CONMED Corp Q4 FY2020 Earnings Call

Good afternoon, everyone. Before the conference begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook and its plans and objectives, which represent forward-looking statements that involve risks and uncertainties as these terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance or results and the Company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under the forward-looking information in today's press release as well as the Company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The Company disclaims any obligation to update any forward-looking statements that may be discussed during the call, except as many may be required by applicable law. You will also hear management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for the GAAP measurements, management uses these figures to aid in monitoring the Company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the Company, excluding credits and charges that are considered by the Company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the Company's earnings release posted to the Company's website. With these required announcements completed, I will now turn the call over to Curt Hartman, CONMED's Chair of the Board, President and Chief Executive Officer for opening remarks. Mr. Hartman?

Thank you, Angela. Good afternoon and thank you for joining us for CONMED's fourth quarter and full year 2020 earnings call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. Today, I will provide a brief overview of the financial and operating highlights for the fourth quarter and full year. Todd will then provide a more detailed analysis of our financial performance and discuss our initial 2021 financial guidance. After that, we'll open the call to your questions. Turning to our results. Total sales for the fourth quarter were $252.8 million, representing a year-over-year decrease of 4.5% as reported and a decrease of 5.2% in constant currency. For the full year, sales reached $862.5 million, representing a year-over-year decrease of 9.7% as reported and 9.3% in constant currency. From an earnings perspective, during the fourth quarter, our GAAP net income totaled $24.1 million. This compares to net income of $14.9 million in the fourth quarter of 2019. Excluding special items that affected comparability, our adjusted net income of $25 million decreased 6.6% year-over-year and our adjusted diluted net earnings per share of $0.84 decreased 6.7% year-over-year. For the full year, our GAAP net income totaled $9.5 million compared to net income of $28.6 million in 2019. Excluding special items that affected comparability, our adjusted net income of $64.2 million decreased 17.6% year-over-year and our adjusted diluted net earnings per share of $2.18 decreased 17.4% year-over-year. We ended 2020 with a great deal of enthusiasm, given our expanding market opportunities and product portfolio. As you all know, the COVID-19 pandemic presented unique operating challenges for every company. Many markets around the world have operated intermittently or shut down for varying periods of time. This dynamic continued in the fourth quarter. Throughout the year, including the fourth quarter, we have been acutely aware of the difficulties that many of our customers have faced, both financially and operationally, and have strived to be good partners to them, taking a lighter touch, particularly as it relates to capital sales. We're taking a longer-term view of these relationships and believe our customers will do the same. We are confident that we are taking the right steps to put the company in the best possible position over the long term. Overall, I'm proud of our team's efforts as we demonstrated agility and resilience in the face of the pandemic, supported our customers through the continued introduction of innovative products across many of our businesses and delivered a successful full year performance with our Buffalo Filter offering. Overall, I'm very pleased with our team's responsiveness and flexibility and firmly believe that in spite of the pandemic, we remain well-positioned to achieve long-term profitable above-market growth. In 2020, we define success by staying focused on our people, ensuring the financial health of the company while remaining committed to our long-term strategies that we believe will drive above-market growth in both revenue and earnings. With that, I'll turn the call over to Todd.

Thanks, Curt. All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release. Normally, on this call, we will discuss the numbers for both Q4 and the full year. Today, we will discuss Q4 only and refer you to the press release for the full year comparables. We don't believe spending time on that view is terribly relevant or helpful at this specific time. For the fourth quarter of 2020, our total sales declined 5.2%. While COVID had a meaningful impact on the full quarter, the first two months of the quarter were very close to the prior-year revenue performance, but December revenue was well short of the prior year. For the fourth quarter, our sales in the U.S. decreased 0.7% versus the prior year quarter. Our single-use products grew 4.0% in the U.S., while capital sales were down double-digits. Our international sales decreased 10.5% for the quarter compared to the prior year. The most impacted geographies during the quarter were Japan and Latin America. The sharp reduction in Japan was largely due to distributors decreasing their inventories. We believe this is good news for future sales due to less inventory in the distribution channel. The rest of Asia and Europe declined in the single digits in the quarter, while Canada and Australia both grew. Worldwide orthopedics revenue declined 9.6% in the fourth quarter. In the U.S., orthopedic sales decreased 12.3%, and internationally, orthopedic sales decreased 7.9%. Capital sales were down double digits globally in orthopedics in the fourth quarter. As Curt said, we've taken a light touch with our customers when it comes to the timing of capital purchases in 2020 and believe this will strengthen our customer relationships over the long term. Total worldwide general surgery revenue decreased 1.3% in the quarter. U.S. general surgery revenue grew 5.3%. Internationally, general surgery revenue decreased 14.7%. Despite the capital and procedural softness in Q4, AirSeal and Buffalo Filter combined to grow about 20%. We believe these two product lines will continue to benefit from the increased focus on improving operating room safety. Now let's move to the expense side of the income statement. We will discuss expenses and profitability excluding special items, which include charges related to acquisitions and integrations, restructurings and amortization of intangible assets, and amortization of deferred financing fees and debt discount net of tax. Adjusted gross margin for the fourth quarter was 53.8%, a decrease of 30 basis points from the prior-year quarter. As we expected, our product and channel mix continues to drive improvement in our gross margin. However, as we mentioned on our last earnings call, the recognition of unfavorable manufacturing variances is masking that improvement in Q4. Research and development expense for the fourth quarter was 4.6% of total sales, the same ratio from the prior-year quarter. Fourth quarter SG&A expenses on an adjusted basis were 35.8% of sales, an increase of 50 basis points from Q4 2019 due to lower revenue. Interest expense in Q4 2020 was $7.6 million on an adjusted basis. The adjusted effective tax rate was only 9.7% in Q4, as we benefited from the excess tax benefit from stock plans and the resolution of audits. Fourth quarter GAAP net income totaled $24.1 million or $0.81 per diluted share, which was an increase of 65% over the prior-year quarter. Excluding the impact of special items discussed earlier, we reported adjusted net income of $25.0 million compared to $26.8 million in the fourth quarter of 2019. Our fourth quarter adjusted diluted net earnings per share was $0.84 compared to $0.90 in the prior-year period. Turning to the balance sheet. Our cash balance at the end of the quarter was $27.4 million compared to $35.6 million as of September 30, 2020. Accounts receivable days as of December 31st were 63 days compared to 64 days at the end of 2019. Inventory days at quarter-end were 150, which was 8 days better than they were at the end of Q3. However, we did not see the typical December drop this year due to softer sales as a result of the pandemic. Long-term debt at the end of the quarter was $735 million versus $760 million as of September 30th. Our leverage ratio on December 31, 2020, was 4.9 times. We are performing very favorably to our agreement with the banks. Our fixed charge coverage is 3.26 versus our agreement of 1.75, and our liquidity was $403 million on December 31st compared to our minimum agreement of $135 million. Cash flow provided from operations for the quarter was $20.1 million and capital expenditures in the fourth quarter were $3.1 million. Adjusted EBITDA was $47.9 million in Q4 2020 compared to $53.1 million in Q4 2019. We are very pleased with the way our teams have navigated this challenging year. As we look to the future, we are encouraged by the strength of our business and our positioning with our customers. While we're anxious to put the pandemic of 2020 behind us, the pandemic is still with us here as we enter 2021. There is still a great deal of uncertainty about when volumes return to a pre-pandemic trajectory as well as the timing of when our customers will be free to return to pre-pandemic levels of operation. However, we have now lived with the virus for over 10 months and we have a better understanding than we did at the beginning of the impact on our business. The key questions we can't answer right now are related to how the new, more contagious variant will affect healthcare globally and how quickly the available vaccines can lower the burden on hospitals. Despite these lingering questions, we have decided to provide financial guidance for 2021 within a framework of our current assumptions. We view 2021 as a transition year where we transition from the impacts of the pandemic in the first part of the year toward a post-pandemic environment by the end of the year. We anticipate that Q1 will continue to be significantly impacted by the virus and we believe this impact will linger into Q2. Our assumption is that the global disbursement of vaccines will take months, but be effective at reducing the burden on healthcare from the known variants of the virus. We expect procedural growth in the United States to improve before international markets do. As the year progresses, we anticipate the volumes will improve sequentially, and we expect general surgery to see improved volumes before sports medicine does. Given that many sport activities are still suspended and that it typically takes months for an athlete to go from injury all the way to surgery, we do not anticipate sports medicine procedural growth to return to pre-pandemic levels until a couple of quarters after team sports resume globally. Those assumptions lead us to revenue guidance for the full year 2021 of between $975 million and $1.02 billion. We expect currency to be immaterial to 2021. We expect Q1 revenue between $210 million and $225 million. As far as phasing between the first half and second half, we expect 46% to 48% of our full-year revenue to be recognized in the first half of the year and 52% to 54% of revenue to be recognized in the second half of the year. For adjusted EPS, we expect the full year 2021 to be between $2.85 and $3.05. We expect Q1 adjusted EPS to be between $0.42 and $0.45. We expect the phasing of adjusted EPS to be about 35% of the total year in the first half and about 65% in the second half of the year. This is a lighter mix in the first half than we are used to, as the lower production levels and higher freight costs that we experienced in the second half of 2020 are likely to continue through at least Q1 2021. And as we've addressed before, these unfavorable manufacturing variances are recognized in the external P&L a full four months after they are incurred. Accordingly, Q1 gross margins will be significantly impacted by the Q4 performance, and Q2 will likely be impacted by the continued lower volumes in Q1. I can tell you that because of this, we expect gross margins in Q1 2021 to be about 250 basis points lower than the Q1 2020 gross margins. After that, in the second quarter and the second half of the year, we expect margins to show improvement over 2020 levels. It is also clear that the tax rate will be a headwind in 2021. Our adjusted effective tax rate for the full year of 2020 was 12.9% for a myriad of reasons that we do not expect to recur in 2021. We are assuming that our tax rate in 2021 will be between 24% and 25%, assuming no change in the U.S. tax code or any other major geography for that matter. Normally, we give you detail on each line of the income statement for the full year. Because of the level of uncertainty in the current environment, we are not going to do that today. The moving pieces may be different than we currently expect and we need to remain agile and responsive in delivering the best results for our shareholders over the long term. The good news is that our strategy to shift the mix of the portfolio to higher growth and higher margins is working. We are increasingly competitive in the marketplace, and our customer engagement continues to improve. Our innovation is delivering more profitable products that are more clinically effective. AirSeal and Buffalo Filter are leading the way and are the most obviously impactful right now. However, we believe other product lines will contribute in a significant way in the future as well. And it remains true that our infrastructure can support much higher revenue in our large and attractive markets. As we transition out of the pandemic, we believe customers will continue to reward both our innovation and our actions as valued partners with increased trust and market share. And as volumes return, we believe the work we've been doing on the margin profile will become clearer and more obvious. With that, I'd like to turn you over to Angelo for questions.

And your first question is from Richard Newitter with SVB Leerink. Please go ahead.

Hi, this is Aaron on for Rich. Thanks so much for taking our questions. Just a quick one. Thanks so much for the color that you provided in the guidance, I was just wondering if you could maybe talk about some of the dynamics between ortho and gen surge that you've seen, maybe throughout the fourth quarter and then into early 1Q? Obviously, understanding that you did give some color on the overall procedures, but just maybe a little bit of information on how those were broken out between those segments?

Aaron, help me just a little here when you said differences between ortho and gen surge, are you talking about the procedure trends or what specific are you asking?

Yeah. Yeah, sorry, just the procedure trends that you saw in the respective segments throughout 4Q and then maybe in early 1Q.

Okay. Okay. I think the way I would frame it would be around 4Q, I think October, November seemed to continue what we saw in the third quarter. We did start to see more deceleration, broadly speaking in procedures as we got into the month of December. And I think that was applicable both to the general surgery as well as the orthopedics business. Obviously, as Todd commented, we continue to see good volume, good attention on the Buffalo Filter and AirSeal platforms. But again, AirSeal is a more established platform. So as procedures are down, that consumable business also decreases. On orthopedics, it's a more heavily weighted business on capital; in a normal year, about 30% capital, and obviously capital has not been anywhere near the levels of past years, and that continued again in the fourth quarter. So again, more impact in ortho because of the bigger percentage being capital and capital just overall being tightened. I don't think that change from Q2, Q3 and Q4, but it just stayed very suppressed overall, and I think, again, a little bit of that intermittent comment that I noted against geographies outside the U.S. as we got deeper into the fourth quarter, you saw more of Europe really tightening up; you saw various markets across Asia tightening up or reserving capacity, if you will, not opening things all the way up, again both general surgery side and orthopedic side. I think that would kind of summarize my comments. Probably not going to comment on what we're seeing at this point in Q1.

Okay, great. Thanks so much. And then just quickly on Buffalo Filter, obviously, it's been very strong. Have you guys seen or heard of any more states passing legislation around the aerosolization? Thanks so much.

No, great question. There is a lot of legislation in the works, but I think with COVID, priorities have shifted, so a lot of that legislative movement has stalled, if you will. But as we've said many times, we think the legislation, and we said this candidly during the announcement of the acquisition, that legislation would be additive, that the broad-based healthcare worker insistence on a safe operating room environment is really what's driving the growth in this market, and that has not let up one bit. In fact, with 2020 in the events of the pandemic and the safe OR comments that the various societies have put out, it's further accelerated the movement towards the safe operating room environment of which Buffalo Filter and AirSeal are both a key component of.

Okay, great, thank you so much for taking the questions. Really appreciate it.

And your next question is from the line of Robbie Marcus with JP Morgan. Please go ahead.

Hi, this is actually Lily on for Robbie. Thanks for taking the question and thanks for all the helpful color you gave. So, in the past you've talked about how AirSeal and Buffalo Filter comprise about 25% of revenues, which is a bit higher than what we were thinking, and how they should continue to grow over 20%. So on the other side of COVID, do you think that that could make CONMED an 8% to 10% grower, rather than a mid-single digit grower?

Thanks, Lily, that's a great question. If you do the math, 25% growing at 20% would give you a 5% growth overall if everything else remains unchanged. However, we don’t anticipate that everything else will remain unchanged after the pandemic. We expect all of our markets and segments to grow at a pace better than the overall market. Therefore, it seems logical for us to aim for growth exceeding 5%. We'll have more clarity on what that specific number will be when we reach a post-pandemic situation, but CONMED has a solid growth engine with these two products, and we are focused on ensuring that the rest of our portfolio contributes to enhanced growth as well. That’s our plan, and we’re pleased with how things have progressed during the pandemic. We believe that this strength will become more apparent once the pandemic is over.

And your next question is from the line of Todd Garner. Please go ahead.

Afternoon. Thank you for the questions. Curt or Todd, could you provide your thoughts on the lighter capital approach? How long do you expect this to last? Will it continue through the first half of this year? What tangible benefits do you anticipate beyond goodwill with customers? Are you expecting this to extend into the second half of this year and even into 2022?

So it's a great question. And I think we refer to it as lighter touch, but it's been more receptive to what the customer environment is at the moment. I would contrast that just candidly with two of the products we introduced in the fourth quarter, both capital items, a new large bone power tool platform and a new video system. We're excited about both of those and we're in the stages of rolling those out right now on a global geographic region-by-region basis. So our sales force is excited to start the new year. You put a couple of new products in their hands and I think they're going to probably work just a little bit harder and candidly maybe not have quite as a lighter touch. But again, that's going against a capital market that's still not the priority for the majority of our customers. And I think more than anything that's what we hear from our customers. And so we're referring to that a lighter touch; we're hearing them say, it's just not our priority right now. So we're as patiently as we can waiting for them and hoping that our goodwill in that sense buys us that opportunity. But to the guidance comment, if the back half of the year starts to normalize more, I think certainly be in a position with new capital products in our portfolio, it should bode well for us in the back half.

On the financial side, Curt, you're expecting some benefit on the back half of this to the results?

I've said if the markets return to normal in the back half of the year and we've got a sales force with two new capital products, it should show up in our numbers and obviously would benefit us financially.

Got it. Okay, thank you. And then the follow-up question for Todd, is just on the EBIT expansion side of things. Can you just be a little bit more granular with exactly what we're expecting here in '21 back half and then there's just some things that are kind of masking some of these benefits? Can you just talk about the level of headwinds that you're seeing on the EBIT side of things and when some of those may ease? And then the high-end as far as EBIT goes, are you thinking 50 to 100 basis points of expansion that we should expect maybe even if it's masked a little bit? Just a little more color on that metric specifically would be helpful. Thanks.

It's a great question, and I'm not surprised that you want more detailed guidance. I wish I could provide that today, but I will do my best to address your question. The biggest challenge we're facing is the impact on gross margin from lower volumes and higher freight, which affected us significantly in the latter half of 2020. The effects are recognized for an additional quarter even after the issue is resolved, and we're still not there yet. We anticipate facing more headwinds in the early part of this year, and it typically takes about a quarter after volumes are down before we see normalized margins. So, the second half should look much better than the first half. The reason we aren't being more specific is that we've been agile and responsive throughout the pandemic, and we will continue to apply those principles, ensuring we allocate resources appropriately and avoid spending until necessary. We've done well in maintaining profitability during this unprecedented challenge, and we plan to keep that focus. If you look at our guidance, you will notice that our profitability growth is at least double that of our revenue growth, which aligns with our operating principles. Pre-pandemic, we aimed for annual margin improvements of 50 to 100 basis points. Throughout the pandemic, we've had to become smarter and leaner, and it may be more realistic to expect our margins to operate closer to the top end of that range. Once the uncertainties clear, this will be more evident to investors. You can see this happening through 2020, as we managed to deliver good profitability despite challenging revenue figures, and we believe that as the pandemic improves this year, our margin profile will become clearer. That's about as much detail as I can provide today.

Very granular. Thank you so much.

Your next question is from the line of Rick Wise with Stifel. Please go ahead.

Good evening, everyone. I wanted to follow up on Matt's great question. You mentioned a few things regarding the post-recovery environment, including an improved mix, better margin products, a more compelling product portfolio, potentially lower costs, and infrastructure that can support growth. If we assume that 2022 marks a solid recovery, how does CONMED fit into this scenario? I'm not referring to year-over-year comparisons, but are we on track to see revenue growth in the upper single digits with margins steadily moving towards 60%? What is your perspective on the long-term outlook?

Sure, Rick.

We are not providing guidance for 2022 today, but I appreciate the vision of a post-pandemic reality and hope that we will be in that situation. I agree with your assessment that once the pandemic is over, CONMED will likely have healthier margins than we did going into it, both in gross and operating margins. We are working towards achieving a 60% gross margin and a 20% operating margin. While I can't specify what our 2022 numbers will be yet, I can assure you that we are taking the right steps. Our product mix is improving, and we are becoming more strategic in our procurement processes. As volumes return, we believe there is significant potential for CONMED to achieve faster growth in profits compared to revenue, and we expect our growth rate to exceed that of our markets. The pandemic has certainly caused delays and created challenges, but it has also strengthened our position and increased the likelihood that our goals will be realized once we move beyond this period. We remain optimistic while concentrating on effectively navigating the current situation and ensuring the long-term stability of the business.

Makes sense. That's great. Maybe, it sounds like you talking Todd, maybe share your balance sheet priorities for 2021 in terms of your thinking about cash generation, debt paydown, where you hope to be at the end of the year under the scenarios you've laid out?

Thank you, Rick. As everyone knows, when the pandemic began, we made changes with our banks to ensure we had the necessary flexibility to make the right strategic decisions, regardless of how challenging things might get. Despite the pandemic's duration, our customers and we have shown resilience. Looking back, we probably didn't need that amendment at the lowest point, which was the end of Q2, when our leverage was 5.4 turns. We expect to finish the year at 4.9 turns and recently indicated at a healthcare conference that based on our 2021 projections, we should be under 3.5 turns by the year’s end, assuming no significant M&A, which we do not foresee in our guidance. We believe this trajectory is promising, even if it's not down to the 3 turns we anticipated when acquiring Buffalo Filter. Our priorities remain the company's profitability and ensuring that cash aligns well with income, minimizing any significant gaps. We're doing a great job in this area and plan to maintain that. We will also continue to explore opportunities that enhance both our growth and margin profiles. While we haven't announced anything since Buffalo Filter, we remain active in this pursuit and will act if we identify something that strengthens the company. Therefore, our focus is on solid execution, effective management, and long-term profitability.

Great. And just two last quick questions, if I could. If 75% of the businesses are currently non-smoke, what percentage is accounted for by capital? I seem to recall a figure around 30%. Also, could you provide some insight into how we should view gross margins for the fourth and first quarters, considering the freight variance headwinds you discussed? Thank you very much.

Okay. I will try. Regarding capital, in general surgery, about 10% is capital and 90% is single-use. Buffalo Filter and AirSeal fall within that range, perhaps slightly more capital-intensive, but they are similar to general surgery. In orthopedics, it's roughly 30% capital and 70% single-use. Overall, CONMED is around 20% capital. If you exclude AirSeal and Buffalo, the remaining percentage would actually be slightly above 20% since they are under that threshold, placing it between 20% and 30%. Concerning gross margins and insights on Q4, I'm glad to expand on that. We've discussed the negative variances and increased freight costs impacting everyone. The headwind for Q4 attributed to manufacturing costs and freight totals 190 basis points when comparing Q4 2019 to Q4 2020, reflecting the scale of this challenge. We anticipate a similar range, with a total impact of 50 basis points projected for Q1.

And your next question is from the line of Mike Matson with Needham. Please go ahead.

Yeah, hi, Curt and Todd, this is David Saxon on for Mike. Thanks for taking the questions. I guess, first just on the end markets, as these end markets that you participate in rebound later this year and into next year, how are you thinking about your market share? You talked about growing above market, but just wondering what opportunities you see to gain share as trends improve?

Well, it's certainly the longer-term goal in a more normalized market given our position, given our focus on innovation. Just to grow faster than the markets we serve. That has been a goal since day one, the first couple of years were about turning around the business, getting the innovation engine moving. We've supplemented that with M&A and obviously I think everybody in the marketplace took a little bit of a detour here in 2020. But as things get back to normal, whenever that may be, our philosophy, our strategies aren't changing. We want to continue to go aggressively, innovate, serve our customers, earn their trust and take market share. Given our overall market share positions, we have a lot of opportunity in front of us. Obviously, you go product by product, we're in different market share positions for different products. In the case of AirSeal, we're in only-in-class products. We kind of define that market and so you go through the list, I would say, the broad percentage of our portfolio, we have a lot of market share to go after and that remains the goal. And I think as we step into '21, our sales organizations understand that we've all learned a lot through 2020, as Todd said, we know better how to operate in this environment, we have a great understanding of what customers are dealing with and we're ready to get back after it.

Great, thanks. And then my second question is just on international. You talked about distributors in Japan lowering their inventories, just wondering, I guess, if first you can quantify that and do you expect that to continue into the first quarter?

Thank you, David. The answer is no, we don't expect it to continue into the first quarter. We believe they have reached appropriate inventory levels through 2020. We collaborated with them to achieve this. The rationale is that having full distribution channels could obscure the actual recovery when it happens. Regarding the magnitude, we won't get too specific, but I can share that we are discussing a few million dollars in adjustments. This will significantly impact the growth rate for the quarter, but it positions us better for the future.

And your final question is from the line of Matthew Mishan with KeyBanc. Please go ahead.

Great and thank you for taking the questions. Curt, Todd, last quarter I asked a question around quoting activity and evaluation times, if some of what changed in 4Q versus 3Q in general surgery? If maybe you receive some really rushed orders placed in 2Q and 3Q when the guidelines had changed and you placed those orders? And then things may have normalized in quoting and evaluations, as you said last quarter and the backlog is really building, which is giving you confidence in the 20% plus growth in those areas, discussed in recent conferences.

I don't think there has been a change in enthusiasm for Buffalo Filter and AirSeal. We indicated that those products would grow by more than 20%. Even in Q4, despite fewer procedures, they grew about 20%. I wouldn't say anything has changed in that regard. The slower growth or decline we experienced in Q4 compared to Q1 was primarily due to the procedural aspects of the business and a significant decrease in capital. Therefore, if I understood your question correctly, I wouldn't attribute the difference between Q3 and Q4 revenue to quoting time or changes in enthusiasm regarding those two growth drivers; I would associate it directly with the virus. Hospitals were struggling in Q3, and in Q4, they would have preferred conditions similar to Q3. That, I believe, accounts for the difference between Q3 and Q4.

That was exactly what I was asking and getting at. I believe investors appreciate that you highlighted Buffalo Filter and AirSeal as 20% plus growth drivers at that conference. I understand you prefer not to call out such details on a quarter-to-quarter basis. Are you planning to continue doing that moving forward, or will you highlight those numbers directionally? I'm curious about how you will update those figures in the future.

No, I mean, our principles on disclosure and guidance remain the same, that we don't want to get into specific product lines. With all the mud and clouds or whatever term we want to use for the pandemic, how it's masking, what's happening underneath, we thought that would be helpful for our investors to understand that about a quarter of the business is from these two really strong growth drivers, our two most recent meaningful acquisitions that have been incredibly successful and have really changed the profile, both from a mix and margin perspective and growth perspective of the company, and those have been incredibly successful even through the pandemic. We expect them to be successful as we're post-pandemic. And as the rest of the portfolio returns to kind of normal, what we would claim above-market growth rates, we think it's an exciting place to be. We think the portfolio looks really strong for the future if we can just get out of this pandemic situation.

Okay. And then last question just on AirSeal as a platform that you're building out. I think you introduced a product for pediatric surgery. I know you've already done the thoracic indication. How are you thinking about AirSeal as more of a platform-technology in that regard?

Now you said it correctly, Matt, it is a platform-technology and the expansion into those other indications gives us a unique position. And then further, there is our own internal continuation of R&D across that platform, which is obviously a high priority for very obvious reasons. The market is very large, whether it's the robotic market or the broad laparoscopic market, and we said on some previous calls that because of COVID, there has been more awareness to AirSeal in the broad laparoscopic markets. That's more of a U.S. specific comment; that was already happening outside the U.S., because they don't have as many robots outside the U.S. But again, it's a key long-term platform for CONMED and our general surgery business and our efforts are focused and continuing to drive that in the marketplace through awareness, but also continuing to drive in the marketplace through continued innovation and focus from an R&D standpoint, and that will not change for the foreseeable future. It's a great platform, very differentiated, very beneficial to customers and the patients they serve, and that's what we're here to do, be a help to the customers and the patients they serve.

Okay, thank you very much.

And I would now like to turn the call back over to Mr. Hartman for any closing remarks. Mr. Hartman?

All right, thank you, Angela. And I just want to end by thanking everybody for your time today and appreciate you hearing more about the CONMED story. We look forward to speaking with you during our next earnings call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.