Executive Summary / Key Takeaways

• Enovis Corporation has successfully transformed from a diversified industrial into a focused medical technology company, driven by strategic acquisitions and a commitment to innovation, particularly in its high-growth Reconstructive segment.
• The company's Reconstructive segment, fueled by recent acquisitions like LimaCorporate and a robust pipeline of new products and enabling technologies (e.g., Augmented Glenoid, ARVIS, new hip/knee systems), is positioned for sustained above-market, high single-digit growth and is the primary driver of overall margin expansion.
• The Prevention & Recovery segment provides a stable foundation with low single-digit growth and strong cash generation, although it faces the majority of the company's near-term tariff exposure.
• Enovis delivered strong Q1 2025 results with 8% reported and 11% comparable growth, alongside significant adjusted EBITDA margin expansion (160 basis points), reflecting favorable mix, productivity gains, and initial integration benefits.
• Management's updated 2025 guidance projects revenue of $2.22 billion to $2.25 billion (increased due to favorable FX) and adjusted EBITDA of $385 million to $395 million (lowered due to expected tariff impacts in H2), while maintaining the expectation for positive free cash flow and anticipating leverage in the 3.0x-3.5x range by year-end.

Setting the Scene: Enovis's Transformation and Strategic Core

Enovis Corporation, tracing its roots back to the industrial company Colfax founded in 1995, has undergone a profound strategic metamorphosis. Under leadership that began approximately a decade ago, the company embarked on a journey to divest its cyclical industrial holdings and build a focused, high-value medical technology enterprise. This transformation culminated significantly with the spin-off of ESAB Corporation (ESAB), leaving Enovis as a dedicated player in the attractive MedTech space, specifically centered on orthopedics.

Today, Enovis operates through two primary segments: Prevention & Recovery (PR) and Reconstructive (Recon). This structure reflects a deliberate strategy to combine a stable, cash-generating business (PR) with a dynamic, high-growth engine (Recon). The company's operational philosophy is deeply embedded in its business management system, Enovis Growth Excellence (EGX), a framework designed to drive continuous improvement, operational efficiency, and value creation across the organization. Operating with a global footprint encompassing manufacturing facilities in North America, Europe, North Africa, and Asia, Enovis serves a diverse customer base through a combination of direct sales forces and third-party distribution channels. This strategic evolution positions Enovis as a challenger brand in the competitive orthopedic market, leveraging agility and targeted innovation to gain market share against larger, more diversified players.

The Engine of Growth: Reconstructive Segment & Technological Edge

The Reconstructive segment is the spearhead of Enovis's growth strategy, positioned in the fast-growing surgical implant market. This segment offers a comprehensive suite of products for major and minor joint reconstruction (hip, knee, shoulder, elbow, foot, ankle, finger) and surgical productivity tools. Its competitive standing is defined by a focus on innovation and a rapidly expanding global presence, significantly bolstered by strategic acquisitions.

Against larger competitors like Medtronic (MDT), Stryker (SYK), and Johnson & Johnson (JNJ), who hold substantial market share (MDT ~39.5%, SYK ~21.9% in ENOV's segments as of TTM Q1 2025), Enovis holds a smaller but growing position (~2.6% market share TTM Q1 2025). While these larger players benefit from immense scale, extensive R&D budgets, and broad portfolios, Enovis differentiates itself through targeted innovation and a more focused approach in specific orthopedic niches.

Enovis's technological differentiation in Recon is a critical competitive moat. The company is actively developing and launching new technologies designed to improve patient outcomes and enhance surgical workflow. Key examples include:

• Augmented Glenoid System (Shoulder): This new product addresses the growing surgical need for augments in complex shoulder cases. Management notes it offers a "significant increase on our revenue per procedure," indicating a premium pricing opportunity and a direct benefit to profitability and average selling prices.
• ARVIS (Augmented Reality Visualization and Information System): This enabling technology platform is being rolled out for both knee and shoulder procedures. ARVIS aims to "seamlessly connect planning with their procedural workflow, creating the opportunity for repeatable procedures without the cost or time limitation of large robotic solutions." This positions Enovis with a potentially more cost-effective and workflow-friendly guidance solution compared to the larger, more expensive robotic systems offered by some competitors. The next generation of ARVIS hardware and software is expected in 2025, enabling broader market access.
• New Hip and Knee Systems: The company is launching new products like the Nebula collared stem and surgical impactor in hip, specifically addressing the accelerating trend towards direct anterior procedures. In knee, new revision products, including advanced cones, are described as providing "the best revision sort of cones solution out there," driving momentum in this complex segment. These product launches are intended to fill portfolio gaps, regain lost share, and enable cross-selling opportunities.
• Foot and Ankle Innovation: Following the integration of multiple lower extremity assets, the Foot and Ankle business is on track to exceed $100 million in revenue, driven by consistent above-market growth and an innovation pipeline capable of "driving double-digit growth for many years to come." Products like DynaNail and minimally invasive bunion solutions highlight the segment's strength.

These technological advancements are strategically designed to drive surgeon adoption and market share gains. While larger competitors may have broader R&D capabilities, Enovis's focused investment in these specific, clinically relevant technologies allows it to compete effectively and command premium pricing or gain volume based on differentiated benefits. The success of the Lima acquisition has been pivotal, expanding Enovis's global reach and product portfolio, particularly internationally, where the combined entity is showing strong above-market growth (14% comparable growth in Q1 2025).

The Foundation: Prevention & Recovery Segment

The Prevention & Recovery segment provides essential orthopedic and recovery science solutions, including bracing, soft goods, vascular therapy, bone growth stimulators, and physical therapy products. Operating under brands like DJO, this segment serves a diverse market from injury prevention through rehabilitation. While not the primary growth engine, PR is a critical component of Enovis's business model, providing stability and acting as a "very strong cash generator."

The PR market is characterized as stable, with Enovis maintaining a leadership position through disciplined execution and portfolio shaping. Growth in this segment is typically in the low single digits (3% comparable growth in 2024, 7% comparable growth in Q1 2025, benefiting from additional selling days). Innovation efforts in PR focus on enhancing existing product lines and introducing new technologies like the Manafuse LIPUS technology in recovery sciences, which management believes can accelerate growth in the fracture market, potentially expanding the overall market opportunity for their bone stimulator business. New bracing products, including double-digit growth in spine braces in Q1 2025, also contribute to performance.

A significant challenge for the PR segment is its disproportionate exposure to potential tariffs. Management estimates that over 90% of the company's expected $40 million in 2025 tariff exposure (with plans to mitigate to $20 million) falls within PR. This is largely due to sourcing from China (75% of exposure, despite being less than 10% of PR COGS) and potential tariffs on goods crossing the U.S.-Mexico border ($3 million to $4 million per month exposure from a 25% tariff, not included in current guidance). The company is actively implementing mitigation plans, including shifting sourcing locations and leveraging experience from managing post-COVID inflation to potentially offset impacts within 18-24 months.

Executing the Strategy: Integration Progress and Operational Performance

The integration of LimaCorporate, a transformational acquisition closed in January 2024, has been a central focus for Enovis. Management reports significant progress, exceeding all Year 1 goals for revenue and profit contribution and successfully executing channel and organizational integrations. While the integration involved planned disruption and dissynergies, particularly in the U.S. Recon business, these impacts peaked in Q2 2024 and moderated through the second half of the year, expected to be largely cleared entering 2025. The total negative revenue impact is anticipated to be comfortably within the initial $20 million to $30 million range.

On the cost side, the integration is on track to deliver $40 million in synergies within three years, derived from eliminating duplicative functions, leveraging manufacturing scale, and improving global processes. Year 2 synergies are expected to contribute an additional 10 to 20 basis points to margin expansion in 2025.

Operational performance reflects the benefits of this integration and the company's EGX system. Adjusted gross margins have expanded significantly (61.7% in Q1 2025, up 300 bps year-over-year), driven by favorable segment and product mix (higher-margin Recon growing faster) and productivity improvements. Adjusted EBITDA margins have also seen substantial expansion (17.7% in Q1 2025, up 160 bps year-over-year), reflecting the improved gross margin and leverage over selling, general, and administrative expenses, despite ongoing investments in R&D and medical education.

While a noncash technical goodwill impairment of $645 million was recorded at the end of 2024 due to a decline in share price, this did not impact the company's liquidity, cash flows, debt covenants, or future operations, and management remains confident in their long-range plans.

Financial Performance: A Look at Recent Results

Enovis delivered a strong start to 2025, building on momentum from the latter half of 2024. For the three months ended April 4, 2025:

• Net Sales: $558.8 million, up 8.2% reported and 11% comparable year-over-year.
• Segment Performance: Recon sales grew 11.3% reported (11.5% comparable), driven by strong volumes and additional selling days, with U.S. Recon up 11% (Extremities +12%, Hip/Knee +10%) and International Recon up 11.1% (11.5% comparable). PR sales grew 5.2% reported (7.0% comparable), driven by solid core volume growth and additional selling days, partially offset by a minor divestiture.
• Gross Profit: $332.2 million, up 11.5%, with gross profit margin expanding to 59.4% from 57.7%. Adjusted gross margin was 61.7%, up 300 bps.
• Operating Loss: $46.8 million, compared to $35.0 million in Q1 2024, primarily due to a $35.8 million charge for the purchase of royalty interest in Q1 2025.
• Adjusted EBITDA: $99.2 million, up 19%, with adjusted EBITDA margin expanding to 17.7% from 16.1%.
• Net Loss Attributable to Enovis: $56.0 million, compared to $72.0 million in Q1 2024, benefiting from higher gross profit and lower interest/other expenses, despite the royalty purchase charge.
• Adjusted EPS: $0.81 in Q1 2025, an increase of 62% versus prior year.

These results demonstrate the positive impact of the improving business mix, operational execution, and the initial benefits of the Lima integration and new product ramps.

Liquidity and Capital Allocation

Enovis maintains a solid liquidity position, financing its operations and strategic initiatives through a combination of cash flows, borrowings, and equity. As of April 4, 2025, the company had $38.5 million in cash and cash equivalents. The capital structure includes a Term Loan ($372.6 million outstanding) and a Revolving Credit Facility ($335 million available) under the Enovis Credit Agreement, and $449.8 million in Senior Unsecured Convertible Notes. The company was in compliance with its debt covenants (max senior secured leverage ratio 3.5x, min interest coverage ratio 3.0x) as of Q1 2025.

Cash flow from operating activities saw significant improvement, with net cash used decreasing from $36.2 million in Q1 2024 to $1.6 million in Q1 2025, driven by higher adjusted EBITDA and better working capital management. Net cash used in investing activities decreased dramatically from $797.8 million in Q1 2024 (due to the Lima acquisition) to $60.5 million in Q1 2025, reflecting a shift to smaller bolt-on acquisitions and higher capital investments to support growth. Financing activities in Q1 2025 included $56.6 million in net debt borrowings, primarily funding acquisitions, capital expenditures, and operations.

Management expects to deliver positive free cash flow in 2025, a key step in climbing the cash flow conversion curve. They anticipate year-end 2025 leverage to be in the 3.0x-3.5x range, down from approximately 3.5x at the end of 2024, with a clear pathway to getting below 3.0x in 2026 as integration and EU MDR compliance costs subside. Capital allocation priorities remain focused on funding working capital, strategic bolt-on acquisitions, capital expenditures to support growth and integration synergies, and servicing debt.

Outlook and Forward Momentum

Enovis's management has provided updated guidance for 2025, reflecting confidence in the underlying business momentum while acknowledging external factors.

• Revenue: Increased to a range of $2.22 billion to $2.25 billion, up from the prior range of $2.19 billion to $2.22 billion. This increase is attributed to a favorable shift in expected foreign currency impact (now expected to be flat vs. a prior headwind of 1%-2%), primarily due to a strengthening Euro.
• Organic Constant Currency Growth: Reiterate 6% to 6.5% year-over-year, driven by high single-digit growth in Recon and low single-digit growth in P&R.
• Adjusted EBITDA: Lowered to a range of $385 million to $395 million, a $20 million reduction from the prior range. This adjustment reflects the expected impact of incremental tariffs in the second half of 2025, predominantly affecting the PR segment.
• Adjusted EPS: Updated to a range of $2.95 to $3.10, down $0.15 from prior guidance, reflecting the lower EBITDA outlook.
• Depreciation: Lowered by $5 million to $120 million to $125 million.
• Interest Expense: Lowered by $4 million to $38 million to $42 million.
• Adjusted Tax Rate & Share Count: Outlook remains unchanged.
• Free Cash Flow: Maintain expectation for positive free cash flow in 2025.

The guidance assumes continued strong execution, the benefits of clearing integration headwinds, and the ramp-up of new product launches and cross-selling opportunities. Management sees solid momentum continuing into Q2 2025 and beyond, driven by the improving business mix and innovation pipeline. While tariffs present a near-term headwind to profitability, the company's mitigation plans and underlying operational strength are expected to maintain momentum towards long-term strategic goals of high single-digit growth and margin expansion.

Key Risks and Mitigation

While Enovis has demonstrated strong execution, several risks could impact its trajectory. The most prominent near-term risk is the impact of tariffs, particularly the potential for new tariffs on goods from Mexico, which are not included in the current guidance and could represent a significant monthly exposure. While management has mitigation plans based on experience with post-COVID inflation, the timing and effectiveness of these offsets are subject to uncertainty. Existing high tariffs on China sourcing also remain a challenge, though mitigation efforts are underway.

Other risks include the successful completion of the Lima integration, although significant progress has been made, the remaining international channel integration and operational synergies need to be fully realized. Market dynamics, such as potential normalization of international growth rates or unexpected disruptions like those seen in Q4 2024 (hurricanes, IV shortages), could impact revenue. The competitive environment remains intense, requiring continuous innovation and effective commercial execution to maintain above-market growth rates against larger, well-resourced rivals. Foreign currency fluctuations also pose a risk, although hedging strategies are employed. Finally, the planned CEO succession introduces a degree of uncertainty, though the appointment of Damien McDonald and the planned smooth transition aim to minimize disruption.

Conclusion

Enovis Corporation has successfully navigated a complex transformation, emerging as a focused MedTech growth company with a clear strategic direction. The core investment thesis rests on the strength of its Reconstructive segment, which, powered by the integration of LimaCorporate and a robust pipeline of differentiated technologies like the Augmented Glenoid system and ARVIS, is poised to drive sustained above-market growth and expand overall company margins. The Prevention & Recovery segment provides a valuable foundation of stability and cash generation.

While near-term challenges, particularly related to potential tariffs, present headwinds to profitability in 2025, the company's proactive mitigation strategies and underlying operational improvements, guided by the EGX system, are expected to maintain momentum. The successful integration of Lima, the ramp-up of cross-selling, and the continuous introduction of new, impactful products across both segments underpin management's confidence in accelerating growth and improving financial performance beyond 2025. For investors, Enovis represents an opportunity to participate in the growth of the orthopedic market through a company that has demonstrated the ability to strategically reshape its portfolio, execute complex integrations, and leverage innovation to gain share, positioning it for compounding value creation in the years ahead.