Enovis CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Item 1. “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. Item 8. “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. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. Statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding: the Company’s recently completed acquisition (the “Lima Acquisition”) of LimaCorporate S.p.A. (“Lima”); 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; plans, strategies and objectives of management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance, industry or market rankings relating to products or services; 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; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “could,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions. These statements are based on assumptions and assessments made by our management as of the filing of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the following: • the effects of the Lima Acquisition on the Company’s and Lima’s combined operations, including any effects on relationships with customers, suppliers and other third parties; • an inability to identify, finance, acquire and successfully integrate suitable acquisition candidates; • the availability of additional capital and our inability to pursue our growth strategy without it; • our indebtedness and our debt agreements, which contain restrictions that may limit our flexibility in operating our business; • our restructuring activities, which may subject us to additional uncertainty in our operating results; • any impairment in the value of our intangible assets or goodwill, because of a sustained decline in, including but not limited to, operating performance at one or more our business units or the market price of our common stock; • a material disruption at any of our manufacturing facilities; • any failure to maintain, protect and defend our intellectual property rights; • the effects of contagious diseases, public health emergencies, terrorist activity, man-made or natural disasters and war; • significant movements in foreign currency exchange rates; 21 • the availability of raw materials, as well as parts and components used in our products, as well as the impact of raw material, energy and labor price fluctuations and supply shortages; • 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; • failure to comply with federal and state regulations related to the manufacture of our products; • improper marketing or promotion of our products; • impacts of potential legislative or regulatory reforms on our business; • risks associated with the clinical trial process; • failure to comply with governmental regulations for products for which we obtain clearance or approval; • our exposure to product liability claims; • our inability to obtain coverage and adequate levels of reimbursement from third-party payors for our medical device products; • audits or denials of claims by government officials; • federal and state health reform and cost control efforts; • our failure or the failure of our employees or third parties with which we have relationships to comply with healthcare laws and regulations; • our relationships with leading surgeons and our ability to comply with enhanced disclosure requirements regarding payments to physicians; • actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements; • service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure; • non-compliance with anti-bribery laws, export control regulations, economic sanctions or other trade laws; • non-compliance with non-U.S. laws, regulations and policies; • 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; • potential indemnification liabilities to ESAB pursuant to the Separation and distribution agreement and other related agreements; 22 • changes in the general economy; • disruptions in the global economy caused by escalating geopolitical tensions, including in connection with Russia’s invasion of Ukraine; • the loss of key members of our leadership team, or the inability to attract, develop, engage, and retain qualified employees; and • other risks and factors listed in Part II, Item 1A. “Risk Factors” in this Form 10-Q and Part 1, Item 1A. “Risk Factors” in Part I of our 2024 Form 10-K. Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. We do not assume any obligation and do not intend to update any forward-looking statement, except as required by law. See “Risk Factors” in this Form 10-Q and our 2024 Form 10-K for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate. 23 Overview Please see Part I, Item 1. “Business” in our 2024 Form 10-K for a discussion of the Company’s objectives and methodologies for delivering shareholder value. Enovis conducts its operations through two operating segments: Prevention & Recovery (“P&R”) and Reconstructive (“Recon”). • P&R - a leader in orthopedic solutions, 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. We have a global footprint, with production facilities in North America, Europe, North Africa, and Asia. We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the medical market. Our business management system, Enovis Growth Excellence (“EGX”), is integral to our operations. EGX includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders, and associates. We believe that our management team’s access to, and experience in, the application of the EGX methodology is one of our primary competitive strengths. Results of Operations The following discussion of Results of Operations addresses the comparison of the periods presented. 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 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 We complement our organic growth plans with strategic acquisitions. 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 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 24 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 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. Our ability to grow and our financial performance will be affected by our ability to address challenges and opportunities that are a consequence of expanding our global operations through our recent acquisitions, including efficiently utilizing our international sales channels, manufacturing and distribution capabilities, participating in the expansion of market opportunities, successfully completing global acquisitions and engineering innovative new product applications to create better patient outcomes. The majority of our Net sales derived from operations outside the United States are denominated in currencies other than the U.S. Dollar. Similar portions of our manufacturing and employee costs are also outside the United States and denominated in currencies other than the U.S. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. 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%. Seasonality Sales in our P&R and Recon segments typically peak in the fourth quarter. General economic conditions and other factors may, however, impact future seasonal variations. 25 Non-GAAP Measures Adjusted EBITDA; Comparable Sales Adjusted EBITDA, Adjusted EBITDA margin, Comparable Sales, and Comparable Sales Growth rate, which are non-GAAP performance measures, are included in this report because they are key metrics used by our management to assess our operating performance. Adjusted EBITDA excludes from Net income (loss) from continuing operations the effect of Income tax expense (benefit); Other (income) expense, net; non-operating (gain) loss on investments; debt extinguishment charges; Interest expense, net; Restructuring and other charges; Medical Device Regulation (“MDR”) fees and other costs; strategic transaction costs; stock-based compensation; depreciation and other amortization; acquisition-related intangible asset amortization; strategic purchase of economic interest on future royalty payments; insurance settlement loss (gain); goodwill impairment charges; and fair value charges on acquired inventory. We also present Adjusted EBITDA and Adjusted EBITDA margin by operating segment, which are subject to the same adjustments. Operating income (loss), adjusted EBITDA and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment. Adjusted EBITDA assists our management in comparing operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements. 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. 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. Comparable Sales and Comparable Sales Growth rate assist our management in evaluating operating performance over time because the impact of significant acquisitions and divestitures or discontinuance of certain non-core product lines subsequent to prior periods may obscure underlying business trends and make the evaluation of period-over-period performance difficult. Comparable Sales and Comparable Sales Growth rate are presented for illustrative purposes only and do not and are not intended to comply with Article 11 of Regulation S-X promulgated by the SEC in respect of proforma financial information, and may differ, including materially, from proforma financial statements presented in accordance therewith. Our management also believes that presenting these measures allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP or prepared in accordance with Regulation S-X. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. 26 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 April 4, 2025 March 29, 2024 P&R Recon Total P&R Recon Total (Dollars in millions) Net income (loss) from continuing operations (GAAP) (1) $ (55.6) $ (71.8) Income tax expense (benefit) (1.8) (7.4) Other (income) expense, net 1.4 24.2 Interest expense, net 9.2 20.0 Operating income (loss) (GAAP) $ (6.9) $ (39.9) (46.8) $ (13.9) $ (21.1) (35.0) Operating income (loss) margin (2.5) % (13.9) % (8.4) % (5.4) % (8.2) % (6.8) % Adjusted to add (deduct): Restructuring and other charges (2)(3) 2.9 1.0 3.9 7.8 5.1 12.9 MDR and other costs (3) 1.4 1.8 3.2 3.0 1.9 4.9 Strategic transaction costs (3) 2.0 10.0 12.1 0.1 20.8 20.8 Stock-based compensation (3) 4.5 2.9 7.4 3.2 3.2 6.4 Depreciation and other amortization 4.2 25.5 29.6 4.6 22.6 27.2 Amortization of acquired intangibles 22.8 19.0 41.8 23.2 17.7 40.9 Purchase of royalty interest — 35.8 35.8 — — — Inventory step-up — 12.1 12.1 — 5.1 5.1 Adjusted EBITDA (non-GAAP) $ 30.9 $ 68.3 $ 99.2 $ 27.9 $ 55.3 $ 83.2 Adjusted EBITDA margin (non-GAAP) 11.3 % 23.9 % 17.7 % 10.8 % 21.5 % 16.1 % (1) Non-operating components of Net income (loss) from continuing operations are not allocated to the segments. (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. 27 Total Company Sales 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 GAAP (In millions) Prevention & Recovery: U.S. Bracing & Support $ 115.1 $ 104.6 10.1 % U.S. Other P&R 66.6 66.4 0.4 % International P&R 90.9 88.1 3.2 % Total Prevention & Recovery 272.6 259.0 5.2 % Reconstructive: U.S. Reconstructive 137.9 123.7 11.4 % International Reconstructive 148.4 133.5 11.1 % Total Reconstructive 286.3 257.3 11.3 % Total $ 558.8 $ 516.3 8.2 % The following table summarizes sales on a Comparable Sales and Comparable Sales Growth rate basis for the periods presented. Three Months Ended April 4, 2025 March 29, 2024 Growth Rate Comparable Sales (1) (In millions) Prevention & Recovery: U.S. Bracing & Support $ 115.1 $ 104.6 10.1 % U.S. Other P&R 66.6 63.6 4.7 % International P&R 90.9 86.5 5.1 % Total Prevention & Recovery 272.6 254.7 7.0 % Reconstructive: U.S. Reconstructive 137.9 123.7 11.4 % International Reconstructive 148.4 133.0 11.5 % Total Reconstructive 286.3 256.8 11.5 % Total $ 558.8 $ 511.4 9.3 % (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. 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. 28 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 $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 April 4, 2025 March 29, 2024 (Dollars in millions) Gross profit $ 332.2 $ 297.9 Gross profit margin 59.4 % 57.7 % Selling, general and administrative expense $ 269.0 $ 255.7 Research and development expense $ 28.5 $ 23.4 Operating loss $ (46.8) $ (35.0) Operating loss margin (8.4) % (6.8) % Net loss from continuing operations $ (55.6) $ (71.8) Net loss from continuing operations margin (GAAP) (9.9) % (13.9) % Adjusted EBITDA (non-GAAP) $ 99.2 $ 83.2 Adjusted EBITDA margin (non-GAAP) 17.8 % 16.1 % Items excluded from Adjusted EBITDA: Restructuring and other charges (1) $ 3.9 $ 12.9 MDR and other costs $ 3.2 $ 4.9 Strategic transaction costs $ 12.1 $ 20.8 Stock-based compensation $ 7.4 $ 6.4 Depreciation and other amortization $ 29.6 $ 27.2 Amortization of acquired intangibles $ 41.8 $ 40.9 Purchase of royalty interest $ 35.8 $ — Inventory step-up $ 12.1 $ 5.1 Interest expense, net $ 9.2 $ 20.0 Other expense (income) net $ 1.4 $ 24.2 Income tax benefit $ (1.8) $ (7.4) (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. 29 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. 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. 30 Business Segments As discussed further above, we report results in two reportable segments: P&R and Recon. Operating loss, adjusted EBITDA, and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment. See Item 2. “Non-GAAP Measures” for a further discussion and reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. Prevention & Recovery We develop, manufacture, and distribute rigid bracing products, orthopedic soft goods, vascular systems, and compression garments, and hot and cold therapy products and offer robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management. Our Prevention & Recovery products are marketed under several brand names, most notably DJO, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries. Many of our medical devices and related accessories are used by athletes and other patients for injury prevention and at-home physical therapy treatments. We reach a diverse customer base through multiple distribution channels, including independent distributors, direct salespeople, and directly to patients. The following table summarizes selected financial results for our Prevention & Recovery segment: Three Months Ended April 4, 2025 March 29, 2024 (Dollars in millions) Net sales $ 272.6 $ 259.0 Gross profit $ 143.8 $ 131.3 Gross profit margin 52.8 % 50.7 % Selling, general and administrative expenses $ 115.8 $ 105.4 Research and development expense $ 9.2 $ 8.8 Amortization of acquired intangibles $ 22.8 $ 23.2 Restructuring and other charges $ 2.9 $ 7.8 Operating income (loss) (GAAP) $ (6.9) $ (13.9) Operating loss margin (GAAP) (2.5) % (5.4) % Adjusted EBITDA (non-GAAP) $ 30.9 $ 27.9 Adjusted EBITDA margin (non-GAAP) 11.3 % 10.8 % 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. 31 Reconstructive We develop, manufacture, and market a wide variety of knee, hip, shoulder, elbow, foot, ankle, and finger implant products and surgical productivity solutions that serve the orthopedic reconstructive joint implant market. Our products are primarily used by surgeons for surgical procedures. The following table summarizes the selected financial results for our Reconstructive segment: Three Months Ended April 4, 2025 March 29, 2024 (Dollars in millions) Net sales $ 286.3 $ 257.3 Gross profit $ 188.4 $ 166.6 Gross profit margin 65.8 % 64.7 % Selling, general and administrative expenses $ 153.2 $ 150.2 Research and development expense $ 19.3 $ 14.6 Amortization of acquired intangibles $ 19.0 $ 17.7 Purchase of royalty interest $ 35.8 $ — Restructuring and other charges $ 1.0 $ 5.1 Operating loss (GAAP) $ (39.9) $ (21.1) Operating loss margin (GAAP) (13.9) % (8.2) % Adjusted EBITDA (non-GAAP) $ 68.3 $ 55.3 Adjusted EBITDA margin (non-GAAP) 23.9 % 21.5 % 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. 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. 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. 32 Liquidity and Capital Resources Overview We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings, and the issuances of equity. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures, restructuring and other non-routine costs, and interest and principal repayments on our debt. We believe we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes. We believe that our sources of liquidity are adequate to fund our operations for the next twelve months. Equity Capital In 2018, our Board of Directors authorized the repurchase of our common stock from time-to-time on the open market or in privately negotiated transactions. No stock repurchases have been made under this plan since the third quarter of 2018. 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. There is no term associated with the remaining repurchase authorization. Term Loan and Revolving Credit Facility 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. 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. Convertible Notes and Capped Calls 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. We also entered into privately negotiated capped call transactions with certain of the initial purchasers of the 2028 Notes. The capped call transactions are intended generally to mitigate potential dilution to our common stock upon conversion of any 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2028 Notes, as the case may be, with such reduction and/or offset subject to a cap. Other Indebtedness In addition, we are party to overdraft facilities with a borrowing capacity of $30.0 million. Total letters of credit and surety bonds of $40.1 million were outstanding as of April 4, 2025. 33 Cash Flows 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 used in operating activities $ (1.6) $ (36.2) Purchases of property, plant and equipment and intangibles (43.2) (36.9) Payments for acquisitions, net of cash received, and investments (18.9) (760.9) Other investing 1.6 — Net cash used in investing activities (60.5) (797.8) Net borrowings of debt 56.6 873.0 Other financing (5.4) (8.5) Net cash provided by financing activities 51.2 864.5 Effect of foreign exchange rates on Cash and cash equivalents 1.2 (0.8) 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. 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 The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position. There have been no significant additions or changes to the methods, estimates and judgments included in “Item 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our 2024 Form 10-K. 34