Enovis Corporation Q1 2023 Earnings Call
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To the first quarter of 2023 earnings conference call.
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[laughter].
I would not like to turn the conference over to Derek Vice President of Investor Relations.
Ahead Sir.
Thanks for walking with good morning, everyone. Thank you for joining us today for our first quarter 2023 results conference call.
Vice President of Investor Relations joining me on the call today are match your total chairman and Chief Executive Officer.
Barry Chief Financial Officer.
Release was issued earlier this morning, it was available in the investors section of our website <unk> Dot com.
You'll be using a slide presentation of today is Paul which can also be found on our website. Both the audio and the slide presentation of this call will be archived on the website later today. During this call will make some forward looking statements about our beliefs some estimates regarding future results.
Those forward looking statements are subject to risks and uncertainties, including those set forth in the safe Harbor language in today's furniture leash.
With the F C C.
Actual results may differ materially from any forward looking statements that we may make today.
Looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law.
With respect to any non-GAAP financial measures reference to stay on the call today.
The accompanying reconciliation information related to those measures can be found that our press the earnings press release in the appendix it today a slide presentation.
What's that let me turn the call over Tibet will begin on slide three map.
Oh well.
Hello, everyone and thanks for joining us today, we we had a strong first quarter, but before I discuss the results I want to recognize the efforts of our fantastic global team of dedicated associates.
Every day to execute our strategies and help our patients live.
And fulfilling lives.
It was a great quarter.
It's good it's like three and talk about some of the highlights.
We grew organically by over 9% with 19% growth and recon and 4% growth and PNR clear.
Clearly there were some tailwinds out there on the recon side, but to step back view is continued strong outperformance in a strong recon market and the expected market recovery and PNR.
We expanded our EBITDA adjusted EBITDA margins by 120 basis points, reflecting the mix impact a strong recurring growth.
Productivity from <unk> price progress in moderation in some areas of inflation.
We signed a key strategic acquisition and foot and ankle in the quarter and another one in April .
And we're seeing strong growth momentum and a healthy scaling the full set of acquisitions. We completed in the last few years overall, a really great start toward our twenties twenty-three objectives.
Enrica on slide four we had high double digit growth in the U S.
Led by over 20% organic growth and hits.
Extremities grew 14% led by shoulder.
Yep.
Pleased to see.
Brand and presence flourishing in a strong European market.
Rebuilding momentum in Australia.
I'm excited about the initial traction we're seeing as we begin to cross sell our market, leading in power and ultimate products internationally.
And we have a strong pipeline of innovation in the U S. As we continue the rollout of the <unk>.
The markets were strong in Q1, and we took full advantage once again growing well above the other <unk> leaders.
Turning to slide five I wanted to take a moment to discuss what we're doing to further strengthen our position in the fast growing foot and ankle market.
Build a strong foundation with differentiated product offerings in the hind foot and Midfoot segments, and we're adding some key new technologies for the rapid you rapidly growing.
At four foot space.
We announced the acquisition of noticed step, which gives us a comprehensive set of products for bunion surgery, the largest and fastest growing part of the foot and ankle market at almost a billion dollars per year a market.
Whenever possible surgeons want to address these issues with a minimally invasive solution that now we have BD, leading percutaneous percutaneous M. I ask solution for these procedures.
And and Q2, we will launch evolved 34, a product focused on the large fast growing lap at a segment of the bunion market.
You'll be a terrific complement to the notice step M. I S offering and coupled with our great fighting and staple line gives us a robust offering for the entire bunion segment, regardless of severity or indication.
Nope.
<unk> channel and approved products outside the U S accelerating our global progress and foot and ankle.
We also announced the acquisition of seals, leading external fixation product line.
Which compliments, our existing offerings and strengthens our channel position.
Overall, I'm very pleased with the progress, we're making to build a leading foot and ankle platform.
Page six or 4% organic rose reflects a rebound volume as market's recovery.
You can see on the right that over the past five quarters, we've had average growth in the 3% to 4% range in line with our expectations.
We've applied E G X principles and tools to improve and strengthen our supply chain and we're seeing the results with more resiliency and better service levels, even as we begin to bring back down inventory levels in some areas.
And state soon we have a nice pipeline of additional breaking launches coming later in 2023 that will help us to sport PNR growth.
Now, let's take you through the piano details in our positive Guy Who's update Ben.
Thanks, Matt and thanks, everyone for joining our call today I'll start my prepared remarks on slide seven.
For the <unk> for the corner, we grew 8% or 9% organically.
Foreign currency had 150 basis point negative impact on sales, we deliver it another quarter of double digit recon growth and achieved mid single digit growth and R. P in our business.
Gross margins increased 170 basis points versus prior year, reflecting are faster growing and higher margin recon segment.
As well as taking some ground on price versus cost.
We saw strong performance at our operations, realizing the benefits from our business mix.
Proven business system and strong will average growth.
And a quarter or operating expenses were up 40 basis points as a percentage of sales. This is largely driven by investments in research and development primarily in a recon segment as we continue to integrate and scale recent acquisitions and fuel healthy innovation pipeline.
R Q1, EBIT grew 18% versus prior year.
Thing and a margin expansion of 120 basis points, and reflecting are strong profitable growth and a quarter.
Are effective tax rate for the quarter was 21 per cent.
Interest expense came in at 5.7 million.
We posted strong adjusted earnings per share of 44 cents or 19 per cent growth versus prior year. We are pleased with our results in the quarter and are clear progress executing against our strategic goals.
Moving to slide eight considering R. Q1 moment, we are raising our organic sales growth outlook for the year to 6% to 7%.
Markets got off to a strong start an R. P. In our business grew in line with our with expected levels.
We expect a slightly more difficult prior year comparison in the coming quarters, but we're confident that our Q1 results will lift the overall growth performance for the year. Two two has roughly one point of growth headwind due to less selling days and we expect the queue to growth to be within the updated guidance range.
We are raising the full year adjusted EBITDA and EPS ranges to reflect our queue one performance.
Our new outlook for adjusted EBITDA is 259 to 267 million with adjusted EPS of $2, an 18 cents to $2.32.
While we are still experiencing some headwinds from inflation a currency on our operations, we expect our queue for Q1 performance to read through for the full year.
Excited about a recently announced acquisitions complementing our existing foot and ankle platform. Those acquisitions will initially, bringing approximately 25 to 30 million of annualized sales.
Gross margins and a double digit growth profile. We expect these deals to have a slightly negative impact on earnings for the full year, but they should turn accretive to earnings beginning in 2024 as they scale.
To summarize on slide nine we had a strong Q1, leading us to raise our full your guide.
Menstruate, a strong above market growth and are confident in our strategy of building a sustainable high single digit growth company. We took another step forward and expanding our margins and have a clear path to continue this momentum.
We continue to execute our M&A strategy as evidenced by the two deals that we highlighted on this call.
Example of a rich funnel across our business, a prospective deals and a strong balance sheet with ample capacity to execute.
And now we will move to Q&A Brocco. Please open the call for questions.
Thank you if you would like to ask a question. Please first stars in one.
If your question has already been addressed as I would like to withdraw your question. Please press starven too.
So the first question comes from <unk> with Wells Fargo. Please go ahead.
Good morning, and thanks for taking my questions.
Question to me I'm Gonna ask them, both upfront I guess first on PNR I would love to hear what kind of what you're seeing in the market with regards to volumes and how you know think about that business going for the rest of the 20 twenty-three and my second question is just on guidance you know you'll release guidance after a nice beat.
We just kind of help us scream out how you.
Uhm off the guidance on what what gets you there is top ambushes willow and thanks for taking the classics.
Okay. Yeah. Thanks, Thanks, a lot so yeah as as as we've been saying through through the corridor. We we expected PNR volumes to recover in in the first quarter after a little bit of pressure there in the back half of last year that showed up in queue for and and we saw that recovery back into that.
The normal range for for PNR, Yeah, especially if you actually look at our R. P. In our business back to back to 19, it's it's been kind of Ah.
No place in terms of the the growth from 19 in Q1, and we do we expect P. In order to stay in a similar growth range as we go through through the through the balance of the year, the cops get actually a little bit tougher in the next quarter or two and then you know easier in in queue for and we expect to be.
And that similar kind of growth range is what we've what we've shown is where the business has been performing.
<unk> and I'll take of the the guidance question you know I think you know we we have a good start to the year. We're excited about the start we're still being a little bit cautious as we think about about the balance of the year in terms of what may or may not happen with regards to just the the the market in general So we're trying to keep the <unk>.
<unk> of being a little bit more cautious just to anticipate that there could be some bumps in the road as we think about the balance of the year, but but hopefully we'll we'll continue to see this momentum in Q1 continue to play through and then have a little bit of a website.
Thank you.
One of our next question comes from Vijay Kumar with a recording.
Please go ahead.
Hi, This is Sophia on <unk> two part question Uhm first it.
Decided greater than expected procedure recovery and staffing and supply improvement can you give any update on what you're seeing uhm and can you provide any color on how much backlog contributed to organic growth this quarter.
Yeah. So we saw a good strong Q1 as well.
What you saw in Q1 in the U S is.
Normal healthy levels, you know, it's a note staffing pressure plenty of demand no COVID-19 pressure. So I think it's a normal healthy levels in the U S. Maybe even a little better than normal and then you know and then you know a soft cough because of the pressure on last year and so you know, we and everybody in the industry.
Very strong growth in Q1, and and we continue to have much stronger growth than than the rest of the leaders in Q1 outside the U S. You know in addition to you know a little bit easier cause there there are some countries, where there on overdrive and they're they're actually you know working off significant backlogs absurd.
Three countries like Germany.
We're gonna have significant backlogs of surgeries and running higher than than normal levels, and and obviously, we saw that as well with well over 20 per cent growth outside the outside the U S and and and so as we move.
Through the year, we expect to see normal seasonality play out in the U S, which you know will you will lead to lower but still very healthy growth as the <unk> you know become more normal in the coming quarters.
Outside the U S. You know things could remain hot.
For for another another quarter or so, but then I think we need to be a little <unk> little bit cautious.
<unk> is about what happens in the back half of the year. Once you get through that period of some of the country's going on overdrive, but but overall. It's you know it's like you know good strong start in the elective surgery area in in in in <unk> and you know, we we expect the balance of the year or two what.
Play out in a strong way again, not not with some of the extra tailwinds a few one but still in a very healthy.
<unk> place in terms of this year's performance.
You tried to talk about what the inflation impact lives uhm and what pricing wise in a corner and just kind of overall you know what 12 that performance and should we think about to be in line with one can you are kind of about that level.
Yeah I'll take your questions that thanks for the question here, Yeah happy happy with our gross margin expansion in in the corridor a lot of that driven by our business mix like I like I mentioned in my remarks, you know strong <unk> performance, which brings you know above average margins.
Compared to our overall company, we have taken some ground on the the price cost equation I would say that we're getting about one to two per cent price on the PNR side of the business. We've seen some inflation moderate in certain areas with regards to inbound fray some some plastics, we still see some.
<unk> around outbound for eight surcharges wage inflation and some metal you know challenges in in certain parts of our supply chain, but overall I feel confident that we continue to take good ground <unk> productivity in our operations to overcome some of the challenges that were saying and call back some of that in place and.
They came after us over the last couple of years. So you know I would expect gross margins to be kind of in line a little bit maybe lower than what we saw in Q1 as we think about the the coming quarters, but overall you know good strong start here in the ear.
Alright, Thank you very much.
Thank you and our next question comes from Carl Ruth <unk>.
Great Good morning, everybody.
Just like questions for me do you have questions for me really is how should we think about the impact of of the revision platform on the U S. As we move through the year is that more you know you're bringing a new customers that were may be waiting for you to have a revision set before they adopted primary or or are you you captured incremental.
There is an existing new customers.
Yeah. Thanks for the question Yeah. It should be a combination of both you know just like some of the other keep product. We brought out you know the compliment our lines in the in the past years. It gives us an opportunity to to sell into existing customers surgeon that we've converted already and now serve that part of their offering you know what you mean.
Revision is you know what kind of 15 to 20 per cent of the overall market. So we get a chance to to sell some more into existing customers and then we also have some surgeons that wouldn't convert until we had that empower vision and now we do so it'll be a combination of both you know that products really just wrapping as we make our way through this year and and you know.
We already have extremely strong he growth right now and and that'll just you know continue to put put you on that as we work our way through this year and into into next year.
And then just from a high level of how should we think about U S vs. O U S. Recount grocery forward I mean, Oh, you as obviously smaller base, but you know you've got some cross selling opportunities with the <unk> you know integrating the math this portfolio in the historic D. J O portfolio, but then on the U S side you still have.
You know products like empower come in a power revision coming so I mean, it is it fair to say that you know they should be growing about equal moving forward for the foreseeable future until until maybe it empower annualizes or should you should O U S market, you know grossest anally higher than than the U S market.
Yeah, I think I on a on a longer term basis. You know, we we we expect to you know probably grow.
Higher in the U S.
Then O U S. You know based on a combination of the you know the kind of strong double digit growth that we've done you know for a decade now in the U S and continuing to fuel that with with innovation and fuel that commercial lines and we've got there with innovation and then you know put an ankle growing well into the double digits as well as it gets tedious.
Grow in scale, we think that combination over there kind of medium term should have that the U S business further into the double digits and you know we've we've always talked about the outside the U S business being you know at least high single digits, and pushing double digits and that combination getting us our double digit growth over time now in the short term.
I think the the outside the U S business says the potential for more tailwind certainly in the in the coming quarters, you know in line with some of my earlier comments.
And even agonising do from this here in the next year and we ramp up some of that synergy sales I think there is a possibility for the you know for the outside the U S business to grow as fast or faster than than the U S.
Okay, and then last question I'll hop back areas, just your M&A expectations moving forward I mean.
<unk> talked about the strength of the balance sheet. There, obviously, it's been a little bit more of a talking strategy uhm.
Historically, you just wanted to see we should think about tuck ins vs. Transformational adjacent type of type of deals longer term. Thank you.
Yeah, So what what first got we're super excited about the the two deals we're talking about here on the call. They they they really solidified the think we've said all along that we've got a strong foot and ankle platform and we could continue to build out the rest of it organically or can bring some other strategic technologies in and and I think the deals we.
Talked about here you know, particularly note with Steph really round out you know so very powerful offering to go after all aspects of of putting ankle, which is powerful with the surgeons and also powerful with the channel and and so we feel very good about that and you know certainly there are you know.
Other possibilities to think about within that that space, but we've done a lot there and I think <unk> will be <unk>.
More focused on organic execution, you know in that space. You know, we do see other strategic Adjacencies you know to to look at you know with within you know.
<unk> and and a little bit on the piano our side and so you know we've got a healthy fun with things that we could do all with a focus on accelerating our growth, bringing strong gross margins. So either you know technology's accelerate our growth things that open up tractive adjacent indications or Geography's and.
Well, we've got a healthy final expect to continue to execute using the great balance sheet that we've got and and you know certainly you know focused on you know small and medium sized kind of deals versus big transformational things.
Thank you next question comes from Jeff Johnson Bird. Please go ahead.
Thank you good morning, guys.
My email or the European market cloud just kind of.
You know being maybe even a little faster and recover here and really burning some seven up a cloud.
The last I think none of us probably know.
Kind of an operating under the assumption that may be able to change a couple of years to get through the U S back while I'm just azhar's operate pretty.