Enovis Corporation 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, and thank you for joining us today for our second quarter 2026 earnings conference call.

I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call this morning are Damien McDonald, Chief Executive Officer, and Ben Berry, our Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the investor section of our website, enovis.com. 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 this afternoon. 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 earnings release 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, the accompanying reconciliation information can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn it over to Damien.

Damien? Hey, thanks, Kyle, and good morning, everyone, and thank you for joining us today.

On today's call, I'll start with an overview of our second quarter results, discuss performance across our two operating segments, Recon and PNR. Ben will walk you through our financial results and outlook for Q3 in 2026. After that, I'll come back and highlight a few quick themes before we open the call for questions. Our second quarter results demonstrated the strength and stability of our diversified product portfolio, improving execution from our global teams, and the ongoing adoption of the One Enovis mindset. We delivered organic growth of 5%, driven by 6% organic growth in Recon and 3% organic growth in PNR. In U.S. Recon, we grew 6% organically in the second quarter, led by 8% organic growth in hips and knees.

Our focused products of Nebula, ARG, and ARVIS continue to gain traction. We're excited about the momentum we're carrying into the second half of the year. In hips and knees, we continue to execute our commercial plans across the hospital and ASC settings. Nebula continues to be a driver of growth, with over 80% of new instrumentation sets going to competitive users in Q2. Internationally, we grew 6% in Recon on an organic basis, including double-digit growth in shoulders. We continue to strengthen our global portfolio and remain positioned to take market share. Innovation is a core pillar of our growth strategy at Enovis. We have a robust pipeline of new product introductions planned across our key markets and geographies. ARVIS moved into full commercial launch in the U.S. in the second quarter, and I'm excited about the early feedback from surgeons and the commercial teams.

We're using this launch as an opportunity to strategically target new customers. We expect to see continued adoption in shoulders as we move through the second half of 2026. Now, moving to PNR. This segment grew 3% on an organic basis year-over-year. Global bracing grew 4% with mid-single digit growth in the U.S., driven by revenue cycle management and spine bracing. Recovery Sciences and Bone Stim were another source of strength for the quarter, delivering mid to high single-digit growth. New products are expected to start contributing more as we get into the later part of the year. We continue to execute across our businesses. I'll pass it over to Ben to walk through the financial details.

Thanks, Damian. Hello, everyone. We reported second quarter sales of $583 million, up 3% versus prior year on a reported basis and up 5% on an organic basis. Reported growth included 100 basis point tailwind from foreign currency, a 90 basis point tailwind from selling days, and a 260 basis point headwind related to the divestiture of Dr. Comfort. For the quarter, days adjusted organic growth was 4% at the enterprise level, 5% in Recon, and 3% in PNR, which was in line with our guidance. Second quarter results for our international businesses were negatively impacted by the ongoing conflict in the Middle East, resulting in 100 basis point growth headwind. This represents about a 40 basis point headwind to total Enovis growth in the quarter. For the first half, Enovis grew 4% organically, 5% days adjusted, with Recon at 7% and PNR at 3%.

This growth is highlighted by strong performance in U.S. Recon, with both extremities and hip and knee growing at 8%, driven by strong commercial execution and new products. We delivered adjusted gross margins of 62%, an underlying improvement of 120 basis points, driven by an $8 million benefit from 2025 tariff refunds and operational productivity. This was partially offset by $4 million of ongoing tariff impact and $2 million of unplanned inflationary pressure as a result of higher raw material and freight and distribution costs stemming from the Middle East conflict.

Adjusted EBITDA margin was 17.9%, an improvement of 70 basis points on an underlying basis and up 20 basis points through the first half. Our second quarter effective tax rate was 24%. Interest expense was $8 million for the quarter versus $9 million in the prior year. Overall, we posted adjusted earnings per share of $0.90, representing 14% underlying growth in the quarter and 12% earnings growth through the first half. We remain focused on disciplined capital allocation. Free cash flow in the quarter was $31 million, an improvement of $27 million versus prior year, which gets us to slightly positive free cash flow generation in the first half, a significant improvement. We expect to continue our positive momentum and cash flow, and will continue pursuing opportunities to make investments to support growth. Turning to guidance, we are reaffirming our 2026 guidance.

Commercial execution remains critical to delivering our 2026 commitments. We continue to focus the organization's attention on increasing commercial agility and targeted share gain opportunities. On the profit side, we expect the $8 million benefit from the partial tariff refund to be offset by $10 million of full year impact from the increased inflationary environment we are currently facing. Additionally, we expect free cash flow conversion of greater than 25% in 2026 as laid out in our prior calls. In terms of quarterly phasing for the second half, we expect the third quarter to have a heavier impact by seasonality than in prior years due to market conditions in Western Europe and the continued disruption from the conflicts in the Middle East.

We expect sales acceleration across both segments in the fourth quarter as we continue to scale and launch new products against the backdrop of improving market volumes as we close out the year. To summarize, second quarter was in line with our expectations given the dynamic market environment. We remain confident in the strength of our company, the diversified portfolio we've built, and the continued execution leading to consistent market share gains. Now I'll turn it back over to Damien for closing comments.

Damien? Hey, thanks, Ben. Before we get into Q&A, I just want to take a few minutes to reflect on my first year.