Q2 2024 Enovis Corp Earnings Call

Speaker Change: Good day and welcome to the Enovis second quarter 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Operator: All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kyle Rose, Vice President of Investor Relations. Please go ahead.

Speaker Change: To ask a question, you may press star, then 1 on your touchtone phone.

Speaker Change: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Kyle Rose, Vice President of Investor Relations. Please go ahead.

Kyle Rose: Good morning, everyone, and thank you for joining us today for our second quarter 2024 results conference call.

Speaker Change: Good morning, everyone. And thank you for joining us today for our second quarter 2024 results conference call. I'm Kyle Rose, Vice President of Investor Relations.

Kyle Rose: I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call today are Matt Trerotola, Chair and Chief Executive Officer, and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investor section of our website, Enovis.com.

Speaker Change: Joining me on the call today are Matt Trerotola, Chair and Chief Executive Officer, and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the investor section of our website, Enovis.com.

Kyle Rose: We will be using a slide presentation in today's call, which can also be found on our website. Both the audio and the presentation of the call will be archived on the website later today.

Speaker Change: We will be using a slide presentation in today's call, which can also be found on our website. Both the audio and the presentation of the call will be archived on the website later today.

Kyle Rose: During the 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. The forward-looking statements speak only as of today, and we do not assume any obligation or intent.

Kyle Rose: 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, I'll turn it over to Matt, and we'll begin on slide three.

Speaker Change: During the 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.

Speaker Change: Actual results might differ materially from any forward-looking statements that we make today. 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.

Speaker Change: 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, I'll turn it over to Matt, and we'll begin on slide three. Matt?

Matthew Trerotola: Thanks, Kyle. Hello, everyone, and thanks for joining us this morning. Let's start on slide three. We had an exciting first six months of 2024. We've made tremendous progress on the integration of Lima and delivered on our plans for sustainable, profitable growth. In the second quarter, we delivered reported growth of 23% year-over-year and 5% on a comparable basis. We expanded our adjusted EBITDA margins by 190 basis points, reflecting the mix of recon, productivity improvements, and a step-change impact from Lima.

Matt: Thanks, Kyle. Hello, everyone, and thanks for joining us this morning.

Matt: Let's start on slide three. We had an exciting first six months of 2024.

Matt: We've made tremendous progress on the integration of Lima and delivered on our plans for sustainable profitable growth in the second quarter We deliver reported growth of 23% year-over-year and 5% on a comparable basis

Matt: We expanded our adjusted EBITDA margins by 190 basis points, reflecting the mix of recon, productivity improvements, and a step change impact from Lima.

Matthew Trerotola: Overall, we are pleased with our accomplishments in the first half of 2024 and are confident that we've set ourselves up for a strong second half of the year. In the recon on slide four, we delivered 60% reported global revenue growth. Recon grew 7% on a comparable basis in the quarter, or about 10% when adjusting for estimated impacts from planned integration related to synergies. We continue to see the majority of integration-related impacts in our directly overlapping U.S. recon. In the quarter, U.S. recon grew 1%, including 2% growth in U.S. extremities and 2% in hips and knees. While these U.S. growth numbers are well below our typical growth levels, the causes are well understood and temporary.

Matt: Overall, we are pleased with our accomplishments in the first half of 2024 and are confident that we've set ourselves up for a strong second half of the year.

Matt: In RETON, on slide 4, we delivered 60% reported global revenue growth.

Matt: Recon grew 7% on a comparable basis in the quarter, or about 10% when adjusting for estimated impacts from planned integration-related dissynergies.

Matt: We continue to see the majority of integration-related impacts in our directly overlapping U.S. recon business.

Matt: In the quarter, U.S. recon grew 1%, including 2% growth in U.S. extremities and 2% in hips and knees. While these U.S. growth numbers are well below our typical growth levels, the causes are well understood and temporary.

Matthew Trerotola: In the international markets, we grew 14% in a resilient market while we continue to execute our integration plan. On slide five, I want to update you on the progress we've made since closing the LEMAC position on January 3rd. Since day one, our integration activities have gotten off to a strong start with no major unforeseen issues.

Matt: In the international markets, we grew 14% in a resilient market while we continue to execute our integration plans.

Matt: On slide five, I want to update you on the progress we've made since closing the LEMAC position on January 3rd.

Matt: Since day one, our integration activities have gotten off to a strong start with no major unforeseen issues.

Matthew Trerotola: We have achieved significant progress and have developed a detailed multi-year plan that will position us as a premier high-growth global orthopedics player. As we've learned from prior acquisitions, we've been laser focused over the first six months on getting our commercial channels aligned. Our goal has always been to move quickly, endure short-term disruption, and put the teams and processes in place to execute our proven strategy to drive sustainable long-term growth. We've made terrific progress here.

Matt: We have achieved significant progress and have developed a detailed multi-year plan that will position us as a premier high-growth global orthopedics player.

Matt: As we've learned from prior acquisitions, we've been laser focused over the first six months getting our commercial channels aligned. Our goal has always been to move quickly and do our short-term disruption and put the teams and processes in place to execute our proven strategy to drive sustainable long-term growth.

Matthew Trerotola: Our U.S. sales force has been solidified under our legacy Enovis structure, and international markets are about 70% complete. Our overall revenue associated with the acquisition continues to track slightly ahead of our original estimates. We believe this energy peaked in Q2 as expected and will moderate as we move into the second half and start realizing some of the exciting cross-selling opportunities. With the progress we've made, we expect to be comfortably within our initial guidance range of $20 to $30 million of negative revenue impact. Our value creation plan on the cost side is similarly on track.

Matt: We've made terrific progress here. Our U.S. sales force has been solidified under our legacy Enovis structure, and international markets are about 70% complete.

Matt: Our overall revenue associated with the acquisition continues to track slightly ahead of our original estimates. We believe disc energy peaked in Q2 as expected and will moderate as we move into the second half and start realizing some of the exciting cross-selling opportunities.

Matt: With the progress we've made, we expect to be comfortably within our initial guidance range of $20 to $30 million of negative revenue impact.

Matthew Trerotola: Our cost synergy targets of $40 million within three years represent about 13% of legacy Lima revenue, something we believe is significant but achievable. This comes from eliminating duplicative support functions, leveraging our manufacturing scale and footprint, and improving global business processes. Our teams have diligent plans to attack these opportunities in the near and long term with an eye towards minimizing any commercial impact and accelerating investment in key R&D programs. We'll dig deeper into our U.S. reconnaissance growth performance on slide six.

Matt: Our value creation plan on the cost side is similarly on track. Our cost synergy targets of $40 million within three years represents about 13% of legacy Lima revenues. Something we believe is significant, but achievable.

Matt: This comes from eliminating duplicative support functions, leveraging our manufacturing scale and footprint, and improving global business processes.

Matt: Our teams have diligent plans to attack these opportunities in the near and long term with an eye towards minimizing any commercial impact and accelerating investment in key R&D programs.

Matt: We'll dig deeper into our U.S. recon growth performance on slide 6.

Matthew Trerotola: We are passing through several slower growth quarters, as expected, but we have a clear plan and path to accelerate. As we outlined earlier, the U.S. recon business felt most of the integration-related synergies estimated to be about 3 to 4 percent of growth impact in the first half across hips, knees, and shoulders. Looking at our U.S. knee and hip business, our year-to-date growth of 2% is a stark divergence from our historical trend of 17% per year or more.

Matt: We are passing through several slower growth quarters as expected.

Matt: but have a clear plan and path to accelerate.

Matt: As we outlined earlier, the U.S. Recon business felt most of the integration-related dis-synergies estimated to be about 3 to 4 percent of growth impact in the first half across hips, knees, and shoulder.

Matt: Looking at our U.S. knee and hip business, our year-to-date growth of 2% is a stark divergence from our historical trend of 17% per year or more.

Matthew Trerotola: That said, we believe growth rates in U.S. knees remain above market levels, despite a very strong prior year comparison and headwinds from the channel consolidation. We have continued to grow our knee surgeon base and expect a nice growth acceleration in the second half as our cones launch enables further penetration into revision and harvest continues to ramp. U.S. HIPs have been under pressure in the last couple of quarters.

Matt: That said, we believe growth rates in U.S. knees remain above market levels despite a very strong prior year comparison and headwinds from the channel consolidation.

Matt: We have continued to grow our knee surgeon base and expect a nice growth acceleration in the second half as our cones launch, enables further penetration into revision, and harvest continues to ramp.

Matthew Trerotola: In addition to the Lima integration impacts, we are between product cycles at a time of shifting market needs. We're addressing this shift with new products that are expected to be launched around year end to drive strong growth in 2025 and beyond. These include a surgical impaction system and several new HIP stem designs that address the accelerating trend to direct anterior procedures. In U.S. extremities, sustained double-digit growth in our foot and ankle business has been offset by some temporary headwinds in our shoulder business. As a reminder, U.S. shouldered the segment with the most direct overlap with Lima and thus felt the brunt of the channel disruption we saw through the first half.

Matt: U.S. HIPs have been under pressure the last couple of quarters. In addition to the Lima integration impacts, we are between product cycles at a time of shifting market needs.

Matt: We're addressing this shift with new products that are expected to be launched around year end to drive strong growth in 2025 and beyond. These include a surgical impaction system and several new hip stem designs that address the accelerating trend to direct anterior procedures.

Matt: In U.S. extremities, sustained double-digit growth in our foot and ankle business has been offset by some temporary headwinds in our shoulder business.

Matt: As a reminder, U.S. shouldered the segment with the most direct overlap with Lima, and thus felt the brunt of the channel disruption we saw through the first half.

Matthew Trerotola: We also have a key technology launching in Q3, the Ultimate Reverse Augmented Glenoid System. This product addresses the growing desire from surgeons to use augments for better outcomes in complex cases and has a significant increase in our revenue per procedure. We're also creating a lot of positive energy with Arvis Shoulder, which has already been used in cases and will be in a controlled launch for the balance of the year. Arvis will bring shoulder surgeons the opportunity to seamlessly connect planning with their procedural workflow, creating the opportunity for repeatable procedures without the cost or time limitation of large robotic solutions.

Matt: We also have a key technology launching in Q3, the Altivate Reverse Augmented Glenoid System. This product addresses the growing desire from surgeons to use augments for better outcomes in complex cases and has a significant increase on our revenue per procedure.

Matt: We're also creating a lot of positive energy with Argus Shoulder, which has already been used for cases and will be in a controlled launch for the balance of the year.

Matt: Arvis will bring shoulder surgeons the opportunity to seamlessly connect planning with their procedural workflow, creating the opportunity for repeatable procedures without the cost or time limitation of large robotic solutions.

Matthew Trerotola: These great new products will re-establish our above-market growth as a strong, innovation-driven leader in the shoulder. Finally, we continue to feed innovation into the strong foot and ankle channel that we've built to sustain our well above market growth. Overall, we're excited about the innovations coming to the market across our anatomy in the second half, and with our newly aligned channel, we're confident we can accelerate our growth back to more normal levels as we exit the year.

Matt: These great new products will re-establish our above-market growth as a strong innovation-driven leader in shoulder.

Matt: Finally, we continue to feed innovation into the strong foot and ankle channel that we've built to sustain our well-above-market growth.

Matt: Overall, we're excited about the innovations coming to the market across our anatomy in the second half, and with our newly aligned channel, we're confident we can accelerate our growth back to more normal levels as we exit the year.

Matthew Trerotola: Turning to P&R on slide 7, our 3% comparable growth reflects a stable market environment and disciplined execution. We continue to work on improving our portfolio and strengthening our market-leading position. We're doing this by launching new innovations in bracing and recovery sciences and shifting both portfolios to higher growth, higher value segments. This is reading through as adjusted EBITDA margins in PNR improve 50 basis points year over year as we continue to leverage EGX tools to drive consistent productivity improvements and improve the portfolio mix.

Speaker Change: Turning to P&R on slide 7, our 3% comparable growth reflect a stable market environment and disciplined execution. We continue to work on improving our portfolio and strengthening our market-leading positions.

Speaker Change: We're doing this by launching new innovations in bracing and recovery sciences and shifting both portfolios to higher growth, higher value segments.

Speaker Change: This is reading through as adjusted EBITDA margins at PNR improve 50 basis points year-over-year as we continue to leverage EGX tools to drive consistent productivity improvements and improve the portfolio mix.

Speaker Change: Additionally, as we work to shape the portfolio, we exited and sold off assets of a small, unprofitable business, which impacted sales by $4 million in the quarter.

Matthew Trerotola: Additionally, as we work to shape the portfolio, we exited and sold off assets of a small, unprofitable business, which impacted sales by $4 million in the quarter. Overall, I'm pleased with our first half 2024 performance, and I'm confident we're set up to accelerate growth and profitability in the second half. Now, I'll let Ben take you through the P&L details. Ben?

Speaker Change: Overall I'm pleased with our first half 2024 performance and I'm confident we're set up to accelerate growth and profitability in the second half. Now I'll let Ben take you through the P&L details. Ben?

Ben Berry: Thanks, Matt. Hello, everyone.

Ben: Thanks, Matt. Hello, everyone. I'll begin my remarks on slide 8.

Ben Berry: I'll begin my remarks on slide 8. We are pleased to report second quarter sales of $525 million, which is up 23% versus the prior year and 5% on a comparable basis. The first six months of the year have required diligent execution from all members of our commercial and internal teams, and we've been extremely pleased with the collaboration and high-quality integration plans that we've executed on and the bright future that we've created by reshaping our portfolio.

Ben: We are pleased to report second quarter sales of $525 million, which is up 23% versus prior year and 5% on a comparable basis.

Speaker Change: The first six months of the year have required diligent execution from all members of our commercial and internal teams, and we've been extremely pleased with the collaboration and high-quality integration plans that we've executed against.

Ben Berry: Our underlying growth in PNR remains stable, growing at 3%, and recon growth of 7% includes about 3% of negative headwinds from channel integration efforts, as we expected and signaled on our Q1 call. Second quarter adjusted gross margin of 59.6% was up 160 basis points year over year. This growth was driven by leverage from scale and a favorable segment mix that includes the addition of Lima. Our second quarter adjusted EBITDA grew 36%, delivering a margin of 17.2%, up 190 basis points versus Q2 2023. The second quarter effective tax rate was 24% compared to 18% last year.

Speaker Change: and the bright future that we've created by reshaping our portfolio.

Speaker Change: Our underlying growth in PNR remains stable, growing at 3%, and recon growth of 7% includes about 3% of negative headwinds from channel integration efforts, as we expected and signaled on our Q1 call.

Speaker Change: Second quarter adjusted gross margin of 59.6%, up 160 basis points year-over-year.

Speaker Change: This growth was driven by leverage from scale and favorable segment mix that includes the addition of Lima. Our second quarter adjusted EBITDA grew 36 percent, delivering a margin of 17.2 percent, up 190 basis points versus Q2 2023.

Speaker Change: Second quarter effective tax rate was 24% compared to 18% last year. Interest expense was $17 million for the quarter versus $4 million in 2023. Overall, we posted adjusted earnings per share of $0.62.

Ben Berry: Interest expense was $17 million for the quarter versus $4 million in 2023. Overall, we posted adjusted earnings per share of $0.62. Foreign currency exchange translation had unfavorable impacts of about a half percent on sales and approximately one cent per share for the quarter.

Speaker Change: Foreign currency exchange translation had unfavorable impacts of about a half percent on sales and approximately one cent per share for the quarter.

Ben Berry: Turning to slide nine, we are adjusting our prior guidance to reflect the results through the first six months of the year. We now expect revenues in the range of $2.08 billion to $2.13 billion. This tightens our previous guidance range, and the growth expectations remain in line with previous guidance. We expect this growth to accelerate in the second half of the year as we annualize higher prior-year comps and begin realizing benefits from cross-selling and new product launches, particularly in Q4.

Speaker Change: Turning to slide 9, we are adjusting our prior guidance to reflect the results through the first six months of the year. We now expect revenues in the range of $2.08 billion to $2.13 billion. This tightens our previous guidance range.

Speaker Change: And the growth expectations remain in line with previous guidance.

Speaker Change: We expect this growth to accelerate in the second half of the year as we annualize higher prior year comps and begin realizing benefits from cross-selling and new product launches, particularly in Q4.

Ben Berry: We expect adjusted EBITDA in the range of $368 million to $383 million. This is also in line with our prior guidance. During the second quarter, we put an additional currency swap in place, which reduces our net interest expense by about $10 million. So we are updating our full-year interest expense range to 60 to 65 million. We are raising our estimated tax rate assumption by 1% for the year to 22% to account for geographic revenue mix. Our guidance for depreciation and share count remains unchanged from prior guidance.

Speaker Change: We expect adjusted EBITDA in the range of $368 million to $383 million. This is also in line with our prior guidance.

Speaker Change: During the second quarter, we put an additional currency swap in place, which reduces our net interest expense by about $10 million. So we are updating our full year interest expense range to $60 to $65 million.

Speaker Change: We are raising our estimated tax rate assumption by 1% for the year to 22% to account for geographic revenue mix.

Speaker Change: Our guidance for depreciation and share count remains unchanged from prior guidance.

Ben Berry: Taking all of this into consideration, we are raising our adjusted earnings per share range by $0.10 to $2.62 to $2.77. I also want to take a moment to provide additional comments regarding phasing into the second half of the year. This will be discussed on slide 10.

Speaker Change: Taking all of this into consideration, we are raising our adjusted earnings per share range by $0.10 to $2.62 to $2.77.

Speaker Change: I also want to take a moment to provide additional comments regarding phasing into the second half of the year.

Ben Berry: We do not plan to provide quarterly guidance on an ongoing basis, but given the complexity and changes brought on by Lima, we felt it would be helpful in year one. We expect to see higher seasonality moving forward if Lima brings a slightly different seasonal mix, given its higher international revenue profile. As such, we expect to see a higher quarterly over quarterly step down in revenues in Q3, followed by a bigger step up in the seasonally strong fourth quarter.

Speaker Change: This will outline on slide 10.

Speaker Change: We do not plan to provide quarterly guidance on an ongoing basis, but given the complexity and changes brought on by Lima, we felt it would be helpful in year one.

Speaker Change: We expect to see higher seasonality moving forward if Lima brings a slightly different seasonal mix given its higher international revenue profile.

Speaker Change: As such, we expect to see a higher quarter-over-quarter step-down in revenues in Q3, followed by a bigger step-up in the seasonally strong fourth quarter. We expect adjusted EBITDA will trend similarly, with a step-down in Q3 followed by a strong Q4.

Speaker Change: We still expect a significant step up in our margins for the full year, which is aligned with our prior guidance and highlighted in our full year estimates on slide 9.

Ben Berry: We expect adjusted EBITDA to trend similarly with a step down in Q3, followed by a strong Q4. We still expect a significant step up in our margins for the full year, which is aligned with our prior guidance and highlighted in our full year estimates on slide 9. To summarize, on slide 11, we had a solid start to 2024, executing against our strategic goals. We continue to positively shape our business and are building momentum as we advance the integration of Lima.

Speaker Change: To summarize, on slide 11, we had a solid start to 2024, executing against our strategic goals.

Speaker Change: We continue to positively shape our business.

Ben Berry: We will continue to leverage our business system and position the business to accelerate through the second half of the year and deliver strong financial results. Now I'll hand it over to Kyle to start the Q&A.

Speaker Change: and our building momentum as we advance the integration of Lima. We will continue to leverage our business system and position the business to accelerate through the second half of the year and deliver strong financial results.

Kyle Rose: Before we begin, in an effort to accommodate everyone on the call, we ask that analysts keep the questions to one question and one follow-up, and you are welcome to rejoin the queue if we have time. With that, I'll turn it over to the operator to take the first question.

Speaker Change: Now, I'll hand it over to Kyle to start the Q&A. Kyle?

Kyle Rose: Before we begin, in an effort to accommodate everyone on the call, we ask the analysts to keep the questions to one question and one follow-up and you are welcome to rejoin the queue if we have time.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star and then 2. Our first question comes from Vik Chopra with Wells Fargo; please go ahead.

Speaker Change: With that, I'll turn it over to the operator to take the first question.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2.

Speaker Change: Our first question comes from...

Speaker Change: Vik Chopra with Wells Fargo. Please go ahead.

Vik Chopra: Hey, good morning, and thank you for taking the questions. So, two for me.

Vick Chopra: Hey, good morning and thank you for taking the questions. So two for me.

Matthew Trerotola: In your slide deck, you found about three to four percent negative growth impact from the integration efforts. You said Q2 was going to be the apex. I just want to get your thoughts on the back half of the year, and what gives you confidence that you've seen the bulk of the integration headwinds? And I had a follow-up question, please.

Vick Chopra: In your slide deck, you found about 3 to 4% negative growth impact from the integration efforts. You said Q2 was going to be the apex. I just want to get your thoughts on the back half of the year and what gives you confidence that you've seen the bulk of the integration headwinds. And I had a follow-up, please.

Matthew Trerotola: Yeah, sure, Vic. Yeah, we did. As we said last quarter, we expect Q2 to be the apex. And again, there are a couple different factors there, right? There's the US integration, which we've worked through now. And so we can see the impact. And we can see that it's expected to peak in Q2 and then taper off. And then we're, you know, a good way through the outside the US integration, and we expect that the impact there could increase a little bit as we work through the balance of the year.

Speaker Change: Yeah, sure, Vic. Yeah, we did, as we said, last quarter, we expect Q2 to be the apex and, again, there's a couple different factors there, right? There's the U.S. integration, which we've worked through now, and so we can see the impact and we can see that that's expected to peak in Q2 and then taper off.

Speaker Change: And then we're, you know, a good way through the outside the U.S. integration, and expect that the impact there could increase a little bit as we work through the balance of the year. And then in both regions, we'll have cross-selling benefits.

Matthew Trerotola: And then in both regions, we'll have cross-selling benefits that are coming in. And so we do expect, continue to expect Q2 to be the apex there, and for that to come down as we go through the balance of the year, and the ultimate number to be within that 20 to 30 million range that we've talked about comfortably.

Speaker Change: And so we do expect, continue to expect Q2 to be the apex there and for that to come down as we go through the balance of the year and the ultimate number to be within that 20 to 30 million range that we've talked about comfortably.

Vik Chopra: Okay, thank you. And then the second question I had was, just on hiring trends, you know, what was their license due to? And how do you see your recruiting and retention efforts shaking out in 2024 given the FEMA deal? Thanks for taking the question.

Speaker Change: Okay, thank you. And then the second question I had was just on hiring trends, you know, what were their license due to? And how do you see your recruiting and retention efforts shaking out in 2024 given the Lima deal? Thanks for taking the questions.

Speaker Change: Yeah, I think, did you say hiring trends, Vic?

Matthew Trerotola: Yes, I understand that you're a petitioner with regard to the deal. Yeah, yeah, okay. Yeah, great.

Speaker Change: I'll assume that that's an acquisition related comment, but I'll comment broadly as well. First and foremost on the Lehman integration, a top priority there has been around retention of critical talent. That's something that we work very hard on in every acquisition, and we are really thrilled with the retention. We've had a number of great leaders who have taken leadership positions in our company, and we've also had fantastic retention within the broader organization right through the technology organization into the facilities.

Matthew Trerotola: Yeah, no, so certainly, I'll assume that that's an acquisition-related comment, but I'll comment broadly as well. First and foremost, on the Lehman integration, you know, a top priority there has been the retention of critical talent. That's something that we work very hard on in every acquisition, and we are really thrilled with the retention. We've had a number of great leaders who have taken leadership positions in our company, and we've also had fantastic retention within the broader organization right through the technology organization into the field organization, meaningfully below what we had planned for in terms of the kind of attrition that we could expect there.

Matthew Trerotola: So, very happy with the retention that we've had related to the Lehman acquisition. And then, you know, more broadly in the company, our attrition levels are running in a normal range, and certainly the places that we have been adding, whether it's, you know, commercial resources or resources in our enabling tech organization, we've been able to attract great talent and hire great people.

Speaker Change: And we've been able to get the field organization meaningfully below what we had planned for in terms of the kind of attrition that we could expect there. So, very happy with the retention that we've had related to the Lima acquisition. And then, you know, more broadly in the company, you know, our attrition levels are running in a normal realm, and we have been adding, whether it's, you know, commercial resources or resources in our enabling tech organization, we've been able to, you know, get great talent and hire great talent.

Robbie Marcus: And the next question comes from Robbie Marcus with J.P. Morgan. Please go ahead.

Speaker Change: And the next question comes from Robbie Marcus with J.P. Morgan. Please go ahead.

Matthew Trerotola: Good morning. Thanks for taking the questions. Two for me. The first one, I wanted to talk about the quarter and, you know, how it played out. I imagine in line wasn't what you would hope for when you set the guidance range. It's certainly not a bad result, but given the track record, I imagine you're looking for a beat. So how do I think about what the delta was versus the original expectation?

Robbie Marcus: Good morning. Thanks for taking the questions. Two for me.

Robbie Marcus: First one I wanted to talk about sort of the quarter and you know how it played out. I imagine in line wasn't

Robbie Marcus: What you would hope for when you set the guidance range, it's you know, certainly not a bad result, but

Speaker Change: you know, given the track record, I imagine you're looking for a beat. So how do I think about what was the delta versus the original expectation? Was it the market for large joint or extremities was softer than expected? We didn't see upside from really any of the competitors so far.

Matthew Trerotola: Was it the market for large joint or extremities was softer than expected? We didn't see any upside from really any of the competitors so far. Or was it more the execution in the quarter, maybe a little more than you've been thinking on the disruption?

Speaker Change: Or was it more the execution in the quarter, maybe a little more than what you'd been thinking on the disruption? And then I have a second. Thanks.

Robbie Marcus: Thanks for the question, Ravi. Yeah, so for sure, we try to position ourselves to beat every quarter, but we also try to set expectations for the quarter that are in line with our plan, and we believe we can execute on our plan. And if you look at the, as you commented on, if you look at the second quarter in terms of what's been published out there, whether it's from recon peers or on the P&R front, I think there's kind of a broad view there that it was sort of a decent market up against a strong market last year.

Robbie Marcus: Thanks for the question, Ravi. Yeah, so for sure, we try to position ourselves to beat every quarter, but we also try to set expectations of the quarter that are in line with our plan and we can execute through our plan.

Robbie Marcus: And, you know, if you look at the, you know, as you commented on, if you look at the second quarter in terms of what's been published out there, whether it's from Recon Peers or on the PNR front, you know, I think, you know, there's kind of a broad view there that it was sort of a, you know, a decent market up against a strong market last year. And so, you know, we're comfortable with the way the market is playing out this year. We're comfortable that it's...

Robbie Marcus: And so we're comfortable with the way the market is playing out this year. We're comfortable that it's aligned with our plan, that we'll be able to execute and accelerate through the back half of the year in a strong way. But for sure, there could have been a more favorable market in the last two quarters than there was.

Robbie Marcus: Aligned with our plan that we'll be able to accelerate through the back half of the year in a strong way. But, you know, for sure, you know, there could have been a more favorable market, you know, in the last two quarters than there was.

Ben Berry: Great. I appreciate that.

Robbie Marcus: Then maybe just to focus on the third quarter, I want to make sure we're on the right spot here given the helpful guidance you gave. So if I think You know, now pro forma, roughly half the business is recon, half is P&R. You say P&R is low single-digit growth, recon high single, you know, that to me averages out to mid single. And I think consensus is closer to six and a half percent or so coming into today.

Speaker Change: Great. I appreciate that. Then maybe, just to focus on third quarter, I want to make sure the street's in the right spot here, given the helpful guidance you gave. So, if I think,

Speaker Change: You know now pro forma roughly half the business is recon half is PNR

Speaker Change: You say PNR is low single digit growth, recon high single, you know, that that to me averages out to mid single. And I think consensus is closer to six and a half percent or so coming into today. So I was coming up, you know, something more like,

Robbie Marcus: So I was coming up, you know, something more like, 500 to 510 million below consensus at 512. Same thing down the P&L. You know on EBITDA, I was coming out below where consensus was, which implies a higher fourth quarter. Is that the right ballpark to be in?

Speaker Change: 500 to 510 million below consensus at 512. Same thing down the P&L.

Speaker Change: You know, on EBITDA, I was coming out below where consensus was, which implies a higher fourth quarter. Is that the right ballpark to be in? Thanks.

Ben Berry: Yeah, yeah, Rob. I won't speak to specifics here. But, you know, I think what we tried to do, as we put in the presentation, given some of the new seasonal factors with bringing in Lima, it does impact the phasing of how revenue plays out. And to the earlier comments that Matt made, while we apex on the dis-synergies in Q2, there will still be, I'd say, a progressive decline as we get through, you know, the back half of the year, a little more in Q3, and then it moderates even more in Q4. So, I think it decelerates there in the back half of the year, but we'll still have some impact in Q3 as we finalize all of the channel integration areas.

Speaker Change: Yeah, Rob, I won't speak to specifics here, but I think what we tried to do, as we put in the presentation, given some of the new seasonal factors with bringing in Lima, it does impact the phasing of how revenue plays out. And to the earlier comments that Matt made, while we apexed on the synergies in Q2, there will still be, I'd say, a progressive decline as we get through the back half of the year, a little more in Q3, and then it moderates even more in Q4. So I think it decelerates there in the back half of the year, but we'll still have some impact in Q3 as we finalize all of the channel integration.

Speaker Change: So we try to break it down in the components that you have there with Recon and PNR, and we've provided some of the supplemental financial information as well that you can use to help with your modeling there. So I think it's lined up very much for you to be able to do the math to get to where we think is a reasonable estimate. But on the face of what you've said, it's not too out of the realm, but again, I'd say some of the components are there for you guys to take a deeper look.

Robbie Marcus: So, we tried to break it down into the components that you have there with RECON and PNR, and we've provided some of the supplemental financial information as well that you can use to help with your modeling there. So, I think it's lined up very well for you to be able to do the math to get to where you want to be. So, I think it's lined up very much for you to be able to do the math to get to where we think is a reasonable estimate. But, you know, on the face of what you've said, it's not too far out of the realm, but again, I'd say some of the components are there for you guys to take a deeper look.

Vijay Kumar: Great. I appreciate it. Thanks a lot.

Ben Berry: And the next question comes from Vijay Kumar with Evercore. Please go ahead.

Speaker Change: Great. Appreciate it. Thanks a lot.

Speaker Change: And the next question comes from Vijay Kumar with Evercore. Please go ahead.

Vijay Kumar: Hey guys, thanks for taking my question. One on the guidance here. Just to clarify, when I look at total dollar numbers, the range is tightened, but did your prior guidance include the divestiture impact, because I think PNR pulled out about $15 million of revenues. So, is the updated guidance inclusive of the divestiture impact, and does it mean that without this divestiture impact, guidance is actually based on revenues?

Vijay Kumar: Hey guys, thanks for taking my question. One on the guidance here...

Vijay Kumar: And just to, when I look at total dollar numbers, the range is tightened.

Vijay Kumar: But did your prior guidance include the divestiture impact, because I think PNR pulled out about $15 million of revenues.

Speaker Change: So, is the updated guidance inclusive of the divestiture impact and does it mean that without this divestiture impact, guidance is actually based on revenues?

Matthew Trerotola: Yeah, exactly, Vijay. So our prior guidance did not include the divestiture of about that $15 million business. Again, we had a quarter of it in our results. So again, that'd be three quarters of that business that we're absorbing in our updated guidance range.

Speaker Change: Yeah, exactly, Vijay. So our prior guidance did not include the divestiture of about that $15 million business. Again, we had a quarter of it in our results. So again, that'd be three quarters of that business that we're absorbing in our updated guidance range.

Vijay Kumar: That's helpful, Vin. And Matt, one for you, you know, I think people are kind of, I know you've pivoted the street to be pro-pharma.

Ben: That's helpful, Ben.

Matt: And Matt, one for you, you know, I think people are kind of, I know you've pivoted the street to a pro-pharma, I think people still want to understand the underlying

Matthew Trerotola: I think people still want to understand the underlying sort of legacy in Enovis, right? So, when you think about the dis-synergy impact, I think there was some helpful detail in Empower, you know, the up-and-coming singles in that first half. When you look at these markets on Core, Recon, are you still, is Enovis still confident about share gains growing well above market? Maybe you could talk about underlying trends and what gives you confidence about share gains?

Speaker Change: So, when you think about the dis-synergy impact, I think there was some helpful details in Empower, you know, up high signals in that first half.

Matthew Trerotola: Yeah, so probably in the knee in particular, we continue to have a healthy share gain, you know, both when we look at the overall reported results and as we look at, you know, our trend in terms of adding surgeons and things like that. And so, you know, not quite as much as we've had because of some of the integration pressures, and we're also up against it, really a tremendously high comp from the first half of last year. But when you get under the hood of the knee and the legacy, and we tried to share enough there to give people confidence that that's still, clearly, there.

Speaker Change: Robby, in the me in particular, we continue to have healthy share gain, you know, both when we look at the all up.

Speaker Change: Reported results and as we look at, you know, our trend in terms of adding surges and things like that. And so, you know, so not as much as we've had because of some of the integration pressures and we're also up against really a tremendously high comp from the first half of last year.

Matthew Trerotola: Yeah, we've still got solid performance within our shoulder product, but that's where we're seeing the most of the integration at impact. So you have two different things hitting the shoulder growth ways from the integration. One is that the Lima business, you know, did not have a lateralized inferiorized shoulder. And so declining, as we went through the back half of last year, that Lima shoulder business here in the US, it was growing nicely outside the US, but it was declining here in the US. And so we'll fix that quickly as we bring new products and cross-selling products into that channel here as we work through the year. But that's certainly a meaningful growth drag.

Speaker Change: But when you get under the hood on the knee and the legacy, and we tried to share it up there to give people confidence that that's.

Speaker Change: That's still clearly there. We've still got solid performance within our shoulder product, but that's where we're seeing the most of the integration impacts. You have two different things hitting the shoulder growth weights from the integration. One is that the

Speaker Change: shoulder and so with declining as we went through the back half of last year that Lima shoulder business here in the US

Matthew Trerotola: And we also have synergy or dissynergy impacts from the integration because of the amount of overlap in the shoulder. And then third, as we talked about, the augmented glenoids are a really important product for our shoulder. You know, that's become a, you know, increasingly important piece of the puzzle for shoulder surgeons. And so, you know, over the past few quarters, getting ready for that launch has slowed down the rate at which we've added new shoulder surgeons and had an effect on the business there as well.

Speaker Change: It was growing nicely outside the U.S. but was declining here in the U.S.

Speaker Change: And so we'll fix that quickly as we bring the, you know, bring new products and cross-selling products into that channel here as we work through the year. But that's certainly a meaningful growth drag. Then we also have synergy or dis-synergy impacts from the integration because the amount of overlap in shoulder. And then third, as we talked about, the augmented glenoid is a really important product for our shoulder. That's become a, you know, increasingly important piece of the puzzle for shoulder surgeons. And so, you know, over the past few quarters, getting ready for that launch has slowed down the rate at which we've added new shoulder surgeons and had an effect on the business there as well. And so shoulder is going to get on a good, strong

Matthew Trerotola: And so shoulders are going to get on a good, strong path quickly here as we go through the balance of the year. And then hips, as I talked about in my comments, that's one where, you know, for the last couple quarters or so, our hip growth has been on the lower side, while our knee growth was really very, very strong. And that was really based on some trends there versus our portfolio. And now, with the integration impacts on top of that, in the first quarter, certainly in hip, we would, you know, our growth, you know, we would certainly not be gaining share. And we've got a solution for that coming by the end of the year.

Speaker Change: at the end of the year.

Vijay Kumar: I think there were some product exits on the recon side; it's analyzing I think close to like 10 million. Was that part of the revenue leakage, the dis-energies, or is this exit out, you know, incremental to the revenue leakage? No, yeah.

Ben: Ben, maybe one last cleanup, apologies. I think there was some product exits on the recon side. It's annualizing, I think, close to like $10 million. Was that part of the revenue leakage, the dis-energies, or is this exit incremental to the revenue leakage?

Ben Berry: So, Vijay, that would be in the full numbers of what we quote when we talk about the net dis-energy impact; those product lines would be included there. Essentially, we had a couple of third-party relationships, both on the Lima side and on the Mathis side, with regard to if we put the two businesses together, we had to essentially exit some of those relationships and agreements, so those are included in those numbers.

Ben: So Vijay, that would be in the full numbers of what we quote when we talk about the net dis-synergy impact, those product lines would be included in there. Those were essentially, we had a couple of third-party relationships.

Speaker Change: Both on the Lima side and on the Mathis side, with regards to if we put the two businesses together.

Speaker Change: We had to, you know, essentially exit some of those relationships and agreements, so those are included, you know, in those numbers.

Jeffrey Johnson: And our next question comes from Jeff Johnson with Baird. Please go ahead.

Speaker Change: Fantastic. Thank you guys.

Jeffrey Johnson: Thank you. Good morning, guys.

Speaker Change: And our next question comes from Jeff Johnson with Baird. Please go ahead.

Jeff Johnson: Thank you. Good morning, guys. So, Ben, maybe just trying to ask one more question here on kind of the phasing of 3Q and 4Q. You had the 400 to 500 basis points headwind on the disenergies in the U.S. recon business in the second quarter. Should we just assume those fall off kind of by half in the third quarter and then disappear or, you know, fall off another half in the fourth quarter? Or would that be the right way to phase those out over the next two quarters, or is it more back-end loaded than that? And then maybe the same question, you know, how quickly do we think maybe the TT cones, the glenoid augments?

Jeff Johnson: How quickly do those ramp? Is that more of a fourth quarter impact and that's where the U.S. retime could maybe get back to, you know, upper single to low double digits as well? Is it conceptually anything off in what I'm saying there on both those points? Thanks.

Matthew Trerotola: So, Ben, maybe just trying to ask one more question here on kind of the phasing of 3Q and 4Q. You had the 400 to 500 basis points headwind on the disenergies in the U.S. recon business in the second quarter. Should we just assume that they fall off kind of by half in the third quarter and then disappear or fall off another half in the fourth quarter? Or would that be the right way to phase those out over the next two quarters, or is it more back-end loaded than that?

Ben: Jeff, thanks for the question there. And so, I mean, the nature of the dis-energies, you know, most of it is things, you know, that are related to, you know,

Matthew Trerotola: And then maybe the same question, you know, how quickly do we think maybe the TT cones, the glenoid augments, how quickly do those ramp up? Is that more of a fourth quarter impact? And that's where U.S. recon could maybe get back to, you know, upper single to low double digits as well. Is there conceptually anything off in what I'm saying there on both those points? Thanks.

Ben Berry: Jeff, thanks for the question there. And so, I mean, the nature of the dis-energies, you know, most of it is things that are related to, you know, surgeons or agents that are lost as we put things together. And so, you know, those impacts wind up starting to hit, and then they, you know, they'll hit for a year before we anniversary them. And some of them started to hit late last year and have been kind of rampant to an apex.

Ben: surgeons or agents that are lost as we put things together. And so, you know, those impacts wind up starting to hit and then they, you know, they'll hit for a year before we anniversary them. And some of them started to hit late last year and have been kind of rampant to an apex. And now we'll start to anniversary those in the third and fourth quarter. So in terms of the dis-energy, there's an arc of that that is apexing in the third, second quarter. But then, you know, clearly, you know, still has a couple more quarters.

Ben Berry: And now we'll start to anniversary those in the third and fourth quarters. So in terms of the dis-energy, there's an arc of that that is apexing in the third and second quarters but then, you know, clearly, you know, still has a couple more quarters to play out. But at the same time, we have the cross-selling that'll start to kick in. And we do have some, you know, some that's starting to ramp up there, but for sure, there'll be more in the fourth quarter than the third quarter in terms of cross-selling impacts and some of the new products like the Inovis cones, in addition to some cones that we can cross-sell, and the, you know, and the augmented

Ben: to play out. But at the same time, we have the cross-selling that will start to kick in, and we do have some, you know, some that's starting to ramp there, but for sure there'll be more in the fourth quarter than the third quarter in terms of cross-selling impacts and some of the new products.

Ben: for us in the fourth quarter and as we roll into next year.

Ben Berry: You know, those are coming through, gonna have a third quarter impact, but definitely gonna have a lot more fourth quarter impact. So as we've tried to lay out there in the guidance, although it's not pulled apart by region, you know, is more of a, you know, kind of a modest improvement in the third quarter and then a return to more normal growth levels for us in the fourth quarter and as we roll into next year.

Jeffrey Johnson: To comment on your phasing, I think you're thinking about it right in terms of the shape. I mean, I think it decelerates, but there's not, you know, I would say think about how it plays out in terms of Q2 being latex and then decelerating from there, so a little bit more Q3 versus Q4.

Speaker Change: And to comment on your phasing, I think you're thinking about it right in terms of the shape. I mean, I think it decelerates, but there's not, you know, I would say think about how it plays out in terms of Q2 being latex and then decelerating from there, so a little bit more in Q3 versus Q4.

Matthew Trerotola: And then just last follow-up question, just on, you did mention double-digit foot and ankle growth in the quarter. I think that was a US comment, although you can correct me if I'm wrong on that.

Speaker Change: Understood. And then just last follow-up question. You did mention double-digit foot and ankle growth in the quarter. I think that was a U.S. comment, although you can correct me if I'm wrong on that. But there's been some chatter out there, bunionectomy, some of these things can maybe be a little more economically sensitive, a little bit more deferrable. Just what are you seeing in the foot and ankle business at this point? And just remind us of the size now with Lima in there, how much foot and ankle is as a percentage of your recon. Thank you.

Jeffrey Johnson: But just, you know, there's been some chatter out there about bunionectomy, some of these things can maybe be a little more economically sensitive, a little bit more deferrable. Just what are you seeing in the foot and ankle business at this point? And just remind us of the size now with Lima in there, how much foot and ankle surgery is as a percentage of your recon. Thank you. Yeah.

Matthew Trerotola: Yeah, so I think we've talked about foot and ankle passing through $100 million this year. But there wasn't any Lima foot and ankle business that had any consequence that came in.

Speaker Change: Yeah, so I think we've talked about foot and ankle passing through $100 million this year. There wasn't any Lima foot and ankle business that had any consequence that came in, but we did bring NovaStep in last year, which really helped to position us to bust through that $100 million ramp. Look, our foot and ankle business for a number of quarters now has been growing very strongly and comfortably above market levels.

Matthew Trerotola: But we did bring NovaStep in last year, which really helped to position us to bust through that $100 million ramp. Look, our foot and ankle business has been growing very strongly and comfortably above market levels for a number of quarters now. Based on the work we did to put that channel together and the hard work of putting the channel together that we did and now having that strong aligned channel, and then just a ton of great innovation that we've been pumping into that business.

Speaker Change: You know, based on the work we did to put that channel together, and the hard work of putting the channel together that we did, and now having that strong aligned channel, and then just a ton of great innovation that we've been pumping into that business.

Matthew Trerotola: And that's in the US. We're also growing a couple digits outside the US in that business. I commented on the markets more broadly earlier, and I think that would apply to foot and ankle as well. We probably don't have as good a market situation this year as we did last year, but I think our teams are doing a great job of executing share gain in that environment and have done it for a number of quarters now. And we're really, really pleased with the engine that we built there. Unknown Executive, Phillip Berry, Unknown Executive, Caitlin Cronin, Brandon Vazquez, Xuyang Li, Louie Vogt, Enovis

Speaker Change: And that's in the U.S., but we're also growing a couple digits outside the U.S. in that business.

Xuyang Li: And the next question comes from Xuyang Li with Jefferies. Please go ahead.

Speaker Change: And the next question comes from Xuyang Li with Jefferies. Please go ahead.

Xuyang Li: All right, great. Thanks so much for taking the question. I'll just keep it to one.

Matthew Trerotola: Maybe just to follow up on the U.S. extremities a little bit more, you know, appreciate the comments on the foot and ankle side. But on the U.S. shoulder side, I guess I'm curious, when do you expect that to return to, you know, one and a half to two times market growth? And then your thoughts on the sustainability of that in light of some of the new robotic competitors coming to the market?

Speaker Change: I appreciate the comments on the foot-and-ankle side, but on the U.S. shoulder side, I guess I'm curious, when do you expect that to return to?

Matthew Trerotola: Yeah, sure, Xuyang. I think that the comments I made earlier, generally about U.S. Surgical, would apply to the shoulder business. We'd expect that business to improve in Q3, but then improve a lot more in Q4 as the augmented glenoids come out. We've just been approved and launched in the last month or so here. Q3 is within the control launch phase, so it's very important. It has some impact on our growth, but not a substantial impact on our growth.

Speaker Change: to the shoulder business, you know, we'd expect that business to improve in Q3 but then improve a lot more in Q4 as

Speaker Change: Thank you all so much for joining us for this webinar. We're just approved and launched in the last month or so here. Q3 is within the control launch phase, so it's very important, but it has some impact on our growth, but not a substantial impact on our growth. So that's going to be the arc of that. Some of the acquisition impacts will go on that same arc that we just talked to in terms of starting to have a little bit of improvement in Q3, then more in Q4, and then in Q1, Q2, we start to anniversary some of the impacts. And so we do expect to exit.

Matthew Trerotola: Then in Q4 and beyond, we can really tilt the regulator on that, and so that's going to be the arc of that. Some of the acquisition impacts will go on that same arc that we just talked about in terms of starting to have a little bit of improvement in Q3, then more in Q4, and then in Q1 and Q2, we start to anniversary some of the impacts. We do expect to exit the year with our shoulder business and a strong, healthy growth path.

Matthew Trerotola: Then we expect to also have the fundamentals underneath that supporting the continuation of that growth path in our shoulder business. Now, as far as enabling technology in the shoulder goes, it's clear that that's going to be important to shoulder surgeons going forward. We're confident that Arvis is going to be a fantastic solution for that.

Speaker Change: In our shoulder business now as far as enabling technology and shoulder. It's it's clear that that's

Speaker Change: That's going to be important to shoulder surgeons going forward, we're confident that ARVIS is going to be a fantastic solution for that, the shoulder, it's very important to do great planning, use predictive analytics.

Matthew Trerotola: For the shoulder, it's very important to do great planning, use predictive analytics, and then be able to manage your workflow through the procedure. Guidance and the right instrumentation solutions give surgeons a tremendous opportunity to do that, and the initial reactions we've gotten to Arvis as we've gotten it out there in the market for shoulder surgery have been very positive. We're confident that guidance is going to be a tremendous solution for shoulder. When you look at the anatomy, there are some important things about shoulder.

Speaker Change: And then be able to kind of manage your workflow through the procedure and guidance and the right instrumentation solutions, you know, give surgeons a tremendous opportunity to do that and the initial reactions we've gotten to ARVIS as we've gotten it out there in the market.

Matthew Trerotola: One is that it's a ball and socket like a hip versus a knee, and the other is that the average shoulder surgeon does a lot fewer procedures than the average hip or knee surgeon. We think those are going to be very important factors as it comes to how the market shakes out on enabling technologies. Guidance is a tremendous solution when you have that more constrained space that you have in a shoulder or a hip, for that matter.

Matthew Trerotola: In addition, a low-cost solution that is time efficient is going to be a great solution for lower volume shoulders out there. We feel confident about Arvis and shoulder. We also have plenty of opportunities to partner as well as develop a more automated solution to go alongside of that as the market continues to evolve. We're confident we can sustain our leadership in shoulder going forward.

Brendan Vazquez: And the next question comes from Brendan Vazquez with William Blair. Please go ahead.

Speaker Change: And the next question comes from Brendan Vazquez with William Blair. Please go ahead.

Matthew Trerotola: Hi everyone. Good morning.

Brendan Vazquez: Thanks for taking the question. Can you talk a little bit more specifically about what you're seeing as you talk about dis-synergies? Part of the question I'm trying to get at is, you know, do you look to the back half of the year? Is re-accelerating growth simply kind of re-engaging with surgeons to go deeper into their accounts, or do you need to re-engage with surgeons to, frankly, even just get them back onto Enovis products altogether? Just trying to understand what exactly from an execution standpoint needs to happen in the second half as you re-engage and kind of move past the dis-synergies.

Brendan Vazquez: Hi everyone. Good morning. Thanks for taking the question. Can you talk a little bit about

Brendan Vazquez: Simply kind of re-engaging with surgeons to go deeper into their accounts or do you need to re-engage with surgeons to frankly even just get them back onto Enovis products altogether, just trying to understand what exactly from an execution standpoint needs to happen in the second half.

Matthew Trerotola: Yeah, sure. Well, the synergies come from a combination of, you know, surgeons that we lose based on, you know, kind of choices and or competitive dynamics as we're putting together overlapping, you know, channels. And then second, some products that the channel, you know, needs to move away from us based on, you know, different commitments that they might have in different places, etc. And then also from some of the just the distraction factor of working on putting together new channel arrangements versus working on adding new surgeons.

Speaker Change: As you re-engage and kind of move past the dis-synergies.

Speaker Change: Yeah, sure.

Speaker Change: The dis-energies come from a combination of...

Speaker Change: You know, channels, and then second from some...

Matthew Trerotola: And so, you know, as we go forward, you know, where we've lost some surgeons, you know, sort of looking to get them back, and like we will get some of them back, but whether we get them back or not, that'll be an anniversary, and that, you know, that will kind of leave that drag behind us, where we have had some products taken away. That's where the cross selling comes in, and we can replace those And so there's an opportunity to, you know, go ahead and get right at that here as we get down the back half of the year.

Speaker Change: And so, you know, as we go forward, you know, where we've lost some surgeons, you know, certainly we'll be looking to get them back, and like we will get some of them back, but whether we get them back or not, that'll anniversary, and that, you know, that will kind of leave that drag behind us. But where we have had some products leak away, that's where the cross-selling comes in, and we can replace those products with cross-selling products, and so there's an opportunity to, you know, go ahead and get right at that here as we get down the...

Matthew Trerotola: And then the, you know, engine of adding surgeons, that's something that's been dialed back up over the past few quarters in a healthy way; we've got a really nice funnel there. And we can see the, you know, the little bit of slowdown in that that happened down the back half of the year really starting to build nicely. And, you know, that'll start to benefit us in the back half of the year from the surgeons we have in the first half of the year, and then it'll benefit even more next year from the ones that we have in the second half. Yeah, and Brandon, I would just weigh in there too.

Speaker Change: the back half of the year. And then the, you know, the engine of adding surgeons, that's something that's been dialed back up over the past few quarters in a healthy way. We've got a really nice funnel there. And we can see the, you know, the little bit of slowdown in that that happened down the back half of the year, really, you know, starting to build nicely. And, you know, that'll, you know, start to benefit us in the back half of the year from the surgeons we had in the first half of the year, and then it will benefit even more next year from the ones that we had in the second half.

Ben Berry: I mean, we learned a lot from the foot and ankle acquisitions that we did in terms of how to put the channel together to, you know, make sure we're protecting ourselves with regard to exclusivity but then also allowing ourselves to, you know, quickly move and then focus on the ability to go on offense once you've gotten that channel solidified. So I think Matt said exactly what he meant, you know, in terms of the drivers but our ability to now, you know, go on offense, have new product flow coming in the back half of the year, and have now a channel that's focused on getting back to our playbook.

Speaker Change: The foot and ankle acquisitions that we did in terms of how to put the channel together to make sure we're protecting ourselves with regards to exclusivity, but then also allowing ourselves to quickly move.

Speaker Change: And then focus, you know, the ability to go on offense once you've gotten that channel solidified. So I think if Matt said exactly, you know, in terms of the drivers, but our ability to now, you know, go on offense.

Matt: I have new products flow coming in the back half of the year and having now a channel that's focused on getting back to our playbook.

Ben Berry: And it just shows from our perspective through, you know, the good results that we're seeing on the foot and ankle side, one of the strategies that we had as we were putting these channels together to move quickly because we knew the faster that we move, the faster we get behind some of these things and are able to really go on offense.

Brendan Vazquez: Okay, great. And then maybe as a follow-up to that on the dis-energies topic, still 100% done in the U.S. according to the update today, but 70% done internationally in terms of integration. Does that mean that there's still some potential for dis-energies if there really are any meaningful ones internationally? Or should we think that, despite being only at 70%, you're done there? And maybe just talk a little bit about what's left to integrate on the international side of the business. Thanks. Yeah, the 70%.

Speaker Change: Okay, great. And then maybe as a follow-up to that on the dis-energies topic still...

Speaker Change: of integration. Does that mean that there's still some potential for dissynergies if there really are any meaningful ones internationally? Or should we think of, despite being only at 70%, you're done there and maybe just talk a little bit about what's left to integrate in the international side of the business. Thanks.

Matthew Trerotola: Yeah, the 70% international, we've actually worked through most of the direct markets, and certainly all the large direct markets, and have had pretty limited impact there. And we can understand that, you know, we would understand those and be able to see those at this point in time. And we've worked through, you know, some of the hybrid or indirect markets already in a very successful way. What's remaining to be done is a handful of, you know, kind of hybrid or indirect markets in terms of, you know, that they're either, you know, two distributors that we're combining or a combination of direct and distributor that we're combining.

Speaker Change: And I think we've been able to kick the tires, you know, pretty well in terms of what the, you know, what the risks might be as we do that. And we see them as pretty limited. And so, yeah, we do see that in international, there could be a little bit of this energy that develops in the back half of the year, consistent with the numbers that we put out there. But we also think we've gone far.

Matthew Trerotola: You know, and I would say that, you know, for that 30%, we've got a clear line of sight on how things are going to come together. And I think we've been able to kick the tires pretty well in terms of what the, you know, what the risk might be as we do that. And we see them as pretty limited. And so, yeah, we do see that in international, there could be a little bit of this energy that develops in the back half of the year consistent with the numbers that we put out there. But we also think we've gone far enough there to have made sure that there's nothing large or negative looming.

Danielle Antalffy: And the next question comes from Danielle Antalffy with UBS. Please go ahead.

Speaker Change: And the next question comes from Danielle Antalffy with UBS. Please go ahead.

Matthew Trerotola: Hey, good morning, guys. Thanks so much for taking the question. Just a question on how to think, I appreciate you guys are not going to provide 2025 guidance here. But if we just think about you peaked on the dis-energy side of things this quarter, we improved through the back half of the year on an underlying basis. And then, presumably, as we enter next year, how should we think about this?

Danielle Antalffy: Hey, good morning, guys. Thanks so much for taking the question. Just a question on how to think. I appreciate you guys are not going to provide 2025 guidance here, but if we just think about you peaked on the dis-energy side of things this quarter, we improved through the back half of the year on an underlying basis.

Matthew Trerotola: You've got a number of new product launches. You've got dis-energies behind us now, maybe actually moving towards some sales synergies here. Could 2025, potentially, with all that in mind, be above, you know, pre-LEMA trend growth or pre-LEMA growth trend a year for you guys? Any comments directionally you can say? And I'll just leave it at that one question. Yeah, I'll just, I appreciate the

Danielle Antalffy: You've got now Dysenergies behind us, maybe actually moving towards some sales synergies here.

Caitlin Cronin: Yeah, I'll just, I appreciate the question. We're not going to give guidance for next year, but I would say everything we've been doing this year is to, you know, put us in a position to step into next year as a $2 billion plus innovation-driven growth company with over a billion dollar nicely combined recon portfolio, you know, that is a strong growth driver, you know, for our company and step change in our margin profile that we've executed through and be able to, you know, continue to execute against our long-term strategic goals of high single-digit organic growth and continuously expanding our margins to 20% and beyond.

Speaker Change: step into next year as a $2 billion plus innovation-driven growth company with over $1 billion nicely combined recon portfolio that is a strong growth driver for our company and step change in our margin profile that we've executed through and be able to continue to execute against our long-term strategic goals of high single-digit organic growth and continuously expanding our margins to 20% and beyond. So we've been doing everything possible this year to put us on, you know, to create a step change and to be able to continue on that journey on the other side of this.

Caitlin Cronin: So we've been doing everything possible this year to put us on, you know, to create a step change and to be able to continue on that journey on the other side of this. Thank you. And the next question comes from Caitlin Cronin with Canaccord Genuity.

Caitlin Cronin: And the next question comes from Caitlin Cronin with Canaccord Genuity. Please go ahead. Hey, thanks for taking the question. Just to start off on cross-selling benefits, where are you starting to see it?

Speaker Change: Thank you.

Speaker Change: Hey, thanks for taking the questions. Just to start off on cross-selling benefits, where are you starting to see early wins in terms of, you know, the product portfolio and where do you think you'll see the most synergies in the second half?

Matthew Trerotola: Yeah, no, we definitely have seen some early wins. You know, honestly, one of the most exciting early wins is just energy. You know, outside the U.S.

Speaker Change: Yeah, no, we definitely have have seen some early wins. You know, honestly, one of the most, you know, one of the most exciting early wins is just energy, you know, outside the US. And you can see our tremendous growth outside the US.

Matthew Trerotola: I mean, you can see our tremendous growth outside the U.S. in reconnaissance. Part of that is a good, healthy market, but part of it, frankly, is that our teams are absolutely energized. The combined Lima and Mathis teams that have come together there, it's been fantastic to see how the talent has come together. And the positive energy, you know; we've done reviews sort of country by country, and hearing the leaders talk about the energy that the acquisition has created in their countries is tremendous.

Speaker Change: in Recon, you know, part of that is a good, healthy market, but part of it, frankly, is that our teams are absolutely energized. The combined Lima and Mathis teams that have come together there, it's been fantastic to see how the talent has come together, and the positive energy, you know, we've done reviews sort of country by country, and hearing the leaders talk about the energy that the acquisition has created in their country is tremendous. So even before there's a lot of synergy products being sold, I think we've just been benefiting from the fact that people feel like a part of a bigger, more powerful company, and they're going out and representing that in the market, and it's.

Matthew Trerotola: So even before there are a lot of synergy products being sold, I think we've just been benefiting from the fact that people feel like a part of a bigger, more powerful company, and they're going out and representing that in the market, and it's, you know, helping with our momentum. You know, definitely in terms of early wins, here in the U.S., both in the Lima cones and the revision knee area, the ProMade, you know, in terms of custom implants across anatomies, have been, you know, some nice early wins.

Speaker Change: It's helping with our momentum.

Speaker Change: both in the lema cones, in the revision knee area, the pro-made, you know, in terms of custom implants across anatomy has been some nice improvements.

Matthew Trerotola: Outside the U.S., you know, we continue to march forward on Empower and Altivate in key countries outside the U.S., not just in the Lima channel, but we have just scratched the surface in the Mathis customer base, you know, as we moved through last year. And then there's some really interesting early wins that are just by the Lima and Mathis teams getting together and seeing opportunities where one portfolio can help the other. You know, Mathis' knee was quite weak, and the Physica and Duke coming out of Lima that's already got full approvals have been quite helpful in some countries there. Lima didn't have more ceramic-based products.

Speaker Change: Early Wins. Outside the U.S., you know, we continue to march forward on Empower and Altivate in key countries outside the U.S., not just in the Lima Channel, but we have just scratched the surface in the Mathis customer base, you know, as we move through last year. And then there's some really interesting Early Wins that are just by the Lima and Mathis teams getting together and seeing opportunities to where one portfolio can help the other. You know, Mathis' knee was quite weak and the Physica and Duke coming out of Lima that's already got full approvals has been quite helpful in some countries there. Lima didn't have more ceramic-based product at some, but there's some key anatomies.

Caitlin Cronin: They had some, but there are some key anatomies. They didn't have products that would address some key customer needs around patient-friendly products, and Lima's already pulling those into the channel. Mathis is selling ProMade, so some great early wins. They're pretty limited in terms of growth impact, just given the nature of how long it takes to get sets out there and get things ramped up, et cetera, but they're quite positive in terms of the energy that's being created around the world. Great, thanks for your color.

Matthew Trerotola: And then just one more on PNR, you know, 2%, 3% comp growth. When do you think you can start ramping this business up to more mid-single digits on a consistent basis? Yeah, so we've been consistent in saying that P&R is a three to four percent grower that we're working on shaping to be a four plus grower over time. And, you know, we were well above four last year, and we tried to be, you know, clear that it was, you know, there was some extra market strength and some extra pricing last year.

Matthew Trerotola: And so running at three for the first half of this year in a market that's a little bit more muted, I think is right in line with our strategic plan. But for sure, we are working hard on, you know, the innovation content and key parts of that business that will ramp up in the balance of this year and into the coming years, as well as some of the shaping, like the, you know, the small divestiture that I talked about today.

Matthew Trerotola: We've also been doing some skew trimming that shapes that business a little bit as well. And so P&R is still a healthy three to four percent grower that's got nice end use market diversification. That is a very strong cash generator, which fuels the great growth on the recon side. And we do see the opportunity to shape it over time into more of a, you know, maybe more of a four percent grower than a three to four percent grower and then try to work from there to see if we can go further. But we continue to have three to four percent as the strategic growth focus for P&R. And, you know, we're within that range this year.

Speaker Change: We've talked about today. We've also been doing some skew trimming that shapes that business a little bit as well. And so B&R is still a healthy 3% to 4% grower that's got nice end-use market diversification that is a very strong cash generator, which fuels the great growth on the recon side. And we do see the opportunity to shape it over time into more of a, maybe more of a 4% grower than a 3% to 4% grower, and then try to work from there to see if we can go further. But we continue to have 3% to 4% as the strategic growth focus for P&R, and we're within that range this year.

Michael Matson: The next question comes from Mike Matson with Needham & Company. Please go ahead.

Speaker Change: Thanks so much.

Matthew Trerotola: Yeah, thanks. I just wanted to follow up on Caitlin's question on P&R. So the growth is a little slower now. You know, there's concerns about a potential recession happening again. You know, does that P&R business have a little more economic sensitivity than maybe the recon side of the business? You know, what have you seen there in prior recessions with P&R?

Speaker Change: Yeah, thanks. I just wanted to follow up on Caitlin's question on PNR. So the growth is a little slower now.

Speaker Change: You know, there's concerns about a potential recession happening again. You know, does that P&R business have a little more economic sensitivity than maybe the recon side of the business? You know, what have you seen there in prior recessions with P&R?

Michael Matson: Yeah, I mean, you know, look, I think our industry broadly, if you study prior recessions, has had a little bit of an impact, but not a lot of impact. And I think that would apply to both sides of the business. On the PNR side, on the positive side, there's, you know, there's a smaller percentage that is related to elective surgery. And so you might, might argue that there is less, you know, kind of recession-related impact.

Speaker Change: Impact, and I think that would apply to...

Speaker Change: to both sides of the business, you know, on the PNR side, on the positive side, there's

Speaker Change: You know, there's a smaller percentage that is related to elective surgery, and so you might...

Speaker Change: might argue that there is less.

Michael Matson: But then there's also things, you know, like products that we sell in our rehab business, you know, that are small capital purchases for rehab clinics and things like that that, obviously, you might have a little bit of economic sensitivity in those. And so, you know, I don't think there's a meaningful difference between the recon side and the PNR side in terms of economic sensitivity. I think both, you know, are very positive in that they have a limited ban on economic sensitivity, but both are not fundamentally immune from a little bit of economic sensitivity.

Speaker Change: are very positive in that they have a limited band of economic sensitivity, but both are not fundamentally immune from a little bit of economic sensitivity.

Matthew Trerotola: Okay, got it. Thanks. And then, just on ARVIS 2.0, wondering if you could give us an update on the launch, and I don't know if there's any sort of metrics you can share in terms of how it's doing, but that would be helpful. Thanks. Yeah, yeah.

Matthew Trerotola: Yeah, yeah, so again, and this is, you know, Arvis in hip and knee. You know, there, as we've talked about before, we've got a couple dozen surgeons that are using the product and, you know, ramping up the usage there, some using it very heavily, some using it on specific procedures. And we're, you know, working with a surgeon to continue to get feedback and learn so that we can turn around and educate other surgeons the best way to use Arvis, how to get the most benefit from it. Last time I looked, that number was creeping up some. From that couple, a couple of dozen.

Speaker Change: Yeah. Yeah. So, again, and this is, you know, ARVIS in hip and knee, you know, there, as we've talked about before, you know, we've got a couple dozen surgeons that are using the product and, you know, ramping the usage there. Some using it very heavily, some using it on specific procedures, and we're, you know, working with those surgeons to continue to get feedback and learn so that we can turn around and educate other surgeons the best way to use ARVIS, how to get the most benefit from it. And the last time I looked, that number was creeping up some from that couple of, couple of dozen. So, I do feel like as we work through this year, that's going to.

Matthew Trerotola: So I do feel like as we work through this year, that's going to, that's going to start to ramp up and, you know, be an important part of our knee offense there. And so we're excited about that. Now, we also have found that there are some surgeons that, you know, might prefer in the knee something that's a little more robotic. And we've got a partnership with Think there that allows us to bring the T-mini, and we've got, you know, kind of a handful of cases where the T-mini has been the right answer for a surgeon for whatever reason.

Speaker Change: That's going to start to ramp.

Speaker Change: And, you know, it'd be an important part of our knee offense there, and so we're excited about that. Now, we also have found that there's some surgeons that, you know, might prefer in the knee something that's a little more robotic, and we've got a partnership with Sync there that allows us to bring the T-Mini, and we've got, you know, kind of a handful of cases where the T-Mini has been the right answer for a surgeon for whatever reason. So we're super excited about Arvis, but we're also being very thoughtful about how to make sure that in each of the anatomies, we've got all the enabling technologies that are needed to serve multiple segments out there as the market continues to evolve and develop.

Matthew Trerotola: And so we're super excited about Arvis, but we're also being very thoughtful about how to make sure that in each of the anatomies, we've got all of the enabling technologies that are needed to serve multiple segments out there as the market continues to evolve and develop.

George Sellers: The last question comes from George Sellers with Stevens Inc. Please go ahead.

George Sellers: Hey, good morning. Thanks for taking the time to answer the question. And I just wanted to follow up on the cross-selling discussion. Could you provide some additional color on the breakdown geographically of those cross-selling opportunities? You gave some great color on what some of those devices are. But just as we think about the magnitude of that tailwind and how significant that cross-selling opportunity could be in terms of offsetting dis-energies, what's the breakdown geographically? And then how should we also think about that tailwind in the back half of this year and the tail of that into 2025 and beyond? Thanks again for taking the question.

Speaker Change: And the last question comes from George Sellers with Stevens Inc. Please go ahead.

Matthew Trerotola: Yeah, I'll make some comments on that. You know, I think that, probably, in the short term, there's a little bit more cross-selling opportunity in the US than outside the US as things ramp out there. But over a number of years, the opportunity outside the US is extraordinary. And so, you know, I think what you're going to see is that cross-selling in the US is going to start to offset some of the headwinds this year.

Matthew Trerotola: And then really starting to help particularly the Lima business in the US that had not been as strong a grower to be, you know, a good strong grower up against our legacy Enovis business next year and in the following years. You know, outside the US, you know, there is a strong market out there that is supporting double-digit growth, you know, and we're also executing very well.

Matthew Trerotola: I think what's going to happen outside the US is that, you know, as the synergies ramp year by year by year, as well as we make other improvements and investments, we're going to be able to support continued very strong growth there in a much more, you know, normal market environment. And that, you know, those will come together nicely in terms of our, you know, kind of long-term double-digit revenue growth path and our high single-digit company growth path. Yeah, George.

Ben Berry: Yeah, George, and I'd just weigh in on that too to say, you know, the depth and strength of our portfolio is just so much more robust now as you think about, you know, leveraging the scale and now the channel that we've put together across the globe. But some of that takes time as you're building inventory, as you're working through, you know, making sure that we're able to feed those channels with the right products in the right place.

Speaker Change: Yeah, George, and I just weigh in there, too, to say, you know, the depth and strength of our

Speaker Change: portfolio is just so much more robust now as you think about, you know, leveraging the scale and then now the the channel that we've put together across

Speaker Change: But some of that takes time as you're building inventory, as you're working through, you know, making sure that we're able to, you know, feed those channels, you know, with the products in the right place. So I've met...

Matthew Trerotola: So, as Matt described, this will develop over time. And then there's also the benefit of now leveraging the capabilities that we have with Legacy Mathis, with Lima, with Legacy Enovis to drive innovation cadence into the future to just continue to support the development of the bags that we have across these anatomies. So, I think our view is it's going to help to start moderate some of those net impacts as we've described here in 2024 in the back half of the year.

Speaker Change: describe, this will develop over time and then there's also the benefit of now leveraging the capabilities that we have.

Speaker Change: with Legacy Mathis, with Lima, with Legacy Enovis to drive innovation cadence into the future to just continue to support that development of the bags.

Speaker Change: that we have across these anatomies. So I think our view is it's gonna help to start moderate some of those net impacts as we've described.

Matthew Trerotola: But as we've also said, this is one of the things that we believe will help us to continue to grow above the market outside the United States longer term as we're putting these things together. And now you're leveraging your sales call with a much more robust portfolio.

George Sellers: Okay, that's really helpful, Cutler. I appreciate all that.

Speaker Change: Okay, that's really helpful, Cutler. I appreciate all that. And then maybe to follow up on the P&R segment, obviously, you've been investing a little bit there and have some new devices and updated devices that you've been rolling out. How should we think about the impact of that with pricing and your ability to take some price with

George Sellers: And then maybe to follow up on the P&R segment, obviously, you've been investing a little bit there and have some new devices and updated devices that you've been rolling out. How should we think about the impact of that on pricing and your ability to take some price with rolling out some new devices there? And how should we think about the growth specifically coming from pricing in that segment going forward?

Speaker Change: with rolling out some new devices there and how should we think about the the growth specifically coming from pricing in that segment going forward.

Matthew Trerotola: Yes, in P&R, you know, there had been a more historical, a little bit negative price environment in a time where we really weren't innovating, and then more recently, there's been a positive price environment that's, you know, been, you know, kind of passing through inflation.

Speaker Change: Yes, in PNR, you know, there had been a more historical, a little bit negative price environment in a time where we really weren't innovating. And then more recently, there's been a positive price environment that's, you know, been, you know, kind of a lot passing through, you know, the inflation. We're now running at about about

Matthew Trerotola: We're now running at about flattish prices in P&R. And I think that flat to a little positive is sort of the right price range for a P&R business where we've got the right amount of innovation coming through the business, and we kind of get prices where we can, but then, but then there's, you know, areas where there's going to be some pressure. And we've also been really looking at mix and whether it's, you know, kind of product line by product line mix and growing things like our technology-based rehab products faster than the rest, or whether it's new products and making sure that the new products that we bring out have higher margins than the existing product line.

Speaker Change: You know, kind of a...

Speaker Change: Product line by product line mix and growing things like our

Speaker Change: technology-based rehab products faster than the rest, or whether it's new products and making sure that the new products that we bring out have higher margins than the existing product line. I think those are things that factor into that kind of price and gross margin equation as well. So, you know, I think that we

Matthew Trerotola: I think those are things that factor into that kind of price and gross margin equation as well. So, you know, I think that our forward assumption will be that from a growth standpoint, price is neutral in the P&R, you know, kind of markets like this year, but also that our innovation continues to ramp and grow and is, you know, helping us to grow the market but also helping us to have continuous margin expansion.

George Sellers: Got it. Okay. Really helpful. Thank you all again for your time this morning.

Speaker Change: Except our forward assumption will be that from a growth standpoint

Speaker Change: Price is neutral in the P&R markets, kind of like this year, but also that our innovation continues to ramp and grow and is helping us to grow the market, but also helping us to have continuous margin expansion.

Matthew Trerotola: That concludes our question and answer session. I would like to turn the conference back over to Matt Trerotola for any closing remarks.

Matthew Trerotola: Thank you for joining us this morning. I want to end the call by thanking our team members for their commitment to excellence day in and day out. We have a lot of momentum and excitement across the organization and remain committed to delivering value for all of our internal and external stakeholders. Thank you for listening today, and we look forward to sharing our third quarter results with you in October.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.