Enovis Corporation

Welcome to the Colfax Third Quarter 2021 Earnings Call. My name's Annette and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the Q&A session, if you have a question, please press star then one on your touchtone phone. I will now turn the call over to Mike Masek. Mr. Masek, you may begin.

Thanks, Annette. Good morning, everyone, and thank you for joining us. I am Mike Masek, Vice President of Finance. Joining me on the call today are Matt Tarotola, President and CEO, Sean Kambayanda, Executive Vice President and CEO of ESOP, and Chris Hicks, Executive Vice President and CFO. Our earnings release was issued earlier this morning and is available in the Investors section of our website, colfaxcorp.com. We'll 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 today's earnings release and in our filings with the FCC. 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 earnings 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 that our businesses performed well in the quarter and we made strong progress on key strategic priorities. We met our third quarter commitments by growing organic revenues 15% and achieving adjusted EPS growth of 32% despite the challenging environment. We also outperformed our markets as a result of our amazing teams around the world. I want to take a moment to thank our teams for their continued dedication to our customers and patients and to the success of our businesses. ESAB exceeded our expectations this quarter with better than expected growth and strong margin expansion. We continue to see strong execution here, and as a result, we're increasing our full-year organic growth and margin expectations outlook for ESAB. I've asked Shyam Kambianda, the CEO of ESAB, to join the call this morning to talk further about this great performance and progress. MedTech performed well. given the challenges faced by the industry. We outperformed the market in both P&R and recon again, but were impacted by COVID-driven slowing of elective procedures, which I'll touch on more in a few minutes. We're making strong progress integrating the recent acquisitions, and I'll share some highlights later in the call. Finally, we're fully on track for the expected tax-free spinoff of our ESOP business to Colfax shareholders. We've made substantial progress towards creating two independent boards with relevant skills, experiences, and diversity, and with limited overlap. Also, we've filled all the key corporate leadership positions for ESAB with tremendous talent, readying them to become an independent public company. And as you'll see in a few moments, we've also selected our new corporate name, which symbolizes our exciting future. We continue to target the separation for the first quarter of 2022 and we're confident that we'll position both companies for maximum long-term growth and value creation. Slide four gives an update of our MedTech business. Sales for the quarter increased 14% or 1% on an organic sales per day basis. This includes a two-point headwind from one-time PPE sales in Q3 last year. While this is below the expectations that we had entering the quarter, we believe that it's very strong top-line performance given the temporary pressure on elective surgeries in the quarter. The key thing to note is that both businesses, Recon and P&R, continue to outperform their markets. We've grown well ahead of peers for a number of periods over the past several years. The year-to-date organic growth figures versus 2019 on the slide tell the story. Our recon business is up 7% year-to-date versus 2019, and our P&R business is approximately flat. These are organic numbers, both significantly better than market rates. In recon, our shoulder implants grew double digits year-to-date versus 2019, continuing to take share through innovation and commercial execution. As we move past COVID and return to normalized market growth, both of our MedTech businesses are well positioned to show strong growth in 2022 and consistent market outperformance over time. In the quarter, we had some unexpected impact from COVID, primarily in recon. After a strong June and July, we saw a slowing of elective procedures in certain regions of the US. However, we did see improvement in October, giving us confidence in our expectation of gradual improvement in Q4. This points to a more normal market environment in 2022 and an opportunity to recapture some of the missed demand from 2020 and 2021 as pressure on hospital space and staffing subsides. Additionally, during the quarter, we continue to see MedTech supply chain inflation and inefficiencies. Our teams are doing what it takes to serve our customers, which is driving costs higher and temporarily impacting our profitability. We still made sequential progress in the quarter as organic EBITDA margins improved on lower organic volumes. We also were able to implement some price increases to offset part of the inflation that we're seeing. These took effect late this quarter. And along with expected volume improvement, support our guidance of sequential margin improvement in Q4. We have other CBS initiatives driving price cost, productivity, and SG&A simplification to accelerate margin improvement in 2022. And we remain confident in our ability to substantially expand MedTech segment margins over time and achieve the longer-term targets outlined earlier this year of 25%. Slide five highlights two recent product introductions. We continue to innovate, bringing clinically differentiated products to the market to broaden and strengthen our portfolio. Having robust vitality is a key part of our strategy to drive above-market organic growth. And these two launches are good examples of us filling out our offerings for surgeons, increasing our clinical relevance, and expanding our market reach. The Empower Dual Mobility Hip System is the latest addition to the Empower Hip portfolio that provides surgeons a solution to treat a large patient group needing better joint stability. Dual mobility is a sizable and important segment of the hip market, and this launch will help us to secure additional business in existing surgeons and also attract new surgeons. Next, we continue to expand our robust suite of foot and ankle products with the DynaNail Hybrid Fusion System. a member of the proprietary Dynanail family of products. The Dynanail hybrid features a unique design with ease of insertion and dynamic compression. Our early results on this launch have been very positive. We're exceeding our sales plans and have gotten excellent feedback from customers and our channel. Slide six highlights the great progress we've made on the integration of the highly strategic recon acquisitions that we completed over the past year. Along with our very successful U.S. surgical business, these lay the foundation for sustained double-digit organic growth in a much larger addressable market. During our July earnings call, we announced the acquisition of Mathis, a highly complementary global expansion of our fast-growing reconstructive platform. Since then, we've been rapidly integrating the business, and there is great cultural fit between the two companies. We expect to accelerate Mathis growth by introducing several of our market leading products into their channel. Together, we've already established a clear product roadmap and an aligned forecast for revenue synergies. In the first half of 2022, Mathis will launch our ultimate reverse shoulder and empower 3D knee, which already have the required regulatory approvals. We're also working on a pipeline of other growth synergies. Beyond growth, Our teams are collaborating to secure a three-year path to $15 million of annual savings from increased scale and operating synergies. Our early focus is on insourcing projects that will generate savings next year. We continue to expect this business to generate approximately $150 million of revenue in 2022 and build over time to double-digit growth and accretive EBITDA margins. Also, we continue to build strong momentum in our foot and ankle platform, which was formed through three different acquisitions over the past year. These additions established a differentiated product portfolio in the high growth, high gross margin foot and ankle market segment. We combined our new foot and ankle businesses into a cohesive growth platform led by a very strong team with deep foot and ankle experience. This allows us to create a powerful channel focused on the 10,000 foot and ankle surgeons in the US that will extend our reach and scale as we grow. We also aligned on a combined innovation pipeline and acquisition priorities to expand our bag of clinically differentiated products to address the full foot and ankle market opportunity. We continue to expect this business to grow rapidly and reach $100 million of revenue with accretive margins and strong double-digit growth over the next three years. And finally, I'm really excited to introduce our new company name on slide seven, Inovus. Inovus symbolizes the powerful combination of innovation and vision fueled by our passion for continuous improvement and reinforced by our drive to deliver superior clinical outcomes. As we strategically pivot to a specialty med tech company focused on creating solutions that improve lives, the Inovus brand emphasizes the differentiated value and accretive foresight we will bring to healthcare professionals and their patients around the world. And in recognition of our successful history of growth and innovation, the distinctive O in the new Inovus logo was deliberately carried over from the Colfax logo as it represents continuous improvement, the cornerstone of compounding value creation that we will continue as Inovus. With that, I'll turn it over to Sham, who will start on slide eight.