Enovis Q1 2025 Earnings Report

Enovis EPS Results

• Actual EPS: $0.81
• Consensus EPS: $0.74
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $0.50

Enovis Revenue Results

• Actual Revenue: $558.83 million
• Expected Revenue: $558.80 million
• Beat/Miss: Beat by +$39.00 thousand
• YoY Revenue Growth: +8.20%

Enovis Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Enovis (NYSE:ENOV) operates as a medical technology company focus on developing clinically differentiated solutions worldwide. It also manufactures and distributes medical devices which are used for reconstructive surgery, rehabilitation, pain management, and physical therapy. The company operates through Prevention and Recovery, and Reconstructive segments. Its Prevention and Recovery segment offers orthopedic solutions and recovery sciences including rigid and soft orthopedic bracing, hot and cold therapy, bone growth stimulators, vascular therapy systems and compression garments, therapeutic shoes and inserts, electrical stimulators management, and physical therapy products which are used by orthopedic specialists, surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals. The company's Reconstructive segment operates surgical implant business, which includes a suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger, as well as surgical productivity tools. The company distributes its products through independent distributors and directly under the ESAB and DJO brands. Enovis Corporation was formerly known as Colfax Corporation. The company was founded in 1995 and is headquartered in Wilmington, Delaware.

Enovis Q1 2025 Earnings Call Transcript

Key Takeaways

• Innovus delivered 8% sales growth in Q1, with Recon up 13% and Prevention & Recovery up 8% on a comparable basis, aligning with its high single-digit strategic targets.
• The company expanded adjusted EBITDA margin by 160 basis points to 17.7% and reported adjusted EPS of $0.81, a 62% increase year-over-year.
• Full-year revenue guidance was raised by $30 million to $2.22 billion–$2.25 billion, maintaining 6%–6.5% organic growth targets, while adjusted EBITDA guidance was lowered by $20 million to $385 million–$395 million due to tariff headwinds.
• Innovus anticipates $40 million of 2025 tariff exposure primarily in PNR, with plans to mitigate $20 million through supply-chain shifts, SKU rationalization and pricing actions.
• CEO Matt Terrotola announced his upcoming transition after 40 earnings calls, handing the leadership baton to Damian McDonald effective May 12.

Presentation

[Operator]

Hello, everyone, and welcome to the Innovus Corporation Q1 twenty twenty five Results Call. My name is Ezra, and I will be your coordinator today. I will now hand you over to your host, Kyle Rose, Vice President of Investor Relations to begin. Please go ahead.

[Kyle Rose, Vice President of Investor Relations at Enovis]

Thank you, Ezra. Good morning, everyone, and thank you for joining us today for our first quarter twenty twenty five results conference call. I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call today are Matt Terrotola, Chair and Chief Executive Officer and Ben Barry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investor section of our website, enovus.com.

[Kyle Rose, Vice President of Investor Relations at Enovis]

We will be using a slide presentation in today's call, which can also be found on our website. Both the audio and the slide presentation will be archived on the website later today. During this call, we'll be making some forward looking statements about our beliefs and estimates regarding future events and results. These forward looking statements are subject to risks and uncertainties, including those set forth in the Safe Harbor language in today's earnings release and in our filings with the SEC. Actual results might differ materially from any forward looking statements that we make today.

[Kyle Rose, Vice President of Investor Relations at Enovis]

The forward looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law. For further details regarding any non GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn it over to Matt, who will begin on Slide three.

[Matthew Trerotola, CEO & Chairman at Enovis]

Thanks, Kyle. Hello, everyone, and thanks for joining us this morning. Let's start on Slide three and talk about some of the quarter's highlights. We had a strong start to the year, and I'm excited about the future of Innovus. In the first quarter, we delivered reporting growth of 811% on a comparable basis.

[Matthew Trerotola, CEO & Chairman at Enovis]

When we look through the extra days and currency to the effective growth rate, it's right in line with our high single digit strategic goals. Our teams have made tremendous progress using new products to drive share gain, and we have a clear line of sight to a multiyear cadence of meaningful NPI. We expanded our adjusted EBITDA margins by 160 basis points, reflecting the mix impact of recon, stable pricing trends and EGX driven productivity improvements. In recon on Slide four, we delivered comparable growth of 13%, which includes some tailwinds from additional selling days. U.

[Matthew Trerotola, CEO & Chairman at Enovis]

S. Recon grew 11%, including 12% growth in U. S. Extremities and 10% growth in hips and knees. We're once again consistently growing well above market rates in The U.

[Matthew Trerotola, CEO & Chairman at Enovis]

S. As our teams are energized, focused on growth and have great innovation supporting their surgeon conversion efforts. Outside The U. S, we grew 14% in a resilient market, showing the power of the global position that we've built. We exited the first quarter with strong momentum and excitement from recent and upcoming new product launches, including the augmented reverse glenoid system in shoulders, the Nebula stem and surgical impactor in hip and the next generation of ARVIS hardware and software.

[Matthew Trerotola, CEO & Chairman at Enovis]

In PNR on Slide five, our 8% comparable growth reflects a stable market environment, disciplined execution and the benefit of additional selling days. Overall, this business is performing in line with our strategic plan and will benefit from the MANIFUSE LIPAS technology launch in recovery sciences and several key new bracing products in the coming quarters. Adjusted EBITDA margins in PNR improved 50 basis points year over year as we continue to use EGX tools to drive consistent productivity improvements and proactively shape the portfolio for profitable growth. Most of our tariff exposure is in PNR, and the team are doing a fantastic job driving initiatives to minimize the net impact. Ben will share a bit more on this.

[Matthew Trerotola, CEO & Chairman at Enovis]

I wish we didn't have to deal with this, but our ETX tools and post COVID inflation experience have us well prepared to get through this without stalling our growth or changing the longer term upward arc of our margins. Before I pass it to Ben, I'd like to make a few personal comments. This is my fortieth earnings call as the CEO of Colfax and now Innovus. Across that period, our teams around the world have relentlessly worked to build a great company that creates better, better futures for our customers, great opportunities for our employees, and substantial value for our shareholders. I'm incredibly thankful to our team and proud of what we've we've achieved, and I truly appreciate the ten year dialogue that I've had with many of you about our plans, progress, and opportunities ahead.

[Matthew Trerotola, CEO & Chairman at Enovis]

We have a strong foundation, an incredibly talented team, great operational and strategic momentum, and I'm passing the baton to a fantastic leader who I'm confident will lead the company to compounding value creation in the years to come. I'm committed to making sure that this transition is smooth even with the dynamic tariff backdrop. Now I'll let Ben take you through the P and L details. Ben?

[Ben Berry, CFO at Enovis]

Thanks, Matt. Hello, everyone. I'll begin on Slide six. We are pleased to report first quarter sales of $559,000,000 up 8% versus the prior year and 10% on a constant currency basis. The quarter included approximately 120 basis points of negative currency headwinds and roughly three fifty basis point benefit from additional selling days.

[Ben Berry, CFO at Enovis]

We were encouraged with the continued growth acceleration in our recon business across Anatomies as we've seen positive early results from our recent product launches. We are confident that our channel integration efforts are fully behind us as we exit the first quarter. Overall, our recon business grew 13% with double digit growth globally across our main segments in both hip and knee and extremities. Our growth in PNR was strong growing at 8%, mid single digit growth when adjusted for selling days. We had positive business mix in the first quarter, leading to adjusted gross margins of 61.7%.

[Ben Berry, CFO at Enovis]

This is an increase of 300 basis points year over year. The growth was driven by favorable segment and product mix and momentum from EGX initiatives across our manufacturing operations and supply chain. Despite ongoing investments in key R and D initiatives and medical education programs, our first quarter adjusted EBITDA grew 19%, delivering a margin of 17.7%, up 160 basis points versus the same quarter last year. First quarter effective tax rate was 23%, approximately 70 basis points higher than last year. Interest expense was $9,000,000 for the quarter versus $20,000,000 in 2024.

[Ben Berry, CFO at Enovis]

Overall, we posted adjusted earnings per share of $0.81 an increase of 62% versus prior year. Turning to Slide seven, I will provide updated guidance, which includes adjustments for currency movements and the current tariff situation. For revenues, we reiterate our 2025 organic constant currency revenue growth of 6% to 6.5% year over year, which includes high single digit growth in recon and low single digit growth in P and R. Based on the most recent rates, primarily due to the strengthening euro, we expect our foreign currency impact to be flat versus prior year. This compares to negative currency headwinds of 1% to 2% in our previously contemplated guidance.

[Ben Berry, CFO at Enovis]

Because of this, we are increasing our revenue range by $30,000,000 to $2,220,000,000 to $2,250,000,000 which we expect to phase in equally over the coming quarters. On margins, we are lowering our adjusted EBITDA range to $385,000,000 to $395,000,000 This is a reduction of $20,000,000 versus our prior guide and reflective of the incremental tariffs that we expect to impact profit in the second half of twenty twenty five. We are lowering the depreciation range by $5,000,000 to 120,000,000 to $125,000,000 and also lowering our interest expense range by 4,000,000 to 38,000,000 to $42,000,000 No adjustments have been made to our tax rate or our share count outlook. Considering these changes, we are updating our adjusted earnings per share range to $2.95 to $3.1 down $0.15 from our prior guidance. Lastly, we maintain our expectation for positive free cash flow in 2025.

[Ben Berry, CFO at Enovis]

Let's turn to Slide eight, where I will provide more detailed view of the current global trade environment and the implications to our business. Based on the current announced rates shown on the slide, we expect $40,000,000 of 2025 tariff exposure that we have clear plans to mitigate to $20,000,000 The impacts are well over 90% in our prevention and recovery business, so we will focus our commentary there. While the majority of our trade flows into The U. S. Are from Mexico and fall within The U.

[Ben Berry, CFO at Enovis]

S. MCA exemption, we have several smaller portions that are subject to tariffs. China is less than 10% of our P and R cost of goods, but given the very high rates in place, it represents 75% of our tariff exposure. Fortunately, these are mostly Class I products that are relatively easy to shift to other geographies. In fact, we have been working diligently for the last few years to build resilience in our supply chains and have active projects to shift the procurement or production of these goods to other parts of the world.

[Ben Berry, CFO at Enovis]

We are accelerating these projects and expect to transition at least 50% of this exposure by the middle of twenty twenty six. We also see supply chain opportunities on the smaller exposures from other countries and have a great commercial and sourcing playbook that we use to recover all of the post COVID inflation. Our plans to mitigate as much as possible of the 2025 impact are in flight staffed. And even if current levels continue, we expect to exit the year on a path to recover a portion of the 2025 impact in 2026. The tariff situation remains very fluid.

[Ben Berry, CFO at Enovis]

We are monitoring the events closely, and we will provide updates as appropriate as we gain further visibility into the outcomes as the situation evolves. To summarize on Slide nine, we had an encouraging start to 2025 and continue to see solid momentum to start the second quarter. We are pleased with our improving business mix and are excited about the new product innovations that should continue to ramp over the course of 2025. The underlying fundamentals of the business are strong, and we are poised to manage the business responsibly through this dynamic environment and maintain momentum towards our strategic goals. Kyle?

[Kyle Rose, Vice President of Investor Relations at Enovis]

Great. Thanks, Ben. Before we begin the Q and A session, in an effort to accommodate everyone on the call, we ask the analysts to keep the questions to one question and one follow-up. You are welcome to rejoin the queue if we have time. Operator, please start the Q and A.

[Operator]

Thank you very much. Our first question comes from Vic Chopra with Wells Fargo. Vic, your line is now open. Please go ahead.

[Vik Chopra, Analyst at Wells Fargo]

Hey, good morning and congrats on a nice start to the year. Two questions for me. The first one, Matt or Ben, I guess, you've laid out a number of mitigating actions in the slide deck. I'm just curious which of these you view as having the most significant potential to create durable supply availability over the long term? Then I had a quick follow-up, please.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yes. Thanks a lot, Vic. Yeah. As Ben mentioned, I think the best opportunity we have is quickly moving the sourcing of products out of China. That's where most of our tariff exposure is coming from.

[Matthew Trerotola, CEO & Chairman at Enovis]

We've already been been working on that and and brought it down over the past past twelve months, and and and so we feel comfortable. There's a number of other countries. In some cases, the same suppliers can move the product to another country. In some cases, we have to we have to resource. And, know, by by working aggressively on those, we can move, you know, move the number down, that that makes, the the amount that we need to work, you know, on other mechanisms, you know, like, you know, you know, commercial actions and things.

[Matthew Trerotola, CEO & Chairman at Enovis]

You know, that becomes a smaller number. And and so that's that's the sustainable way through this.

[Vik Chopra, Analyst at Wells Fargo]

Okay. Got it. That's super helpful. Just one more question for me. You know, in the deck, noted 12% plus extremities growth in q one. Would just love to hear what you're seeing with, the ARG launch and maybe just talk about general trends in the market overall. Thank you.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. So first, ARG launch is going terrifically. Like like any launch, we're taking it step by step, and we're just a handful of months, months into it, but it's it's going terrifically. And and you've seen even in even in q four and then then here in q one, you you can see the impact there, on our on our extremities growth, and, our shoulder growth is now comfortably back above the market as as we continue to have the the great, Ultvate product and and now the ARG that we're bringing with that. So, that's going very well.

[Matthew Trerotola, CEO & Chairman at Enovis]

As far as your com your question about markets more more broadly, you know, it's a good healthy start to the year. We we talked about there was a there was a good finish to last year. This year started out, strong. Actually, January and February were were really healthy. March was a month that had a few more, sort of vacations and and shows and things, And and so, you know, it was not as, I would say, not as hot as January and February, but the quarter as a whole was a a good solid start to the year, and we're seeing a good healthy April.

[Matthew Trerotola, CEO & Chairman at Enovis]

And so in The US, we're expecting at least a normal year of growth here in The US and outside The US, a good healthy start too.

[Operator]

You very much.

[Kyle Rose, Vice President of Investor Relations at Enovis]

Operator, next question.

[Operator]

Our next question comes from Vijay Kumar with Evercore ISI. Your line is now open. Please go ahead.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Hey guys, thanks for taking my question. Matt, wishing you the best as you transition here. Maybe one on The U. S. Performance here.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Braking came in pretty strong, 10%, that's well above normalized trends. And when I look at The U. S. Large joint performance, ex days perhaps 7%, eight % -ish. Was that in line with your expectations?

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Maybe just talk about The U. S. Performance bracing better with recon in line or perhaps any timing element out there?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. I'd I'd say, Vijay, thanks thanks for the comments. You know, certainly a healthy start in The US market in in in bracing, and and you know, we we were happy with that. I think that was consistent with what I commented about about the strong market environment that we saw in January and February. You know, often that flows over and helps helps bracing as well.

[Matthew Trerotola, CEO & Chairman at Enovis]

So we feel good about that start. The team did some great work last year driving clinic conversions that are helping getting getting soft to a great start this year as well. And there's some some great NPI in that in that business. As as we said on the slide, our our spine products we've been building out there grew double digits in the quarter. So so some good things going on there.

[Matthew Trerotola, CEO & Chairman at Enovis]

We're we're happy with that. On the on the recon side, our our start our q one was, you know, fully in line with with the expectations that we had. You know, we've been talking consistently about quarter by quarter progression in in that business and what we saw was was consistent with that. You know, certainly, you know, January and February suggested that it might have been even better. But then, you know, March, you know, kind of took back a little bit of that.

[Matthew Trerotola, CEO & Chairman at Enovis]

But when you step back on the whole quarter, we feel like, it was a good good strong quarter for our US Surgical business. And, you know, we're early days on the ARG launch. We just got our hip products into the market. We've got a number of enabling tech products that we got in, in Q1 and that are coming later in the year. So there's plenty of reasons to believe that we can sustain and build on that U. S. Surgical performance.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Understood. Maybe Ben one for you on gross margins, pretty strong Q1. You were up sequentially. Any one timers here on the gross margins or is this a sustainable number?

[Ben Berry, CFO at Enovis]

Yes, Vijay. I think it's very much positive business mix that we're getting in both sides of the business. I think the new products that Matt outlined are really contributing well and same on having really strong extremities recovery on the recon side, seeing the benefits of the higher gross margins there. Definitely feel like we've continued to mix and shape the company towards higher gross margin performance year after year. And other than the fact that we'll have some headwinds in the second half of the year with the tariffs as I outlined on the call.

[Ben Berry, CFO at Enovis]

But overall, I think underlying performance in gross margin is positive and I would expect that to continue.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Thanks, guys.

[Operator]

Our next question comes from Robbie Marcus with JPMorgan. Robbie, your line is now open. Please go ahead.

[Robert Marcus, Analyst at JPMorgan Chase]

Great. Good morning and thanks for taking the questions. Two from me. First, I wanted to ask on second quarter. It looks like first quarter was pretty much right in line with The Street on an organic basis.

[Robert Marcus, Analyst at JPMorgan Chase]

How should we be thinking about the seasonally stronger second quarter, within the guide just given the integration last year made for, some funky comps? And then I have a follow-up. Thanks.

[Ben Berry, CFO at Enovis]

Yeah. Thanks, Robbie. I think from our view, given that we had some tailwind from days in the first quarter, you'll see a slightly different pattern from in terms of how the seasonal performance works quarter over quarter. So again, it's very much in line with what we had outlined in our prior call with regards to our first half, second half splits in terms of our view on how we would expect the revenue to play out. And nothing's changed with regards to our outlook there.

[Ben Berry, CFO at Enovis]

So I think you have the information you need to kind of think how we're thinking about the second quarter.

[Robert Marcus, Analyst at JPMorgan Chase]

Great. Maybe on cash flow and financing, you're still calling for positive free cash flow. It was decently negative in the first quarter, and it looks like you hit the revolver for $70,000,000 Just maybe speak to the confidence and the progression of free cash flow through the year and where you expect to end the year on leverage? Thanks a lot.

[Ben Berry, CFO at Enovis]

Yes. Seasonally, first quarter is always our lowest as we pay out bonuses and things like that in the first quarter. So we're slightly ahead of our operating plans in terms of cash flow in the first quarter and we see clear signs for us to continue to drive improvements over the course of the balance of the year. So still very confident in the guidance that we put out there and feel like we continue to take ground on getting up the cash flow conversion curve that we've laid out very much a step forward this year as we see some reduction in some of the integration costs. And this is the last year where we're still spending a little bit more heavily on the EU MDR.

[Ben Berry, CFO at Enovis]

So there's a clear line of sight to continued improved free cash flow for the company, and I would expect that to continue as we move into the second quarter and the balance of the year. Obviously, we've got some challenges with the tariffs coming our way, so that'll put a little bit of a headwind in terms of our overarching operating plans that we had to start the year. But as we said, we're going to mitigate as much as we can and still be in a position where we can deliver positive cash flow in the year.

[Robert Marcus, Analyst at JPMorgan Chase]

And and the year end, leverage, where should we expect that to settle out?

[Ben Berry, CFO at Enovis]

Yes. I think we're still in the operating view that we'll be in 3% to 3.5% range in terms of leverage as we exit the year.

[Robert Marcus, Analyst at JPMorgan Chase]

Thank you very much.

[Operator]

Our next question comes from Caitlin Cronin with Canaccord Genuity. Caitlin, your line is now open. Please go ahead.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Hey guys, it's Mikaela on for Caitlin. Thanks for taking the question. Our first one, can you provide an update on the ARVIS shoulder launch, how it's progressing so far, when you expect a broader rollout? And are you still expecting an OUS launch of the Arvestech this year?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. Thanks for the question. The Arvest shoulder launch is going really well. You know, we've we've specifically only put it in a certain number of surgeons' hands to make sure that we we get some great feedback and and sort of, you know, control the rate of the launch. But, you know, the response from the surgeons that have gotten a chance to use it has been extremely positive.

[Matthew Trerotola, CEO & Chairman at Enovis]

And, you know, I would say the the other effect that we probably underestimated is as we bring ARVIS to local events, you know, around the country, we are finding that the amount of surgeons that wanna come out to the local event and learn about ALTIVATE so that they can see ARVIS is significant. So we're excited about the response to the the the product as as well as just the buzz and and energy it's creating around our shoulder business as a whole and and and the, you know, the growth acceleration there. And so feeling very good about that.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Awesome. Thanks. And just just one more. Can you speak a little bit to the cadence of other new product launches plans for this year and if it's still if they're whether they're still aligned with your original expectation?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. New product launches broadly, not not just enabling tech?

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Yeah.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. Yeah. So we we we've got a great lineup of of new product launches. Some of them launched, you know, late last year and and are now just building this year, and we've got others coming through this year. On the, you know, on the recon side, we, you know I I didn't mention in my comments, but we're still making hay with with our knee revision products.

[Matthew Trerotola, CEO & Chairman at Enovis]

Right? We we brought some great products out now, you know, a year or so ago, but then added the Lima products, and we've now, you know, got the you know, in terms of the revision and the cones, that we've got between what we launched and and what came with Lima, we've really got the, you know, the the the the best revision, you know, sort of cone solution out there, we think. And so we're really happy with the momentum in revision in knee from those launches from a little while back. We've got the ARG from late last year that is is ramping quarter by quarter here and and really a real positive in in shoulder. And then we just got into the market, at the end of the quarter, our, you know, colored stem, the the nebula in hip and the hip impactor to go with that.

[Matthew Trerotola, CEO & Chairman at Enovis]

And, again, that's that's in a controlled launch now, so it's gonna be kinda quarter by quarter in terms of how that, how that ramps. But so for each anatomy, you know, something really good to be be run with and then the enabling tech, the, you know, the guidance products, or the guidance technologies and enabling tech of ARVIS as well as our NAV three sixty in knee and gap balancing for both of those products this year as as well. So on the recon side, a lot of great things going on. And and on the PNR side, some some great things in in terms of spine braces. Rome away is still ramping, and the the Manifuse product that's that's given us great runway, in our recovery sciences bone stem business.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Great. Thanks so much.

[Operator]

Our next question comes from Dane Reinhart with Baird. Dane, your line is now open. Please go ahead.

[Dane Reinhardt, Senior Equity Research Associate at Baird]

Hey, good morning guys. Thanks for taking the questions here. I just wanted to maybe double click on kind of following up on Robbie's question regarding cash flow. First, can you just remind us how you're thinking about CapEx this year? And I know the size of the company has kind of grown 50% since the Mathis and Lima deals over the past few years, but CapEx is also up almost three times that amount or three times the amount it was a few years ago.

[Dane Reinhardt, Senior Equity Research Associate at Baird]

So wondering kind of what you're thinking about CapEx levels over the next few years. And then I know your free cash flow goal or conversion, I think, is 70% to 80% over the long term. Can you just kind of remind us, do you have a timeline around that target?

[Ben Berry, CFO at Enovis]

Yes. Thanks, Dane, for the question. So yes, I think as the businesses continue to evolve and we've brought in Lima and as we've continued to scale the foot and ankle business and as we're investing for growth, we've been putting in the necessary instrumentation to support that growth, which creates some a little bit of elevated CapEx just as we're getting started in terms of driving some of the opportunities there to grow above the market. Second thing that's happening in CapEx is that we continue to invest to expand facilities and to get after some of the integration synergies that we'd identified as part of the Lima deal. So we're in a little bit of an elevated phase of operational CapEx right now as we are putting in place the equipment that's necessary to get after some of the next phase of our synergies that will return to the bottom line.

[Ben Berry, CFO at Enovis]

So overall, we feel like we're in probably a next one to two year of a little bit of elevated CapEx spend on the operational side, but that will get more efficient as we clear 2026. Same as we get the growth investments put out there, you'll see some efficiency in CapEx over time. It won't be overnight, but it will be, I'd say, steady over the course of the next several years. So as we look at the integration spend levels, those will step down significantly. As we look at our European medical device regulation spend, this is the last heavy year of spend there.

[Ben Berry, CFO at Enovis]

And as normalize some of the CapEx spend, our entitlement of where our free cash flow is already getting closer to that number that you described. And then as we drive more efficiency in the supply chain and as we continue to leverage the business and scale it, we'll we'll get to the the next, you know, step up to to get into that 70 to 80% range of the company. And it's, you know, even even potential to get better than that over time, I think. But but our view is that we're gonna continue to invest in the growth of the business. We're going to continue to be disciplined in terms of how we continue to drive profitable growth and let that growth scale into our cash flows.

[Ben Berry, CFO at Enovis]

And overall, we feel very much over the next few years that we'll be in that range of the targets that we've laid out and then giving ourselves the opportunity to reinvest in the business and look at continued M and A agenda to strengthen and shape the company towards our strategic goals.

[Dane Reinhardt, Senior Equity Research Associate at Baird]

Okay. Thank you for that. Appreciate it. And then just my follow-up. I think in past quarters, you've maybe broken out the growth in extremities between shoulder and foot and ankle.

[Dane Reinhardt, Senior Equity Research Associate at Baird]

And I think for a few quarters last year, and ankle was kind of leading that. Just wondering if you could provide an update there kind of between those two sub segments, foot and extremities. Thanks.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yes. So in the first quarter, definitely, our shoulder business drove the extremities growth and and, you know, return to a nice healthy above market there. We feel like our foot and ankle business was above the market growth, but we do think the the first quarter in foot and ankle was a little slower market growth than than usual. And and so shoulder drove, foot and ankle still above market, and, you know, we still feel comfortable that the combination of those can grow well above market and and be a, you know, double digit piece of the overall recon equation.

[Operator]

Thank you very much. Our next question comes from Danielle Antalffy with UBS. Danielle, your line is now open. Please go ahead.

[Danielle Antalffy, Analyst at UBS Group]

Thank you so much and congrats on a great start to the year. Just a a quick question for you on the broader macroeconomic environment, if I could. I I appreciate all the commentary on tariffs. But, you know, one of the questions is, do we don't we go I'm I'm certainly no economist, so I I can opine.

[Danielle Antalffy, Analyst at UBS Group]

But just curious if you could lay out how recession proof or not you think the business is. And then I just have one quick follow-up.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. Thanks for the question, Danielle. You know, one of the really great things about the businesses we're in and the markets that we serve is is that they have consistent long term growth and, you know, typically have had, you know, limited impacts even in even in significant recessionary period. I think if you go to some of the worst recessionary periods, you know, maybe the markets we serve kinda went flat, and and that that's something we've studied quite a bit. And so we feel like our our markets are you know, should remain healthy.

[Matthew Trerotola, CEO & Chairman at Enovis]

Sure. You know, if there's a recession, there could be some modest impact from some of the discretionary decisions that are made. But we would think that in a recessionary period, our markets will perform substantially better than many other markets.

[Danielle Antalffy, Analyst at UBS Group]

Gotcha. Okay. That's helpful. And then you guys have laid out margin expansion goals annually in the in the past then, and I'm just curious if the tariff dynamic changes any of that or if we could still think about 50 basis points per year as sort of the underlying goal here. Thanks so much.

[Ben Berry, CFO at Enovis]

Yeah. I I think thanks for the question, Danielle. We we are very much still committed to to driving that profitable growth and margin expansion. I mean, obviously, the guidance that we updated today would put a little bit of a, I'd say, delay in our approach versus where we expected this year to play out in terms of those goals. But as I mentioned in my commentary, we feel this will be more of a onetime thing that we will lap pretty quickly here and get back to momentum as we get into 2026.

[Ben Berry, CFO at Enovis]

So overall, fundamentally, the business is set up to drive that profitable growth where we're getting the mix of the business, continued scale from some of the recent acquisitions and further synergies from the Lima acquisition that we did. All of that will contribute to good strong profitable growth. We see both opportunities in each segment to drive both gross margin and leverage improvement in each of the business segments. So we're still very bullish in terms of our ability to drive, good strong profitable growth. Now, obviously, 2025, depending on how the tariff situation plays out, might put a little bit of implication on what we can do in year this year.

[Ben Berry, CFO at Enovis]

But again, like I said, we'll quickly get back to driving margin improvements as we get into 2026.

[Operator]

Thank you. Our next question comes from Mike Matson with Needham. Mike, your line is now open. Please go ahead.

[Joseph Conway, Equity Research Associate at Needham & Company]

Hi, guys. This is Joseph on for Mike today. Maybe just to start it off, gross margin saw some great improvement there. Could you maybe give us some color about, you know, maybe why more of that improvement didn't flow through to the EBITDA margin?

[Ben Berry, CFO at Enovis]

Yes. I'd say, again, as we are investing in the business for growth, some of the phasing of our operating expense spend, especially as we get off to a strong start with some of the the conferences that we attend and some of the medical education events that we invest in as well as, I think, we've described a lot of the the new products that we're launching, which requires some investments as as we're really launching those products. So overall, we continue to invest in the business to to make sure we're we're creating sustainable growth momentum, and and the the increases in gross margin are are really helping us make those investments while still delivering good strong profit expansion at the same time. So that's the formula that worked in Q1. And overall, I think we set the business up to continue to be in that kind of momentum.

[Joseph Conway, Equity Research Associate at Needham & Company]

Okay. Great. And then maybe just one on the Manifuse launch. Just wondering if you can maybe talk a little bit more about the product and and the the opportunity here. I mean, should we be thinking about this more as of a a product cycle upgrade, or are there any features on Manifuse that are, you know, very differentiated from either your your legacy, you know, Bunsen products or maybe competitors?

[Joseph Conway, Equity Research Associate at Needham & Company]

And then just an add on to that, have you guys heard anything about, you know, potentially reclassifying these devices? Is is there any risk to that? I don't I don't think we've heard much about that. You know, that was discussed more in 2020.

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. No. Thanks for the question. No. Manifuse expands expands the market and will accelerate the growth of our of our business there.

[Matthew Trerotola, CEO & Chairman at Enovis]

So, you know, we we serve the the spine market with our bone stem, and then we also serve the the fracture market as a smaller smaller part of that of that business. And there's, you know, still plenty of healthy growth with the traditional technology that that we've had in in the spine market, you know, as as well as as well as in fresh fracture in the, you know, in in the fracture market. But there's also an opportunity that is you know, has been emerging with LIPAS ultrasound technology to drive further into the fracture market. And, you know, the fracture market has the potential to be as larger larger than the spine market. It's just that it's many indications versus spine is, you know, is less is is just a few. And and so, you know, we are really excited that, you know, the the manna Manifuse product gives us the opportunity to within the same channel, to get at additional market, in some cases, additional opportunity with, the same customers and, in some cases, drive to new customers.

[Matthew Trerotola, CEO & Chairman at Enovis]

And it it really takes a a business, you know, that has had, you know, maybe more low single digit market growth rate, you know, and moves the market growth rate opportunity for that business above that, and it it makes our opportunity in our business to be at least mid single and and an opportunity to drive more high single digit growth within that business, within PNR. And it's a very high gross margin business with with, you know, with great profitability. As far as the reclass unit class, there is no meaningful discussion going on about reclassifying. And would also say that we believe that if any reclassification did take place, it would actually have the potential to meaningfully accelerate the the rate of growth in the business because of the innovation that it would open up and the opportunity to get more more market access. And and so while we do not see any reclass on the Verizon, we actually believe there's, you know, as much opportunity that that could be a good thing as a bad thing if it if it were to happen.

[Joseph Conway, Equity Research Associate at Needham & Company]

Okay. Great to hear, and congrats on the on the quarter. Thank you.

[Matthew Trerotola, CEO & Chairman at Enovis]

Thank you.

[Operator]

Thank you very much. Our next question comes from Russell Yen with William Blair. Russell, your line is now open. Please go ahead.

[Russell Yuen, Equity Research Associate at William Blair]

Hey guys, this is Russell on for Brandon Vasquez. I have two for me. Starting at a more higher level, could you guys talk about what you're seeing in regards to the pricing environment and whether there's any potential for price given any potential like inflation or tariffs headwinds?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yes, sure. So on the P and R side, we've talked for a while about, you know, a sort of a flatter price environment that emerged after after some of upward pricing front you know, post COVID, and we're still in, you know, sort of a flattish price environment in in PNR, but certainly with, you know, various source of inflation, you know, starting to flow through there again. And and so, you know, so we're we're gonna be kinda looking looking carefully at at that. As far as recon after a more stable price environment, there is now a little bit of downward trend in the recon price environment. There's a nice offset there that a lot of the new products are mix enriching.

[Matthew Trerotola, CEO & Chairman at Enovis]

And so the net effect is pretty decent there. But definitely, we've seen the recon market move into a little bit more of a downward price environment now, but certainly remains to be seen with questions about tariffs and inflation and things as to whether that that might shift as we work through this year.

[Russell Yuen, Equity Research Associate at William Blair]

Great. Thanks. And then, secondly, on the recon side, internationally, you guys grew pretty well, more specifically with, like, cross selling. Could you guys talk about more on the durability of that and where you're seeing the pockets of strength?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. Our our international mart you know, team has done terrifically. Really, you know, if you look at we brought those teams together early last year. Lots of work, to to put the channel together, you know, to put put the full offering together, etcetera, and just tremendous growth all through last year. Now a tremendous start to to this year on on top of a strong first quarter last year.

[Matthew Trerotola, CEO & Chairman at Enovis]

So really pleased to see that. Certainly, the markets out there had a good healthy start, but our growth is definitely above those markets. And I think that's a tribute to the strength of our commercial channel out there that we've assembled, the strength of the full product line that we've got, the ability that it gives us country by country to focus on the products that can be grown the most. And so, you know, we're actually in the early days on cross selling and still growing at the growth rates that we are. Now as far as your question about durability, I think that, you know, as the you know you know, practically speaking, probably those markets are a little stronger than they might be over time.

[Matthew Trerotola, CEO & Chairman at Enovis]

And as the market continue to normalize, we are gonna be driving more cross selling and expand our, you know, our delta to the markets. And and we certainly believe that international can play the role they need to play in our overall recon, you know, strategic growth.

[Russell Yuen, Equity Research Associate at William Blair]

Great. Thank you.

[Operator]

Our next question comes from Young Lee with Jefferies. Young, your line is now open. Please go ahead.

[Young Li, Senior VP - Equity Research at Jefferies]

Hi, great. Thanks for taking my questions. Matt, it was great working with you over the past three years and good to see that you're leaving the company at a strong position and the smooth leadership transition. First question on PNR, pretty good start to the year above guidance performance. You talked about some of the new products driving that.

[Young Li, Senior VP - Equity Research at Jefferies]

I think the outlook for the year still assumes low single digit growth. So just kind of curious, the comps get easier through the year, why sort of the decel for that business?

[Matthew Trerotola, CEO & Chairman at Enovis]

Yeah. Thanks. Well, first, thanks for your thanks for your comments. You know? And and I really I, I do believe, you know, as you said, that the company, is is very strong and has great momentum, and and so feel very good about the about the timing here.

[Matthew Trerotola, CEO & Chairman at Enovis]

As far as PNR, yeah, great start. You know, look, you know, PNR is the the part of the company where, you know, we need to work through the, you know, the tariff impacts and and try to have, you know, maximum mitigation of those impacts. It's also, you know, got the most diverse set of end markets and and both kind of, you know, in terms of indications and customers as as well as geographies. And and so while we did have a good strong start there, we think, you know, that the appropriate thing to do is to still have the, you know, the same full year guidance, and and work on trying to outperform that, but, wait till we see some more of the movie to, to to lock that in.

[Young Li, Senior VP - Equity Research at Jefferies]

Okay. Very helpful. I guess just on the tariff mitigation efforts, think you guys called out SKU optimization and rationalization. Can you quantify how much rev could be impacted?

[Ben Berry, CFO at Enovis]

Yeah. We're still working through that. As you can probably imagine, Young, is we're we're aggressively working on the project plan to shift a lot of those products to other geographies. Now there are some products that just have smaller margins that we will take advantage of shaping in a more aggressive move this year with regards to our overall end goals of trying to create more growth momentum and mix advantages within the P and R business. So we won't quantify it yet.

[Ben Berry, CFO at Enovis]

But as Matt said, in terms of our conservative view, terms of the guidance right now, it's contemplated some of those moves with regards to some skewed trimming and rationalization, and we'll continue to work that as we go forward here.

[Joseph Conway, Equity Research Associate at Needham & Company]

All right. Great. Thank you very much.

[Operator]

Thank you very much. We currently have no more questions. I will hand back over to Matt for any closing remarks.

[Matthew Trerotola, CEO & Chairman at Enovis]

Thank you. Thank you for joining us this morning. As I said earlier, this will be my last earnings call as the CEO of Innovus as my successor, Damian McDonald, will take the helm next week on the twelfth. I want to take this opportunity to thank each of you for your attention and support of Innovus and its predecessor, Colfax, throughout my tenure. You're in good hands with Damian and Ben and the rest of the team.

[Matthew Trerotola, CEO & Chairman at Enovis]

Thank you for listening in today, and we look forward to sharing our second quarter results with you in early August.

[Operator]

Thank you very much, Matt, and thank you for all the speakers on today's line. Thank you, everyone, for joining. You may now disconnect your line.

Participants

Executives

• Kyle Rose, Vice President of Investor Relations
• Matthew Trerotola, CEO & Chairman
• Ben Berry, CFO

Analysts

• Vik Chopra, Analyst at Wells Fargo
• Vijay Kumar, Senior Managing Director at Evercore ISI
• Robert Marcus, Analyst at JPMorgan Chase
• William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets
• Dane Reinhardt, Senior Equity Research Associate at Baird
• Danielle Antalffy, Analyst at UBS Group
• Joseph Conway, Equity Research Associate at Needham & Company
• Russell Yuen, Equity Research Associate at William Blair
• Young Li, Senior VP - Equity Research at Jefferies