Q2 2025 Enovis Corp Earnings Call
Good day and welcome to inovis. Second quarter, 2025 earnings conference call.
All participants will be in the listen. Only mode. Should you need assistance? Please signal a conference specialist by passing. The start Keys followed by 0.
After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on a touchtone phone to video your questions. Please press star then 2, please note. This event is being recorded. I would now like to turn the conference over to Kyle Rose. VP investor relations. Please go ahead.
Good morning everyone. Thank you for joining us today. For our second quarter, 2025 results conference call. I'm Kyle Rose and Novis is Vice President of investor relations joining me on the call. This morning are Damian McDonald chief executive officer and Ben Barry Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the investor section of our website and novas.com we will be using a slide presentation.
In today's call, which can also be found on our website, both the audio, and the slide presentation of this call will be archived on the website later today.
During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties including those set forth in the safe harbor language. In today's earnings release and in our filings with the SEC actual results might differ materially from any forward-looking statements that we make today. These 4, we're looking statements, speak only as of today, and we do not assume any obligation or intend to update them. Except as required, by law for further details regarding any non-gaap Financial measures reference to during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release. And in the appendix of today's slide presentation with that, let me turn it over to Damian.
Thank you, Kyle.
Good morning everyone. And thank you for joining us today. For our second quarter earnings call, and my first and CEO of anovas,
Before we walk you through the quarter, I want to take a moment to speak directly to our investors and shareholders.
I recognize the trust you place in this company and in me, as its new leader
your confidence and support are what make our growth possible.
I stepped into this role with a deep sense of responsibility to our patients, to a Health Care Partners to our employees. And to you, I look forward to engaging with you and earning your confidence with our results.
I've been at an over for just over 90 days and I would like to share with you, my observations on the company and the opportunities ahead of us.
As well as begin to outline our near-term priorities.
I started in my role shortly after the third anniversary of the spin-off, that created a novice,
All technologies that align with our Orthopedic, Continuum of Care needed by patients and their providers.
In those 3 years, we bought more than 10 companies into our portfolio.
Our transformation has been notable scaling from 1.4 to 2.2 billion dollars in revenues from 56 to 60 in Gross margins.
And from 14% to close to 18% in adjusted ebit D margins.
This growth has been deliberate and driven by organic expansion portfolio, shaping and targeted Acquisitions that aligned with our strategy to globalize our business towards faster. Growing higher margin and markets.
It's clear that we've got a strong foundation and an unmatched diverse portfolio of solutions.
But to realize our full potential, we must maximize the power of what we've built.
There are opportunities to improve the durability and consistency of our organic growth. Margin expansion and cash flow generation.
each of them, these Improvement opportunities will be supported by disciplined Capital allocation,
in my first 3 months, I've been out in the field and actively listening and engaging with our Global stakeholders who are Key to Our Success.
This included visiting customers hospitals, and medical centers and meeting key physician partners.
It was encouraging to hear how highly they regard, our portfolio of products and their views on the opportunity, we have to gain share.
I've also been busy internally connecting with our senior leaders and spending meaningful time with our teams around the world.
It's been incredibly energizing to witness firsthand our passion for restoring motion and improving patients lives.
Having 2 at all, our major manufacturing sites and corporate offices. I'm now concluding comprehensive reviews of each of our business segments. Functional teams and sales regions to inform a multi-year roadmap centered on profitable, Capital efficient growth.
In order to improve patient, outcomes, become a talent, magnet, and deliver outside shareholder returns.
In the near term. I intend to focus the organization on 3 key priorities.
Commercial execution and innovation.
Operational excellence and financial discipline.
In terms of commercial, execution, and Novis operates in attractive, sizable markets and competes against some of the strongest and most financially capable Technologies in Medtech.
We have, and we will need to always bring our a game to every customer facing activity.
I know that there have been instances where complex Integrations and Rapid product launches have stretched our teams
The opportunity lies in further embedding and expanding disciplined commercial practices across the Enterprise.
With respect to Innovation, we must use size to our advantage and reinforce our ability to be nimble by quickly, identifying and addressing key market trends and making focused investments in those areas with the highest differentiation and Market potential.
An immediate priority for our team will be accelerating our product Pipeline with a particular focus on enabling technologies, that improve clinical outcomes and surgical efficiency.
Regarding operational excellence a large part of my experience in this area centers on focused business system philosophy to deliver exceptional long-term Financial outcomes.
High Teens ebit damage are not sufficient to achieve our company's goals and ambitions.
To that end. We are developing detailed plans to optimize resources, augment gross, and operating margin improve, cash flow and leverage address, leverage directly.
While continuing investments in customer-facing and R&D activities that promise differentiation and profitability.
Additionally, while egx is Central to our operating philosophy. Its implementation remains, in varying stages of maturity. Largely following the successful Acquisitions over the last 5 years.
I believe the accelerated application of this business system will improve Capital allocation and operating efficiencies and I am confident. We will see tangible improvements in cash generation leverage and productivity in the near term.
And third with multiple operating companies under our umbrella. It is important to further, embed organization wide Financial discipline, to expand margins, improve working capital and capex, efficiency and significantly reduce integration related costs.
As a foundation gets stronger, we will create the flexibility for broader Capital allocation decisions in the future.
On our strong culture of thoughtful speed, transparent accountability and collaborative empowerment.
Our employees remain Central to achieving our mission and we are actively investing in their development. Fostering an open high performance environment, and encouraging cross 10 collaboration to get better every day.
Now, let's turn to our second quarter results.
In the second quarter, we delivered reported growth of 7% and 5% on an organic constant currency basis.
We delivered strong earnings growth and positive cash in the quarter while managing tariff. Headwinds
Our teams have made good progress on new product launches. And we have clear line of sight into a multi-year Cadence of meaningful NPI.
In Recon, we delivered organic growth of 8% including us growth of 6%.
Growth in US extremities was 10% driven by strong double digit growth of shoulders led by the launch of our augmented reverse glenoid system.
Us hip and knee growth was flat reflecting the impact of fewer selling days and headwinds in capital sales as customers deferred orders in anticipation of our next Generation Hardware launch.
Underlying implant growth in hip and knee was mid single digits. And we expect acceleration in the second half of the year as new products ramp
early commercial feedback on the nebula system and the author Drive surgical impactor has been encouraging with a positive reception from surgeons and sales teams.
Our launch activities today have been controlled. As we scale, inventory, and ramp surgeon training,
Outside the US, we benefited from our recent geographical expansion and continue to take share in a resilient Market.
Our Optimus stem and RM cup. Continue to drive competitive share gains in international hit.
Similarly, our SMR and Prima shoulder portfolios continue to be a highlight.
As we integrate and capitalize on cross-selling opportunities.
A consistent theme in my conversations with our commercial teams and surgeons is the growing conviction that enabling Technologies are key to having a comprehensive portfolio.
our entry and key platform in this space is artists and are augmented reality, platform that delivers real-time intraoperative, intelligence, guidance, and navigation,
AA stands out in the market because it is simple, portable and scalable.
Enhancing surgical Precision without adding complexity to the workflow.
It fits seamlessly into both inpatient and outpatient settings regardless of the reimbursement model, delivering real value where it matters most
our next Generation platform Builds on this foundation with a lighter more complex, headset, improved, visualization faster, registration and enhanced tracking
These upgrades also enable future expansion into real-time soft tissue balancing for knee procedures and differentiated shoulder applications.
All important steps towards building a broader more versatile, multi Anatomy ecosystem.
The addition of these features has extended our commercial timeline. We're now about 6 months behind where we expected to be. But the excitement we're seeing with surgeons gives us confidence that the enhancements will be a meaningful addition to our Global portfolio.
In P&R, 3% organic growth reflects a stable market environment and disciplined execution.
Overall this business is performing in line with our strategic plan and will benefit from the manaf. Use lipos technology launched and several key. New bracing products in the coming quarters.
Adjusted ebit down, margins in P&R improved 130 basis points year-over-year. As we continue to use, egx tools to drive consistent productivity, improvements and proactively shape. The portfolio for profitable Capital efficient growth.
I've been in the medical industry for more than 30 years and I'm passionate about its power to improve people's lives and longevity.
I'm grateful. I've been given this opportunity to bring my experience to a novice and lead the company into its next chapter of growth.
since joining my initial optimism about the potential has only grown stronger and I am confident in the near-term, Strategic objectives and commitments, we've made to investors,
including,
Our updated guidance that Ben will outline shortly.
As I mentioned, my immediate priority is reinforcing organic growth and margin expansion while also unlocking Capital efficiencies across the business.
Future.
And now I'll turn it over to Ben to take you through the pnl details then.
Thanks Damian. Hello everyone! Uh, we are pleased to report second quarter. Sales of 565 million up 7% versus prior year and 5% on an organic basis.
The quarter included approximately 200 basis, points of positive currency Tailwind offset by roughly 200 basis. Point headwind from selling days,
overall our Recon business salt, organic growth of 8%
led by high single digit growth in global extremities and mid single digit growth in global hips and knees.
Our growth in P&R continues to be stable at 3% in the quarter.
For the first half of the Year, organic growth was 8% at the innovas level 10% in Recon and 5% in P&R.
We are encouraged with the momentum building in both segments and believe the diversity in the portfolio. Produces durability of growth as we continue to navigate ever, evolving and markets.
Adjusted gross, margins improved 90 basis points in the quarter and 200 basis points year to date.
This expansion is driven by favorable segment and product mix, and in-flight productivity programs, and Manufacturing, and supply chain.
Second quarter adjusted, Evita was flat versus prior year at 17.2%. Primarily a result of the phasing of expenses and increased investments in R&D.
Year to date. We have expanded our adjusted Eva margins by 75 basis points.
Second quarter effective tax rate was 23%.
Interest expense was 9 million for the quarter versus 17 million and 2024.
Overall we delivered adjusted earnings per share of 79 cents.
An increase of 27% versus prior year.
First half EPS adjusted EPS grew 42% driven by margin expansion and reduced interest expenses.
We are pleased with the financial progress we've made so far in 2025 and are excited about the value creation opportunities in front of us as we continue to execute.
With this in mind, we are raising our guidance.
We are increasing our Revenue range by 25 million to 2.245 billion to 2.275 billion.
This is driven by an improved currency Outlook, particularly strength in the Euro and organic growth execution.
We expect foreign currency to be a slight Tailwind in 2025 this compares to our prior expectation. Of flat versus 2024 for organic growth. We are raising our constant currency growth guidance to 6.25% to 6.75%.
An increase of 25 basis points versus the prior range.
We continue to expect high single-digit growth and Recon and low single-digit growth in P&R.
We are also raising our guidance for margins and earnings on margins. We are raising our adjusted evaa range to 392 to 400 and 402 million. This is a 7 million dollar increase versus our prior guidance and reflective of our updated view on tariffs.
Which improved versus our prior guidance. Due to the 90-day pause on the elevated tariff rate in China.
The Tariff situation remains very fluid. We paid 6 million dollars in tariffs in Q2, mostly related to PNR. As a new costs have worked their way through inventory. As we've previously outlined, we will begin feeling the impacts in the p&l starting in Q3 as we expect our mitigation efforts to accelerate through the balance of the year.
No adjustments have been made to our outlook for depreciation interest tax rate or share count.
Considering these changes, we are increasing our adjusted earnings per share range by $0.10.
To $35 to $3.20.
Lastly, we reiterate our expectation for positive free cash flow in 2025 and our focused on using generated cash to pay down debt.
And reduce leverage as we exit the year.
Our business.
We are pleased with our improving business mix and are excited about the new product innovations that should continue to ramp over the second half of 2025.
The underlying fundamentals of the business, remains strong and robust. And we are poised to manage the business responsibly through this Dynamic environment and maintain progress, towards our strategic goals and financial commitments.
Kyle.
Thanks Ben.
Before we begin, the Q&A session in an effort to accommodate everyone on the call, we ask that analysts. Keep the questions to 1 question and 1 follow-up. You are welcome to rejoin the queue if we have time
With that operator, please open the call to questions.
Thank you. We will now begin the question and answer session.
to ask a question, you may press start and 1 on your touchtone phone,
Using a speaker phone, please pick up your handset before pressing the keys. If at any time your questions has been addressed and you would like to withdraw your question, please press star. Then 2 at the same time we will pause momentarily to assemble our roster.
The first question comes from the line of Vijay Kumar with evercore isi, please go ahead now.
Hey uh thanks for taking my question. Damon uh congrats and welcome to, I guess, your first earnings call may maybe my first question um, for you on on, uh, you know, to this delay in a harvest launch.
Um, hip and knees or flat-ish, uh, us hip and knee. So, when you think about the back half, um, acceleration, here are not Recon, uh, what do you assuming for RVs and um, in um, you know, if August is now pushed out by 6 months, are there any other new products that would drive the back half Step Up?
Hey, good morning Vijay, how are you? And, uh, thanks for the question. Uh, there are a couple of things that I think are important for Recon in, uh, in the back half. We've got, uh, the nebula hip is, is just really coming into the market. We've been in, uh, limited market release. And as I said, in my prepared remarks, the response has been tremendous and we're really looking forward to that being more available in uh, later, Q3 and Q4
Um, similarly, I would say, the ARG for shoulder is, is a really great opportunity for us in the US again, great response. Um,
And and, and as I've spent a lot of time in Europe too with the international team, uh, they're really coming into their own with the cross-selling in in the extremities. Uh, you know, the Prima SMR cross-selling opportunity is is really driving uh, great share gain in shoulders. So I I see a lot of opportunity with the the emerging portfolio. And, and as I also said, in my prepared, remarks doubling down on, you know, how we execute on on the commercial operations in, in particularly, in the US, I think is an opportunity for us.
Understand and maybe been uh, 1 for your um, and I want to ask on the guidance, but maybe more focused on uh you know, uh, adjusted evidon, free cash. I think a recent report recent some questions on that adjusted I just um um reconciliation.
Um, to some of the points raised forever.
Uh, the society agreements and whether that's um uh period expense, that's being non-gaap. Um, and and inventory Step Up costs. Something I'm curious on on, um, um, your comfort around the adjusted e with a metrics that you report. And I think I think a lot of these, uh,
Uh, debates would end a free cash flows normalized rate. So I know you said free cash positive for fiscal. Uh 25. When do we get back to 7 to 80 income free cash conversion for the company? Thank you.
1 call. This was a shift in our model, uh, to essentially remove some bias in terms of the Innovation cycle, uh, with some of our key, uh, surgeon Partners. Um, so it was 1 time in nature. It was non-cash. It's over a 7 to 9 year period. So, there's no clear. I'd say benefit that rolls through the p&l here. If anything it's relatively neutralized with regards to the shift in the model that we've just executed, but your points are the right 1 with regards to the focus on free cash flow. Uh I think you saw progress that we've made in free cash flow in the second quarter particularly with the pressure that we uh felt on tariffs. I think you heard in my prepared remarks that we took 6 million dollars of of payments of tariffs in the second quarter but still posted positive free cash flow. So you're seeing some of those adjusted costs. Neutralized a little bit as we're completing more of the integration. Uh, and we're, we're reducing the burden.
In their, uh, due to that. So we we feel very strong about our ability to continue to incrementally, make progress on cash flow throughout the course of this year. Uh and then as we step into next year, we're very much entitled uh to to see step-ups uh particularly as the European medical device regulation spend uh significantly diminishes and the Lima integration costs significantly step down. So uh that entitlement
Right there puts us on the pathway, towards the 70 to 80%, uh, conversion and and very clear line of sight for us to continue to step up towards those levels, uh, over the coming years.
That's helpful. Thank you.
Thank you. Next question. Comes from the line of Vic Chopra with the Wells Fargo. Please go ahead.
Hey, good morning and thank you for taking the questions. Congrats on a nice quarter. Uh Damian welcome uh 2 questions to Me, Maybe 1, um on how 1 for for Damian, you know, maybe just talk about some of the lessons learned from your previous company that you think you can apply at inovis and then I had a follow-up, please.
Well, I think there's some tremendous things. So, thanks for the question Vic. Uh,
on, in terms of growth, I think we've got, you know, a huge opportunities of
applying discipline to the way we think about customer segmentation and targeting account acquisition and account penetration and and really driving Innovation. So I think um bringing some of the things that I learned uh at my previous role around pipeline development and and execution. Uh is is really key. I think also the um fact that the DNA is a novice in it has egx in it. Uh is really a great opportunity for us. I've had a lot of experience with that business system. I mean
Mentality. And what I am excited about is the fact that we have it and people use it, but the real opportunities expanding that across the entire business,
And and making it applicable to not just the Ops groups. But the, the, uh, carpet land is sometimes it's referred. So, uh, we've got great opportunity to, to really use that again to focus on Capital efficiency and and generating more cash and really thinking about how we get leveraged down.
Great, thank you for that answer. Uh, followup question is, how should we think about your m&a, strategy? Post Lima? And maybe just talk about how you're thinking about balancing Debt, Pay down with doing tuck in deals in 2025. Thank you.
Yeah, so let's let's be very clear and I I think I alluded to this in my opening comments. The the capital allocation priority right now is is debt reduction.
And and Ben and I have spent a lot of time talking about this and and also with the board so Our intention is to be very focused on debt reduction look when our foundation is stronger. Um, we'd look at either opportunistic, share BuyBacks or focused m&a. But in the near term you you should think about our Capital, allocation priority as debt reduction,
You are done with the question?
Yes, thank you very much.
Thank you. Thanks Vic. Cheers.
Next question, comes from the line of young Lee with Jeffrey. Please go ahead.
The business and key near-term focuses and priorities. Um, I'm sure we'll hear more about your long-term views later. Um, and in particular wanted to hear a little bit more about, um, you know, your comment on focusing on enabling Technologies to drive faster growth. Um, where does robotics fit in that framework? And um, also your thoughts on the uh, on portfolio man management in general.
Thank thanks. J lot to unpack in that question. Um, let me start with, uh, well, I I watched Cole Cole faction, you know, later in Nova for for many years, um, and and as the conversations with the board evolved, I was really intrigued by, you know, the portfolio of products that had been assembled, but also the development pipeline that was emerging and the opportunity to work with the team to create value through disciplined execution was, you know, really compelling. And so the near-term priorities are as a, as I mentioned this doubling down on our organic growth with, you know, a focus on Commercial execution and Innovation. Uh, really working with the team on operational excellence.
Uh and looking at Capital efficiency margin expansion uh and in the financial discipline and Ben and I have had a lot of uh discussions around, you know, capex cost management, you know, shared service utilization. So we we we are going to really focus on those 3 priorities in in the near term.
Uh with respect to enabling tech and and Robotics, look, we've clearly heard the message that enabling Tech is a key part, um, of having a complete Global portfolio. And our first solution is, is focusing on the steps of planning and and navigation. If you think about it as planning, navigation and assistance,
We, we still continuing to examine whether the large format robots, uh, are cost-effective solutions and and improve, patient, outcomes, uh, and whether you know, entry into the market at this point is is really valid. Um, and we've got resources dedicated to exploring all of the viable Pathways. Um and I'm actively engaged with that team in the short time I've been here. Um,
August for us, you know, really I think it gives us an opportunity to extend into that space. We wanted to launch our next gen with a hardware and a software update at the same time we were doing some really great uh research and voice of customer. Um and in that development you know really understood a lot more about the software uh and wanted to ensure that those were incorporated into the Next Generation, the the delay,
Um and and right now we're working with the team to really explore how to maximize the potential of that and really drive more implant growth. I think the key aspect of this is there's there's the capital but really what we're trying to get at is implant growth. Um and uh, that's a that's a key Focus area for me. In terms of that commercial execution and Innovation discussion that I said
Very, very helpful. Um, I guess on the um, on the extremities business, um, 10% of growth sounds like shoulders that um, is better than Foot and Ankle. Um, maybe if you can provide us a little bit more color on the growth and performance of, um, each of the segments, and um, the key products and initiatives to drive faster growth.
Why don't I Do shoulders and you do Foot and Ankle? Um, so so the shoulder thing I think is 2 things, firstly, um, in in the US with the release of ARG, the ultimate reverse, glenoid, we, we've been again in limited commercial release, their, it's progressing really well. Uh, our opportunity is, you know, later in Q3 and Q4 to, to Really expand that, um, internationally, you know, speaking with the team and spending time, uh, with them. The the cross selling is really the great opportunity. There we had a a prima system that is more about simple procedures and the SMR system that really comes out of
A fracture mentality and and the ability of the team. Now to firstly, be trained and competent and capable to talk about those 2 different philosophies and then take either Prima customers and introduce SMR or SMR customers who were doing complex cases and bring Prima to their portfolio. Has really been what's driving the international growth. So uh I see it, you know, as really again back to this focus on, you know, commercial execution. And I think that teams doing a tremendous job
Um, and and we would expect that that business continues to contribute to our growth algorithm as as we think about the the strength and extremities uh, second quarter for Foot and Ankle was a little bit softer from a market volume standpoint. Uh you know, as we look at it it was more volume procedural driven than it was you know anything that we think was a disruptions in in our business. Uh but we're launching some new products, getting new uh, inventory out in the field which will inspect some acceleration in the second half. So overall, we still feel comfortable that we'll be well within our guidance, uh, you know, with with regards of what we've set expectations around um and and see some acceleration and foot and ankle in the back half.
All right, great. Thank you very much.
Thank you. Next question, comes from the line of Mike Matson with any. Please go ahead.
Hi guys. This is Joseph on from Mike. Um, welcome, Damian. Nice to meet you over the phone. Um.
Apologies. If you guys, uh, noted this in the prepared remarks, but, um, the guidance, uh, increase in Revenue was that due to currency, or was this more, you know, outperformance, um, of, of core and novice. And then the
Uh, acquisition revenue and PNR. Um, I don't know if you guys had announced that. It looks small. I was just curious where that was coming from.
Yeah, hi Joseph. Uh, on the guidance piece, It's a combination of currency and organic performance. So we shifted up the range 25 million, uh, with the combination of that coming from, you know, slightly better currency than than what we expected. As we went into the last call and then, uh, you know, taking our organic growth range up to 25 basis points. So it's a little bit of a, a combination there. Um, if you think about what that acquisition was on the PNR side, very, very small, uh, little bolt on thing that we did to reinforce our leadership position outside the US. So, uh, relatively material in terms of the, the, the size of that thing. But, but it was, uh, an acquisition that was completed in the quarter.
Okay, great. Um, that's helpful and then
Just on gross margin. It was um you know great to see all the expansion there just, you know, on a gap in non-gaap basis but um, you know, just curious on the flow through I guess we were expecting more of it to flow through. Um, ebit on margin there. I mean, it looks like you have flat year-over-year. So, just curious, what are the the levers in there? That, you know, we didn't see more flow through. Thanks again.
Yeah, again, I think we're pleased with the performance that we've seen, um, against the, the expectations that we spent, uh, set especially through the first half, um, you know, second quarter. Yes, you know, I think you're you're seeing some, uh, positive mix elements that are continuing to work in our favor, with regards to gross margins. Uh, and from an ex expense side. And in my prepared remarks, I talked a little bit about some of the phasing and investments, in our R&D on the operating expense side. So overall, again, I think we're we're well in line with what our expectations were that we set for for the years, especially through the first half and we are still bullish. In terms of our ability to continue to expand our margins with with the evolving business, mix, that we have as a company.
Okay, perfect. Thanks to you both and congrats on the quarter.
Thanks, thanks. Josh for cheers.
Thank you. Next question comes from the line of Caitlyn Cronin with Canaccord Genuity. Please go ahead.
Hi, thanks so much for taking the questions and Damen. Welcome.
You know, just to start on the Arvest shoulder launch uh just any updates on how that's going. And then how important will kind of the next and updates to our the uh to this ongoing shoulder launch.
Uh, well thanks. Appreciate the question and, um, look forward to working with you. I think Arvest. I was just with, um, a large group of shoulder surgeons in Madrid a few weeks ago. Um, I would say the reaction,
Giving people a chance to, uh, use that in in a lab and the lighter headset. I think is Meaningful. Uh, the visualization Acuity is Meaningful. The the software as, as I mentioned the software, uh, development, uh, and the feedback we got from from kols, as we developed, it has been meaningful. I I'm really excited about what Arvest can do for shoulder and continue to help us expand our market share gains in in that, in that portfolio,
Great. And then you also think noted, um, you know,
Next year, just maybe remind us what products you expect to be approved in the EU. And then when you expect those to to contribute to, to growth over there,
Yeah, thanks. Yeah. If you if you recall the EU MDR costs are really the remediation of tech files to be able to continue selling products on the market in Europe. So, we've completed the vast majority of that remediation. So this would be the last meaningful year of spend with regards to that remediation.
Got it. Okay, that makes sense. Thanks so much.
Thank you. Thank you.
Thank you. Next question, comes from the line of Daniel and Tali with UPS. Please go ahead.
Hey, good morning guys, thanks so much.
And Damian excited to uh, to work with you. Um, just uh, uh 2 questions here, 1 on the shoulder market dynamics, and I'm just curious, you know, it's it's gotten to be a little bit more of a competitive market. Appreciate you guys are 1 of the market leaders here, these, the market leader here, I guess, Amy. And as you as you look at the competitive environment, how do you see a novice or or what is your strategy to keep a novice as the market share leader and then just a quick, follow-up on PNR, but that's nice. That's my first question.
hey, Daniel look great to uh,
Work with you. I'm uh, look, first of all, I'm excited that you've elevated us to Market leadership. Um, and that's what we're aspiring to and and I think we're we've got the momentum to to get us there. Um, I I think this is going to be, uh, a multi effective.
Commercial commercial execution play here. So, let's talk about. First thing is the relationships we have. I think we've built tremendous relationships, uh, uh, the key of p in, in leader panel. I just spent time within Madrid. Um, you know, with probably 15 of of the best shoulder surgeons in the world and just how excited they are about our portfolio. Um, and how committed they are to the medical education.
Ation of the next generation of Surgeons. I think is, is tremendous. So, uh, it all starts, in my opinion, with relationships in the patient in mind. And so, I think the first thing is, uh, is that second, I think about the commercial execution, and how we help, uh, make our products more available and more applicable to existing customers. Uh, and we're doing a good job. Uh, again particularly in Europe, I I see, uh, the opportunities there um, being executed well, um, and, and as I mentioned in an earlier, question, the, the the cross-selling of the Premier and SMR portfolio is is tremendous. We've got people who are using and Trust our systems, um, just getting them to use it in either complex, cases or simple cases depending on which way they're traveling from the portfolio. Choice is is is is incredible. And then lastly, you know, we're releasing new products ARG is is just a great
Product. Um, and the re reaction we've been having, uh, particularly in the US has been tremendous. So I see this as a layered approach to being, um, being competitive and then, lastly, as we mentioned the the Arvest NextGen, uh, is really going to, I think be be key to uh, to shoulder and and the the assistance and uh, part of this is I think less important, whether robot. Um, what's important is, is the planning and that
Performance around the world.
Got you. Okay? That, that makes a lot of sense and Damian. We hear the same thing regarding, uh, the implant mattering a lot more than, than a robot. Um, just a question on, on PNR, you know, that's been a business, it's undertaking a bit of a, a turnaround. I'm just curious about where you would characterize, you know, sort of where we are in that turnaround. Um, and how to think about appreciate, you're not going to give guidance for 2026, but sort of where that business can can go. Thanks so much.
Well, I, I'll, I'll talk a little bit about what I've seen, and why don't you jump in with the future? I, I really have a have a lot of faith in the ability of this team to continue to execute. Well, you know, we know the markets are are lower growth markets but uh I think this team executes really well in multiple spaces um and they're very focused on financial discipline and and really continuing to do that and you saw that in their uh, the margin expansion. Um but you know, even right now there's a a president's kaisen going on. Um, in Dallas with the team to really look at, you know, how they get more Capital efficient. And, uh, so I I like this team in terms of its focus and execution, but I also like the fact that we're continuing to invest in bringing new products, to Market like the manaf fuse launch, uh, which I think is going to be meaningful. Um, and you know, that's a tremendous product and has a, you know, huge unmet need. So a combination of great discipline, and continuing to invest,
A new product launches I think is a great opportunity for us. Yeah I think I think what you've seen from us there Danielle on PNR is it's been much more consistent? I mean if you look past it, the last 8 to 12 quarters, I think it's you know, in that low single digit growth around that 3 to 4% range and we were even a little bit north of that here in the first half of the year. So if you think about where we are in P&R, it's really a story around. How do we continue to shape and improve it. Uh so we've been looking at how do we continue to do that? Damian mentioned 1 with some new products that we were launching, but we're really trying to up um the the frequency of of new product launches and you're starting to see some of that play through with some of the choices that we've made, uh, from a shaping standpoint, uh, as well. So overall we feel like this business is continuing to P perform in that level, that it has consistently. Um, I think our expectations will be that it will continue to do that. We'll continue to look at
How do we make it even better? Uh, but but right now, I wouldn't um, you know, propose to give any updated guidance other than to say, I think we see it continuing to to be consistent in terms of growth.
Thank you.
Thank you. Next question, comes from the line of Dane Reinhart with bed. Please go ahead.
Hey, good morning guys, and uh, welcome Damian and, uh, thanks for taking the questions, I guess. First question, just on end markets here, um, I think your us hip and knee even normalized. Mid single digit growth was a bit lighter than I think you were closer to kind of high single digit growth last quarter. So just any updates on how end markets are kind of evolving as we go through the summer months here. Um obviously I think 1 of your bigger competitors pointed to a Slowdown in June so just curious what you're seeing, you know, maybe both in the US and internationally and how that's progressed through July so far.
Yeah, I think thanks Dane. I mean I I think what we're seeing really is the the postco norm, really? I mean, you have es and flows in terms of the market. Um, you know, some like we had said we got off to a nice solid start and in the first part of the second quarter, I think we did see some of that with regards to Vacation schedules especially as we ended our quarter on the 4th of July so you know, I think there's some of that. But but again, if you if you look at our performance I think Damien outlined it within hip and knee 1, we're we're still in that controlled launch phase uh, of the of the stem and impactor. Uh, we had the headwind of of of capital with regards to delays with getting
Harvest out. Um and then you had some days of pressure in the US as well with Good Friday. And um, and a Fourth of July that were impacting, the US market a little bit more heavily in the quarter. So overall, I mean it's not where we want to be from a growth in the hip and knee standpoint. But you know as as we think about the underlying performance of it, implants are still performing uh, pretty well. And we think that the new products coming and some of the the commercial execution efforts that Damian also outlined, uh, will help us to accelerate in the second half.
What that is. Now I know you mentioned. It's a little bit lower and then just remind us again how that kind of flows through, um, into next year and then I'll just add 1 kind of quicker 1. Hopefully, you're hopefully for Damen. Um, mentioned kind of trying to be more Nimble and a little bit maybe higher spend on R&D. Um, just does that change at all? Kind of the lrp for 50 basis points of uh margin expansion. Uh, going forward. Thanks for the questions, guys. You want to do tariffs first? Yeah, yeah. So I'll take the tariffs so yeah. Yeah, I mean, I think what we saw uh, Dane is, is that the the Tariff rate for China? Uh, pause the 90-day given that was 75% of our total exposure. Um, was a helpful thing for us. Now, the question mark is, you know, a lot of these trade deals, still aren't completed. So there's still a lot of uncertainty with regards to what? What gets actually agreed to.
Here as we we go through the balance of the year. So we improved our Evita guidance, uh, for the year that primarily I would say because we're seeing some favorability there, but we're still being a bit conservative because of the uncertainties uh, that sits still exists. Um, and as you think about how that plays through, I mean we're we're taking a little bit uh of that through now. As as I mentioned with the cash flow impacts in the second quarter, it works its way through inventory to where we start to feel.
Feel the effects here. Uh, in in the third quarter, in the p&l, we've started to work, the mitigation actions, most of those really scale on the fourth quarter to drive offsets and, and what we had committed to to everyone, when we, uh, outlined the Tariff exposure plan, uh, was that, you know, we will make sure that next year's impacts are less than what we feel this year. So, overall still pretty Dynamic situation. We're monitoring it, I'd say, we're, we're cautiously optimistic that it can get better. We've given a little bit back, um, you know now but but hopefully we'll be able to, you know, continue to see improvements here as these deals get executed.
So uh, with respect to R&D, you know, you saw a slide uptick in um, in the quarter. I I would characterize it like this as I said we're reviewing all the programs and that's not just on the sgna side. It's also on on the R&D side. Um, I I'd consider this more about a, a shift in resource allocation than an expansion in in spend we you know, our Opex is healthy to say the least. Um, and as I mentioned, you know, we're looking to really understand our, you know, Capital efficiency and and the way we spend, so I I wouldn't say that we're looking to increase. Spend what I'm looking for is is a change in allocation
Through this review of all the programs looking at Effectiveness and focus, not, not all programs are created equal, and there are some that I think have, you know, more near-term impact, uh, and ability to execute some that are critical for our longer term. Um and then you know there are always projects that I think maybe should be you know re-examined and so again don't look at this as a as a signal that we're increasing overall Opex. I think about this as a uh a shift in resource allocation.
I'm so Reinhart. Are you done with the question?
Yes, thank you very much, guys.
Thank you.
Are you reminded to all the participants that you may press star and 1 to ask a question?
Next question comes from the line of Brandon Vasquez William player. Please go ahead.
Hi everyone. This is Russell on for Brandon, thanks for taking the questions. Uh my first 1 is a bit of a Nuance in the slide deck. It mentioned that Recon was impacted by Harvest. Um is that just because Arvest itself had lowered sales or harvest resulted in an impact uh to sales
Yeah, it's kind of twofold. Their Russell 1, is as we were starting to gain some momentum of our of this. Last year, we were selling, uh, the devices as capital and, uh, having multiple business models. But we were selling the the product last year. And you saw some uptick, uh, in in that product line as as we execute it through last year, that coupled with uh, the delayed launch of the, the next gen version and people waiting on the sidelines. Um, you know, created that impact year over year
On at all.
Well, again, I I'll come back to what I think is really important. First of all, doubling down on our organic growth opportunities. Now, that we have this expanded portfolio and I, uh, I really like, you know, the way that the Lemur team have come in to the the broader portfolio and and using that not only the team and the market access that Ben mentioned earlier, but also the product portfolio, I think is key. I, I think related to that the new product Cadence that we have um, you know, hip with nebula, the ARG with shoulder. Uh I'm I'm excited about where we're going with our knee portfolio. Uh, you know, the Empower 2.0, um, to, to put a label on it, I think is going to be an exciting expansion for us. Ultimately, as as we look at the knee portfolio globally and and having a system that has has a global application and and you know, working in both primary and revision. So, uh, on on multiple levels, I think
We've got an opportunity to continue our our trajectory. It's going to take discipline. It's going to take Focus. Um, these things don't happen overnight but um, I I'm confident that we can continue to do uh a good job. In terms of the outlining the growth that we talked about
Got it. Thank you.
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Damian McDonald for any closing, remarks.
Well, thank you. Um,
Let me just say, I appreciate the welcome from all of you, and, uh, you have my commitment to be open engaged and and visible. And, uh, if you need access, please, um, make sure you reach out. I know we're on a start of a new journey together and it's an important part of uh, how we're going to build trust in a relationship, um, on behalf of the anovas team and the board of directors. I'd like to thank you all for joining this morning and we look forward to sharing our third quarter results with you in November.
Thank you.
The conference has now concluded.
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