317.7 $277.2 14.6 %2.0 %16.6 %
Nine Months EndedSix Months Ended
% Change% Change
20222021As ReportedImpact of Foreign CurrencyConstant Currency20232022As ReportedImpact of Foreign CurrencyConstant Currency
Orthopedic surgeryOrthopedic surgery$346.3 $320.8 8.0 %1.0 %9.0 %Orthopedic surgery$272.0 $227.7 19.4 %3.3 %22.7 %
General surgeryGeneral surgery448.3 415.9 7.8 %0.9 %8.7 %General surgery341.1 291.8 16.9 %2.0 %18.9 %
Net sales Net sales$794.6 $736.7 7.9 %0.9 %8.8 % Net sales$613.1 $519.5 18.0 %2.6 %20.6 %
Single-use productsSingle-use products$663.1 $597.3 11.0 %1.0 %12.0 %Single-use products$514.0 $431.8 19.0 %2.6 %21.6 %
Capital productsCapital products131.5 139.4 -5.6 %0.9 %-4.7 %Capital products99.1 87.7 13.0 %2.6 %15.6 %
Net sales Net sales$794.6 $736.7 7.9 %0.9 %8.8 % Net sales$613.1 $519.5 18.0 %2.6 %20.6 %

Net sales increased 10.6%14.6% and 7.9%18.0% in the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, compared to the same periods a year ago driven bydue to increases inacross the majority of our product lines.lines, including sales from the recently acquired In2Bones and Biorez products. Further contributing to sales growth during the six months ended June 30, 2023 was the significant progress and improvement we made with the performance of our warehouse management system and significant reduction in the shipping delays that existed at year-end 2022.

Orthopedic surgery sales increased 12.2%17.1% and 8.0%19.4% in the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, primarily related to growth in our sports medicine and procedures specific product offerings coupled with the sales fromas a result of the recently acquired In2Bones products.and Biorez products and increases in our orthopedic product offerings.

General surgery sales increased 9.4%12.6% and 7.8%16.9% in the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, primarily driven by the continuedon growth in our AirSeal, Buffalo Filter and other advanced surgical product offerings as well as advanced endoscopic technologies products.offerings.

Cost of Sales

Cost of sales increased to $123.5$147.0 million in the three months ended SeptemberJune 30, 20222023 as compared to $106.5$125.4 million in the three months ended SeptemberJune 30, 20212022 and increased to $355.2$287.1 million in the ninesix months ended SeptemberJune 30, 20222023 as compared to $324.5$231.7 million in the ninesix months ended SeptemberJune 30, 2021.2022. Gross profit margins decreased 210110 basis points to 55.1%53.7% in the three months ended SeptemberJune 30, 20222023 as compared to 57.2%54.8% in the three months ended SeptemberJune 30, 2021.2022. Gross profit margins decreased 70220 basis points to 55.3%53.2% in the ninesix months ended SeptemberJune 30, 20222023 as compared to 56.0%55.4% in the ninesix months ended SeptemberJune 30, 2021. 2022.

Decreases in gross profit margins are driven by recognition of unfavorable production variances resulting from cost increases and inflation in raw materials, freight and other costs of production. In addition, during the three and ninesix months ended SeptemberJune 30, 2022,2023, we incurred costs for the amortization of inventory step-up adjustmentsto fair value of $2.1$2.2 million and $2.4$4.3 million, respectively, related to the In2Bones acquisition.

acquisition compared to $0.3 million of such costs during the three and six months ended June 30, 2022. During the six months ended June 30, 2023,
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we also incurred $1.1 million in consulting fees related to a cost improvement initiative and $1.0 million in severance related to the elimination of certain positions.

Selling and Administrative Expense

Selling and administrative expense increased to $114.6$129.7 million in the three months ended SeptemberJune 30, 20222023 as compared to $104.7$115.8 million in the three months ended SeptemberJune 30, 20212022, and increased to $333.3$259.8 million in the ninesix months ended SeptemberJune 30, 20222023 as compared to $307.5$218.7 million in the ninesix months ended SeptemberJune 30, 2021.2022. Selling and administrative expense as a percentage of net sales decreased a 100 basis points to 41.7%40.8% in the three months ended SeptemberJune 30, 2023 as compared to 41.8% in the three months ended June 30, 2022 and increased 30 basis points to 42.4% in the six months ended June 30, 2023 as compared to 42.1% in the threesix months ended SeptemberJune 30, 2021 and increased to 41.9% in the nine months ended September 30, 2022 as compared to 41.7% in the nine months ended September 30, 2021.

2022. The decreaseincreases in selling and administrative expense for the three and six months ended June 30, 2023 were primarily driven by:

$1.8 million and $6.1 million in costs related to the implementation of a new warehouse management system during the three and six months ended June 30, 2023, respectively. These costs mainly consisted of incremental freight, labor and travel costs as well as professional fees;
$2.1 million in costs related to the termination of distribution agreements during the three and six months ended June 30, 2023;
$(0.6) million and $3.8 million in fair value adjustments to contingent consideration during the three and six months ended June 30, 2023, respectively; and
$1.6 million in costs consisting of severance related to the elimination of certain positions during the six months ended June 30, 2023.

These increases are offset by the $2.6 million in consulting fees and legal costs associated with the acquisition of In2Bones and the $0.8 million in costs related to a legal settlement during the three and six months ended June 30, 2022. In addition, we continue to experience lower ongoing selling and administrative expenses as a percentage of net sales for the three months ended September 30, 2022 was primarily driven by higher sales in 2022revenue as compared to the prior year period, which was partially offset by the $3.7 million in consulting fees, legal fees and other integration related costs associated with the In2Bones and Biorez acquisitions.

The increase inwe leverage our existing selling and administrative expense as a percentage of net sales for the nine months ended September 30, 2022 was primarily driven by $6.3 million in consulting fees, legal fees and other integration related costs associated with the acquisitions of In2Bones and Biorez as further described in Note 4 and Note 14 and $0.8 million in legal fees related to the settlement of litigation as further described in Note 14. These amounts were partially offset by the prior year having a $0.4 million related to sales force restructuring in 2021.structure.

Research and Development Expense

Research and development expense increased to $12.8$13.6 million in the three months ended SeptemberJune 30, 20222023 as compared to $10.9$11.5 million in the three months ended SeptemberJune 30, 20212022, and increased to $34.9$26.1 million from $22.2 million in the ninesix months ended SeptemberJune 30, 2022 as compared to $32.2 million in the nine months ended September 30, 2021.2022. As a percentage of net sales, research and development expense increased 20 basis points to 4.6%4.3% in the three months ended SeptemberJune 30, 20222023 as compared to 4.4%4.1% in the three months ended SeptemberJune 30, 20212022 and remained flat at 4.4% in4.3% during the ninesix months ended SeptemberJune 30, 20222023 as compared to the ninesix months ended SeptemberJune 30, 2021.2022. The higherchanges in spend as a percentage of sales for the three months ended September 30, 2022 waswere mainly driven by the In2Bones and Biorez Acquisitions as well as timing of research projects.

Interest Expense

Interest expense increased to $8.5$10.0 million in the three months ended SeptemberJune 30, 20222023 from $8.1$5.9 million in the three months ended SeptemberJune 30, 2021.2022, and increased to $20.3 million in the six months ended June 30, 2023 from $10.9 million in the six months ended June 30, 2022. The weighted average interest rates on our borrowings increased to 2.66%3.09% in the three months ended SeptemberJune 30, 20222023 as compared to 2.46%2.37% in the three months ended SeptemberJune 30, 2021. The increase in interest expense in the three months ended September 30, 2022 is primarily driven by the increased borrowings of the 2.250% Notes offset by three months ended September 30, 2021 including $2.6 million in interest expense related to the amortization of debt discount that is no longer applicable in 2022 as a result of the adoption of ASU 2020-06, as further described in Note 3.

Interest expense decreased to $19.5 million in the nine months ended September 30, 2022 from $27.9 million in the nine months ended September 30, 2021.2022. The weighted average interest rates on our borrowings decreasedincreased to 2.44%3.11% in the ninesix months ended SeptemberJune 30, 20222023 as compared to 2.94%2.30% in the ninesix months ended SeptemberJune 30, 2021.2022. The decreaseincreases in interest expense in the ninethree and six months ended SeptemberJune 30, 2022 is2023 were primarily due to decreases in our term loan and revolving credit facility borrowings; decreases in our weighted average interest rates compared to the same periods a year ago as a result of the seventh amended and restated senior credit agreement; and the nine months ended September 30, 2021 including $7.6 million in interest expense related to the amortization of debt discount that is no longer applicable in 2022 as a result of the adoption of ASU 2020-06, as further described in Note 3. These are offsetdriven by the increased borrowingsissuance of the 2.250% Notes entered intoin June 2022 as well as higher interest rates on June 6, 2022.our senior credit agreement.

Other Expense

During the ninethree and six months ended SeptemberJune 30, 2022, we recorded expense of $103.1 million related to the conversion premium on the repurchase and extinguishment of 2.625% Notes; $5.5 million related to the settlement of the associated convertible notes hedge transactions and $3.4 million related to the write-off of deferred financing fees associated with the repurchase of $275.0 million of the 2.625% Notes and the pay down of $90.0 million on our term loan as further described in Note 11.



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During the three and nine months ended ended September 30, 2021, we recorded $1.1 million related to a loss on early extinguishment and third party fees associated with the seventh amended and restated senior credit agreement.

Provision (Benefit) for Income Taxes

The Company's tax provision (benefit) for interim periods is determined using an estimate of its annual effective tax rate applied to its year-to-date earnings, (loss), and also adjusting for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.

Income tax benefitexpense has been recorded at an effective tax rate of (193.7)%21.2% for the three months ended SeptemberJune 30, 20222023 compared to an income tax expense at an effective tax rate of 14.3%(80.0)% for the three months ended SeptemberJune 30, 2021.2022. Income tax expense has been recorded at an effective tax rate of (77.7)21.7% for the six months ended June 30, 2023 compared to (101.6)% for the ninesix months ended SeptemberJune 30, 2022 as compared to 12.3% for the nine months ended September 30, 2021.2022. The lowerhigher effective tax rates for the three and ninesix months ended SeptemberJune 30, 20222023 were primarily the result of pretax income in 2023 as compared to the same periods in the prior year were primarily due to the second quarter 2022 pretax loss that waslosses generated by the premium on extinguishment of a portion of the 2.625% Notes and the change in fair value of convertible notes hedges upon settlement as these itemswhich were not deductible for tax purposes.in the same periods in the prior year. The three months ended SeptemberJune 30, 2022 and 20212023 included discrete income tax benefit from stock option exercises which reduced the effective tax rate by 1.0%8.4% and 12.5%, respectively. The ninediscrete income tax expense from other foreign related taxes which increased the effective tax rate by 2.0% as compared to three months ended SeptemberJune 30, 2022 which included no discrete items. The six months ended June 30, 2023 included discrete income tax benefit from stock option exercises which decreased the effective tax rate by 7.7% and discrete income tax expense from other foreign related taxes which increased the effective tax rate by 3.1%1.8% as compared to the tax benefit from stock option exercises which reducedincreased the effective tax rate by 14.1%2.2% for the ninesix months ended SeptemberJune 30, 2021.2022. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022 under Note 89 to the consolidated financial statements.

Non-GAAP Financial Measures

Net sales on a "constant currency" basis is a non-GAAP measure. The Company analyzes net sales on a constant currency basis to better measure the comparability of results between periods. To measure percentage sales growth in constant currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of net sales.

Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. This adjusted financial measure should not be considered in isolation or as a substitute for reported net sales growth, the most directly comparable GAAP financial measure. This non-GAAP financial measure is an additional way of viewing net sales that, when viewed with our GAAP results, provides a more complete understanding of our business. The Company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Liquidity and Capital Resources

Our liquidity needs arise primarily from capital investments, working capital requirements and payments on indebtedness under the seventh amended and restated senior credit agreement. We have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility. In addition, we have historically used term borrowings, including borrowings under the seventh amended and restated senior credit agreement to finance our acquisitions. We also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering.

Operating cash flows

Our net working capital position was $365.7$262.4 million at SeptemberJune 30, 2022.2023.  Net cash provided by operating activities was $45.0 million and $78.0$22.8 million in the ninesix months ended SeptemberJune 30, 20222023 and 2021, respectively,$19.1 million in the six months ended June 30, 2022, generated on net income (loss) of $(107.2)$15.6 million and $38.1$(153.3) million for the ninesix months ended SeptemberJune 30, 2023 and 2022, respectively. Significant changes in assets and 2021, respectively. The changeliabilities affecting operating cash flows in cash provided by operating activities in 2022 as compared to 2021 was mainly driven by:the six months ended June 30, 2023 include the following:

A decrease in cash flows from accounts receivable based on the timing of sales and cash receipts;
A decreaseAn increase in cash flows from inventory as we increasedmoderate our inventory levels to mitigate supply chain challenges;levels;
A decrease in cash flows from higher incentive compensation payments; andother assets as we increased our field inventory in support of increased sales;
An increase in cash flows from higher accounts payable during the period due to the timing of payments; and
A decrease in cash flows from other liabilities primarily resulting from income tax payments.

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Investing cash flows

Net cash used in investing activities in the ninesix months ended SeptemberJune 30, 2022 increased $231.52023 decreased $142.2 million from the same period a year ago primarily due to the $144.7$142.6 million payment for the In2Bones acquisition and $82.4 million for the Biorez acquisition. In addition, capital expenditures were higher at $16.1 million in the nine months ended September 30, 2022 compared to $11.7 million in the same period a year ago.2022.

Financing cash flows

Net cash provided byused in financing activities in the ninesix months ended SeptemberJune 30, 20222023 was $213.5$14.4 million compared to net cash used inprovided by financing activities of $60.8$166.6 million during 2021.2022. Below is a summary of the significant financing activities impacting the change during the ninesix months ended SeptemberJune 30, 20222023 compared to 2021:2022:

We had net payments on our revolving line of credit of $16.0 million, compared to $140.0 million during the six months ended June 30, 2022.
We received proceeds of $800.0 million in 2.250% Notes as further described in Note 11.during the six months ended June 30, 2022.
We paid $275.0 million in aggregate principal on the repurchase and extinguishment of the 2.625% Notes as further described in Note 11.
We had net payments on our revolving line of credit of $87.0 million, compared to $36.0 million during the ninesix months ended SeptemberJune 30, 2021 as we used proceeds from our 2.250% Notes to pay down our outstanding balance.
We had net payments on our term loan of $93.0 million compared to $11.3 million during the nine months ended September 30, 2021 as we prepaid $90.0 million with proceeds from the 2.250% Notes.2022.
We paid $187.6 million to purchase hedges related to our 2.250% Notes. Partially offsetting this, were proceeds of $72.0 million from the issuance of warrants as further described in Note 11.during the six months ended June 30, 2022.
We paid $69.5 million to settle warrants related to the 2.625% Notes and received $86.2 million to settle the hedges related to the 2.625% Notes as further described in Note 11.during the six months ended June 30, 2022.
We paid $21.8 million in debt issuance costs mainly related to the 2.250% Notes in 2022 compared to $2.0$21.2 million in debt issuance costs related to the seventh amended and restated senior credit agreement2.250% Notes during the six months ended June 30, 2022.
We had net payments on our term loan of $93.0 million during the six months ended June 30, 2022.
We had net cash proceeds of $15.3 million related to stock issued under employee plans for the six months ended June 30, 2023 compared to $9.2 million in 2021.the same period a year ago.

Other Liquidity Matters

Our cash balances and cash flows generated from operations may be used to fund strategic investments, business acquisitions, working capital needs, research and development, common stock repurchases and payments of dividends to our shareholders. Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our seventh amended and restated senior credit agreement, will be adequate to meet our anticipated operating working capital requirements, debt service, funding of capital expenditures, dividend payments and common stock repurchases in the foreseeable future. In addition, management believes we could access capital markets, as necessary, to fund future business acquisitions.

The Company is also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. As noted above, there also remains uncertainty related to the COVID-19 pandemic, including the duration and severity of future impacts to the business and we continue to see our customers and suppliers impacted by staffing shortages. We continue to monitor our spending and expenses in light of these factors. However, we may need to take further steps to reduce our costs, or to refinance our debt. See “Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year-endedyear ended December 31, 2021,2022, for further discussion.

There were $134.6 million in borrowings outstanding on the term loan facility as of SeptemberJune 30, 2022.2023. There were $53.0$54.0 million in borrowings outstanding under the revolving credit facility as of SeptemberJune 30, 2022.2023. Our available borrowings on the revolving credit facility at SeptemberJune 30, 20222023 were $530.2$529.4 million with approximately $1.8$1.6 million of the facility set aside for outstanding letters of credit.

The seventh amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The seventh amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of SeptemberJune 30, 2022.2023. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.

On June 6, 2022, the Company repurchased and extinguished $275.0 million principal amount of the 2.625% Notes for aggregate consideration consisting of $275.0 million in cash and approximately 0.9 million shares of the Company's common
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stock at an exchange premium cost of $103.1 million. At such time, we also settled related hedges and warrants as noted above and further described in Note 11. Concurrently, the Company entered into a Supplemental Indenture related to the remaining $70.0 million in 2.625% Notes, in which the Company irrevocably elected to settle the principal value of the remaining 2.625% Notes in cash.

On June 6, 2022, we issued $800.0 million in 2.250% Notes and irrevocably elected to settle the principal value in cash. A portion of these proceeds were used to repurchase and extinguish a portion of the 2.625% Notes, pay off our outstanding balance on our revolving line of credit on that date, pay down $90.0 million of our term loan and partially pay for our In2Bones Acquisition. At the time of this issuance, we entered into convertible note hedge transactions with a number of financial institutions for the number of shares of our common stock underlying the Notes. Concurrently with entering into the convertible notes hedge transactions, we also entered into separate warrant transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to customary anti-dilution adjustments, the same number of shares of our common stock. Refer to Note 11 for further details.

See Note 11 for further information on our financing agreements and outside debt obligations.

Our Board of Directors has authorized a $200.0 million share repurchase program. Through SeptemberJune 30, 2022,2023, we have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have $37.4 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any time. We
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have not purchased any shares of common stock under the share repurchase program during 2022.2023. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility.

New accounting pronouncements

See Note 3 to the consolidated condensed financial statements for a discussion of new accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our primary market risk exposures or in how these exposures are managed during the ninesix months ended SeptemberJune 30, 2022.2023.  Reference is made to Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 20212022 for a description of Qualitative and Quantitative Disclosures About Market Risk.
 
Item 4.  Controls and Procedures
 
As of the end of the period covered by this report, an evaluation was carried out by CONMED Corporation’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.  In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended SeptemberJune 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II OTHER INFORMATION


Item 1. Legal Proceedings

Reference is made to Item 3 of the Company’s Annual Report on Form 10-K for the year-endedyear ended December 31, 20212022 and to Note 1615 of the Notes to Consolidated Condensed Financial Statements included in Part I of this Report for a description of certain legal matters.

Item 5.  Other Information
On May 4, 2023, Heather Cohen, the Executive Vice President and Chief Human Resources and Legal Officer, adopted a trading plan with respect to 6,500 stock appreciation rights ("SARs") granted to Ms. Cohen as equity compensation (the "Cohen Plan"). The Cohen Plan is intended to satisfy the affirmative defense of Rule 10b5-1(c), under the Securities Exchange Act of 1934, and terminates on May 17, 2024.


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Item 6. Exhibits

Exhibit Index
Exhibit No.Description of Exhibit
3.1
31.1
  
31.2
  
32.1
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page - Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the date indicated below.

 CONMED CORPORATION
 
  
 
By: /s/ Todd W. Garner
 Todd W. Garner
 Executive Vice President and
 Chief Financial Officer
 
 Date:  
 OctoberJuly 27, 20222023
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