Enovis (ENOV) 23 Feb 232022 Q4 Earnings call transcript

Good morning, and welcome to the Enovis Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Derek Leckow Vice President of Investor Relations. Please go ahead.

Danielle. you, Thank and our everyone, conference for us joining Good quarter thank and for fourth results full today morning, you year call. XXXX call Executive Leckow, today Chief Derek joining are the Matt I'm Financial Officer. Trerotola, and Officer; and Chief Ben Berry, on me

section was Investors our earnings in release and available earlier issued Our website, morning enovis.com. this is the of

presentation will Both today's be found also archived be We'll the and website which audio call, later using call a slide can of the the on slide our be presentation website. the on today. on

language the or be to SEC. this forward-looking call, today. and in make and some results and During we assume are Actual uncertainties, that the law. our by materially about in do as beliefs today, forward-looking may except The harbor statements forward-looking from of set These estimates intend we'll subject filings events today's making future not our earnings update those obligation forward-looking risks and with them, in including any statements as release regarding we to statements and forth required results. statements only speak differ any safe

any to today, accompanying measures measures today's of information referenced non-GAAP during the press those in the can in related call to our found appendix the financial reconciliation be earnings respect and With release slide presentation.

who on Slide begin will X. let that, Matt, call turn me to With over the Matt?

engine during strong goals, proven a driving was to our our with a We Thanks, I'm business strategic team launched company. of focused about progress healthy improvement, global growth. a our longer-term of structure successfully Derek. XXXX talented our the growth innovation continuous system MedTech and a significant year capital support excited and EGX future Enovis

our progress growth We way great on completed growth. growth. the Recon in XXXX is We we've sustainable from to Enovis with X% by growth double-digit despite growth in P&R well innovation organic choppiness fueled organic We towards had high its residual made revenue in organic and and macro making over organic the of effects XX%, engine. single-digit challenges included investments in total which COVID. year X% related been

team the new to outcomes solutions and around world. and patient develop continues Our satisfaction talented technologies that exciting improve

reshaping again the XXXX, pipeline XXXX as to our improved organic innovation markets. P&R, mid-single-digit in in digits and growth. and beyond. from X a we're In for strong exit we business close sustained we XXXX we have outgrew In vitality XXXX, this business once to double for We've

double-digit in from we on through made margins made In EBITDA progress delivered the high-growth to basis FX points continued this our inflation. We and despite and significant headwinds Recon, expanded ASC win improving in high-margin XXXX, good growth, expanding XX globally margins platform. progress and by We Mathys.

EGX enriching and traction Our our the operational gross of pricing power shows mix strategy improvements. margin driving and improvement

delivered million through expanding We innovation invest in wage to which in more growth M&A our our cost our expected, fixed geographically. room inflation. and capabilities is We $XX accelerated reductions, making enhancing than and growth strategy, absorb our originally

scale. to Our started years and the acquisitions few double past digits grew from have

quarter inflation points P&R P&R, in towards to so temporary growth low more levels. XXX in are market and We attractive almost seeing Slide and quarter. added X%, EBITDA in healthy strong navigation was opportunities acquisition of with deepened Care. quarter again, pipeline also first fueled margins normal the we the starting far some in surgical stabilize. We're growth impacted above which a We a once Arvis exit well market growth sheet. presence single-digit a our see rates growth by softness. XXXX, by had with in the In We market and balance and basis year expanded was Med organic the Recon, fourth On currency Australian our return XXX X, double-digit adjusted

see the higher with volume of model power period. in displayed leverage can this improvement and operating You mix clearly our

improvements initiatives levels a which we us are some with and EGX, invested safety, multiyear in extra our momentum due service chain at and supply achieve build and helped continuing in significant low to productivity. to level inventory, P&R. We drove past progress We on made

our As technology, you build. and Knee, Mathys with I which started channel. of launch driving in Slide momentum continue the some and There our led Mathys up interest efficiency. about ahead Recon we the hips a new products shoulder the patient-specific geographic for market X, on Arvis surgical our and up Innovation is continues of XX%, and up with And the growth expansion grew and forward gross very high organically instrumentation category can opens to our Ankle by of to strategy see U.S. EMPOWR up clearance of phase we're the that franchise. high Revision in We margin U.S. us. and excited broad based a foot improve enabling knees business whole XX%, progress we powerful great business we as growth into FDA was made and look for opportunity our on XX% to XX% new with strongest STAR ankle, extremities our

it had carried year lower But Turning to organic over market the growth. year the sales growth rest quarter. temporary day X. with markets in experienced than to we share growth from across excited and against we've as was I'm the up quarter we of gain finish, that per progress reshaping for made, sustainable our the even elective softness most P&R Organic surgery Slide slowdowns in X.X% third and full products. about set -- business mid-single-digit this some the

now pipeline in as business and leader of great year reestablished service healthy new strong X% global with a is grew customer coming. over and the a bracing Our products additional

in sets drives MotionMD well delivered strong and market-leading active We conversions clinic a future increase workflow up clinics. also growth This XX% solution growth. in clinic us our for solution,

our that want to growth outlook and want we XXXX, hard a talented QX contributions many say continue results it Before over to build teammates financial around I of take I as to our through their for for I to you turn team. company. MedTech this proud thank and the Ben? high-value year world so to Ben work our I'm

my Matt. and had QX, basis on versus points operating year, our start Slide our growth Gross remarks by higher-margin a reflecting Thanks, and double-digit strong X. segment. Recon XXX was in of Recon margin which quarter basis I'll points prepared XXX grew We highlighted margins expansion. prior faster-growing

of QX supply the As pressure. largely stabilized offset call, mentioned our in and were inflation in year, able back we the our half persistent to chain

performance, our Our QX EBITDA margins operating strong productivity cost management. of a result of and are XX.X%

of medical XXXX, lower-than-anticipated XX% onetime operating from benefited tax charges. in benefit growth. We than from greater also in favorable basis benefits from roughly Normalizing EPS strong points QX our expenses resulted underlying XX performance

XX cost P&R margins gross tilting business the equation by year, mix For our expanded progress basis our points, on to Recon, in leveraging the full making strategically and we driven business. capabilities price our by EGX

As Matt by our commented earlier, EBITDA we points. XX margins basis increased

of our continue put We entering our EPS acquisitions. challenging strong headwinds to the in invest extremely for I'm We currency of a mostly team inflation, proud position growth in cost and and delivered foreign actions, us a negative battled XXXX. market and million growth from and double-digit way environment, $XX offset EBITDA and

Slide X progression quarterly XXXX. details our in

segment of the growth by growth was second strong per highlighted Recon X% sales year. day our in half XX% notably with performance Our the in

than were other a pre-COVID overall pre-COVID levels, grew year. market Recon little disruptions the market pressure demand throughout of & the levels. better cancellations, bit While In the staffing Recovery, and began versus to obstacles Prevention turn overall markets course corner

QX with slowdown Matt in mentioned, temporary experienced lower-than-normal a we as And volumes. clinic

outpace Our competition strong course our segments to of in the continue both segments. business resiliency and demonstrated we during XXXX,

margins inflation we as EBITDA improved throughout increased the the reduced Our impacts progressed. and year XXXX sequentially as mix net

from acquisitions. company improvement These average offset carry by points impacts of Our recent margins. than initial core basis margin was XXX less

they rapid to expected continue However, years. coming the scale in are to growth from

currency pressure about against half had the strategic pleased also primarily Overall, impacted execute with and the that to results, in of of we goals. XX back continue points are our us basis we We year. our negative

year X. projecting including organic to XXXX, we X% In X% growth. are strong operating Turning Slide to performance, another of

Recon year improvements normalized global in market double-digit and growth another environment markets. expect P&R We a in in moderate

margin adjusted currency saw $XXX year million We are expected consistent the to basis of with is to margins improvement expecting by in least estimated growth with QX points full of similar guidance, in phasing to of XXXX we X progression Quarterly $XXX resulting be negative at million rates of EBITDA. to offset XX points impact. an organic X

modest We improvement margin critical Recon $XX and investments by be versus million, with in prior is anticipate estimated in that investments along will to this currency segment. QX our in year. industry result events Depreciation roughly growth in impact, driven meetings

interest of increases to $XX rates, expense interest expect rate our run resulting in XXXX. from remain similar slight XXXX second interest million approximately We half with in higher to

in XXXX effective XXXX separation, included we benefits a onetime tax XX%. expect rate around to into the settle sustainable more our While from rate of tax

our to forecasting EPS the earnings adjusted are of share for results to $X.XX. to operational year-over-year from growth. in this and tax We X% interest, impacts Adjusting be per XX% $X.XX

have XX, a growth year first MedTech as summarize, strong we Slide on To company. a

company a margins. clear in both and a strategy created for growth the blocks building with have We sustainable outperformance and market

we and ample create to to value XXXX, in capacity demonstrated system M&A business have exciting Our pipeline and as continues targets of execute. an

questions. prepared remarks. our concludes for the call please up open That Danielle,

[Operator Instructions].

of question Vik from first The Chopra comes Wells Fargo.

me. for two Just

the free? your should guidance, maybe Street Can So [indiscernible] the about puts talk the we EPS rate facing year? of your be for below that headwinds tax you're one, considering and on was takes and guidance any coming besides some you expectations

Vik, take one. Yes. that I'll

being at variations we that about to perspective, at was of clear looked components because consensus prescriptive were interest be are that of one make were into modeled and in more EPS consensus, terms wanted underlying the primarily, the from playing estimates we where were wanted how an of there depreciation, in we are Street much is it, those was. line looked things XXXX. with we the as As block to what building But the overall, why I about pretty for sure think we we which some

active think of then a it. mentioned you follow-up, that my for a couple M&A. Got times have you And I pretty pipeline

year whether XXXX? flow M&A, acquisitive a And on to we highlight more larger deal maybe the this curious you're guidance. cash areas likely is just for on others? than more if; be expectations or the color in just some on tuck-in still one Any should So focus free expect of

flow you the cash Yes. to free Ben, do want first? hit

Yes. Yes. investments making forward take XXXX in around supply step XXXX in plan the inventory. in chain We with protecting good flow free to cash after significant a

that expect plus prior be that calls. We the of cash we've to years pace free we and into to XX% improvement get coming XX% conversion a see strong in the we there about XXXX, over have flow to talked XX% in

the conversion. year XX% for it be XXXX, So flow would cash free XX% to

we medium-sized yes, that growth with capability are strategic in way M&A, years ones the then of have pipeline in And our to in improvement on of had do Okay. Vik, margin to question. and thanks the balance for in the X we've done plenty to past sheet good sort certainly a a momentum some The maybe, really small- invest the tremendous really We've healthy bolt-ons. Commenting business. contributing and success and business.

bolt-ons. And deeper opportunities going is I those of geographic as for think certainly focus so what have segments working small looking those well, is at attractive -- more the we're We on on to do attractive of certainly coming the strategic we're our looking most at years. But and the of into in of other of and some be acquisitions that larger medium-sized capacity most we'll attractive expansions. in kinds

from next Genuity. question Kyle Rose of comes Canaccord The

Kyle is Caitlin. on This for

operating and how you just on U.S., XXXX U.S. the also XXXX And XXXX, What takes year of higher versus the and of throughout well? of would beyond well. the kind be on of provide and And progression the of great and about the ends? puts looking as kind think as range guidance. mid-single-digit O low revs of a mix really do the more any the color P&R cadence and you Just color drives could to you revenues at of revenue little in the leverage Recon ends

Yes. the question. Thanks for

revenue our and business we've digits had the And pretty Recon able standpoint, to capability to in based keep on growth of we've environment double growing kind the continue as digits. to think ability sustainable expecting growing Recon keep that we're from industry a there we're Recon I normal being strong that. momentum a our confident showed double business that

start P&R. the that how trying And what I by here markets think a could year. learned the start of created P&R sure years of at is going. working to see But or range things that the the seeing couple be P&R in from start year the about the be make to strong year be more contemplates got little that during at we've that could we're cautious waiting come a first a good how are might markets in way our choppier last and we've through quarter, beginning of terms the the the range the

And P&R the and that at a Recon so market markets we lower planning I'd on softer say end are others up based different would then if likely range, right now. wind it little on based we a be or for of

way Yes. phasing, it saw about in phasing would to what And the think as in -- XXXX. Caitlin, the about similar we I is, terms the of said kind I in think remarks, of

have mix do of well. how some revenue pressure of business paces We course the in year in the well. the beginning year the of currency as the throughout have seasonal We and of the as some the benefits terms

bit So a I about bit was of thinking say, progression But would on, little a think about and QX pressure on thinking that overall, will how faced. the that little XXXX QX. of and about the -- put margins,

just new Mathys the launches clearances kind QX going? into in channel on any since a product of is the quick or Europe And Europe. call? Great. the cross-selling How one And

Yes.

a We've our as obviously, the has surgeons, the there of growth and we strong and also over U.S. trying KOLs -- there. a the in terms momentum Mathys them Mathys started of over, So year. core got they're in first, were done talked of as there, cross-selling had instrument about, getting had opportunities lot sets well. from have both over with with And very Mathys connecting people to great business getting a the connecting outreach great AltiVate Markets terms EMPOWR.

back very to pump nice so growth down and synergies prime we the initial And year last we of we're this Mathys the the half and about be got the of excited how some to contributor the here expect revenue business. year a much

EMPOWR and start a both cross-selling. to that AltiVate good are terms off So of in

comes question of Baird. next The from Reinhardt Dane

business, bit it in or P&R little the expectations -- a a seemed on were it below just I last expectations. came So guess, quarter, like bit little

XQ in recovery of Recon about talked grow along and some a even price You with help seeing kind in to increases. that

So kind should there of of you your what pressure in X% about market. that anything talked confidence thinking kind else of I term? that there then And growth pressures we But is about know to temporary X% the kind longer returning of some be is in that that to there? over the

thanks Dane, for Yes, the question.

clearly the One lag in gets with that surgery activity majority seen of not that in years our to impact few because post-surgery, over P&R things the P&R felt the market businesses the P&R past we've the elective of pre-surgery. is business comes a any

that of saw the in in QX elective but about a talked QX. little the little the came starting there side of we and And and the on the QX so particular, as businesses a we to some call out in out into back of in we some bit pressure on softness see QX in bracing played that was the business that pressure some what there to business, other Recon of in industry flowed also led summertime in the summer

surgery year got As that with here down -- strong as and we've through of we strong. consistent the the we'd been is the the elective seen said earlier, quarter stretch which recovery first fact expect working there the we've remained

on on it industry So business. feel the that a -- we pressure temporary comfortable was point the

to range, it more the X% grow to X% appropriate in we're be to range. it I We're very X% As that X% think the I far in X% is P&R to to comfortable X% to now can shaping to it's but consistently range. think as right business grow the able of mean that X%, being yes, X% in

demonstrate be of quarters we'd able we performance sort we'll You range, can see year, of and to well. kind that of comfortably We the . that in X were work year. this that first through as expect last as

Got you.

just ESAB then million question, this for of single-digit upper with the interest the debt interest your be year And that Did an that with exchanging but little going like may anything item the guys line this. like a have, you $XXX up then debt down of stake you question, bit or up equity more around balance expense and second missed It implies And your looks contemplating? sheet, so. it there a rate. maybe debt? I should modeling on end kind Okay. -- Is that have in else came almost we

No.

to We're but of well. interest of throughout of sell rate now, of course You it, relatively right that the -- we as expect did kind $XXX the and debt million about the carrying expect year to added We overall levels new retained stake. some increases debt got Dane. modest

KeyBanc. question Matthew comes The next Mishan from of

This Matt. Fishbin for today is Brett on

Just wanted the to near-term start of off on some revenue dynamics.

curious, definitely from was P&R has side, maybe the decent the growth covered reconstructive but think line we quarter the side more your this on -- in But with I XX.X% well. based a peers some of trends been saw the expectations. like on just number, looked organic

So offset didn't maybe headwinds in just of this have could quarter? P&R the potentially curious why upside more see that some you

we talked We've we that question. a healthy talked the were the planning -- and for we about Thanks for about saw. we finish seasonal fact QX, that's when what talked Yes.

kicker there. versus our others. is think look dramatically year, of I to you is helpful than a that can compared I -- a last XXXX I but growth, do at at compared that, our look it think you think to if better at can fourth you if look thing because just at you there, look that not it think see And 'XX you'll more quarter growth I to see

comp had little in we stronger think a 'XX. I

nice Recon, about did in there. we've finish story as explain And we're here so seen a that helps and that see year to strong well. the start we But the encouraged this

bit right. your have and And back about. spoken like XX% thinking long-term about just then previously All Perfect. ramp a margins, taking adjusted a margins step on it, EBITDA call guys you of to

on level how about now you're progression that for guidance? thinking based the curious XXXX towards Just point the starting

we're Yes. of remain I towards scaling fixed across about we think the we've The that business see generating you blocks and Thanks, think place. leverage continuous acquisitions the our the as if Brett. several next to then our business margin very go I still mixing mean on building gross Recon still in years. committed some recent expect improvements costs. you margin, as higher done and about mean

that for as of allows into the go coming All have us we margin improvement to continuous years. forward

So we're very much committed pace. continue to that

As we expect of least expect said, to more points year, gross or continue. at a XX improvement and margin we basis we've that

MotionMD. that's All one and slide last some additions was just new clinics how growth a curious revenue level the year you at a well? expect translating if clinic also right. continued XX% think I growth? using similar was interesting prepared in center out it of robust or you thought And in into then additions just the They're new And I Awesome. to deck calling as remarks. me. for of this level

couple revenue there's growth. of our Yes, supports a bracing that that, ways different

our going of had The last in first a are entire to be revenue amount conversions meaningful we we actually of conversions of we clinic helping a over the year quarter and that us to get this large clinic get year. is fourth sometimes nice couple brands. really And converted

we is growth our are overall products that to that that using second time, in use wallets into they tend and as the to contributor deeper is penetration well. The our a have solutions, over clinics of their

that third, nicely. service, as it's where fee fee revenue growing for it's revenue software continue there, as of fee the to will we but clinics software well. been a SaaS do the amount get a SaaS grow small sell is we then And us, -- add clinics that software a and And we as

from Vijay ISI. Evercore question next comes The Kumar from

front this guidance QX on the Just organic here. in

from a When had X%. we single-digit company, of your them to growth had guys citing look of or the and ortho peers, X% thesis are high at for X% You I guidance all procedures organic a high outlook? and performance? has single-digit driving situation above. staffing in coming hospital curious, your this that is I'm longer-term changed of here improved aspirations LRP what And an below anything .

Thanks, Vijay.

working path, single-digit P&R a by terms and had have we've think said portfolio in market and consistent we year. mid-single-digit to XXXX, that part that made year. the our shaping work portfolio close would I that our consistently business in Recon pretty we've cautious tremendous But that of guide performance be environment given of faster high we're and some and last this trying for do, grower. that to a grows growth that a sort of of we're think we've way the to expanding lot And the we the be this I progress towards terms the darn year kind of about on

the last might that taught into the in I cautious be the few we to us out as play step what years important think year it's have about year.

us And cautious so we've to to view have of on that a give plan still organic very a market single-digit XXXX there than and go a tried more environment the faster. in of I view would is get from can market is maybe how delivering we plan based clear high that a environment. favorable to this there think And

it a growth that you higher out market sure, normal. on presents market for normal this that Recon. a data that's the more we'll know we're potentially environment if be commentary for there higher last planning in market growth et were there's at the could out And a certainly, I but just expecting that that opportunity a I I for cetera. more basis. think think As backlog push year be participating year, the growth Recon And levels, we're Recon environment, there views that itself, in are there, the normal as if markets look to pent-up the far year-over-year a year, be than to the clear And little it's

share margins? expansion, from you the operating expansion? what gross margin on The is is stock assuming And guidance basis points that assumptions comp expense Understood, quick are for Or of fiscal Matt. on and margin follow-up here. count that Then for 'XX? coming XX

Yes.

So we the business really gross improvement, cost the into say see ride some but as some leverage we're mix there of as of the about driven well will of expecting by as think the margin and margin will to that business, leverage well driving we the offset be put margins the most fixed benefit from mix from of of the leverage kind I'd continued primarily of that that and on investments by be productivity business some shaping gross the side. the

In terms of expense, can terms share up in on Vijay, getting comp specific. count and follow that, of stock more later we you with

The Xuyang Jefferies. next question comes from from Li

In few in feedback questions. of positive a sales mid-single expectations general. do if product-specific on AR and Maybe survey wondering we on Can XXXX? opportunity can your for brand 'XX. color pretty I checks, work channel some in our Arvis hear technology was and in in you revs million double-digit Arvis share the in some or

question, Xuyang. Thanks for Yes. the

looking and drive use some with a to of also conversions put into reception The from positive market It it has excited market last were the technology our as some year And strengthen there, was it Arvis. in very great been they of were was what able existing to we surgeons. about surgeon just our them. we super already about the relationships the and we're So year. for last

will per-procedure broaden to the a conversions it start single at see new also our this low great market out I level, the through it use Definitely, fee starting time. to of terms to implants as overall into that. we a and with be millions start positive drive per-procedure through conversions So can of first really this to the reception drive free the and marketplace, contributor -- year. level this And we a over more it will to larger work the we become to low a digits but initially, would as expect it year, we but in think low fee for that grow technology, in growth be year, work

technology. a new say technology, a Arvis is I'll thing new-to-the-world is, It's right? Final

So to last kind of careful we've more have managed then tried and be year. a launch

mostly the have to broader to opportunity, So us use take we new it's gives we given to how opportunity gives great people and get great, that it some And quickly feedback a technology. this based. That improve us as the market. and rev learn software

helpful. confidence All growth growing in it if right. rate like what's X the growth your 'XX Very business ankle XX%. the And it's I growth extremities. expectations can for Great. guess rate level wondering for just in that rolled Xx share is as as like you the below your QX? of I market and in seems into to Seems foot STAR well was XXXX? in ramp

Yes.

-- year and was there. down through plan of kind back as half pipeline to grow in and some openly So the for and being about digits the we our of in year have half year, a this talked business clear ankle good with it well more the of each the innovation double that year where for the foot double-digit half of quarters. than of last the of the of in stabilized now last and half last Ankle double being we digits the and we second both had The second coming quarters business in first last year growth and channel Foot

on its start contribute working poly approvals it's in STAR still now into first changes out, is half way the cutting this as the going this to we We're to did, through marketplace. year, about, we've the the of get through the But we're made working we here as those. to need year. guide talked

the from will start last we a will next it where the this whole detractor it's into growth year. get -- be to really year this back that line. strong where STAR, that so in But momentum be been in moving a year to we product year And get half year I of think offense and go on

would like Derek to closing for I our turn remarks. concludes to now over back conference question-and-answer This session. the

Thanks on you, questions, please Investor appreciate And lot. any your for in us have today Relations. further Enovis. you me joining the Thank a contact if everyone, call. We interest in

Thank conference now for The presentation. concluded. today's has you attending

disconnect. now may You