Enovis Corporation

Morning, ladies and gentlemen. Thank you for standing by. And welcome to the Colfax Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press the start and the one key on your touch-tone telephone. If you recall operating systems, please press start and zero. I would now like to turn the conference over to your speaker host today, Mike Masek. Please go ahead.

Thanks, Livia. Good morning, everyone, and thank you for joining us. I am Mike Masick, Vice President of Finance. Joining me on the call today are Matt Taracola, President and CEO, Chris Hicks, Executive Vice President and CFO, and Shyam Kambayanda, Executive Vice President and CEO of our ESOP business. Our earnings release was issued this morning and is available in the investor section of our website, colfaxcorp.com. We'll be using a slide presentation to walk you 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 our 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. With respect to the non-GAAP financial measures made during the call today, the company reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. I would also like to highlight on slide three our virtual investor event scheduled for March 14. In advance of Colfax's upcoming separation into two independent public companies, the leadership teams of ESOP and Inovus will separately review their respective strategies for growth and value creation. We will also outline longer-term financial objectives and further details for 2022 forecasts and performance. The ESOP presentation and Q&A will start at 9 a.m. Eastern, and the Inovus team will present at 11 a.m. Eastern. For more information, please visit the Investment Relations section of our website. If you're not able to join us live, Replays will be available on the company's website following the event. With that, let me turn it over to Matt, who will start on slide four.

Thanks, Mike. Welcome, everyone, and thanks for joining our call today. I'm pleased to report another quarter of strong financial results in progress as we close out 2021 and prepare to separate into two independent public companies. During the year, we made significant progress both operationally and strategically. while successfully executing through the macro challenges of COVID, inflation, and supply chain bottlenecks. I want to take a moment to recognize our talented teams around the world for their continued focus on our success and for their dedication to our customers and our patients. Our operating improvements and revenue growth throughout the year translated into strong profit growth. We delivered EPS at $2.14, up 53% from 2020 and above 2019 levels. EBITDA grew 32% and is nearly $50 million higher than 2019 levels. We invested in innovation and commercial capabilities that will enable us to continue to outgrow our markets. Both of our businesses are driving operating efficiencies and leveraging the scale advantages that come with our fast growth. ESAB increased its segment-level EBITDA margins 150 basis points to a record 17.9%, its third record year in a row. Sham and the team are deep into their CBS journey and have set their sights on 20% or higher margins in the coming years. The MedTech CBS engine is gaining strong momentum across the business. Early wins in operations were followed by improvements in innovation and customer-facing activities. We invested to accelerate future growth while expanding margins in this business by 80 basis points in 2021. We complemented these operating improvements with some great strategic acquisitions to further accelerate growth. These included creating a platform in the high-growth foot and ankle segment and acquiring a great European business, Mathis, to expand the markets for our differentiated surgical implants products. The integration of these businesses is on track, and we're confident it will help us to drive faster growth for many years to come. In early March of last year, we announced our intent to separate into two independent, publicly traded companies and unlock additional value for our investors. Aesop and Inovus are each ready for the separation, have strong growth paths ahead of them, and are positioned for compounding value creation. I'll talk more about our progress on this topic in a moment. Moving on to slide five, our businesses outperformed their markets once again in 2021 and extended a multi-year streak. In MedTech, our fast-growing reconstructive portfolio has a history of significantly higher growth than the overall market. Except for 2020, this part of our business has grown double digits. Even from 2019 to 21, when the market declined, we strongly grew our business with innovative products, and strong positions in the faster-growing ASC market segment. As we've shared before, this consistent double-digit growth in normal times and this pandemic outperformance is across shoulder, knee, and hip. Our MedTech P&R business has returned to pre-COVID sales levels. We've steadily increased our vitality in customer service levels, in this business to secure a market position in line with our industry leadership position and outperform our peers. ESOP has consistently outperformed the market for several years now. The business has leading shares in faster-growing, developing markets around the world and is well-positioned in attractive segments like medical gas control and alternative energy. We have a well-known reputation for innovation, and our regional teams nimbly meet local customer needs. To summarize, we're winning in our markets and confident in our ability to continue. Looking at the fourth quarter highlights on slide six, we finished the year with strong results. Despite the COVID Omicron surge in the second half of the quarter, we grew organically by 16% with strong performance in both businesses. We also grew EBITDA and EPS at mid-teens levels as we successfully managed supply chain and inflation pressures. Slide seven, provides an update on the separation. Most of the steps required to create two great companies have been completed. Our form 10 will be publicly filed later today. We have full teams in both businesses that are excited to forge their independent paths for value creation. The required legal and other supporting actions are largely done, and we expect to complete the separation around the end of the first quarter. We have capital structures that are designed to provide flexibility to achieve each business's long-term strategic goals. The banks that have supported us for many years came through again with committed, attractive financing. At the time of the separation, Inovus will retain a 10% ownership position in ESOP. Later, we intend to exchange this retained stake for Inovus's outstanding debt. The company is expected to be debt-free at that point with significant financial capacity. for acquisitive growth. ESAB is expected to launch with about 2.75 turns of net leverage and use its strong and consistent cash flow for deleveraging and bolt-on acquisitions. We have two very strong boards ready to go, each one a mix of current directors and valuable new perspectives. These diverse boards will have significant industry expertise and other skills relevant to each company. We are pleased that Mitch Rails, Colfax co-founder and current chairman, will serve as chairman of each of the boards. We will share more details about our board members in public filings and our investor calls on March 14th. We're nearing the finish line and wrapping up our key activities to complete the separation around the end of the quarter. Slide 8 gives an update on our MedTech business for the fourth quarter. Sales for the quarter increased 29%, including acquisitions, or 10% organically. It was another quarter of strong market outperformance in both recon and P&R. We continue to see strong execution in our recon business. Organic Q4 growth was 10%, even with some COVID-driven pressure from reductions to elective surgeries toward the end of the quarter. We have strong growth across the product portfolio with exceptionally strong mid-teens growth in knee implants. Our recent acquisitions in Recon, which include Mathis and the three foot and ankle businesses, all are performing well, and integration activities remain on track. Our P&R business also grew 10% organically in the quarter, or about 1% over 2019, with balanced growth in both the U.S. and international markets. As we started 2022, elective procedure volumes continued to be depressed in January, but we're now seeing some initial signs of improving demand conditions. We expect market dynamics to improve over the course of 2022 and feel each of these businesses are well positioned for strong growth. Aesop, again, had fantastic performance in the quarter. Let me now turn it over to Shyam, who will take you through some of these details on slide nine. Shyam? Good morning, everyone.