Good afternoon, everyone. Thank you for joining us at this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronin. I'm one of the medical device analysts here at Canaccord Genuity, and I'm pleased to be joined this afternoon by Enovis, a medical device company focused on products spanning the orthopedic care continuum, including injury prevention, repair, and recovery, with the goal of improving patient outcomes and transforming procedural and clinical workflows. We're gonna begin with a fireside chat, but I'll try to leave a couple of minutes at the end for any questions from the audience. And with me today is Ben Berry, CFO. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and/or firm website.
So, just beginning with the Q2, you released results last week, and would just love to start off with what you want to highlight from the Q2 call.
Yeah, thanks, Caitlin. Thanks for having us here for the conference. No, we had a good, solid start to the first half of the year. You know, our expectations of, you know, what we set out in terms of guidance at the beginning of the year, we were able to raise in the first half and continue that on as we think about the projections for the second half of the year. The first six months have really been focused for us in terms of integrating Lima, which we announced last year, but we closed at the beginning of this year.
So we've been very focused on making sure that we're getting that business integrated and making sure that the channels are aligned, which we've done here in the first half, particularly in the U.S. market, which has been one of the critical focuses of consolidation and overlap. So we feel like it's a good, solid start to the year for us. We expect acceleration in the back half of the year and feel like the portfolio is set up for good, sustainable success, not only through the balance of this year, but into the years beyond.
That's great. And then you also provided some additional historical disclosures for Legacy Enovis and also Lima. You know, why do you feel the need to provide these disclosures to investors now?
Yeah, I think it was something that as we were explaining what was going on with regards to the integration, it was very clear that we needed to provide some more information, given the complexity and some of the overlaps that were coming into play. So we just felt that it'd be better to be transparent with regards to what's going on, so we provided some supplemental information to really lay out what's been happening with regards to the integration of the business, some of the core related impacts, and some of the things that we've seen in terms of, you know, things that we've discontinued and things like that.
So, so overall, we provided an additional layer of disclosure, and then on top of that, given that Lima comes in and brings in more international business for us, it brings in a different, you know, seasonal mix, which we had to make sure that we got out there in terms of saying what some of the seasonal impacts from a quarterly phasing would look like as well. So just taking the feedback based on what we heard and being able to you know describe what's been going on, these additional information has helped us with regards to that.
And then just on that front, you touched on the quarterly cadence into the back half of the year and how that's really changing with Lima, and you provide some good guidance on that. Maybe just provide a little more color on the cadence for the back half of the year.
Yeah, I mean, you see a slowdown due to summer vacations in European businesses and what we've seen with Lima coming in. So our sequential pattern is a little bit different from what we've traditionally done as Legacy Enovis. So, what we've outlined is nice acceleration of growth in the back half of the year. But that the way that that is composed is a little bit impacted by some of the summer pressure on the Lima side, but no change to our overall guidance, just a little bit different sequential pathway through the course of the year.
Got it. That makes sense. And then maybe let's just continue on with the Lima integration and the progress there. So you've called out $20 million-$30 million as the expected acquisition impact, or about 2%-3% of your recon business this year. Where do you stand from a progress standpoint on that estimate?
Yeah, I mean, it's going a little bit better than our initial plans. I mean, what we outlined as you mentioned, is $20 million-$30 million. What we said is that would start off as we integrate and consolidate the channel, particularly where there was overlaps, like in the U.S. market. So we saw that, you know, start to impact a couple percent in the first quarter, and what we also outlined after our first quarter call is we expected those dis-synergies to peak into the second quarter, which they did. So about a 4%-5% growth headwind in the U.S. market, about 3% overall to the company. We expect that to moderate in the back half of the year as we've gotten a lot of the contracting and the alignment of the territories completed, particularly in the U.S.
We're about 70% complete outside the U.S. What I would say is that we expect the, you know, moderation to happen because you start to see an impact from cross-selling opportunities that come, you know, and start to ramp up, particularly in Q4. So still about a 1-1.5 point headwind in the back half of the year, but the, you know, bulk of the dis-synergy happening through the first half.
Got it. As you said, you know, OUS 70% integrated at this point, from a channel perspective, but, you know, very strong growth in the Q2. You know, how do you expect that to trend in the second half?
Yeah, you know, I think we've seen that market, you know, continue to be pretty healthy, and one of the benefits of this acquisition that's really played out for us is, you know, the combined strength between Lima and the Mathys business that we acquired in 2021. So we're seeing a lot of good strength in the core underlying performance of each of those businesses, off of even a strong comp that we saw, you know, last year. So we would expect maybe a little bit of a moderation with regards to some of the dis-synergy impacts ramping a little bit more in the international markets. Not a lot, but again, we would still expect good to post good growth in the face of that, even on the international markets.
You know, you talked to cross-selling really expected to start ramping in the second half. What areas of the portfolio do you really think will be most material from a cross-selling standpoint?
Yeah, in the U.S. market, we're excited about the products that we're able to get with cones to partner with our legacy EMPOWR 3D revision system. So that's something that we've been building inventory around in the first half of the year, and we're able to really open up the aperture here as we go into the second half of the year. There's also a custom 3D-printed implant business that's for super complex cases called ProMade, which we're excited to have in our bag, and opportunities that we can think about unlocking, you know, competitive conversions or new business opportunities with having just a broader portfolio to cover all kinds of complicated cases. So that'd be for the U.S. market.
Outside the U.S., I'd say we're, you know, right now working to build a portfolio by market based on what we think is gonna provide the most strength, leveraging the best of Mathys, the best of Lima, and some of the legacy U.S. products that we're scaling up. So that one's a little bit more complicated 'cause you're building inventory and making sure everything gets in the proper places, but overall, we're making good progress there, and we'll start to see some of that ramp in the back half of the year.
And then once, you know, dis-synergies are worked through and the cross-selling really starts to take hold, maybe just remind people of, you know, how much of a boost to overall growth you think Lima will provide going forward?
Yeah, you know, I mean, I think the way that we've outlined it is, you know, the, our recon businesses have continued to grow multiple of markets. We grew 7% in the first half of the year, and that's with the 2%-3% headwind, you know, through the dis-synergies. We've learned our lesson in the past with regards to making sure that channel integration of these types of deals, especially where there's overlap and consolidation, that that happens. You know, the quicker that happens, the more you get the disruption behind you, and you're able to get back to more normalized, you know, patterns going forward.
So that's what we've really been focused on, you know, speed of getting that channel solidified so we can get back to normal growth offense here in the back half of the year and into next year. So if you look at the legacy business of Lima, you know, before COVID, they were growing high single digits. Since COVID, they've been growing low double digit. I think our view with the synergies, leveraging the capabilities of legacy Enovis, and Mathys, the cross-sell across the board, will help us to continue that, you know, above-market growth in that same range that we've been experiencing over the last several years.
That makes sense. And you're also already seeing a margin benefit from adding Lima as well? You know, why is Lima accretive to your overall margin, and how can the margin benefit in the longer term from adding Lima?
Yeah, you know, I think it's one of the things that was really attractive to this deal is it comes in accretive from the start. I'd say from a shaping of the business, Lima was very deliberate in terms of the composition and what they focused on. So if you think about their business being about 40% extremities, extremities coming with higher gross margin, and then selecting certain markets in which how to mix their portfolio, they were really, you know, smart in how they did that to create a pocket of, I'd say, you know, mixed business that comes with pretty strong, healthy margins.
W e bring that in, and then we're able to take that in, and then also on top of that, there's overlap in some of the back office and in areas that we're able to get from a synergy perspective, and then down the road we'll be able to get some operational synergies as well. So, you know, it comes in without getting any synergies as accretive by over 100 basis points, and then, you know, a clear plan that we've outlined to get additional $40 million of benefit of synergies over time, which will add another kicker.
So all of that to say, we've been very deliberate ourselves in terms of mixing the business towards higher profitable growth areas, and this just is a natural fit of that, and it lifts the whole company, as you saw through the first half, almost 200 basis points of margin lift.
That's great. Maybe just turning to your shoulder portfolio. So Lima has strengthened your already sizable position in shoulder. Where do you think the acquisition really brings you from a market share perspective within the shoulder market?
Yeah, I think our perspective on global markets, there's not a one source of truth with regards to that, but based on the triangulation that we've done in terms of our market position, we'd say that our market share is in the mid-teens in global shoulder, so the Number 3 player overall.
That's great. And, you know, you saw clearance of your AltiVate augmented glenoids in June and noted unexpected Q3 launch of the product on the earnings call. So, you know, why is this launch really an important one for your shoulder portfolio?
You know, it's a gap that we've had in our portfolio for some time now. I'd say that, you know, it's one of the biggest launches that we've had in our shoulder portfolio in the last several years. So we're really excited about, you know, the benefit that will come, not only with being able to launch it within our, you know, current customers and get a benefit within our same-store sales, but also the opportunity to now have a more robust portfolio to go and get competitive conversions. So we're excited about this product. You get a higher price per procedure for these more complex cases. And right now, we're in the initial phases of scaling that launch up. You'll see a little bit of benefit here in the third quarter, but you'll really start to see it start to ramp in the fourth quarter.
You know, and then given, I think, the highest overlap with Lima was in the shoulder portfolio. Maybe just talk to, you know, the separate strengths that Legacy Enovis and legacy Lima have in the portfolios, and how they can work together going forward.
Yeah, you know, May, my view is that this has strengthened our overall portfolio breadth in terms of thinking about we have a portfolio solution for all kinds of styles. We still, you know, from a pioneering of the AltiVate system, which has done really well for us in the U.S. market, we still see a lot of opportunities for that product line to continue to grow in the US, but then also unlock some opportunities for ourselves outside the U.S. Lima's portfolio is different and complementary to AltiVate. What I would say is it's got solutions for those that wanna do anatomic. It's got a modular portfolio that gives some flexibility in terms of thinking about how do you manage different cases.
We're launching a product within Lima called the PRIMA system, which is similar to a reverse shoulder that's you know also competitive into the marketplace. So just from a robustness of portfolio standpoint, our shoulder is now stronger with Lima, and particularly gives us a lot of growth opportunities outside the U.S. as that market will continue to penetrate into you know more reverse you know reverse styles like the AltiVate and now the PRIMA that's being launched.
That's great. And then maybe continuing on to ARVIS, which is your augmented reality solution, and you announced 510(k) for shoulder procedures, on the Q1 call. And you also noted, on the Q2 call that you expect sort of a soft launch for the technology in shoulder for the remainder of the year. Maybe just remind us, what are some key features of the system, for the shoulder specifically, and any early feedback that you've gotten so far?
Yeah, we're really excited about the potential application for ARVIS within the shoulder. And for those of you that don't know, ARVIS is a headset that's essentially augmented reality, which, you know, is a headset on the surgeon with a small battery pack. The benefit of it is you can take your preoperative plan, which we have one of the best-in-class preoperative planning software in the Match Point system that we offer. You can take that and have that, you know, overlaid in terms of your augmented reality to where you can still have full control of the visual field when you're within the surgery. But then have your digital markers with regards to your positioning in terms of finding the glenoid vault or making sure that you're making your incisions in the right places.
So we think a combination of good planning with navigation in the shoulder is really important, and that's our first step with regards to ARVIS. Still early days, the feedback's positive. It's gonna be in a limited launch in the back half of the year, but we think it's the step in the right direction to enable our surgeons to still have full control of the surgery, which can be a little bit more complex on the shoulder. But then also, you know, have a tool to help them make sure that they're executing their plan like they want to.
And then, you know, just turning to your other total joints products, I think you've noted that you've had some weakness within hips over the past few quarters and, you know, it's due to market factors and your, also your portfolio offerings as well, and you're looking to refresh those into the back half of the year. Can you really remind us and talk to what those new product refreshers are, and how you can regain share?
Yeah, yeah. I think we've been pretty vocal that, you know, within hip and knee, our knee system, our EMPOWR 3D knee system's been highly differentiated and giving us a lot of momentum within that hip and knee space. As we have continued to build out that portfolio and think about also trying to get not only knee business but hip business as we convert customers, we've noticed that there's some gaps within the portfolio in terms of some recent trends over the last several quarters, with regards to areas where we might not have, you know, as competitive of products. And that would be in just certain kinds of stems and then an impactor device to help, you know, perform the procedure.
So we've got both of those coming in the back half of the year and early next year to where we're gonna build out our portfolio to be much more competitive, to where then we can go back to a lot of the knee customers that we've converted and go after that hip business. So overall, we'd expect the hip to be a little bit softer over the next couple quarters as we continue to get those products in ramped up. But overall, we still feel good about our opportunities within the knee side to keep, you know, generating growth within hip and knee.
That's great. And then maybe turning to foot and ankle, you've worked really hard over the last few years to become a formidable, formidable player, in the foot and ankle space, over $100 million run rate. You know, just as this segment's appearing to really heat up competitively, maybe just talk to us about what are the most competitive aspects of your portfolio and, you know, where you stand today from an innovation perspective going forward?
Yeah, you know, we've been really deliberate in building that portfolio to have a breadth to it that is highly competitive across the whole foot. So if you think about forefoot, midfoot, hindfoot, we've built a portfolio that covers the entire foot all the way up into total ankle replacement, but with some really competitive, differentiated products. So we're seeing really nice performance within our fixation devices that we got with the MedShape acquisition that we did. Those products, you know, from a fixation fusion standpoint, are really performing well and differentiated across the foot. We acquired minimally invasive technology with the Novastep acquisition for bunions. That product line continues to, you know, perform very well for us.
And then we've been launching new products across those categories with regards to plating and screws that can help just fill out the bag with additional new products that are helping us drive growth as well. So if I look across the portfolio that we've built, and, you know, one of the lessons that we've learned with regards to putting those businesses together—I mean, remember, we acquired five businesses and had to get those channels aligned as well, so it took us a good, you know, almost year to do that. We're starting to see the fruits of that labor with regards to accelerated growth versus the market.
I think some of the competitive commentary that we've seen about increased competitiveness in the space is partly due to some of the acceleration we've seen in our portfolio, frankly, and that business continues to perform well and is growing into the double digits for us .
And then, you know, just on that point, I think you noted and other companies noted some market weakness in the segment during the Q2. You know, what do you think drove this market weakness? And obviously, you're, you know, you're growing in spite of that. So, you know, what do you expect going forward from a procedural environment?
Our view is that the market is relatively stable in foot and ankle. Now, there's some new seasonal norms that we're seeing with regards to, you know, summer vacation schedules and things like that, that might have some short-term, you know, market impacts. But overall, I would say that what we saw was the competition really highlighting some increased competitiveness, and we feel like we are a direct result of, you know, those comments. So I think our view is foot and ankle's performing well, underlying market condition, relatively stable. Not seeing a big tailwind with regards to procedural flow, but not seeing anything that would make us concerned that the market is weak. And then, you know, pretty good optimism with all the new products that we've been launching that will continue to drive momentum in that side of the portfolio.
That makes sense. We have a few minutes left. Any questions from the audience? Okay. All right. Maybe just to wrap it up, would love, you know, a short description of where Enovis is today and what you're really trying to hope investors get, you know, going forward about the, the company and its trajectory.
Yeah, we separated into a pure play med tech business in the beginning of 2022. And if you think about the portfolio and what it looked like at that time and where we are today, based on some significant transformational acquisitions, we've taken a business that was, you know, in the, like, little less than $1.5 billion and 14% margins, to today, if you look at our guidance, over $2 billion and closer to 18% margins. So in a pretty short amount of time, we've reshaped the company to a portfolio that's now mixed in a way that's 50% recon, 50% prevention and recovery, where we're the number one player, and it's a strong cash flow generator to fund a lot of the growth investments on the recon side.
And now we've also diversified our growth capability within recon, which we used to be primarily, you know, within the U.S. market with two key flagship product lines. Now we've diversified our portfolio across foot and ankle, extremities, globalized, to where we now have a lot of opportunities to, you know, grow, even in the face of competitive pressure that's out there. So we've mixed the business in a way that's healthier, strengthened the business in terms of our bottom line margin, continue to get up the scale curve in terms of our cash flow generation, so we can continue to create opportunities for the company to create that compounding growth value equation through additional bolt-on M&A, additional shaping, and then just organic mix of the business in general. So it's a really interesting time for the company.
We've gotten through a transformational acquisition that's coming in and driving earnings accretion in year one, but spent a lot of the time in the first half really getting it integrated. And now, as we get into the back half of the year, really excited about the acceleration opportunities that we have and, and the momentum that we're gonna create into 2025 and beyond. So it's an exciting time to be at Enovis and a lot of good things happening at the company.
Great. Well, thanks, Ben, for joining us today, and thank you, everyone.