What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-07 · 125 added, 101 removed, 376 unchanged (38% of the section changed)

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The following discussion of the financial condition and results of operations of Enovis Corporation (“Enovis,” “the Company,” “we,” “our,” and “us”) should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2024 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2024 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

“Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2024.

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• our restructuring activities, which may subject us to additional uncertainty in our operating results;

• any impairment in the value of our intangible assets or goodwill, because of a sustained decline, including but not limited to, operating performance at one or more our business units or the market price of our common stock;

• any impairment in the value of our intangible assets or goodwill, because of a sustained decline in, including but not limited to, operating performance at one or more our business units or the market price of our common stock;

• a material disruption at any of our manufacturing facilities;

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Items Affecting Comparability of Reported Results and Other Recent Developments

The comparability of our operating results for the three and six months ended June 28, 2024 to the prior periods in 2023 is affected by the following significant items:

The comparability of our operating results for the three and nine months ended September 27, 2024 to the prior periods in 2023 is affected by the following significant items:

Strategic Acquisitions

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On January 3, 2024, the Company acquired Lima, a privately held global orthopedic company focused on restoring motion through digital innovation and customized hardware for total fair value consideration of $865.6 million, net of acquired cash.

The fair value total consideration includes a fixed number contingently issuable shares of Enovis stock valued at $107.9 million, which is dependent on the non-occurrence of certain future events and is expected to be settled within one year of the acquisition closing.

Subsequent to the end of the second quarter of 2024, the first tranche of the Contingent Acquisition Shares of 971,343 shares were issued to the sellers on July 16, 2024.

The fair value total consideration includes 1,942,686 contingently issuable shares of Enovis common stock, as determined based upon a €100 million value divided by the thirty-day volume weighted average price of Enovis common stock as of the close of business on September 21, 2023 (the “Contingent Acquisition Shares”), which issuance is dependent on the non-occurrence of certain future events and is expected to be settled within one year of the acquisition closing.

The Contingent Acquisition Shares are issuable in two equal tranches.

The first tranche of 971,343 Contingent Acquisition Shares was issued to the sellers on July 16, 2024.

We currently expect the second tranche of Contingent Acquisition Shares to be issued in the first quarter of 2025.

This acquisition expands and complements our current product offerings internationally within our Recon segment.

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The Novastep best-in-class MIS bunion system serves a rapidly growing portion of the global bunion segment.

On July 20, 2023, we completed an asset acquisition of a broad line of external fixation products from D.N.E., LLC for total consideration of $28.2 million.

On July 20, 2023, we completed an asset acquisition of a broad

line of external fixation products from D.N.E., LLC for total consideration of $28.2 million.

These two acquisitions are valuable additions serving to enhance the offerings under our foot & ankle product lines.

On October 5, 2023, we acquired a 100% interest in Precision AI, a developer of surgical planning software.

The acquisition of Precision AI complements our current

product offerings with advanced surgical planning software.

The acquisition of Precision AI complements our current product offerings with advanced surgical planning software.

The software has capabilities to be used for shoulder reconstruction and there is an opportunity to expand this to additional anatomies.

Foreign Currency Fluctuations

During the three and six months ended June 28, 2024, approximately 41% and 42% of our sales, respectively, were derived from operations outside the United States, the majority of which are in Europe, with the remaining portion primarily in the Asia-Pacific region.

During the three and nine months ended September 27, 2024, approximately 39% and 41% of our sales, respectively, were derived from operations outside the United States, the majority of which are in Europe, with the remaining portion primarily in the Asia-Pacific region.

Accordingly, we can be affected by market demand, economic and political factors in countries in Europe and the Asia-Pacific region, and significant movements in foreign exchange rates.

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Changes in foreign exchange rates can impact our results of operations and are quantified when significant.

For the three months ended June 28, 2024 compared to the three months ended June 30, 2023, fluctuations in foreign currencies decreased Net sales by 0.3%, decreased Gross profit by approximately 0.6%, and decreased operating expense by approximately 0.3%.

For the six months ended June 28, 2024 compared to the six months ended June 30, 2023, fluctuations in foreign currencies had immaterial impact on Net sales, decreased Gross profit by approximately 0.4%, and increased operating expenses by approximately 0.1%.

For the three months ended September 27, 2024 compared to the three months ended September 29, 2023, fluctuations in foreign currencies increased Net sales by 0.4%, increased Gross profit by approximately 0.8%, and increased operating expense by approximately 0.2%.

For the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023, fluctuations in foreign currencies increased Net sales by 0.2%, had an immaterial impact on Gross profit, and increased operating expenses by approximately 0.2%.

Sales in our P&R and Recon segments typically peak in the fourth quarter.

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Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

The following tables set forth a reconciliation of net income (loss) from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA, for the three and six months ended June 28, 2024 and June 30, 2023, respectively.

The following tables set forth a reconciliation of net income (loss) from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA, for the three and nine months ended September 27, 2024 and September 29, 2023, respectively.

Three Months Ended

June 28, 2024 June 30, 2023

September 27, 2024 September 29, 2023

P&R Recon Total P&R Recon Total

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(1) Non-operating components of Net income (loss) from continuing operations are not allocated to the segments.

(2) Restructuring and other charges includes $2.7 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended September 27, 2024, and there were no similar charges for the three months ended September 29, 2023.

(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs are not discrete to either segment.

Six Months Ended

June 28, 2024 June 30, 2023

Nine Months Ended

September 27, 2024 September 29, 2023

P&R Recon Total P&R Recon Total

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(1) Non-operating components of Net income (loss) from continuing operations are not allocated to the segments.

(2) Restructuring and other charges includes $0.3 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the six months ended June 30, 2023.

(2) Restructuring and other charges includes $2.7 million and $0.3 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the nine months ended September 27, 2024 and 2023.

(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs are not discrete to either segment.

Total Company

The following table summarizes our sales for the three and six months ended June 28, 2024, respectively.

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 Growth Rate

The following table summarizes our sales for the three and nine months ended September 27, 2024, respectively.

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 Growth Rate

(In millions)

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The following table summarizes sales on a Comparable Sales and Comparable Sales Growth rate basis for the periods presented.

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 Growth Rate

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 Growth Rate

Comparable Sales (1)

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The acquired businesses include Lima and Novastep, which are reflected in the Recon segment, and the excluded non-core product lines are comprised of a divested compression hosiery product line in the P&R segment and certain discontinued third-party OEM relationships in the Recon segment.

Net sales for the three months ended June 28, 2024 increased from the prior year by $96.7 million, or 22.6% primarily attributable to an increase in sales from the Lima Acquisition and to a lesser extent the Novastep acquisition and growth in existing businesses.

Recon sales increased by $92.4 million, or 59.6%, of which $90.1 million was attributable to the Lima and the Novastep acquisitions.

Net sales for the three months ended September 27, 2024 increased from the prior year by $87.7 million, or 21.0% primarily attributable to an increase in sales from the Lima Acquisition and growth in existing businesses.

Recon sales increased by $83.8 million, or 56.9%, of which $68.4 million was attributable to the Lima acquisition.

Recon sales were negatively impacted by a $1.2 million decrease from the discontinuance of certain non-core product lines.

P&R increased by $4.3 million, or 1.6%, which was negatively impacted by a $3.8 million decrease in

sales from divesting a minor product line.

For the three months ended June 30, 2023, U.S.

P&R increased by

$4.0 million, or 1.5%, which was negatively impacted by a $3.7 million decrease in sales from divesting a minor product line.

For the three months ended September 29, 2023, U.S.

GAAP basis net sales were $417.5 million.

The Comparable Sales were $478.1 million for the same period.

In 2023, Lima and Novastep would have contributed $79.2 million to Comparable sales, offset by the impact of the divestiture and discontinuance of certain non-core product lines of $5.9 million.

Comparable sales growth for Recon was driven by approximately 7.1% increases in volume and market share gains, offset by unfavorable currency translation of 0.5%.

Comparable sales growth for P&R was driven by approximately 3.3% organic growth in volumes, offset by 0.3% unfavorable foreign currency translation.

The strengthening of the U.S.

Dollar relative to other currencies resulted in $2.0 million, or 0.4%, of unfavorable foreign currency translation impacts on total net sales for the three months ended June 28, 2024 from the prior year period.

Net sales for the six months ended June 28, 2024 increased from the prior year by $206.8 million, or 24.8% primarily attributable to an increase in sales from the Lima Acquisition and to a lesser extent the Novastep acquisition and growth in existing businesses.

In 2023, Lima have contributed $65.5 million to Comparable Sales, offset by the impact of the divestiture and discontinuance of certain non-core product lines of $4.9 million.

Comparable Sales Growth for Recon was driven by approximately 8.6% increases in volume and market share gains and favorable foreign currency translation of 0.6%.

Comparable Sales Growth for P&R was driven by approximately 2.6% organic growth in volumes and favorable foreign currency translation of 0.3%.

The weakening of the U.S.

Dollar relative to other currencies resulted in $2.1 million, or 0.4%, of favorable foreign currency translation impacts on total net sales for the three months ended September 27, 2024 from the prior year period.

Net sales for the nine months ended September 27, 2024 increased from the prior year by $294.5 million, or 23.5% primarily attributable to an increase in sales from the Lima Acquisition and to a lesser extent the Novastep acquisition and growth in existing businesses.

Recon sales increased by $278.0 million, or 60.7%, of which $252.0 million was attributable to the Lima and the Novastep acquisitions.

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P&R sales increased by $16.5 million, or 2.1%, which was negatively impacted by a $6.9 million decrease from divesting a minor product line.

For the six months ended June 28, 2024, U.S.

For the nine months ended September 27, 2024, U.S.

GAAP basis net sales were $1,546.6 million.

The Comparable Sales were $1,541.8 million for the same period.

For the six months ended June 28, 2024, the sales attributable to the non-core product lines, which were divested or discontinued, were $4.8 million.

For the six months ended June 30, 2023, U.S.

For the nine months ended September 27, 2024, the sales attributable to the non-core product lines, which were divested or discontinued, were $4.8 million.

For the nine months ended September 29, 2023, U.S.

GAAP basis net sales were $1,252.2 million.

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Comparable Sales Growth for Recon was driven by approximately 7.5% increases in volume and market share gains and favorable foreign currency translation of 0.5%.

Comparable sales growth for P&R was driven by approximately 3.1% organic growth in volumes, offset by 0.1% unfavorable foreign currency translation.

Comparable Sales Growth for P&R was driven by approximately 2.9% organic growth in volumes and favorable foreign currency translation of 0.1%.

The weakening of the U.S.

Dollar relative to other currencies resulted in $1.4 million, or 0.1%, of favorable foreign currency translation impacts on total net sales for the six months ended June 28, 2024 from the prior year period.

Dollar relative to other currencies resulted in $3.5 million, or 0.2%, of favorable foreign currency translation impacts on total net sales for the nine months ended September 27, 2024 from the prior year period.

Operating Results

The following table summarizes our results of continuing operations for the current year and prior year periods.

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

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Income tax benefit $ (9.1) $ (6.1) $ (25.4) $ (17.9)

(1) Restructuring and other charges includes $0.3 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the six months ended June 30, 2023.

Three Months Ended June 28, 2024 Compared to Prior Year

Gross profit increased in the three months ended June 28, 2024 compared with the prior year period due to a $36.6 million increase in our Recon segment and a $3.9 million increase in our P&R segment.

The Gross profit increase was attributable to increased sales from the Lima and Novastep acquisitions, offset by an increase of $23.9 million in inventory fair value step-up amortization charges.

(1) Restructuring and other charges includes $2.7 million and $2.7 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2024, respectively.

Restructuring and other charges includes $— million and $0.3 million, of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 29, 2023, respectively.

Three Months Ended September 27, 2024 Compared to Prior Year

Gross profit increased in the three months ended September 27, 2024 compared with the prior year period due to a $43.8 million increase in our Recon segment, slightly offset by a $0.3 million decrease in our P&R segment.

The Gross profit increase was attributable to increased sales from the Lima acquisition, offset by an increase of $8.4 million in inventory fair value step-up amortization charges.

Gross profit margin decreased by 1.5% due to the aforementioned increase in inventory fair value step-up amortization charges.

Selling, general and administrative expense increased $56.2 million in the three months ended June 28, 2024 compared to the prior year period, primarily due to increased commissions on increased sales and increased selling, general and administrative costs from the Lima Acquisition.

Research and development costs also increased compared to the prior year period, primarily due to the Lima Acquisition and increased spend within recently acquired businesses in our Recon segment, which is investing in surgical productivity solutions and computer-assisted surgery technologies.

Selling, general and administrative expense increased $45.7 million in the three months ended September 27, 2024 compared to the prior year period, primarily due to increased commissions on increased sales and increased selling, general and administrative costs from the Lima Acquisition.

Research and development costs increased slightly compared to prior year period as increases due to the Lima Acquisition were offset by phasing of other R&D spending.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to the Lima Acquisition.

Interest expense, net increased in the three months ended June 28, 2024 compared to the prior year period due to an increase in debt to finance the Lima Acquisition.

The effective tax rate for Net loss from continuing operations during the three months ended June 28, 2024 was 32.6%, which was higher than the 2024 U.S.

Interest expense, net increased in the three months ended September 27, 2024 compared to the prior year period due to an increase in debt to finance the Lima Acquisition.

The effective tax rate for Net loss from continuing operations during the three months ended September 27, 2024 was 21.4%, which was higher than the 2024 U.S.

federal statutory tax rate of 21%, primarily due to tax credits for research and development, non-U.S.

income taxed at lower rates and non-taxable fair value gain on contingent acquisition shares.

income taxed at lower rates, non-taxable fair value gain on Contingent Acquisition Shares, and release of uncertain tax positions.

This was partially offset by an increase in valuation allowance on interest limitation carryforwards, non-deductible expenses, and U.S.

taxation on international operations.

The effective tax rate for Net loss from continuing operations during the three months ended June 30, 2023 was 24.4%, which was higher than the 2023 U.S.

The effective tax rate for Net loss from continuing operations during the three months ended September 29, 2023 was 23.7%, which was higher than the 2023 U.S.

federal statutory tax rate of 21%, primarily due to non-U.S.

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taxation on international operations.

Net loss from continuing operations increased in the three months ended June 28, 2024 compared with the prior year period, primarily due to a $17.3 million increase in strategic transactions costs from Lima integration activities, a $12.9 million increase in interest expense, net, and $8.7 million increase in amortization of acquired intangibles, offset by a $33.5 million mark-to-market gain on the Contingent Acquisition Shares liability.

Adjusted EBITDA and aEBITDA margin increased due to the Lima Acquisition.

Six Months Ended June 28, 2024 Compared to Prior Year

Gross profit increased in the six months ended June 28, 2024 compared with the prior year period due to a $94.9 million increase in our Recon segment and a $8.2 million increase in our P&R segment.

The Gross profit increase was attributable to increased sales from the Lima and Novastep acquisitions, offset by an increase of $28.8 million in inventory fair value step-up amortization charges.

Net loss from continuing operations increased in the three months ended September 27, 2024 compared with the prior year period, primarily due to the increase in Gross Profit from the Lima Acquisition, partially offset by a $10.9 million increase in strategic transactions costs from Lima integration activities, a $5.3 million increase in interest expense, net, and $8.8 million increase in amortization of acquired intangibles, and an increase in depreciation and inventory step-up charges.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the Lima Acquisition.

Nine Months Ended September 27, 2024 Compared to Prior Year

Gross profit increased in the nine months ended September 27, 2024 compared with the prior year period due to a $138.6 million increase in our Recon segment and a $8.0 million increase in our P&R segment.

The Gross profit increase was attributable to increased sales from the Lima, offset by an increase of $37.2 million in inventory fair value step-up amortization charges.

Gross profit margin decreased by 1.5% due to the aforementioned increase in inventory fair value step-up amortization charges.

Selling, general and administrative expense increased $104.8 million in the six months ended June 28, 2024 compared to the prior year period, primarily due to increased commissions on increased sales and increased selling, general and administrative costs from the Lima Acquisition.

Selling, general and administrative expense increased $150.3 million in the nine months ended September 27, 2024 compared to the prior year period, primarily due to increased commissions on increased sales and increased selling, general and administrative costs from the Lima Acquisition.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to the Lima Acquisition.

Interest expense, net increased in the six months ended June 28, 2024 compared to the prior year period due to an increase in debt to finance the Lima Acquisition.

The effective tax rate for Net loss from continuing operations during the six months ended June 28, 2024 was 15.3%, which was lower than the 2024 U.S.

federal statutory tax rate of 21%, primarily due to an increase in valuation allowance on interest limitation carryforwards, non-deductible expenses and U.S.

Interest expense, net increased in the nine months ended September 27, 2024 compared to the prior year period due to an increase in debt to finance the Lima Acquisition.

The effective tax rate for Net loss from continuing operations during the nine months ended September 27, 2024 was 17.0%, which was lower than the 2024 U.S.

federal statutory tax rate of 21%, primarily due to an increase in valuation

allowance on interest limitation carryforwards, non-deductible expenses, and U.S.

taxation on international operations.

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income taxed at lower rates, and non-taxable fair value gain on Contingent Acquisition Shares.

The effective tax rate for Net income from continuing operations during the six months ended June 30, 2023 was 24.0%, which was higher than the 2023 U.S.

The effective tax rate for Net income from continuing operations during the nine months ended September 29, 2023 was 23.9%, which was higher than the 2023 U.S.

federal statutory tax rate of 21%, primarily due to non-U.S.

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taxation on international operations.

Net loss from continuing operations increased in the six months ended June 28, 2024 compared with the prior year period by $52.8 million, primarily due to the $27.3 million increase in interest expense, net, a $37.2 million net increase in strategic transaction and restructuring costs driven by Lima activities, a loss of $11.1 million on the non-designated forward currency contracts for the Lima Acquisition, offset by a $20.1 million mark-to-market gain on the Contingent Acquisition Shares liability.

Adjusted EBITDA and aEBITDA margin increased due to the Lima Acquisition.

Net loss from continuing operations increased in the nine months ended September 27, 2024 compared with the prior year period by $66.9 million, primarily due to the $32.5 million increase in interest expense, net, a $50.7 million net increase in strategic transaction and restructuring costs driven by Lima activities, a loss of $11.1 million on the non-designated forward currency contracts for the Lima Acquisition, offset by a $19.9 million mark-to-market gain on the Contingent Acquisition Shares liability.

Adjusted EBITDA Adjusted EBITDA margin increased due to the Lima Acquisition.

Business Segments

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The following table summarizes selected financial results for our Prevention & Recovery segment:

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

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Adjusted EBITDA margin (non-GAAP) 15.6 % 16.3 % 13.8 % 13.7 %

Three Months Ended June 28, 2024 Compared to Prior Year

Net sales increased $4.3 million, or 1.6%, in the three months ended June 28, 2024 compared with the prior year period, which was negatively impacted by a $3.8 million decrease from divesting a minor product line.

Comparable sales growth for P&R was driven by approximately 3.3% organic growth in volumes, offset by 0.3% unfavorable foreign currency translation.

Gross profit increased $3.9 million and Gross profit margin increased by 60 basis points over the prior period due to operational efficiencies and improved mix due to the divestiture.

Selling, general and administrative expense decreased slightly and decreased as a percentage of net sales due to a reduction of EU MDR spending.

Operating income increased by $6.9 million due to the aforementioned gross profit increase and reduction of EU MDR spending, as well as lower depreciation and amortization.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the aforementioned gross profit increase.

Six Months Ended June 28, 2024 Compared to Prior Year

Three Months Ended September 27, 2024 Compared to Prior Year

Net sales increased $3.9 million, or 1.5%, in the three months ended September 27, 2024 compared with the prior year period, which was negatively impacted by a $3.7 million decrease from divesting a minor product line.

Comparable Sales Growth for P&R was driven by approximately 2.6% organic growth in volumes and favorable foreign currency translation of 0.3%.

Gross profit decreased $0.3 million and Gross profit margin decreased by 90 basis points primarily due to lower mix of higher margin products sales.

Selling, general and administrative expense decreased slightly and decreased as a percentage of net sales due to a reduction of strategic transaction costs and EU MDR spending.

Operating income increased by $1.6 million due to the reduction of strategic transaction costs and MDR spending, as well as lower depreciation and amortization.

Adjusted EBITDA and Adjusted EBITDA margin decreased due to the aforementioned gross profit decrease.

Nine Months Ended September 27, 2024 Compared to Prior Year

Net sales increased $16.5 million, or 2.1%, compared with the prior year period, which was negatively impacted by a $6.9 million decrease from divesting a minor product line.

Comparable sales growth for P&R was driven by approximately 3.1% organic growth in volumes, offset by 0.1% unfavorable foreign currency translation.

Gross profit increased $8.2 million and Gross profit margin increased by 30 basis points over the prior period due to operational efficiencies and improved mix due to the divestiture.

Comparable Sales Growth for P&R was driven by approximately 2.9% organic growth in volumes and favorable foreign currency translation of 0.1%.

Gross profit increased $7.9 million and Gross profit margin decreased by 10 basis points primarily due to lower mix of higher margin products sales.

Selling, general and administrative expense decreased primarily due to reduction of strategic transaction costs and EU MDR spending.

Operating loss decreased due to the aforementioned Selling, general and administrative expense decrease and higher gross profit.

Adjusted EBITDA and Adjusted EBITDA margin increased due to improved sales mix.

Operating loss decreased due to the aforementioned Selling, general and administrative expense decrease and higher gross profit, partially offset by charges from divesting a minor product line.

Adjusted EBITDA and Adjusted EBITDA margin increased slightly compared with the prior year period.

Reconstructive

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The following table summarizes the selected financial results for our Reconstructive segment:

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

10 unchanged sentences

Adjusted EBITDA margin (non-GAAP) 20.5 % 14.5 % 20.6 % 17.1 %

Three Months Ended June 28, 2024 Compared to Prior Year

Net sal es increased by $92.4 million , or 59.6% , in the three months ended June 28, 2024, of which $90.1 million was attributable to the Lima and Novastep acquisitions.

Three Months Ended September 27, 2024 Compared to Prior Year

Net sal es increased by $83.8 million , or 56.9% , in the three months ended September 27, 2024, of which $68.4 million was attributable to the Lima acquisition.

Recon sales were negatively impacted by a $1.2 million decrease from the discontinuance of certain non-core product lines.

Comparable sales growth for Recon was driven by approximately 7.1% increases in volume and market share gains, offset by unfavorable foreign currency translation of 0.5%.

Gro ss profit increased over the same period , primarily due to higher net sales due to the Lima Acquisition, improved operating cost leverage, offset by an increase of $23.9 million in inventory fair value step-up amortization charges.

Comparable Sales Growth for Recon was driven by approximately 8.6% increases in volume and market share gains and favorable foreign currency translation of 0.6%.

Gro ss profit increased over the same period , primarily due to higher net sales due to the Lima Acquisition, and improved operating cost leverage, offset by an increase of $8.4 million in inventory fair value step-up amortization charges.

Gross profit margin decreased primarily due to increased inventory fair value step-up amortization charges and product mix.

Selling, general and administrative expense increased by $47.4 million over the same period primarily due to increased Strategic transactions costs associated with Lima integration activities, increased commissions driven by higher sales, a general and administrative expense increase due to the Lima Acquisition, and increases in existing business investments to support growth.

Research and development expense increased compared to the prior year period due to the Lima Acquisition and increased spending within other recently acquired businesses in our Recon segment, which are investing in surgical productivity solutions and computer-assisted surgery technologies.

Research and development expense increased slightly compared to prior year period as increases due to the Lima Acquisition were offset by phasing of other R&D spending.

Operating loss increased, primarily due to a $11.8 million increase in strategic transaction costs including the deal costs for the Lima Acquisition and integration costs, and an increase in amortization of acquired intangibles and inventory fair value step-up amortization charges, offset by the aforementioned factors driving growth.

Adjusted EBITDA increased primarily due to increased gross profit from the Lima Acquisition and improved operating cost leverage.

Six Months Ended June 28, 2024 Compared to Prior Year

Nine Months Ended September 27, 2024 Compared to Prior Year

Net sal es increased by $277.9 million , or 60.7% , of which $252.0 million was attributable to the Lima and the Novastep acquisitions.

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Comparable Sales Growth for Recon was driven by approximately 7.5% increases in volume and market share gains and favorable currency translation of 0.5%.

Gro ss profit increased $95.0 million in the six months ended June 28, 2024 compared to the prior year period , primarily due to h igher net sales due to the Lima Acquisition, improved operating leverage, offset by an increase of $28.8 million in inventory fair value step-up amortization charges.

Gro ss profit increased $138.7 million in the nine months ended September 27, 2024 compared to the prior year period , primarily due to h igher net sales due to the Lima Acquisition, and improved operating leverage, offset by an increase of $37.2 million in inventory fair value step-up amortization charges.

The increase in inventory step-up charges led to a decrease in Gross profit margin.

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No stock repurchases have been made under this plan since the third quarter of 2018.

As of June 28, 2024, the remaining stock repurchase authorization provided by our Board of Directors was $100 million.

As of September 27, 2024, the remaining stock repurchase authorization provided by our Board of Directors was $100 million.

The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.

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subsidiaries of the Company guarantee the obligations under the Enovis Credit Agreement.

As of June 28, 2024, there was $385 million available on the Revolver.

As of September 27, 2024, there was $385 million available on the Revolver.

The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments, or pay dividends.

In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum senior secured leverage ratio of not more than 3.75:1.00 and thereafter, stepping down to 3.50:1.00 for the fiscal quarter ending June 30, 2024 and thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00.

In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum senior secured leverage ratio of not more than 3.50:1.00 for the fiscal quarter ending June 30, 2024 and thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00.

The Enovis Credit Agreement contains various events of default (including failure to comply with the covenants under the Enovis Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Revolver.

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In addition, we are party to overdraft facilities with a borrowing capacity of $30.0 million.

Total letters of credit and surety bonds of $34.1 million were outstanding as of June 28, 2024.

As of June 28, 2024, we had $43.4 million of Cash, cash equivalents and restricted cash, a decrease of $1.4 million from the balance as of December 31, 2023 of $44.8 million.

Total letters of credit and surety bonds of $24.6 million were outstanding as of September 27, 2024.

As of September 27, 2024, we had $39.8 million of Cash, cash equivalents and restricted cash, a decrease of $5.0 million from the balance as of December 31, 2023 of $44.8 million.

The following table summarizes the change in cash, cash equivalents and restricted cash during the periods indicated:

Six Months Ended

June 28, 2024 June 30, 2023

Nine Months Ended

September 27, 2024 September 29, 2023

(Dollars in millions)

Net cash provided by (used in) operating activities $ (28.4) $ 35.6

Net cash provided by operating activities $ 25.2 $ 66.6

Purchases of property, plant and equipment and intangibles (127.5) (94.3)

Payments for acquisitions, net of cash received, and investments (765.4) (131.4)

Payment for settlement of derivatives

Other investing

Net cash used in investing activities (897.6) (183.1)

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Cash flows from operating activities decreased $41.4 million year-over-year.

This decrease includes a higher investment in working capital of $1.5 million, higher strategic transaction costs of $26.5 million, higher restructuring payments of $5.1 million and an increased cash paid for interest of $23.2 million.

Cash flows used in investing activities during the six months ended June 28, 2024 were $839.2 million compared to $166.0 million in the prior year period due to higher investments in the current year driven by the Lima Acquisition for $758.6 million, net of cash received.

Cash flows used in investing activities during the six months ended June 30, 2023 included the acquisition of Novastep for $96.9 million, net of cash received.

Cash flows provided by financing activities during the six months ended June 28, 2024 include $878.5 million of net debt borrowings primarily used for the Lima Acquisition, capital expenditures and operations.

Cash flows provided by financing activities for the six months ended June 30, 2023 include net debt borrowings of $139.0 million primarily used for the acquisition of Novastep and capital expenditures.

This decrease includes higher strategic transaction costs of $37.4 million, higher restructuring payments of $6.3 million, and an increased cash paid for interest of $23.5 million, partly offset by $13.4 million cash from the settlement of the foreign currency forward contracts associated with the Lima Acquisition and lower overall investment in working capital of $9.3 million.

Cash flows used in investing activities during the nine months ended September 27, 2024 were $897.6 million compared to $183.1 million in the prior year period due to the Lima Acquisition purchase price of $757.7 million, net of cash received, and overall higher capital investments in the current year driven by recent acquisitions.

Cash flows used in investing activities during the nine months ended September 29, 2023 included the acquisition of Novastep for $96.9 million, net of cash received, offset by proceeds from sale of an asset previously classified as held for sale for $42.6 million.

Cash flows provided by financing activities during the nine months ended September 27, 2024 include $878.0 million of net debt borrowings primarily used for the Lima Acquisition, capital expenditures and operations.

Cash flows provided by financing activities for the nine months ended September 29, 2023 include net debt borrowings of $133.2 million primarily used for the acquisition of Novastep and capital expenditures.

Critical Accounting Policies and Estimates

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Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position.

There have been no significant additions or changes to the methods, estimates and judgments included in “Item 7A.

Except as noted below, there have been no significant additions or changes to the methods, estimates and judgments included in “Item 7A.

Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our 2023 Form 10-K.

Goodwill and Intangible Assets

We evaluate the recoverability of Goodwill at the reporting unit level annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount.

As of September 27, 2024, the sum of the fair value of our two reporting units, as calculated by management, implied a premium of approximately 46% above our market capitalization, due to the decrease in the share price of our common stock.

We identified the decrease in market capitalization as a possible impairment indicator as of September 27, 2024, and performed interim quantitative assessments of Goodwill for the Reconstructive and Prevention & Recovery reporting units.

To conduct the assessments, we measured the fair value of each reporting unit and compared the fair values to the respective carrying values as of September 27, 2024 to determine whether impairment existed.

Based on these assessments, no impairment was identified.

As of September 27, 2024, the Goodwill of the Reconstructive and Prevention & Recovery reporting units was $1.3 billion and $1.1 billion, respectively.

Determining the fair value of a reporting unit requires the application of judgment and involves the use of significant estimates and assumptions which can be affected by changes in business climate, economic conditions, the competitive environment and other factors.

We measured the estimated fair value of the reporting units based on equally weighing a discounted cash flow approach and a market valuation approach.

The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future.

Significant estimates in the discounted cash flow models include the weighted-average cost of capital, revenue growth rates, long-term rates of growth, profitability of our business, tax rates, and working capital effects.

The market valuation approach indicates the fair value of the business based on a comparison against certain market information.

Significant estimates in the market valuation approach model include identifying appropriate market multiples and assessing Adjusted EBITDA, as defined in the Non-GAAP Measures section of Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For the Reconstructive and Prevention & Recovery reporting units, the estimated fair value exceeded the carrying value by 5% and 5%, respectively.

For sensitivity analysis, we estimated the fair value of the Reconstructive and Prevention & Recovery reporting units if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 120 and 130 basis points, respectively.

Management believes its assumptions to be reasonable, though such estimates are unpredictable and inherently uncertain.

Actual results or future changes in the judgment, assumptions and estimates could result in significantly different estimates of fair value in the future.

If the decline in our market capitalization is sustained or actual results of the business differ from our estimates and projections, there is an increased risk of potential impairment, which could materially affect our financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis