What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-06 · 112 added, 231 removed, 270 unchanged (56% 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 September 27, 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 April 4, 2025 (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, 2024 (the “2024 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2025.

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the Company’s recently completed acquisition (the “Lima Acquisition”) of LimaCorporate S.p.A.

the impacts of the completed spin-off of ESAB Corporation (“ESAB”) into an independent publicly traded company (the “Separation”);

the expected financial and operating performance of, and future opportunities for, the Company following the Separation;

the impact of public health emergencies and global pandemics (including COVID-19);

projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, synergies or other financial items;

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developments, performance, industry or market rankings relating to products or services;

future economic conditions or performance, including the impact of inflationary pressures;

future macroeconomic conditions or performance, including the impact of inflationary pressures;

changes in government trade policies, including the implementation of tariffs;

the outcome of outstanding claims or legal proceedings;

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• any failure to maintain, protect and defend our intellectual property rights;

• the effects of contagious diseases, such as the COVID-19 pandemic, terrorist activity, man-made or natural disasters and war;

• the effects of contagious diseases, public health emergencies, terrorist activity, man-made or natural disasters and war;

• significant movements in foreign currency exchange rates;

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• the competitive environment in which we operate;

• changes in our tax rates or exposure to additional income tax liabilities;

• our reliance on a variety of distribution methods to market and sell our medical device products;

• extensive government regulation and oversight of our products, including the requirement to obtain and maintain regulatory approvals and clearances;

• tariffs and other trade measures;

• safety issues or recalls of our products;

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laws, regulations and policies;

• our inability to achieve some or all of the expected benefits of the Separation;

• if the Separation and/or certain related transactions do not qualify as transactions that are generally tax-free for U.S.

• if the completed spin-off of ESAB Corporation (“ESAB”) into an independent publicly traded company (the “Separation”) and/or certain related transactions do not qualify as transactions that are generally tax-free for U.S.

federal income tax purposes, we and our stockholders could be subject to significant tax liabilities;

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Our management evaluates the operating results of each of its reportable segments based upon Net sales, Adjusted EBITDA, Comparable Sales, and Comparable Sales Growth rate as defined in the “Non-GAAP Measures” section below.

Items Affecting Comparability of Reported Results and Other Recent Developments

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:

Items Affecting Comparability of Reported Results

The comparability of our operating results for the three months ended April 4, 2025 to the prior periods in 2024 is affected by additional days as compared to the three months ended March 29, 2024.

The second and third quarters will have the same number of days compared to 2024.

The fourth quarter of 2025 will have fewer days compared to 2024.

Additionally, the comparability of our operating results for the three months ended April 4, 2025 and three months ended March 29, 2024 is affected by the following additional significant items:

Strategic Acquisitions

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Acquisitions can significantly affect our reported results.

In the three months ended April 4, 2025, the Company completed five bolt-on acquisitions for $30.0 million total purchase consideration, including deferred consideration and estimated contingent consideration.

Three acquisitions are in the Prevention & Recovery segment and two are in the Reconstructive segment.

See Note 3, “Acquisitions and Investments” in our Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for additional information regarding our acquisitions.

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 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.

During the year ended December 31, 2023, we completed one acquisition accounted for as a business combination and two asset acquisitions in our Recon segment.

On June 28, 2023, we acquired Novastep, a leading player in Minimally Invasive Surgery (MIS) foot and ankle solutions for total consideration of $96.9 million.

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.

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

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 was dependent on the non-occurrence of certain future events and was settled within one year of the acquisition closing.

The Contingent Acquisition Shares were issuable in two equal tranches.

The first tranche of 971,343 Contingent Acquisition Shares was issued to the sellers

on July 16, 2024 and the second tranche was issued on January 15, 2025.

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

Foreign Currency Fluctuations

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.

During the three months ended April 4, 2025, approximately 43% of our sales 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 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%.

For the three months ended April 4, 2025 compared to the three months ended March 29, 2024, fluctuations in foreign currencies decreased Net sales by 1.2%, decreased Gross profit by approximately 0.6%, and decreased operating expense by approximately 0.9%.

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

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acquisition-related intangible asset amortization;

insurance settlement gain;

strategic purchase of economic interest on future royalty payments;

insurance settlement loss (gain);

goodwill impairment charges;

and fair value charges on acquired inventory.

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Comparable Sales adjusts nets sales for prior periods to include the sales of acquired businesses prior to our ownership from acquisitions that closed in the periods presented and to exclude the sales of certain non-core product lines that were divested or discontinued, as applicable, during the periods presented.

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

There were no acquired business adjustments in the periods presented.

The non-core product lines excluded were both in 2024 and are comprised of the divested compression hosiery product line in the P&R segment and certain discontinued third-party OEM relationships in the Recon segment.

Comparable Sales Growth rate represents the change in Comparable Sales for the current period from Comparable Sales for the prior year period.

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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 nine months ended September 27, 2024 and September 29, 2023, respectively.

The following table sets forth a reconciliation of net income (loss) from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA, for the three months ended April 4, 2025 and March 29, 2024, respectively.

Three Months Ended

September 27, 2024 September 29, 2023

April 4, 2025 March 29, 2024

P&R Recon Total P&R Recon Total

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Amortization of acquired intangibles 22.8 19.0 41.8 23.2 17.7 40.9

Inventory step-up — 8.4 8.4 — — —

Adjusted EBITDA (non-GAAP) $ 42.8 $ 47.4 $ 90.2 $ 44.1 $ 21.3 $ 65.4

Adjusted EBITDA margin (non-GAAP) 15.6 % 20.5 % 17.9 % 16.3 % 14.5 % 15.7 %

(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.

Nine Months Ended

September 27, 2024 September 29, 2023

P&R Recon Total P&R Recon Total

(Dollars in millions)

Income (loss) from continuing operations (GAAP) (1)

$ (123.8) $ (56.9)

Income tax expense (benefit) (25.4) (17.9)

Other (income) expense, net (9.8) (0.7)

Interest expense, net 48.0 15.5

Operating income (loss) (GAAP) $ (9.0) $ (102.0) (111.0) $ (21.8) $ (38.1) (60.0)

Operating income (loss) margin (1.1) % (13.9) % (7.2) % (2.7) % (8.3) % (4.8) %

Adjusted to add (deduct):

Restructuring and other charges (2)(3)

12.9 12.4 25.3 6.2 5.9 12.1

MDR and other costs (3)

7.8 6.9 14.8 11.6 11.4 23.0

Strategic transaction costs (3)

3.7 61.3 65.0 10.6 16.9 27.5

Stock-based compensation (3)

13.3 8.5 21.8 15.3 8.8 24.1

Depreciation and other amortization 13.6 72.1 85.7 17.0 45.2 62.2

Amortization of acquired intangibles 69.5 55.2 124.7 70.2 28.1 98.3

Purchase of royalty interest — 35.8 35.8 — — —

Inventory step-up — 12.1 12.1 — 5.1 5.1

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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 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.

(2) Restructuring and other charges includes an immaterial expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 4, 2025, and there were no similar charges for the three months ended March 29, 2024.

(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 nine months ended September 27, 2024, respectively.

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 Growth Rate

The following table summarizes our sales for the three months ended April 4, 2025 and March 29, 2024, respectively.

As noted in the Items Affecting Comparability of Reported Results section above, the three months ended April 4, 2025 include the impact of additional days as compared to the three months ended March 29, 2024.

Three Months Ended

April 4, 2025 March 29, 2024 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 Nine Months Ended

September 27, 2024 September 29, 2023 Growth Rate

Comparable Sales (1)

Three Months Ended

April 4, 2025 March 29, 2024 Growth Rate

Comparable Sales (1)

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(1) Comparable Sales adjusts net sales for prior periods to include the sales of acquired businesses prior to our ownership from acquisitions that closed in the periods presented and to exclude the sales of divested businesses and certain discontinued Recon products lines in conjunction with the Lima Acquisition.

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 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

$4.0 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 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.

Recon sales were negatively impacted by a $5.9 million decrease from the discontinuance of certain non-core product lines.

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 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 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.

There were no acquired business adjustments in the periods presented.

The excluded non-core product lines were both in 2024 and 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 April 4, 2025 increased from the prior year by $42.6 million, or 8.2%, driven by strong sales growth in Recon and additional selling days, partially offset by impact of unfavorable foreign currency and the 2024 divestiture and discontinuance of certain non-core product lines.

Recon sales increased by $29.0 million, or 11.3%, due to strong sales volumes and additional selling days.

P&R sales increased by $13.6 million, or 5.2%, from solid core volume growth and additional selling days and was negatively impacted by a $4.3 million decrease in sales from divesting a minor product line.

For the three months ended March 29, 2024, U.S.

GAAP basis net sales were $516.3 million.

The Comparable Sales were $1,464.3 million for the same period.

In 2023, Lima and Novastep would have contributed $229.6 million to Comparable Sales, offset by the impact of the divestiture and discontinuance of certain non-core product lines of $17.6 million.

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 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 $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.

The Comparable Sales were $511.4 million for the same period, reflecting the total effect of the divestiture and discontinuance of certain non-core product lines of $4.8 million.

Comparable Sales Growth for Recon was 11.5%, driven by increases in volume and additional selling days, partially offset by unfavorable foreign currency translation of 1.5%.

Comparable Sales Growth for P&R was 7.0%, driven by organic growth in volumes and additional selling days, partially offset by unfavorable foreign currency translation of 0.8%.

The strengthening of the U.S.

Dollar relative to other currencies resulted in $6.0 million, or 1.2%, of unfavorable foreign currency translation impacts on total net sales for the three months ended April 4, 2025 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 Nine Months Ended

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

Three Months Ended

April 4, 2025 March 29, 2024

(Dollars in millions)

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Restructuring and other charges (1)

$ 7.8 $ 5.3 $ 25.3 $ 12.1

MDR and other costs $ 3.2 $ 4.9

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Amortization of acquired intangibles $ 41.8 $ 40.9

Purchase of royalty interest $ 35.8 $ —

Inventory step-up $ 12.1 $ 5.1

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Income tax benefit $ (1.8) $ (7.4)

(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 $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 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, 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 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.

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.

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 $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.

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.

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 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.

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 Contingent Acquisition Shares.

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.

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.

(1) Restructuring and other charges includes an immaterial expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 4, 2025, and there were no similar charges for the three months ended March 29, 2024.

Three Months Ended April 4, 2025 Compared to Prior Year

Gross profit increased $34.3 million, or 11.5%, in the three months ended April 4, 2025 compared with the prior year period due to a $21.8 million increase in our Recon segment and a $12.5 million increase in our P&R segment.

The Gross profit increase was attributable to growth in sales volume, improved mix of higher margin products sales, and the additional selling days, partially offset by an increase of $7.0 million in inventory fair value step-up amortization charges.

Selling, general and administrative expense increased $13.3 million in the three months ended April 4, 2025 compared to the prior year period, primarily due to a $21.1 million increase in commissions on increased sales and increased investment in the business in selling, general and administrative costs, offset by a $8.7 million decrease in strategic transactions costs driven by the higher acquisition deals costs in 2024 and a reduction in acquisition integration costs.

Research and development costs increased compared to prior year period from increased spending within recently acquired businesses in our Recon segment, which is investing in surgical productivity solutions and computer-assisted surgery technologies.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to the finalization of the Lima Acquisition in the later part of 2024, the additional bolt-on acquisitions in 2025, and higher levels of capital expenditures associated with recent acquisitions.

Purchase of royalty interest increased in the first quarter of 2025 as we completed strategic purchases of economic interest on future royalty payments in our intellectual property (“royalty interest”) for a fixed price of $43.8 million, which will be paid over seven years.

We accrued a liability and recognized a $35.8 million charge for the net present value of the purchases.

Interest expense, net decreased in the three months ended April 4, 2025 compared to the prior year period due to a $9.6 million increase in interest income on the cross-currency swap derivatives.

This was driven by the increase in the hedging position entered into during the third quarter of 2024.

Other expense, net decreased in the three months ended April 4, 2025 compared to the prior year period due to an $11.7 million decrease in the fair value loss on the Contingent Acquisition Shares and an $11.1 million decrease from the loss in the prior year on the 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 3, 2024.

The effective tax rate for Net loss from continuing operations during the three months ended April 4, 2025 and March 29, 2024 was 3.1% and 9.3%, respectively, which was lower than the 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.

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.

This was partially offset by tax credits for research and development and non-U.S.

income taxed at lower rates.

Net loss from continuing operations decreased in the three months ended April 4, 2025 compared with the prior year period, primarily due to the aforementioned increase in Gross Profit, decreases in Other expense, net and interest expense, net, partially offset by increases in Purchase of royalty interest and Selling, general and administrative expense.

Adjusted EBITDA and Adjusted EBITDA margin increased due to improved scale of aforementioned gross profit growth over a more stable fixed base of selling, general, and administrative expenses.

Business Segments

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 4, 2025 March 29, 2024

(Dollars in millions)

10 unchanged sentences

Adjusted EBITDA margin (non-GAAP) 11.3 % 10.8 %

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 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, partially offset by charges from divesting a minor product line.

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

Three Months Ended April 4, 2025 Compared to Prior Year

Net sales increased $13.6 million, or 5.2%, in the three months ended April 4, 2025 compared with the prior year period, driven by solid core volume growth and additional selling days and was negatively impacted by a $4.3 million decrease from divesting a minor product line.

Comparable Sales Growth for P&R was 7.0%, which was driven by organic growth in volumes and additional selling days, partially offset by unfavorable foreign currency translation of 0.8%.

Gross profit increased $12.5 million and Gross profit margin increased by 210 basis points, primarily due to an improved mix of higher margin product sales.

Selling, general and administrative expense increased slightly as a percentage of net sales.

Operating loss decreased by $7.0 million due to the reduction of restructuring costs and MDR spending, as well as slightly lower depreciation and amortization.

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

Reconstructive

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 4, 2025 March 29, 2024

(Dollars in millions)

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Amortization of acquired intangibles $ 19.0 $ 17.7

Purchase of royalty interest $ 35.8 $ —

Restructuring and other charges $ 1.0 $ 5.1

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Adjusted EBITDA margin (non-GAAP) 23.9 % 21.5 %

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 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 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.

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.

Recon sales were negatively impacted by a $5.9 million decrease from the discontinuance of certain non-core product lines.

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 $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.

Selling, general and administrative expense increased by $161.5 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.

Operating loss increased, primarily due to a $44.4 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.

Three Months Ended April 4, 2025 Compared to Prior Year

Net sales increased by $29.0 million, or 11.3%, in the three months ended April 4, 2025, due to strong sales volumes and additional selling days, partially offset by unfavorable foreign currency translation of 1.5%.

Gross profit increased over the same period, primarily due to higher net sales, offset by an increase of $7.0 million in inventory fair value step-up amortization charges.

Selling, general and administrative expense increased by $3.0 million over the same period, primarily due to increased commissions driven by higher sales and increases in existing business investments to support growth.

Research and development expense increased compared to the prior year period due to an increase in new product development projects and activities and spending within our recently acquired businesses, which are investing in surgical productivity solutions and computer-assisted surgery technologies.

We accrued a liability and recognized a $35.8 million charge for the net present value of the purchases.

Operating loss increased, primarily due to the $35.8 million Purchase of royalty interest, partially offset by a $10.8 million decrease in strategic transaction costs including the deal costs for the Lima Acquisition and integration costs.

Adjusted EBITDA increased primarily due to the aforementioned sales growth and gross profit increase.

Liquidity and Capital Resources

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

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

As of April 4, 2025, 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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Term Loan and Revolving Credit Facility

Our credit agreement (the “Enovis Credit Agreement”) initially consisted of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal amount of $450 million which was fully extinguished during the first quarter of 2023.

Our credit agreement (the “Enovis Credit Agreement”) consists of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an aggregate principal amount of $400 million, which 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”).

The Revolver contains a $50 million swing line loan sub-facility.

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

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

All facilities under the Enovis Credit Agreement (including the 2024 Term Loan Facility) are secured by certain personal property of the Company and certain of its subsidiaries, subject to limitations and exclusions.

As of April 4, 2025, there was $335 million available on the Re volver.

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.

There are also restrictions on repayments of junior financing and amendments to junior financing documents.

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.

In connection with the Lima Acquisition, on October 23, 2023 we entered into an amendment to the Enovis Credit Agreement (the “Amendment”).

The Amendment provides 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”).

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 Facility) 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 were adjusted to a new senior secured leverage ratio;

(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).

Convertible Notes and Capped Calls

In connection with the signing of the definitive stock purchase agreement for the Lima Acquisition, we entered into several financing agreements in October 2023.

On October 24, 2023, we 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.

Our $460 million aggregate principal senior unsecured convertible notes were issued in October 2023 via a private placement pursuant to Rule 144A in conjunction with the financing for the Lima Acquisition (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.

The 2028 Notes will mature on October 15, 2028 unless earlier repurchased, redeemed, or converted.

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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 $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:

Nine Months Ended

September 27, 2024 September 29, 2023

Total letters of credit and surety bonds of $40.1 million were outstanding as of April 4, 2025.

As of April 4, 2025, we had $38.5 million of Cash and cash equivalents, a decrease of $9.7 million from the balance as of December 31, 2024 of $48.2 million.

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

Three Months Ended

April 4, 2025 March 29, 2024

(Dollars in millions)

Net cash provided by operating activities $ 25.2 $ 66.6

Net cash used in operating activities $ (1.6) $ (36.2)

Purchases of property, plant and equipment and intangibles (43.2) (36.9)

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Effect of foreign exchange rates on Cash and cash equivalents 1.2 (0.8)

Increase (decrease) in Cash, cash equivalents and restricted cash $ (5.0) $ 7.8

Increase (decrease) in Cash and cash equivalents $ (9.7) $ 29.7

Cash flows from operating activities can fluctuate significantly from period-to-period due to changes in working capital and the timing of payments for items such as restructuring and strategic transaction costs.

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

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.

Strategic transaction costs primarily relates to integration costs of acquired businesses such as the Lima Acquisition.

Cash flows used in operating activities decreased $34.6 million year-over-year.

This improvement was primarily due to higher adjusted EBITDA of $15.9 million, lower strategic transaction costs of $8.7 million, a lower overall investment in working capital of $7.9 million, and a decrease in net cash paid for interest of $6.0 million.

Cash flows used in investing activities during the three months ended April 4, 2025 were $60.5 million compared to $797.8 million in the prior year period due to four small bolt-on acquisitions in the first quarter of 2025 compared to the Lima Acquisition purchase price of $757.7 million, net of cash received, in the prior year and overall higher capital investments in the current year driven by recent acquisitions.

Cash flows provided by financing activities during the three months ended April 4, 2025 include $56.6 million of net debt borrowings primarily used for the recent bolt-on acquisitions, capital expenditures and operations.

Cash flows provided by financing activities for the three months ended March 29, 2024 include net debt borrowings of $873.0 million primarily used for the Lima Acquisition and to a lesser extent capital expenditures and operations.

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.

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

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 2024 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