Enovis CORP 10-Q

Item 1. Financial Statements ENOVIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Dollars in thousands, except per share amounts (Unaudited) Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net sales $ 505,222 $ 417,524 $ 1,546,648 $ 1,252,177 Cost of sales 218,763 174,558 673,410 525,787 Gross profit 286,459 242,966 873,238 726,390 Selling, general and administrative expense 249,854 204,248 769,645 619,294 Research and development expense 20,491 19,901 67,347 57,012 Amortization of acquired intangibles 42,786 33,967 124,653 98,256 Restructuring and other charges 5,065 5,342 22,563 11,782 Operating loss ( 31,737 ) ( 20,492 ) ( 110,970 ) ( 59,954 ) Interest expense, net 11,066 5,768 48,031 15,496 Other (income) expense, net ( 202 ) ( 757 ) ( 9,803 ) ( 665 ) Loss from continuing operations before income taxes ( 42,601 ) ( 25,503 ) ( 149,198 ) ( 74,785 ) Income tax benefit ( 9,096 ) ( 6,052 ) ( 25,408 ) ( 17,878 ) Net loss from continuing operations ( 33,505 ) ( 19,451 ) ( 123,790 ) ( 56,907 ) Income from discontinued operations, net of taxes 2,243 16,611 2,175 21,096 Net loss ( 31,262 ) ( 2,840 ) ( 121,615 ) ( 35,811 ) Less: net income attributable to noncontrolling interest from continuing operations - net of taxes 259 40 542 414 Net loss attributable to Enovis Corporation $ ( 31,521 ) $ ( 2,880 ) $ ( 122,157 ) $ ( 36,225 ) Net income (loss) per share - basic and diluted Continuing operations $ ( 0.61 ) $ ( 0.36 ) $ ( 2.26 ) $ ( 1.05 ) Discontinued operations $ 0.04 $ 0.30 $ 0.04 $ 0.39 Consolidated operations $ ( 0.58 ) $ ( 0.05 ) $ ( 2.23 ) $ ( 0.67 ) See Notes to Condensed Consolidated Financial Statements. 2 ENOVIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Dollars in thousands (Unaudited) Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net loss $ ( 31,262 ) $ ( 2,840 ) $ ( 121,615 ) $ ( 35,811 ) Other comprehensive income (loss): Foreign currency translation 76,664 ( 18,057 ) 6,966 3,838 Unrealized gain (loss) on hedging activities, net of tax expense (benefit) of $( 16,763 ), $ 1,009 , $( 11,028 ) and $( 731 ) ( 54,213 ) 3,159 ( 36,006 ) ( 2,290 ) Amounts reclassified from Accumulated other comprehensive loss: Amortization of pension net actuarial gain (loss), net of tax expense (benefit) of $( 8 ), $( 75 ), $( 22 ), and ( 116 ) ( 36 ) ( 339 ) ( 104 ) ( 1,221 ) Reclassification of hedging gain (loss), net of tax expense (benefit) of $( 162 ), $ — , $( 262 ), and $ — ( 536 ) 168 ( 894 ) 168 Other comprehensive income (loss) 21,879 ( 15,069 ) ( 30,038 ) 495 Comprehensive loss ( 9,383 ) ( 17,909 ) ( 151,653 ) ( 35,316 ) Less: comprehensive income (loss) attributable to noncontrolling interest 359 ( 12 ) 574 394 Comprehensive loss attributable to Enovis Corporation $ ( 9,742 ) $ ( 17,897 ) $ ( 152,227 ) $ ( 35,710 ) See Notes to Condensed Consolidated Financial Statements. 3 ENOVIS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS Dollars in thousands, except share amounts (Unaudited) September 27, 2024 December 31, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 35,425 $ 36,191 Trade receivables, less allowance for credit losses of $ 23,564 and $ 9,731 400,216 291,483 Inventories, net 609,665 468,832 Prepaid expenses 45,587 28,901 Other current assets 112,172 71,112 Total current assets 1,203,065 896,519 Property, plant and equipment, net 403,250 270,798 Goodwill 2,393,691 2,060,893 Intangible assets, net 1,396,428 1,127,363 Lease asset - right of use 63,387 63,506 Other assets 90,320 90,255 Total assets $ 5,550,141 $ 4,509,334 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 20,029 $ — Accounts payable 158,037 132,475 Accrued liabilities 352,156 237,132 Total current liabilities 530,222 369,607 Long-term debt, less current portion 1,325,440 466,164 Non-current lease liability 47,420 48,684 Other liabilities 313,760 204,178 Total liabilities 2,216,842 1,088,633 Equity: Common stock, $ 0.001 par value; 133,333,333 shares authorized; 55,866,099 and 54,597,142 shares issued and outstanding as of September 27, 2024 and December 31, 2023, respectively 56 55 Additional paid-in capital 2,964,997 2,900,747 Retained earnings 420,314 542,471 Accumulated other comprehensive loss ( 54,951 ) ( 24,881 ) Total Enovis Corporation equity 3,330,416 3,418,392 Noncontrolling interest 2,883 2,309 Total equity 3,333,299 3,420,701 Total liabilities and equity $ 5,550,141 $ 4,509,334 See Notes to Condensed Consolidated Financial Statements. 4 ENOVIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY Dollars in thousands, except share amounts (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2023 54,597,142 $ 55 $ 2,900,747 $ 542,471 $ ( 24,881 ) $ 2,309 $ 3,420,701 Net income (loss) — — — ( 71,998 ) — 157 ( 71,841 ) Other comprehensive loss, net of tax of $ 7,752 — — — — ( 40,497 ) ( 51 ) ( 40,548 ) Payments of tax withholding for stock-based awards — — ( 4,772 ) — — — ( 4,772 ) Common stock-based award activity 243,439 — 7,302 — — — 7,302 Balance at March 29, 2024 54,840,581 55 2,903,277 470,473 ( 65,378 ) 2,415 3,310,842 Net income (loss) — — — ( 18,638 ) — 126 ( 18,512 ) Other comprehensive loss, net of tax of $( 2,131 ) — — — — ( 11,352 ) ( 17 ) ( 11,369 ) Common stock-based award activity 25,779 — 7,977 — — — 7,977 Balance at June 28, 2024 54,866,360 55 2,911,254 451,835 ( 76,730 ) 2,524 3,288,938 Net income (loss) — — — ( 31,521 ) 259 ( 31,262 ) Other comprehensive loss, net of tax of $( 16,933 ) — — — — 21,779 100 21,879 Common stock issued for acquisition 971,343 1 45,574 45,575 Common stock-based award activity 28,396 — 8,169 — — — 8,169 Balance at September 27, 2024 55,866,099 56 2,964,997 420,314 ( 54,951 ) 2,883 3,333,299 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2022 54,228,619 $ 54 $ 2,925,729 $ 575,732 $ ( 53,430 ) $ 1,716 $ 3,449,801 Net income (loss) — — — ( 23,350 ) — 192 ( 23,158 ) Other comprehensive income, net of tax of $ — — — — — 10,560 24 10,584 Common stock-based award activity 264,535 — 8,044 — — — 8,044 Balance at March 31, 2023 54,493,154 54 2,933,773 552,382 ( 42,870 ) 1,932 3,445,271 Net income (loss) — — — ( 9,995 ) — 182 ( 9,813 ) Other comprehensive income, net of tax of $( 1,781 ) — — — — 4,972 8 4,980 Common stock-based award activity 40,957 1 10,321 — — — 10,322 Balance at June 30, 2023 54,534,111 55 2,944,094 542,387 ( 37,898 ) 2,122 3,450,760 Net income (loss) — — — ( 2,880 ) — 40 ( 2,840 ) Other comprehensive income, net of tax of $ 934 — — — — ( 15,017 ) ( 52 ) ( 15,069 ) Common stock-based award activity 30,886 — 8,881 — — — 8,881 Balance at September 29, 2023 54,564,997 $ 55 $ 2,952,975 $ 539,507 $ ( 52,915 ) $ 2,110 $ 3,441,732 See Notes to Condensed Consolidated Financial Statements. 5 ENOVIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands (Unaudited) Nine Months Ended September 27, 2024 September 29, 2023 Cash flows from operating activities: Net loss $ ( 121,615 ) $ ( 35,811 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 210,394 160,493 Impairment of assets 5,555 — Stock-based compensation expense 21,928 25,758 Non-cash interest expense 3,539 2,117 Fair value gain on contingent acquisition shares ( 19,922 ) — Loss on currency hedges 11,123 — Deferred income tax benefit ( 29,472 ) ( 20,612 ) Loss on sale of property, plant and equipment ( 2,116 ) ( 14,832 ) Changes in operating assets and liabilities: Trade receivables, net ( 29,187 ) ( 6,527 ) Inventories, net ( 2,844 ) ( 29,917 ) Accounts payable ( 11,503 ) ( 12,379 ) Other operating assets and liabilities ( 10,706 ) ( 1,717 ) Net cash provided by operating activities 25,174 66,573 Cash flows from investing activities: Purchases of property, plant and equipment and intangibles ( 127,522 ) ( 94,279 ) Proceeds from sale of property, plant and equipment — 42,571 Payments for acquisitions, net of cash received, and investments ( 765,422 ) ( 131,387 ) Payment for settlement of derivatives ( 4,645 ) — Net cash used in investing activities ( 897,589 ) ( 183,095 ) Cash flows from financing activities: Proceeds from borrowings on term credit facility 400,000 — Repayments of borrowings under term credit facility ( 15,000 ) ( 219,468 ) Proceeds from borrowings on revolving credit facilities and other 940,000 400,000 Repayments of borrowings on revolving credit facilities and other ( 447,005 ) ( 47,345 ) Payment of debt issuance costs ( 703 ) ( 8,000 ) Payments of tax withholding for stock-based awards ( 4,772 ) — Proceeds from issuance of common stock, net 1,555 1,489 Deferred consideration payments and other ( 7,174 ) ( 1,668 ) Net cash provided by financing activities 866,901 125,008 Effect of foreign exchange rates on Cash and cash equivalents 480 ( 652 ) Increase (decrease) in Cash, cash equivalents and restricted cash ( 5,034 ) 7,834 Cash, cash equivalents and restricted cash, beginning of period 44,832 24,295 Cash, cash equivalents and restricted cash, end of period $ 39,798 $ 32,129 Supplemental disclosures - Non-cash investing activities: Fair value of contingently issuable shares in business acquisition $ 107,877 $ — See Notes to Condensed Consolidated Financial Statements. 6 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General Enovis Corporation (the “Company” or “Enovis”) is an innovation-driven medical technology growth company dedicated to developing clinically differentiated solutions that generate measurably better patient outcomes and transform workflows. The Company conducts its business through two operating segments, Prevention & Recovery (“P&R”) and Reconstructive (“Recon”). The P&R segment provides orthopedic and recovery science solutions, including devices, software, and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease. The Recon segment provides surgical implant solutions, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger and surgical productivity tools. The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. The Condensed Consolidated Balance Sheet as of December 31, 2023 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), filed with the SEC on February 22, 2024. The Company makes certain estimates and assumptions in preparing its Condensed Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates. During the three months ended September 27, 2024, due to a decrease in the share price of our common stock and market capitalization, the Company identified a possible impairment indicator as of September 27, 2024 and determined it was appropriate to perform interim quantitative assessments of Goodwill for the Reconstructive and Prevention & Recovery reporting units. Based on these assessments, no impairment was identified. 2. Recently Issued Accounting Pronouncements The Company has not adopted any new accounting standards during the nine months ended September 27, 2024. There are no recently issued accounting pronouncements that are expected to have a material effect on the Company’s financial position, results of operations or cash flows. 3. Acquisitions and Investments Lima Acquisition in 2024 On January 3, 2024, the Company acquired LimaCorporate S.p.A. (“Lima”), a privately held global orthopedic company, at an enterprise value of € 800 million (the “Lima Acquisition”), consisting of (i) approximately € 700 million in cash consideration, which includes the repayment at closing of certain indebtedness of Lima and (ii) 1,942,686 shares of common stock of Enovis, par value $ 0.001 per share (the “Contingent Acquisition Shares”), 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 are issuable in two equal tranches within six and twelve months of the acquisition date upon non-occurrence of certain future events, in each case subject to certain adjustments and conditions as provided for in the purchase agreement. The first tranche of 971,343 Contingent Acquisition Shares was issued to the seller on July 16, 2024. The Company currently expects the second tranche of Contingent Acquisition Shares to be issued in the first quarter of 2025. The cash paid for acquisition was $ 757.7 million, net of acquired cash. The fair value of the Contingent Acquisition Shares at closing was $ 107.9 million based on the Enovis share price at the close of business on January 3, 2024. The Contingent Acquisition Shares liability, recorded in Accrued liabilities, is adjusted to fair value each reporting period with the adjustment reflected in Other income (expense), net in the Condensed Consolidated Statement of Operations. 7 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Lima operates in the reconstructive space of patient care, providing tailored hardware and digital innovation to advance a global standard of care and positive patient outcomes. Lima has approximately 1,000 employees across more than 15 locations around the world. The Lima Acquisition extends the Company’s current footprint to emerging and growing markets, expands its product lines, and strengthens its global innovation platform. The value included as Goodwill for the Lima acquisition is reflective of these expected benefits in conjunction with anticipated synergies as the Company uses its integration experience effectively to drive further operating improvement, margin expansion, and long-term growth. Enovis uses its experience and EGX business management system, a comprehensive set of tools and repeatable, teachable processes, to integrate acquisitions and create superior value for its customers, shareholders and associates. The Company incurred $ 9.7 million of advisory, legal, audit, valuation and other professional service fees in connection with the Lima Acquisition in the first quarter of 2024, which are included in Selling, general and administrative expense in the Condensed Consolidated Statement of Operations. The Lima Acquisition was accounted for as a business combination using the acquisition method of accounting and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the date of acquisition. The following unaudited proforma financial information presents Enovis’s consolidated financial information assuming the acquisition had taken place on January 1, 2023. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies. Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Net Sales $ 505,222 $ 483,001 $ 1,546,648 $ 1,469,691 Net loss from continuing operations attributable to Enovis ( 23,094 ) ( 47,741 ) ( 110,519 ) ( 147,926 ) The following table summarizes the Company’s provisional estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition. These amounts, including inventories, deferred taxes, intangible assets, useful lives of the intangible assets, and property, plant and equipment, are determined based upon certain valuations and studies that have yet to be finalized. Accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analyses are completed, which could be material. Substantially all of the Goodwill recognized is not expected to be deductible for income tax purposes. January 3, 2024 (In thousands) Trade receivables $ 79,710 Inventories 133,547 Property, plant and equipment 123,093 Goodwill 326,158 Intangible assets 363,000 Accounts payable ( 36,871 ) Accrued liabilities ( 51,642 ) Other assets and liabilities, net ( 71,411 ) Total fair value of consideration, net of acquired cash 865,584 Less: fair value of Contingent Acquisition Shares ( 107,877 ) Acquisition consideration paid, net of acquired cash $ 757,707 8 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) The following summarizes the preliminary values of the Intangible assets acquired, excluding Goodwill, as of September 27, 2024: Intangible Asset Weighted Average Amortization Period (Years) Trademarks $ 50,000 20 Customer Relationships 148,000 15 Acquired technology 165,000 15 Total Intangible Assets $ 363,000 During the three and nine months ended September 27, 2024, the Company’s Condensed Consolidated Statements of Operations included $ 68.4 million and $ 237.6 million, of net sales and $ 4.0 million and $ 15.9 million of net loss, respectively, associated with the acquired Lima legal entities. 2023 Acquisitions On June 28, 2023, the Company completed the acquisition of Novastep SAS (“Novastep”) in its Recon segment. Novastep is a leading player in Minimally Invasive Surgery (MIS) foot and ankle solutions with a best-in-class MIS bunion system serving a rapidly growing portion of the global bunion segment. The acquisition is accounted for as a business combination using the acquisition method of accounting, and accordingly, the Consolidated Financial Statements include the financial position and results of operations from the acquisition date. The Company paid $ 96.9 million for the acquisition, net of cash received. The Company allocated $ 43.7 million to goodwill and $ 52.0 million to intangible assets acquired. The purchase accounting related to the Novastep acquisition has been completed. The acquired goodwill value is primarily driven by the expected synergies from cross-selling Novastep products to existing Enovis foot & ankle customers. The acquisition broadens our reconstructive product offerings for the foot and ankle market and expands our customer base in Europe. On July 20, 2023, the Company completed an asset acquisition transaction with D.N.E., LLC (“DNE”) in its Recon segment. DNE is a developer of a broad line of external fixation products, including circular frames, pin-to-bar frames, and mini-fixators for use in foot and ankle surgeries. The acquisition of these assets, primarily the developed technology will allow Enovis to expand its robust product portfolio for the Foot & Ankle business unit. The Company paid $ 28.2 million for the asset acquisition and assigned $ 25.8 million to intangible assets, $ 1.9 million to finished goods inventory and $ 0.5 million to property, plant and equipment. The Condensed Consolidated Financial Statements include the financial position and results of operations from the acquisition date. On October 5, 2023, the Company acquired a 100 % interest in Precision AI Pty Ltd (“Precision AI”), a developer of surgical planning software. The transaction was accounted for as an asset acquisition. The acquisition complements the Company’s current product offerings in its Recon segment with advanced planning software for shoulder surgery and opportunity to expand to additional anatomies. On the acquisition date, the Company paid $ 17.6 million, net of cash received and agreed to make contingent payments of approximately $ 12.0 million upon the successful completion of three milestones. The milestones are based on FDA approvals and user validation testing of the software. In December 2023, the first milestone was achieved and the Company paid $ 4.2 million to the seller. In August 2024, the second milestone was achieved and the Company paid $ 4.2 million to the seller. The third milestone completion date was extended into the first quarter of 2025. As of September 27, 2024, the total intangible asset recorded for this acquisition is $ 33.5 million. The remaining contingent amount is held in escrow by Enovis as restricted cash and presented in Other current assets in the Condensed Consolidated Balance Sheet. The Company has control over these funds and is required to authorize the transfer upon completion of the milestones. The potential additional contingent payments are not recorded until the milestones are achieved. The Condensed Consolidated Financial Statements include the assets acquired and results of operations from the acquisition date. Restricted Cash Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are excluded from Cash and cash equivalents in the Condensed Consolidated Balance Sheets. Restricted cash is recorded as a component of Other current assets on the Condensed Consolidated Balance Sheets. The balance in restricted cash as of 9 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) September 27, 2024 and December 31, 2023 is related to the acquisition of Precision AI which closed in the fourth quarter of 2023 and will be released to the seller within one year of the acquisition date upon completion of certain milestones. The following table summarizes the Company’s cash, cash equivalents and restricted cash: September 27, 2024 December 31, 2023 (In thousands) Cash and cash equivalents $ 35,425 $ 36,191 Restricted cash 4,373 8,641 Total cash and cash equivalents and restricted cash $ 39,798 $ 44,832 Investments As of September 27, 2024, the balance of investments held by the Company without readily determinable fair values was $ 20.4 million. The majority of these investments are carried at cost less impairments, if any, plus adjustments for fair value indicators from observable price changes in orderly transactions for the identical or similar investment of the same issuer. There have been no impairments or upward adjustments in the current year or since acquisition of these investments. One investment is accounted for under the equity method of accounting and is recorded at the initial investment amount, adjusted each period for the Company’s share of the income or loss. 4. Revenue The Company provides orthopedic solutions, including products and services spanning the full continuum of patient care, from injury prevention to rehabilitation. While the Company’s sales are primarily derived from three sales channels including dealers and distributors, insurance, and direct to consumers and hospitals, substantially all of the Company’s revenue is recognized at a point in time. The Company disaggregates its revenue into the following geographic/product type groups within its segments: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Prevention & Recovery: U.S. Bracing & Support $ 123,021 $ 118,384 $ 345,132 $ 337,722 U.S. Other P&R 66,196 68,217 200,496 198,293 International P&R 85,027 83,686 265,383 258,487 Total Prevention & Recovery 274,244 270,287 811,011 794,502 Reconstructive: U.S. Recon 120,811 99,720 366,608 309,358 International Recon 110,167 47,517 369,029 148,317 Total Reconstructive 230,978 147,237 735,637 457,675 Total $ 505,222 $ 417,524 $ 1,546,648 $ 1,252,177 Given the nature of its businesses, the Company does not generally have unsatisfied performance obligations with an original contract duration of greater than one year. The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue. Allowance for Credit Losses The Company’s estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. In calculating and applying its current expected 10 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) credit losses, the Company disaggregates trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. The business segments are further disaggregated based on either geography or product type. The Company uses a loss rate methodology in calculating its current expected credit losses, considering historical write-offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model considers current conditions and reasonable and supportable forecasts for current and projected macroeconomic factors. A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Condensed Consolidated Balance Sheets is as follows: Nine Months Ended September 27, 2024 Balance at Beginning of Period Charged to Expense, net Write-Offs, Deductions, net Other Activity, net (1) Foreign Currency Translation Balance at End of Period (In thousands) Allowance for Credit Losses $ 9,731 $ 7,228 $ ( 1,997 ) $ 8,569 $ 33 $ 23,564 (1) Represents fair value adjustments related to acquisitions 5. Net Income (Loss) Per Share from Continuing Operations Net income (loss) per share from continuing operations was computed using the treasury stock method as follows: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands, except share and per share data) Computation of Net income (loss) per share from continuing operations - basic: Net income (loss) from continuing operations attributable to Enovis Corporation (1) $ ( 33,764 ) $ ( 19,491 ) $ ( 124,332 ) $ ( 57,321 ) Weighted-average shares of Common stock outstanding – basic 55,665,527 54,549,369 55,072,194 54,462,319 Net income (loss) per share from continuing operations – basic $ ( 0.61 ) $ ( 0.36 ) $ ( 2.26 ) $ ( 1.05 ) Computation of Net income (loss) per share from continuing operations - diluted: Net income (loss) from continuing operations attributable to Enovis Corporation (1) $ ( 33,764 ) $ ( 19,491 ) $ ( 124,332 ) $ ( 57,321 ) Weighted-average shares of Common stock outstanding – basic 55,665,527 54,549,369 55,072,194 54,462,319 Net effect of potentially dilutive securities - stock options and restricted stock units — — — — Weighted-average shares of Common stock outstanding – diluted 55,665,527 54,549,369 55,072,194 54,462,319 Net income (loss) per share from continuing operations – diluted $ ( 0.61 ) $ ( 0.36 ) $ ( 2.26 ) $ ( 1.05 ) (1) Net income (loss) from continuing operations attributable to Enovis Corporation for the respective periods is calculated using Net income (loss) from continuing operations less the continuing operations component of the income attributable to noncontrolling interest, net of taxes. The following weighted average computations of potentially dilutive shares of Common stock from stock-based compensation awards were excluded from the calculation of Weighted-average shares of Common stock outstanding – diluted as inclusion would be anti-dilutive in Net income (loss) per share: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Weighted average computation of potentially dilutive shares of Common stock excluded from diluted computation, as inclusion would be anti-dilutive 1,720,628 1,073,464 1,311,385 1,127,227 11 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) In conjunction with the Lima Acquisition, the Company agreed to a contingent issuance of 1,942,686 Contingent Acquisition Shares in two equal tranches within six and twelve months from the completion of the Lima Acquisition upon the non-occurrence of certain future events, in each case subject to certain adjustments and conditions as provided for in the purchase agreement. The first tranche of 971,343 Contingent Acquisition Shares was issued to the seller on July 16, 2024. The Company currently expects the second tranche of Contingent Acquisition Shares to be issued in the first quarter of 2025. The Contingent Acquisition Shares are only to be included in the weighted-average calculation of basic shares when there are no circumstances the shares would not be issued. The Contingent Acquisition Shares are only to be included in the weighted-average calculation of diluted shares when the conditions are satisfied. As such, the shares associated with the second tranche have been excluded from the calculation of basic and diluted weighted-average shares, respectively. 6. Income Taxes Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Loss from continuing operations before income taxes $ ( 42,601 ) $ ( 25,503 ) $ ( 149,198 ) $ ( 74,785 ) Income tax benefit $ ( 9,096 ) $ ( 6,052 ) $ ( 25,408 ) $ ( 17,878 ) Effective tax rate: 21.4 % 23.7 % 17.0 % 23.9 % The effective tax rate for the three months ended September 27, 2024 was higher than the 2024 federal statutory rate of 21%, primarily due to tax credits for research and development, non-U.S. income taxed at lower rates, non-taxable fair value gain on the 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 the nine months ended September 27, 2024 was lower than the 2024 federal statutory 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. This was partially offset by tax credits for research and development, non-U.S. income taxed at lower rates, and non-taxable fair value gain on the Contingent Acquisition Shares. The effective tax rate for the three and nine months ended September 29, 2023 was higher than the 2023 U.S. federal statutory rate of 21%, primarily due to non-U.S. income being taxed at lower rates, the release of a valuation allowance on non-U.S. attributes, tax credits for research and development, and release of uncertain tax positions. This was partially offset by other non-deductible expenses and the U.S. taxation on international operations. 12 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 7. Equity Share Repurchase Program In 2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. No repurchases of the Company’s Common stock have been made under this plan since the third quarter of 2018. As of September 27, 2024, the remaining stock repurchase authorization provided by the 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. There is no term associated with the remaining repurchase authorization. Accumulated Other Comprehensive Income (Loss) The following tables present the changes in the balances of each component of Accumulated other comprehensive income (loss) including reclassifications out of Accumulated other comprehensive loss for the nine months ended September 27, 2024 and September 29, 2023. All amounts are presented net of tax and noncontrolling interest, if any. Accumulated Other Comprehensive Loss Components Net Unrecognized Pension Benefit Cost Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Hedging Activities Total (In thousands) Balance at January 1, 2024 $ 5,008 $ ( 2,016 ) $ ( 27,873 ) $ ( 24,881 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment 3 6,931 — 6,934 Loss on hedge activity — — ( 36,006 ) ( 36,006 ) Other comprehensive income (loss) before reclassifications 3 6,931 ( 36,006 ) ( 29,072 ) Amounts reclassified from Accumulated other comprehensive income (loss) ( 104 ) — ( 894 ) ( 998 ) Net Other comprehensive income (loss) ( 101 ) 6,931 ( 36,900 ) ( 30,070 ) Balance at September 27, 2024 $ 4,907 $ 4,915 $ ( 64,773 ) $ ( 54,951 ) Accumulated Other Comprehensive Loss Components Net Unrecognized Pension Benefit Cost Foreign Currency Translation Adjustment Unrealized Loss on Hedging Activities Total (In thousands) Balance at January 1, 2023 $ 12,207 $ ( 65,637 ) $ — $ ( 53,430 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment 108 3,750 — 3,858 Loss on hedge activity — — ( 2,290 ) ( 2,290 ) Other comprehensive income (loss) before reclassifications 108 3,750 ( 2,290 ) 1,568 Amounts reclassified from Accumulated other comprehensive income (loss) ( 1,221 ) — 168 ( 1,053 ) Net Other comprehensive income (loss) ( 1,113 ) 3,750 ( 2,122 ) 515 Balance at September 29, 2023 $ 11,094 $ ( 61,887 ) $ ( 2,122 ) $ ( 52,915 ) 13 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 8. Inventories, Net Inventories, net consisted of the following: September 27, 2024 December 31, 2023 (In thousands) Raw materials $ 94,995 $ 88,129 Work in process 48,533 39,310 Finished goods 536,327 406,931 679,855 534,370 Less: Allowance for excess, slow-moving and obsolete inventory ( 70,190 ) ( 65,538 ) $ 609,665 $ 468,832 9. Debt Long-term debt consisted of the following: September 27, 2024 December 31, 2023 (In thousands) Term loan $ 382,037 $ — Senior unsecured convertible notes 448,306 446,164 Revolving credit facilities and other 515,126 20,000 Total debt 1,345,469 466,164 Less: current portion ( 20,029 ) — Long-term debt $ 1,325,440 $ 466,164 Term Loan and Revolving Credit Facility On April 4, 2022, the Company entered into a credit agreement (the “Enovis Credit Agreement”), consisting of a $ 900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and an initial term loan in the aggregate principal amount of $ 450 million (the “2022 Term Loan”) which was fully extinguished during the first quarter of 2023. The Revolver contains a $ 50 million swing line loan sub-facility. Certain U.S. subsidiaries of the Company guarantee the obligations under the Enovis Credit Agreement. The agreement was amended on October 23, 2023, in conjunction with the financing of the Lima Acquisition as further discussed below. The Enovis Credit Agreement, as amended, 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 3.50 :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 Enovis Credit Agreement. As of September 27, 2024, the Company was in compliance with the covenants under the Enovis Credit Agreement. As of September 27, 2024, the weighted-average interest rate of borrowings under the Enovis Credit Agreement was 7.16 % excluding accretion of deferred financing fees, and there was $ 385 million available on the Revolver. Financing for Lima Acquisitio n On October 23, 2023 the Company entered into an amendment to the Enovis Credit Agreement (the “Amendment”), which provided for a new term loan commitment in the aggregate amount of $ 400 million. The term loan facility extended to the Company under the Amendment was funded on January 3, 2024, the date the Lima Acquisition was consummated. The term loan requires quarterly principal repayments at 1.25 % of the initial aggregate principal amount, which is $ 5 million each quarter, and matures on April 4, 2027 (the “2024 Term Loan”). 14 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Pursuant to the Amendment, effective as of the date of consummation of the Lima Acquisition, (i) all facilities under the Enovis Credit Agreement (including the 2024 Term Loan) became secured by certain personal property of the Company and certain of its subsidiaries, subject to limitations and exclusions; (ii) the financial covenant under the Enovis Credit Agreement was adjusted to a new senior secured leverage ratio (as disclosed above); (iii) certain changes to the negative covenants became effective (including restrictions on repayments of junior financing and amendments to junior financing documents); and (iv) certain additional changes were implemented (including the removal of the guaranty fallaway provision). On October 24, 2023, the Company issued $ 460 million aggregate principal amount of senior unsecured convertible notes in a private placement pursuant to Rule 144A (the “2028 Notes”). The 2028 Notes have an interest rate of 3.875 %, payable semiannually in arrears on April 15 and October 15 of each year, beginning April 15, 2024 and will mature on October 15, 2028 unless earlier repurchased, redeemed, or converted. The effective interest rate on the 2028 Notes is 4.6 %. For the nine months ended September 27, 2024, the interest expense on the 2028 Notes was $ 15.1 million, including $ 13.2 million based upon the coupon rate and $ 1.9 million from accretion of the discount. Holders may convert their 2028 Notes in multiples of $1,000 principal amount prior to the close of business April 15, 2028 under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on December 31, 2023 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2028 Notes, as determined following a request by a holder of 2028 Notes in accordance with the procedures described in the 2028 Note indenture, for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events as described in the indenture governing the 2028 Notes. In addition, holders may convert their 2028 Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after April 15, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. The conversion rate is 17.1474 shares of common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $ 58.32 per share of common stock), subject to adjustment upon the occurrence of certain specified events as set forth in the indenture governing the 2028 Notes. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2028 Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at its election, in respect of the remainder. There has been no redemptions or conversions of the 2028 Notes. On October 24, 2023, the Company also entered into privately negotiated capped call transactions with certain of the initial purchasers of the 2028 Notes and paid $ 62 million to the counterparties. The capped call transactions are intended generally to mitigate potential dilution to the Company’s common stock upon conversion of any Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. If, however, the market price per share of common stock exceeds $ 89.72 , the initial cap price of the capped call transactions, there would be a dilutive effect and/or no offset of any cash payments, in each case, attributable to the amount by which the market price of the common stock exceeds the cap price. The capped call payment was classified as equity since it meets the derivative scope exception included in Accounting Standards Codification Topic 815 Derivatives and Hedging. Other Indebtedness In addition to the d ebt agreements discussed above, the Company is party to overdraft facilities with a borrowing capacity of $ 30.0 million. Total letters of credit and surety bonds of $ 24.6 million were outstanding as of September 27, 2024 . Deferred Financing Fees The Compa ny has $ 2.7 million in deferred financing fees included in Other assets as of September 27, 2024. As of September 27, 2024, the Company has $ 14.7 million of original issue discount fees and other issuance costs included as a reduction of Long-term debt related to the 2024 Term Loan and the 2028 Notes. 15 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 10. Accrued Liabilities Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following: September 27, 2024 December 31, 2023 (In thousands) Accrued compensation and related benefits $ 87,257 $ 70,979 Contingent consideration - current portion 50,601 5,972 Accrued third-party commissions 34,338 28,539 Lease liability - current portion 21,547 21,568 Derivative liability - current portion 21,150 278 Accrued taxes 18,455 14,384 Accrued rebates 18,936 14,464 Accrued professional fees 9,602 13,037 Accrued interest 8,859 3,765 Accrued freight 6,817 3,909 Customer advances and billings in excess of costs incurred 5,869 2,953 Accrued royalties 5,828 6,944 Warranty liability 2,657 2,959 Accrued restructuring liability 2,293 2,276 Other 57,947 45,105 $ 352,156 $ 237,132 Accrued Restructuring Liability The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities in the Condensed Consolidated Balance Sheets is as follows: Nine Months Ended September 27, 2024 Balance at Beginning of Period Provisions Payments Foreign Currency Translation Balance at End of Period (In thousands) Restructuring and other charges: Termination benefits (1) $ 2,195 $ 9,831 $ ( 9,791 ) $ 51 $ 2,286 Facility closure costs and other (2) 81 7,177 ( 7,251 ) — 7 Total $ 2,276 17,008 $ ( 17,042 ) $ 51 $ 2,293 Non-cash charges (2) 5,555 Total Provisions (3) $ 22,563 (1) Includes severance and other termination benefits, including outplacement services, primarily related to employees in the Recon segment following the Lima Acquisition. (2) Includes the cost of relocating associates, relocating equipment, lease termination expense and other costs in connection with the closure and optimization of P&R office sites, shared service centers, and our manufacturing sites in Tunisia and Tijuana. (3) For the nine months ended September 27, 2024, $ 12.5 million and $ 10.1 million of the Company’s total provisions were related to the P&R and Recon segments, respectively. The non-cash charges was an impairment of assets associated with divesting a minor product line in P&R. 16 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 11. Financial Instruments and Fair Value Measurements The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level One : Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level Two : Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level Three : Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying values of financial instruments, including trade receivables, other receivables and accounts payable, approximate their fair values due to their short-term maturities. The carrying value of the Company’s term loan and revolving credit facility debt, which bears a variable interest rate indexed to the Secured Overnight Financing Rate (SOFR), approximates fair value as it reprices when market interest rates change. Based on current interest rates for similar types of borrowings, the estimated fair value of the Company’s total debt, including the Senior unsecured convertible notes, the 2024 Term Loan, and the Revolver, was $ 1.4 billion and $ 573.2 million as of September 27, 2024 and December 31, 2023, respectively. The estimated fair value, a Level Two valuation in the fair value hierarchy, may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. As of September 27, 2024, the Company held $ 21.3 million in Level Three liabilities arising from contingent consideration related to acquisitions that may settle in cash. The fair value of the contingent consideration liabilities is determined using unobservable inputs and the inputs vary based on the nature of the purchase agreements. These inputs can include the estimated amount and timing of projected cash flows, the risk-adjusted discount rate used to present value the projected cash flows, and the probability of the acquired company attaining certain targets stated within the purchase agreements. A change in these unobservable inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date due to the nature of uncertainty inherent to the estimates. During the nine months ended September 27, 2024, the Company recorded a net $ 4.7 million reduction in contingent consideration primarily due to $ 6.3 million in settlements of revenue-based contingent consideration arrangements. The gross range of outcomes for contingent consideration arrangements that have a fixed limit on the maximum payout is zero to $ 7.5 million. There is one contingent consideration arrangement remaining that has no limit and is based on a percentage of sales in excess of a benchmark over a five -year period through 2027. Additionally, in conjunction with the Lima Acquisition, the Company agreed to a contingent issuance of 1,942,686 Contingent Acquisition Shares, 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 are expected to be issued in two equal tranches within six and twelve months of the acquisition date upon the non-occurrence of certain future events, in each case subject to certain adjustments and conditions as provided for in the purchase agreement. The initial fair value of the Contingent Acquisition Shares at closing was $ 107.9 million based on the Enovis share price at the close of business on January 3, 2024. The Contingent Acquisition Shares liability, recorded in Accrued liabilities, is adjusted to fair value each reporting period with the adjustments reflected in Other income (expense), net in the Condensed Consolidated Statement of Operations. The adjustments were a loss of $ 0.1 million and a gain of $ 19.9 million for the three and nine months ended September 27, 2024, respectively. The fair value of the Contingent Acquisition Shares liability is Level One in the fair value hierarchy as it is determined using the quoted market prices. The first tranche of 971,343 Contingent Acquisition Shares was issued to the seller on July 16, 2024. The Company currently expects the second tranche of Contingent Acquisition Shares to be issued in the first quarter of 2025. There were no transfers in or out of Level One, Two or Three during the nine months ended September 27, 2024. 17 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Total Contingent Consideration Rollforward Beginning Balance Additions Charges / (Gain) Interest Payments Foreign Exchange Ending Balance (In thousands) Contingent Consideration - Level One $ — $ 107,877 $ ( 19,922 ) $ — $ ( 45,576 ) $ — $ 42,379 Contingent Consideration - Level Three 26,025 1,414 — — ( 6,281 ) 149 21,307 Total Contingent Consideration $ 26,025 $ 109,291 $ ( 19,922 ) $ — $ ( 51,857 ) $ 149 $ 63,686 Deferred Compensation Plans The Company maintains deferred compensation plans for the benefit of certain employees and non-executive officers. As of September 27, 2024 and December 31, 2023 the fair value of these plans were $ 17.0 million and $ 14.4 million, respectively. These plans are deemed to be Level Two within the fair value hierarchy. Forward Currency Contracts The Company’s objective in using forward currency contracts is to add stability to the Company’s earnings and to protect the U.S. Dollar value of forecasted transactions. To accomplish this objective, the Company has entered into forward currency contract agreements between the U.S. Dollar and the Mexican Peso as part of its risk management strategy. These forward currency contract agreements are designated and qualify as cash flow hedges. The gain or loss on a derivative instrument designated as a cash flow hedge is recorded in Unrealized gain (loss) on hedging activities, net of tax within the Company’s unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) until the underlying third party transaction occurs. When the underlying third-party transaction occurs, the Company recognizes the gain or loss in earnings within Cost of Sales in its unaudited Condensed Consolidated Statements of Operations. The contracts are recorded at fair value and deemed to be Level Two in the fair value hierarchy. At September 27, 2024, the Company’s forward currency contracts have a Mexican Peso notional amount of approximately $ 210.0 million and a U.S. Dollar aggregate notional amount of $ 12.0 million. During the three and nine months ended September 27, 2024, the Company recognized a realized loss of $ 0.1 million and a realized gain of $ 0.4 million, respectively on its Condensed Consolidated Statements of Operations related to its forward currency contracts designated as cash flow hedges. At September 29, 2023, the Company’s forward currency contracts have a Mexican Peso notional amount of approximately $ 1.05 billion and a U.S. Dollar aggregate notional amount of $ 59.9 million. During the three and nine months ended September 29, 2023, the Company recognized a realized gain of $ 0.2 million on its Condensed Consolidated Statements of Operations related to its forward currency contracts designated as cash flow hedges. Net Investment Hedges On April 18, 2023, the Company entered into cross-currency swap agreements to hedge its net investment in its Swiss Franc-denominated subsidiaries against adverse movements in exchange rates between the U.S. Dollar and the Swiss Franc. These swap agreements were designated and qualified as net investment hedges. These contracts had a Swiss Franc notional amount of approximately ₣ 403 million and a U.S. Dollar aggregate notional amount of $ 450 million. In April 2024, the ₣ 403 million cross-currency swap agreements designated as net investment hedges were de-designated and settled for $ 4.6 million which is reflected as a cash outflow within investing activities in the Consolidated Statements of Cash Flows. The $ 0.7 million gain on settlement is reported in the Condensed Consolidated Balance Sheet as part of Accumulated other comprehensive income (loss) and in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) as part of the foreign currency translation adjustment. On April 8, 2024, April 12, 2024, and July 2, 2024, the Company entered into additional cross-currency swap agreements to hedge its net investment in its Swiss Franc-denominated subsidiaries against adverse movements in exchange rates between the U.S. Dollar and the Swiss Franc. These swap agreements are designated and qualify as net investment hedges. These contracts have a Swiss Franc notional amount of approximately ₣ 1.22 billion and a U.S. Dollar aggregate notional amount of $ 1.35 billion as of September 27, 2024. Cross-currency swaps involve the receipt of functional-currency fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement. For derivatives designated as net 18 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) investment hedges, the gain or loss on the derivative is reported in the Condensed Consolidated Balance Sheet as part of Accumulated other comprehensive loss and in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) as part of the foreign currency translation adjustment. Amounts are reclassified out of Accumulated other comprehensive income (loss) into earnings when the hedged net investment is either sold or substantially liquidated. During the three and nine months ended September 27, 2024, the Company received interest income on its cross-currency swap derivatives of $ 11.7 million and $ 19.9 million which is included within Interest expense, net in the Condensed Consolidated Statements of Operations. The following table presents the effect of the Company’s designated hedging instruments on Accumulated other comprehensive income (loss) for the three and nine months ended September 27, 2024 and September 29, 2023: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Gain (loss) on cross-currency swaps $ ( 71,329 ) $ 5,991 $ ( 45,904 ) $ ( 1,199 ) Gain (loss) on forward currency contracts ( 343 ) ( 1,654 ) ( 2,285 ) ( 1,654 ) $ ( 71,672 ) $ 4,337 $ ( 48,189 ) $ ( 2,853 ) Non-Designated Hedging Instruments The Company also used non-designated forward currency contracts for the purpose of managing its exposure to currency exchange rate risk related to the Euro-denominated purchase price of the Lima Acquisition which closed in January 2024. In the first quarter of 2024, the Company recorded a loss of $ 11.1 million on its Consolidated Statements of Operations related to the exchange rate movements over the first three days of 2024. The loss is recorded in Other (income) expense, net on the Condensed Consolidated Statements of Operations. From inception of the forward contracts on October 4, 2023 through the closing of the Lima Acquisition on January 3, 2024, the foreign currency forward contracts settled in an overall realized gain position of $ 13.4 million. The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of September 27, 2024 and December 31, 2023: (In thousands) Location on Unaudited Consolidated Balance Sheets (1) September 27, 2024 December 31, 2023 Derivative Assets Designated Hedging Instruments Forward currency contracts Other current assets $ — $ 432 Cross-currency swaps Other current assets 33,617 10,061 33,617 10,493 Non-Designated Hedging Instruments Forward currency contracts Other current assets — 24,311 Total Derivative Assets $ 33,617 $ 34,804 Derivative Liabilities Designated Hedging Instruments Forward currency contracts Accrued liabilities $ 1,356 $ 278 Cross-currency swaps Accrued liabilities 19,794 — Cross-currency swaps Other long-term liabilities 91,633 46,953 Total Derivative Liabilities $ 112,783 $ 47,231 (1) The Company classifies derivative assets and liabilities as current when the settlement date of the contract is one year or less. 19 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 12. Commitments and Contingencies The Company is involved in various pending legal, regulatory, and other proceedings arising out of the ordinary course of the Company’s business. None of these proceedings are expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings, management of the Company believes that either it will prevail, has adequate insurance coverage or has established appropriate accruals to cover potential liabilities. Legal costs related to proceedings or claims are recorded as incurred. Other costs that management estimates may be paid related to the claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company. For further description of the Company’s litigation and contingencies, reference is made to Note 18, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in the Company’s 2023 Form 10-K. 13. Segment Information The Company conducts its continuing operations through the Prevention & Recovery and Reconstructive operating segments, which also represent the Company’s reportable segments. ▪ P&R - a leader in orthopedic solutions and recovery sciences, providing devices, software, and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease. • Recon - an innovation market-leader positioned in the fast-growing surgical implant business, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger and surgical productivity tools. The Company’s management, including the chief operating decision maker, evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA, which excludes the effect of Other (income) expense, net, non-operating (gain) loss on investments, debt extinguishment charges, interest expense, net, restructuring and certain other charges, Medical Device Regulation (MDR) and other costs, strategic transaction costs, stock-based compensation, depreciation and other amortization, acquisition-related intangible asset amortization, insurance settlement loss (gain), and inventory step-up charges from the results of the Company’s operating segments. 20 ENOVIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) The Company’s segment results were as follows: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Net Sales: Prevention & Recovery $ 274,244 $ 270,287 $ 811,011 $ 794,502 Reconstructive 230,978 147,237 735,637 457,675 $ 505,222 $ 417,524 $ 1,546,648 $ 1,252,177 Segment Adjusted EBITDA (1) : Prevention & Recovery $ 42,776 $ 44,102 $ 111,840 $ 109,123 Reconstructive 47,427 21,284 151,811 78,357 $ 90,203 $ 65,386 $ 263,651 $ 187,480 (1) The following is a reconciliation of Income (loss) from continuing operations before income taxes to Adjusted EBITDA: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Loss from continuing operations before income taxes (GAAP) $ ( 42,601 ) $ ( 25,503 ) $ ( 149,198 ) $ ( 74,785 ) Restructuring and other costs (1) 7,786 5,341 25,284 12,083 MDR and other costs (2) 5,297 6,228 14,757 23,021 Strategic transaction costs (3) 21,428 10,482 64,958 27,547 Stock-based compensation 7,827 8,366 21,868 24,142 Depreciation and other amortization 28,440 21,492 85,740 62,237 Amortization of acquired intangibles 42,786 33,967 124,653 98,256 Inventory step-up 8,376 2 37,361 148 Interest expense, net 11,066 5,768 48,031 15,496 Other (income) expense, net (4) ( 202 ) ( 757 ) ( 9,803 ) ( 665 ) Adjusted EBITDA (non-GAAP) $ 90,203 $ 65,386 $ 263,651 $ 187,480 (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. (2) Primarily related to costs specific to compliance with medical device reporting reg ulations and other requirements of the European Union Medical Devices Regulation. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations. (3) Primarily relates to integration costs associated with the Lima Acquisition in 2024 and other strategic initiatives in 2023, including costs related to the Separation. (4) Primarily includes the fair value gain on Contingent Acquisition Shares, partially offset by the first quarter of 2024 loss on the non-designated forward currency hedge for managing exchange rate risk related to the Euro-denominated purchase price of the Lima Acquisition. 21