Enovis Corporation

Thank you for standing by and welcome to the Colfax second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. And to redraw your question, press the hash key. If you require any technical support, please press star zero. I would now like to hand the conference over to your first speaker today, Mike Masek. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us. I am Mike Masick, Vice President of Finance, and joining me today on the call are Matt Tarotola, President and CEO, Brady Shirley, Executive Vice President and CEO of DJO, and Chris Hicks, Executive Vice President and CFO. Our earnings release was issued yesterday afternoon and is available in the investor section of our website at colfaxcorp.com. We will be using a slide presentation to walk through today's call, which can also be found on our website. Both the audio and the slide presentation of this call will be archived on the website later today and will be available until the next quarterly earnings call. During this 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 risk and uncertainties, including those set forth in the Safe Harbor language in yesterday'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. With respect to any non-GAAP financial measures made during the call today, the accompanying reconciliation information related to those measures can be found in our press release and today's slide presentation. With that, let me turn it over to Matt, who will start on slide three.

Thanks, Mike. Welcome, everyone, and thanks for joining our call today. I'm pleased to report another strong quarter of financial results and strategic progress at Colfax. We exceeded our second quarter expectations, both on the top line and earnings, effectively managing through an improving but still dynamic operating environment. As a result, we're increasing our full-year financial outlook. We're also pleased to announce another exciting MedTech acquisition that further expands our fast-growing reconstructive platform. Brady has joined today's call to provide more details about this strategic addition to our MedTech business. We also made strong progress towards separating our company into two independent public companies and continue to target completion in the first quarter of next year. Our strong performance this quarter highlights the momentum and growth opportunities we see in both MedTech and ESOP. And markets continue to recover, and both businesses reported organic daily growth above 2020 and 2019 levels, including 10% growth over 2019 in our MedTech reconstructive platform. Despite some supply chain friction, our global teams are executing well and continuing to outgrow their markets. We expect continued market improvement in the second half of the year with accelerating growth over 2019. Second quarter higher sales translated into higher profit, and we earned adjusted EPS of 56 cents per share in the second quarter, a 27% sequential increase versus Q1, and above our guidance range of 48 to 53 cents. ESAB achieved EBITDA margins of 16.4%, another record, while successfully managing high levels of raw material inflation. We also posted another strong quarter of free cash flow and are well on our way to exceeding our original guidance of $250 million or more this year. All of these improvements are reading through to our full-year performance, and we're increasing our 2021 guidance. Chris will walk through these details later. Slide 4 provides an update of our plans to separate into two independent public companies in the first quarter of next year. Our experienced leaders are making substantial progress across many work streams, and we remain on schedule. We are complementing ESOP's strong operating team with additional public company support capabilities. Sean and his team have already hired several of these key leaders and are well on their way to building a highly effective team of top talent. We expect that the initial capital structure of ESAB will have net leverage of 2.5 to 3 times upon separation, a very comfortable level given the business's strong and consistent cash flows and disciplined operations. We expect the business to have ample financial capacity to execute the growth strategy that we outlined at Investor Day in March. We selected a new name for MedTechCo that reflects our vision of continuous improvement innovation, and great patient outcomes. We have a thoughtful and impactful plan to unveil the new name to investors, customers, and employees later in the year. Stay tuned. The company has made significant progress creating the two separate boards of directors. Both businesses will benefit from a combination of continuity from existing directors and new members with additional experiences and perspectives. You will hear more from us on this important topic as we get closer to the separation. We continue to target the separation to be completed in the first quarter of 2022, and we're confident that we will position both companies for maximum long-term growth and value creation. Each of the businesses have demonstrated that they are ready for the separation by continuing to achieve strong operating performance and strategic progress. Slide five demonstrates this in part through our record of sustainable margin improvement at ESAB. Congratulations to the ESAB team for achieving another record this quarter. The improvement of almost 500 basis points since 2015 reflects the consistent execution of our profitable growth strategy and application of our proven business system across a range of conditions. ESAB's global teams use CBS tools and processes every day to improve productivity across the regions, factories, and functions. This continuous improvement is complemented by supply chain and back office consolidations that create structurally lower costs. CBS has been used for growth, successfully focusing the teams on attractive commercial opportunities, and ESOP's market-leading innovation engine has also contributed to growth, share gain, and operating leverage. Acquisitions have further positioned the business in attractive growth markets like medical and life science that reduce the cyclical exposure of the overall business. We are proud of this margin in performance, and the business is on track for even higher margins in the coming years, as communicated at Investor Day. At Investor Day, we also discussed the many acquisition vectors within our MedTech business, and slide six shows the significant progress made in the past few quarters. to expand our market, accelerate the growth, and create a path to structurally higher margins. We complemented our recovery sciences franchise with a fast-growing laser technology that also opens opportunities in the vet space. We made an important investment in in-site medical systems that could lead to a breakthrough augmented reality guidance technology for the surgical theater. We created a fast-growing foot and ankle franchise that we expect will reach $100 million of revenue within three years. And now we're pleased to announce the acquisition of Mathis, a highly complementary global expansion of our fast-growing reconstructive platform. When we established our MedTech business with the acquisition of DJO, we had revenue of about $1.2 billion. Based on Recon's double-digit organic growth and these acquisitions, Our MedTech segment now has over $1.5 billion of pro forma revenue that is quickly tilting to faster growth. We are well on our way to achieving the near-term $2 billion revenue target discussed at Investor Day. Slide 7 includes more information on Mathis. The company has a long-standing position in implants. serving primarily the European markets with an obvious and compelling geographic fit between our two businesses. Like DJO, Mathis has a well-deserved reputation as an innovator, and each business brings unique product strengths to customers. We are excited by the potential for growth from cross-pollinating the two sets of products and market channels. We expect other benefits from the combination that Brady will discuss in a moment. We're forecasting this business to generate about $150 million of 2022 revenue in its first full year under our ownership. As we scale the business and realize high margin revenue and supply chain synergies, margins are projected to start in the low double digits and improve to segment averages. We funded the acquisition with Colfax shares to the Mathis owners who yesterday launched a secondary offering of the shares they received in the deal. The offering priced last night, and the allocation included a terrific new long-term investor who is excited about the potential of both ESAB and our MedTech businesses. The acquisition closed last night, so let me officially welcome the Mathis team. I got to spend time with key leaders of Mathis a few weeks ago and was incredibly impressed by their talent, passion, and dedication. I'm excited about the future that we'll create together. Brady will now take you through more of the acquisition details, starting on slide eight, and then Chris will review our Q2 results and improved outlook.