Enovis Corporation M&A announcement

Please go ahead. Thank you, operator.

Good morning, everyone, and thank you for joining us today for our conference call to discuss our binding offer to acquire eCential Robotics. I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call this morning is Damien McDonald, Chief Executive Officer, Ben Berry, our Chief Financial Officer, and Louie Vogt, our Group President of Recon. Our press release was issued earlier this morning and is available in the Investors section of our website. We also posted a slide presentation to accompany today's call on our website. Both the audio and the slide presentation of this call will be archived on the website later today. During the call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results.

These forward-looking statements are subject to risks and uncertainties, including those set forth in the safe harbor language in today's press release, the related slide presentation, and in our filings with the SEC. Actual results might differ materially from any forward-looking statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them except as required by law. For further details regarding any non-GAAP financial measures referenced during the call today, please refer to today's press release and the related slide presentation. With that, I will turn the call over to Damien.

Damien? Hey, thanks, Kyle. Good morning, everyone, and thanks for joining us on short notice.

This morning we announced that we've entered into a binding offer to acquire eCential Robotics. Today, I'd like to discuss the rationale for the strategically important acquisition, explain a little bit about the technology and our timeline for commercial development. Ben will then take you through the structure and the financials, and we'll have plenty of time for Q&A. Now let's talk about eCential Robotics and how this meaningfully scales our commitment to enabling technology. On the second quarter call last month, I said that innovation and enabling technology will be foundational to our long-term growth strategy, and that this means investing in technologies, the teams, and the capabilities that will define the next generation of orthopedic surgery. Today's announcement is a step forward for Enovis in advancing that strategy.

As the market and customer demands continue to evolve, it has become clear that providing surgeons with optionality across the enabling technology spectrum is important. Supplementing our existing platform by providing a robotic solution will only accelerate our position in the market and broaden our strategic options as we innovate in this space in the future. In eCential, we found a company that complements our existing ecosystem and has demonstrated a track record of successful innovation. With this capability in-house, we will have an incredible opportunity to partner with surgeons who want planning, navigation, and robotic capabilities. The surgeon who works across a hospital, an outpatient clinic, and a couple of ASCs and wants the flexibility to utilize technologies across a connected ecosystem with a single, intuitive user experience. We built a strong foundation with planning and navigation and more recently via the launch of the next generation ASTRA ARVIS.

The demand funnel has been strong, and while still early, we continue to see increased adoption and utilization. Acquiring a leader in surgical robotics with a proven track record of developing robotic platforms makes sense for our enabling technology journey. eCential supplements our existing ASTRA ecosystem. The eCential transaction is more than just a robot. It is a deliberate strategy to reinforce Enovis' growth trajectory with a credible long-term position in robotics and advanced enabling tech. We are accelerating our pathway to bring a robotic platform to market by acquiring talent, intellectual property, and advanced capabilities, which gives us strategic flexibility as we plan for the next innovation horizons in orthopedics. eCential also brings an exceptional team of over 50 employees with a robust track record of designing, developing, and facilitating the launch of three robotic platforms across orthopedics and spine.

Our partnership with eCential has grown over time, and we have worked closely with them to develop a technical risk reduction and planning process to identify the most efficient pathway to market. This will enable us to bring a differentiated robotic solution to market while also supporting a durable cadence of continuous innovation across enabling technology, robotics, implant design, and surgical technique. So what does this mean for the near term? It means we will bring the next generation robot to market within two years. First in the knee, where the form factor and product requirements are well understood by the market and eCential already has a validated technology. Soon thereafter, we will follow in the shoulder. This is an exciting opportunity for us. We hold a significant market share globally in shoulder TSA. Currently, the form factor and robotic offering in shoulder is suboptimal.

We believe developing a robot with eCential Robotics that carries advantages such as a robotic arm with seven degrees of freedom will differentiate our offering in the market. eCential's proprietary ownership of the robotic control layer will also enable greater precision, flexibility, and automation readiness. That last point matters more than it may sound. It means the robotic software will integrate seamlessly into the ASTRA ecosystem, allowing our foundation of AI-enabled planning and navigation to drive both the robot and ARVIS. Through one integrated workflow, a surgeon does not have to choose between two user experiences, and it means our commercial teams are not selling, training, and servicing two technologies. It is one enabling technology ecosystem where they focus on optionality and usability. This translates into quicker speed to market by leveraging the existing platform capabilities that are architected for the future.

How does this impact our previously stated commitments? We believe this highly strategic acquisition will accelerate our long-term above-market growth opportunities in Recon. We have made significant progress in the last 12 months on our leverage targets and are ahead of plan on our free cash flow commitments. With this investment, we are meaningfully enhancing our long-term growth potential while continuing to focus on improving free cash flow. I will let Ben take you through the structure and the financials.

Ben? Thanks, Damian. Hello, everyone.

Let me walk through the structure, the financial impact, and how this impacts our outlook over the next few years. The initial upfront consideration is based on an enterprise value of EUR 155 million, which equates to approximately EUR 176 million of cash consideration to be paid to eCential shareholders at closing. Additionally, this deal includes milestones of up to EUR 35 million, contingent on the success of certain regulatory and commercial deliverables. We expect the transaction to close by year-end 2026, subject to customary regulatory approvals. We will finance this transaction with a combination of cash on hand and with existing debt capacity under our revolving credit facility. In terms of leverage, we have reduced from 3.8 to roughly 3.1 times over the past 12 months. This transaction initially increases leverage about a half turn.

However, we expect to be back to approximately 3 times by the end of 2027. We believe this is a critical strategic investment to build on our demonstrated innovation engine in Recon. This investment will support our growth and pace of innovation across Recon for the medium and long term. We expect to continue growing above market in the near term with our existing portfolio and internal pipeline and believe this investment will provide upside to growth as we begin introducing products in late 2028. With regards to adjusted EBITDA margins, we expect approximately 150 basis points of deal-related dilution to adjusted EBITDA margin in 2027, offset by approximately 50 basis points of underlying improvement. This equates to about 100 basis point headwind in 2027. We expect to return to 50 basis points of underlying improvement year-over-year in 2028.