Enovis Corporation (NYSE:ENOV) Q3 2025 Earnings Call Transcript

Enovis Corporation (NYSE:ENOV) Q3 2025 Earnings Call Transcript November 6, 2025

Enovis Corporation beats earnings expectations. Reported EPS is $0.75, expectations were $0.67.

Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enovis Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call 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 third quarter 2025 results conference call. I’m Kyle Rose, Vice President of Investor Relations. Joining me on the call today are Damien McDonald, Chief Executive Officer; and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investors section of our website, enovis.com. We have also posted a slide presentation in relation to 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. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law. For further details regarding any non-GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and in the appendix of today’s slide presentation. With that, let me turn it over to Damien. Damien?

Damien McDonald: Thanks, Kyle. Good morning, everyone, and thank you for joining us today for our third quarter earnings call. Since our last call, I’ve had the opportunity to meet more of our customers and team members, and I see a company with extraordinary talent and a unique portfolio spanning orthopedic implants, bracing rehabilitation, and enabling technologies which empower surgeons, clinicians, hospital leaders and distribution partners to improve patients’ lives across the entire orthopedic continuum of care. Our solid third quarter results reflect strong performance broadly across the portfolio as we increasingly focus on commercial execution, operational excellence, and capital allocation. Third quarter revenue grew 9% on a reported basis and 7% organically.

On an organic basis, Recon grew 9%, Prevention and Recovery grew 4%, and we generated nearly $30 million in free cash flow. Our Recon business delivered another quarter of strong balanced growth. In U.S. Recon, we grew 7%, led by double-digit growth in extremities. Our augmented reverse glenoid system, ARG, continues to gain traction. What’s exciting here is that we’re still very early in the launch cycle, and there are additional products in the pipeline to support a multiyear cadence of innovation in extremities. In Hips and Knees, we grew 6% in implants, adjusting for the prior year sales of enabling technology, and we continue to reinforce our portfolio to compete across hospital and ASC settings. The new products we’ve launched, Nebula Stem and Orthodrive Impactor, are performing well and surgeon feedback continues to be excellent.

Internationally, we grew 12%, and this is where the Lima integration is driving value and producing benefits. We’re executing across the cross-selling synergies we targeted in all anatomies. These are deliberate strategic wins that position us for sustained international growth against strong competitors. We showcased the next-generation Arvis at ASC in August last month. Surgeon response to Arvis Ultra was outstanding. It’s lighter, faster, and adds capabilities like soft tissue balancing for knees and advanced shoulder applications. Arvis continues to track for a broader launch in the first half of 2026. Now moving to P&R. We delivered 4% organic growth with strength in BoneStim, revenue cycle management and our spine bracing products. Adjusted gross margins increased 110 basis points year-over-year, driven by product and geographic mix as well as EGX-driven initiatives across both our manufacturing and supply chain.

We completed the divestiture of Dr. Comfort in early October. This was an important transaction in support of our purposefully shaping our business. I very much want to thank the entire Dr. Comfort team for their contributions as part of the Enovis family. We’re confident that as part of the Promus Equity Partner portfolio, Dr. Comfort has found an ideal environment to achieve its full potential. This transaction, coupled with our focused investment in innovation and growth, has resulted in over 50% of our P&R portfolio now growing mid-single digits or better. I’ll now turn it over to Ben to walk through the financial details.

Phillip Berry: Thanks, Damien, and hello, everyone. We are pleased to report third quarter sales of $549 million, up 9% versus the prior year on a reported basis, including a 190 basis point benefit from foreign currency and 7% organic growth. Our Recon business grew 9% organically, led by double-digit growth in Extremities and 7% in Hips and Knees globally. Prevention & Recovery grew 4% organically, reflecting continued stability and mix benefits across the portfolio. Year-to-date, organic growth is 7%, including 10% in Recon and 5% in P&R, a clear sign of balanced momentum across the business. Adjusted gross margins improved 140 basis points in the quarter, driven by favorable mix, ongoing productivity in manufacturing and supply chain, and slightly offset by tariff impacts.

Adjusted EBITDA margin was 17.3%, down 60 basis points year-over-year, reflecting planned R&D investments, phasing of expenses and tariffs. Year-to-date, we’ve expanded gross margins over 170 basis points and increased adjusted EBITDA margins by 40 basis points. Third quarter effective tax rate was 21.8%. Interest expense was $9 million for the quarter, down from $11 million last year. As a result, adjusted earnings per share was $0.75, up 3% versus prior year. Year-to-date adjusted EPS is up 27%, driven by margin expansion and reduced interest expenses. Additionally, we recorded a non-cash technical impairment of goodwill of $548 million in the quarter due to a sustained decline in our share price and market capitalization. This impairment does not have any impact on Enovis’ liquidity, cash flows, debt covenants, nor does it have any impact on future operations.

We are still very confident and optimistic in the long-range plans we’ve communicated and believe our execution against yearly financial commitments since the spin has demonstrated a strong track record of operational performance. In early October, we announced the sale of our diabetic foot care business, Dr. Comfort, to Promus Equity Partners for up to $60 million, including $45 million in upfront cash, which will be used to reduce debt. The transaction sharpens our focus on core P&R markets and aligns with our strategy of concentrating on higher growth, higher-margin opportunities. Dr. Comfort represented roughly 5% of P&R sales year-to-date. As a result of this sale for the fourth quarter, the impact to our revenue outlook is expected to be $15 million, and we plan to absorb the modest impact on margins and operating cash flow.

Turning to guidance. We are updating our full year 2025 outlook. Due to our positive Q3 performance and the divestiture of Dr. Comfort, we are adjusting revenue guidance by $5 million to $2.24 billion to $2.27 billion with no change to our organic growth guidance. We are also raising our profit and earnings outlook. We now expect adjusted EBITDA in the range of $395 million to $405 million. This is a $3 million increase to the range and is inclusive of a more favorable tariff outlook, solid Q3 results and the negative impacts from the divestiture. As we have previously communicated, the tariff situation remains very fluid. We paid $4 million of tariffs in Q3, still mostly related to P&R. We are beginning to feel the impacts in the P&L, as the new costs have worked their way through inventory.

However, we continue to execute against our mitigation action plans in effort to offset this inflation. No adjustments have been made to our outlook for depreciation, interest, tax rate or share count. We are also raising our adjusted EPS guidance by $0.05 to $3.10 to $3.25. We continue to expect positive cash flow for the year, which we will prioritize towards debt reduction and lower leverage levels as we exit 2025. To summarize, through 9 months, our results highlight the resilience of our platform, the strength of our diversified portfolio, and the progress we’re making towards sustainable, profitable, capital-efficient growth. The underlying fundamentals of the business are improving, and we will continue to manage the business responsibly through this dynamic environment as we maintain progress towards our strategic goals and financial commitments.

Kyle?

Kyle Rose: Thanks, Ben. In an effort to accommodate everyone in the Q&A session and keep things to a reasonable time, we ask that analysts keep their questions to one question and one follow-up. You’re welcome to rejoin the queue if we have time. With that, operator, we’d like to now open it up for questions.

Q&A Session

Operator: [Operator Instructions] Your first question will come from Vik Chopra with Wells Fargo.

Vikramjeet Chopra: Congrats on a nice quarter. Two for me here. Maybe starting off first, one of your larger competitors yesterday called out a modest slowdown in the U.S. revision market for both Hips and Knees. I’m just curious if you’re seeing that dynamic play out as well?

Damien McDonald: Look, so far, Q4 procedure volume seems healthy and stable. Look, historically, our markets have been resilient. And look, there’s no secret there are lots of factors affecting sentiment at the moment, entitlement cuts, government policy, changes in government inflationary concerns. So all of these could weigh on volume. But right now, we’re seeing healthy and stable volumes.

Vikramjeet Chopra: Then given where we are in early November, I’m just wondering how you’re thinking about the potential headwinds and tailwinds in 2026, and if high single-digit recall growth is still on the table for next year?

Phillip Berry: Yes. I mean, Vik, we’re still going to see how the year plays out with regards to thinking how 2026 momentum is going to take us. So overall, I think we still see that as a potential for this business, but we’re not guiding on 2026 right now.

Operator: Your next question will come from Xuyang Li with Jefferies.

Young Li: I guess to begin, I wanted to hear a little bit more — Damien, now that you’ve been in the seat for a while longer now, I wanted to hear your perspective on portfolio management and transformation. Obviously, the deal you’ve done with Dr. Comfort is helping to streamline the portfolio. Should we expect more to happen on that front going forward?

Damien McDonald: We’re very focused on three things. The commercial execution. And again, I think you saw that read through in the quarter. The operational excellence, and we’ve talked about EGX a lot in the past, but we’re really doubling down on that. And the last thing is this financial discipline. And we’re taking a look across the whole portfolio, not only things like Dr. Comfort, but SKU rationalization and how we think about cash generation. So I would say everything is on the table, but being very focused on those three things is important for us in the near term.

Young Li: Can you maybe help level set us a little bit on the Arvis Ultra full launch? How should we expect the pace of that following the full launch next year and maybe a few years down the line?

Damien McDonald: Yes. So I think given the reaction we had at AAHKS and OKHSA, we’re very pleased with the way we’ve approached this. I know we talked about our delay last quarter, but doing that with the software and the hardware, I think, really read through in terms of the response we had from surgeons as we did the demos. We had a lot of traffic at both of those conferences. Our model is being examined like how we think about our go-to-market and offering lots of flexibility in terms of the financial model for customers to purchase lease or commit to implants. So we’re working through that as we launch this in Q1, Q2 of 2026, as we go to a broader expansion.

Operator: Your next question will come from Robbie Marcus with JPMorgan.

Unknown Analyst: This is Allen on for Robbie. I guess like first question is, as you’ve highlighted, the broader markets remain healthy so far in fourth quarter. So how should we think about the drivers of upside to your current guide and where you see that kind of positioning you for 2026?

Damien McDonald: So I think our upsides are really around this commercial execution in terms of the growth levers. Now, as I said, we’re very focused on this with the commercial organizations. We just went through the quarterly business reviews with the business units in the U.S. We’re very focused on things like account acquisition, account penetration. We’re very focused on the way we think about prioritizing our innovation. We’re very focused on customer segmenting customer targeting. So in terms of the growth line, these are the things we’re doubling down on. In terms of margin and reading through in the P&L, looking at gross margins, setting up war rooms on that for the various business units, working capital Kaizens, focusing on cash flow with accounts receivable, looking at the SKUs and the portfolio and rationalizing inventory, they’re all things that are important for us.

A lot of these things don’t happen on a dime, but we’re of the belief that all of this reads through in 2026.

Unknown Analyst: Got it. And then just a quick follow-up. It was good to see continued progress in free cash flow this quarter. So how are you thinking about setting that up for 2026? What your priorities are between debt repayment and other methods of redeploying capital?

Phillip Berry: Yes. Thanks, Allen. Our clear focus is on debt paydown and reducing our leverage levels. If you look at our latest trailing 12 months, we’re now down into the low 3s from a leverage ratio. We’re making progress on cash flow. And as I’ve communicated in the past, we see some significant step downs in terms of integration costs and European medical device regulation costs in 2026. So we expect our momentum in free cash flow generation to continue as we step into 2026.

Operator: Your next question will come from Vijay Kumar with Evercore ISI.

Vijay Kumar: My first one is on U.S. Recon and Arvis, specifically. You mentioned positive feedback to the new launch. I’m wondering, I know you called out the $3 million capital headwinds. Were there any implant sales utilization-based kind of agreements? Meaning could this lack of Arvis right now have had an impact on your implant sales right now? And when you think about Arvis coming back next year? Should implant U.S. Hip and Knees, which has been trending around mid-singles, should that accelerate?

Damien McDonald: So first, on the implant impact for the delay, no, we haven’t seen any impact on implant sales because of the delay. And going forward, we’re looking forward to engaging with people around implant utilization. We expect that the whole program is an interconnected ecosystem. And not only do people find some way to engage with Arvis just in and of itself, but also to drive implants. And so the whole program is an ecosystem approach.

Phillip Berry: Yes. And then I’d just lay in there, too, Vijay, and say, I mean, we still believe that U.S. Hip and Knee is a big growth driver for us. Our funnels are solid in terms of customer conversion, and we continue to invest in innovation for this portfolio, not only in enabling tech, but in implants as well. So we expect this business to continue to be a growth driver for us.

Vijay Kumar: Understood. And maybe, Ben, one on your Q4 guidance assumptions. I know you have days headwinds. Could you just remind us on what the days headwinds to growth is in Q4? And I’m looking at your EPS implied at the high end, EPS is flattish Q-on-Q. Historically, you’ve had a pretty big step-up for Q4. Why are margins flat? Are your tariff assumptions changing here for Q4? Or is this the divestiture impact? Any color would be helpful.

Phillip Berry: It’s a combination of those things, Vijay. I mean, I’d say from a days perspective, as we laid out at the beginning of the year, we had extra days in Q1. Those all come out in Q4. So it’s going to be a 4-plus percent headwind to growth in the quarter. As we look at Q4, you’ve got the — we’ve paid $10 million year-to-date on tariffs. That’s starting to read through. We had about a 50 basis point impact to EBITDA margins in Q3 as a result of tariffs. So we’re mitigating some, but some of it is starting to read through. That will continue to read through in Q4. And there’s a modest impact due to the divestiture as well. So all those things factor into how you’re thinking about the EBITDA guidance for Q4.

Operator: Your next question will come from Caitlin Roberts with Canaccord Genuity.

Unknown Analyst: This is Michala on for Caitlin. Congrats on a great quarter. You noted softer volumes in foot and ankle on the Q2 call, but you said you expected some back half acceleration. Can you talk more about how that trended in the third quarter?

Damien McDonald: Yes. So actually, we did see a bit of a rebound in that space, which is great. Meeting with the team at the AOFAS conference in Savannah was a pretty exciting time for us talking about MIS surgery. And we talked a lot about how there’s a very solid order book in terms of the way that market is rebounding. So we’re continuing to see this team execute. We’ve got a lot of investment in innovation and customer engagement with them, and we’re looking forward to them being a growth driver for us.

Unknown Analyst: Great. And just one more from us, maybe. Can you talk about your thoughts on the J&J DePuy spin-off, and if that could create some long-term opportunities for you guys?

Damien McDonald: It’s not my place to comment on that. I think J&J make portfolio decisions all the time that are interesting, and we look forward to competing with whoever owns it.

Operator: Your next question will come from Mike Matson with Needham.

Michael Matson: So on the Dr. Comfort divestiture, is it possible to quantify the margin or growth accretion from that? I mean, is it even material that we would see it in the overall company margins and growth rate?

Phillip Berry: I think it will give us a little bit of a tailwind as we think about both growth and margin. So we laid out on the slides that we produced today in terms of the contribution of what we’ve seen to that business on revenue year-to-date. It’s lower than the fleet average company margins. So we’ll have a little bit of tailwind. And as I think we’ve discussed before, it’s a business that’s been flat to declining in the past. This year, it’s been restabilized. But overall, I think it’s accretive to both growth and margins for us, not materially, but will give us a little bit of help as we focus on shaping that portfolio.

Michael Matson: The slides called out U.S., I guess, Hip and Knee was down 1% because of a capital order comp or something like that. So can you maybe explain what that capital was? Was it like instrument sets to distributors or harvest or something like that, that you had a year ago that didn’t recur essentially? Is that what happened?

Phillip Berry: Yes. I think we laid this out a little bit last quarter is that we’ve been selling Arvis last year as we were seeding the market, especially in teaching institutions and things like that. So we were selling $2 million to $3 million a quarter of Arvis last year as we were starting to build that portfolio out. And given the delays to the launch of the new platform this year, all that’s been put on pause. So for this quarter and even next quarter, we’ll have some headwinds due to capital sales that we saw in 2024.

Michael Matson: Okay. But the implants in the U.S., I think it says that was up mid-single digits. Correct?

Phillip Berry: Correct.

Michael Matson: The implant part of the business.

Operator: Your next question will come from Russell Yuen with William Blair.

Russell Yuen: I wanted to focus first on the strength in Recon internationally. Could you maybe talk about the dynamics at play here with cross-selling, and maybe more specifics or anecdotal information on what you’re seeing in terms of acceptance or feedback from respective product launches?

Damien McDonald: Well, I think there’s a few things — and thanks for the question. We talked specifically about cross-selling. I think we’re seeing that read through and things like the Prima and SMR shoulder portfolio now really gives us a chance to talk about how to grow portfolios. So in terms of product focus, we’re seeing good growth. Also in terms of geographic jurisdictional growth, I think the team is doing a better job at in-country execution, and I think both of those are reading through.

Russell Yuen: Then maybe I’m not asking for formal guidance on ’26, but maybe how should we think about general impact of new product launches like Nebula and Orthodrive going into Q4, and then maybe its momentum into ’26? And what exactly are you most excited about?

Phillip Berry: Yes. We believe that innovation is critical for our ability to grow above market in Recon, like we’ve demonstrated now for quite a long period. So that will continue to weigh into how we think about this business from a growth going forward. I think I was asked earlier about the momentum there in terms of growth rates of Recon. We still very much believe Recon will be a growth driver for us and above market. So high single-digit plus for that business is our expectation for sure. So overall, I’d say all these new product launches are contributors to that and building momentum as we’ve laid out during the course of this year, they’re beginning to scale. So they should give us some help as we think about that above-market growth in 2026.

Operator: Your next question will come from Danielle Antalffy with UBS Financial.

Danielle Antalffy: Just a quick question on the new product launches. So just curious about — as we think about Nebula Arvis launching in first half next year, how you think about the contribution of price versus volume? That’s the first question. And then I just had one follow-up on the ramp of those products.

Damien McDonald: Yes. Dan, all of the new product launches, we anticipate will help us mitigate what are market headwinds in price. So we’re making good progress in terms of the way we are able to execute new product launches, and you see that read through. We’re making good progress on our account acquisition. And all of these things, we believe, help mitigate what is secular headwinds in price.

Danielle Antalffy: I was curious if you guys can talk about the split between Hips and Knees. So was there a major difference in growth or what you’re seeing in market dynamics between the two? That’s it for me.

Phillip Berry: Yes, Danielle, I mean, I think if you think about — if you’re talking about U.S. in particular, both implant systems are growing probably in about the same range. We expect to see some acceleration in hip, given the new product launches. Revisions for knees have been performing well for us as well. We expect Arvis will help to accelerate this category as well as we think about into the future. So overall, we don’t break it out specifically, but I can tell you both sides of the equation there are growing for us.

Operator: [Operator Instructions] Your next question will come from Dane Reinhardt with Baird.

Dane Reinhardt: I guess I’ll follow up a little bit maybe on Danielle’s first question, kind of price mix related. I know back a few years ago when inflation was running a little bit higher, you got some price benefits in P&R. Can you just talk about if you’re able to kind of passed through similar pricing, maybe given some of the tariffs that you’re absorbing? That’s question one. Then to follow up on that, maybe within extremities, obviously, shoulder, it sounds like it’s a little bit above that 13% and ARG has been a good contributor to that. Can you also talk there about — I think you’ve got a price tailwind with that product? Then maybe how much of that a recent strength is due to new competitive converts versus just upgrading existing shoulder users?

Phillip Berry: Dane, thanks for the question. On P&R, we’ve laid out clearly that part of our mitigation efforts against the inflation coming in from tariffs is to leverage price. We have introduced some increases there to offset some of the impact. We’re being a little cautious just given the market dynamics that are currently at play there. So — but it will continue to be one of the tools in our toolkit as we think about trying to manage through this inflation that’s come into the system as we go forward. On the Recon side, particularly in shoulder, I would say that ARG continues to be a weapon for us as we think about converting customers and it allows us to drive deeper penetration in current accounts. And we’re seeing both happen right now, and we think there’s still a nice runway in front of ARG to continue to drive momentum in our extremities platform as we go into next year and beyond.

As we think about pricing, like-to-like pricing has — we haven’t seen a whole lot of changes happening there. If you think about the mix elements, ASCs, we continue to drive penetration in our portfolio into ASCs, hips, knee, shoulders all increasing year-over-year in terms of number of implants going through that site of care. And in that case, we have some price pressure from a mix standpoint. It’s being offset by some of the premium products that we are launching, like ARG and like revisions and knees that continue to perform well for us, offset that a little bit. And then we would expect, as we start to drive Arvis into the market, that can be a bit of an offset to some of the pricing declines as well. But as for us, we’re a volume game in terms of growing above market.

That plus some of the mix of our portfolio with extremities is driving our ability to continue to grow gross margins as well.

Dane Reinhardt: Then my follow-up is on free cash flow. Obviously, you talked about some of the integration-related costs coming down next year, same thing with the EU MDR expenses. Can you just remind us what your long-term target is in terms of free cash flow conversion? I think it was something around 70% to 80%. One, is there a time line on that? And then two, any thoughts for where you could maybe shake out for 2026, specifically?

Phillip Berry: Yes. Yes. I think from our standpoint, it continues to be a key focal point for us to get up the cash flow curve. We see line of sight to 70% to 80% free cash flow conversion against adjusted net income. We’ll continue to make progress towards that goal as we step into next year, but we’re not guiding for next year at this point in time.

Operator: There are no further questions at this time. I’d like to turn the call back over to Damien, for any closing remarks.

Damien McDonald: Thanks, Carrie. On the last call, I outlined three near-term priorities: commercial execution, operational excellence, and financial discipline. We’re making steady progress across all three and continue to believe in the value creation opportunities ahead of us. I’d like to thank all our teams who work tirelessly to bring our innovative solutions to clinicians and improve patients’ lives through mobility. Thanks for joining us this morning, and we look forward to sharing our fourth quarter and full year results with you in February.

Operator: Thank you for your participation. This does conclude today’s conference. You may now disconnect.