Ladies and gentlemen, thank you for standing by, and welcome to the Enovis Third Quarter 2022 Earnings Call. I would now like to turn the call over to Derek Leckow, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for our third quarter results conference call. I'm Derek Leckow, Vice President of Investor Relations and joining me on the call today are Matt Trerotola, CEO; and Chris Hix, Executive Vice President and CFO; and Ben Berry, who we previously announced will serve as Enovis' CFO when Chris retires at the end of the year. Our earnings release was issued earlier this morning and is available in the Investor Relations section of our website, enovis.com. We'll be using a slide presentation in today's call, which can also be found on our website. Both the audio and slide presentation of this call will be archived on the website later today. 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 risks and uncertainties, including those set forth in the safe harbor language in today's earnings release and in our filings with the SEC. Actual results may 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 intent to update them except as required by law. With respect to any non-GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our press release and in the appendix of today's slide presentation. With that, let me turn it over to Matt on Slide three.

Thanks Derek. I am pleased to discuss our great operating and strategic progress this quarter. We had strong growth and are demonstrating clear strides toward our strategic goal of sustainable high single-digit organic growth. Our growth is supported by an innovation engine that continues to produce exciting new technologies and solutions to improve patient outcomes and healthcare workflows. In a moment, I'll discuss the latest P&R product offering that highlights our innovation, vitality, and momentum. Despite a high load of inflation on our results, we continue to improve our core margins this quarter, aided in part by price versus cost progress and operating leverage from our strong sales growth. Teams are using our business system EGX to drive continuous improvement and productivity gains throughout Enovis. We've also taken action this year to improve our cost structure. Our acquisitions expand our addressable market and fuel our strong share gain. These businesses are performing as expected, including double-digit growth in our foot and ankle business after reconfiguring the sales channels earlier this year. I continue to be impressed by the dedication and excitement of our global teams and want to thank our associates for their contributions this quarter as we continue to build a high-value med-tech growth company. Our strong growth is underscored by another quarter of double-digit Recon requirements highlighted on Slide four. Total sales grew 23%, including strong contributions from acquisitions. Organic growth of 15% is again well above market level. This double-digit growth was achieved across all of our product lines. We had strong growth in the US and international markets demonstrating our favorable market segment positioning, product portfolio strength, and successful commercial execution. In the third quarter, we expanded our US surgical facility to further support our double-digit revenue growth and insourcing programs for margin expansion. Mathys has also achieved double-digit growth. We acquired this strong franchise a year ago and it will now start contributing fully to our organic results. Our Recon segment is well positioned for very strong and sustainable organic growth. As you can see on Slide five, we have successfully invested in exciting and faster-growing opportunities. Foot and ankle is a rapidly growing market segment. At the recent AOFAS conference, we highlighted several products that were recently FDA 510(K) cleared, including the Dyna Clipp Delta, the Dyna Clipp Quattro, and the DynaNail Helix. These products extend our innovative shape metal technology into new indications that can benefit patients and surgeons. We recently completed the acquisition of Insight Medical Systems and its augmented reality technology. Arvis delivers real-time, hands-free surgical guidance that is highly accurate and also space and cost-efficient. The number of procedures is ramping very quickly, and positive surgeon feedback gives us confidence in the accretive growth potential of this differentiated surgical system. Turning to Slide six, our prevention and recovery business also had a strong quarter. Its 4% organic growth was in line with our strategic goals for the segment, and we believe the business continues to grow faster than its underlying markets. We are the market leader in most of our segments and our strengthened operational capabilities and healthy vitality levels are clearly leading through. P&R has incurred most of our company's inflation pressures and the team continues to increase prices to customers to mitigate the net effect. In the third quarter, these actions stemmed further net price cost erosion with sequential and year-over-year improvement in gross margins. We remain committed to recover the cumulative heavy inflation for the past two years as the environment normalizes in the coming years. We talked earlier about the inflation within our Recon business. We continue to make great strides in P&R as well on innovation. We've been investing in R&D and are now sustaining a healthy mid-teens vitality rate. On Slide seven, we highlight an exciting development that furthers our P&R market leadership and company digital strategy. We recently introduced significant updates to our MotionIQ Pro platform, the X-ROM IQ postoperative knee brace, and the SRB iQ 3D knit compression sleeve. These award-winning solutions combine smart sensors and great functional braces with groundbreaking apps to help patients achieve better recovery and rehabilitation outcomes. Patients access videos of proper rehab exercise techniques and receive real-time monitoring and feedback. The care team can monitor patients on a dashboard and dynamically intervene to encourage patient compliance or to adjust and customize recovery programs during the patient recovery journey. These innovations were recognized recently at the American Orthopedic Society for Sports Medicine's Annual Meeting, winning the coveted ACE Award. In addition to terrific performance in Q3, we're also making important progress toward our strategic goal to create a $2 billion revenue med-tech company by 2024. Slide eight shows our accelerating organic growth this year on the path towards sustainable high single-digit organic growth. Our success reflects the strength in the cornerstones of our strategy, high-performing teams, continuous improvement in everything that we do, better innovation processes, and acquisitions that position us in faster growing market segments. We are well positioned to outgrow our markets and execute against our large M&A target funnel to achieve our goals. Slide nine shows that we're also improving our margins in a year when most in the industry are not. Considering the significant inflation that we have encountered since COVID, we are proud of this performance. If you peel away the impact of currency movements and recent acquisitions, we've increased our core margins by 80 basis points year-to-date. Our strong growth creates operating leverage that helps our margin journey, and we've also taken $25 million of structural costs out versus 2021. As our acquisitions continue to scale, we expect further margin expansion. We've made great progress, but recognize that inflation and currency pressures are extending the time required to achieve our 20% goal. In 2022 alone, we have about a 100 basis points of headwind from FX and additional net inflation. We remain confident in our ability to leverage our EGX toolkit, drive long-term productivity and pricing that will move us forward every year and ultimately drive us to 20% margins and beyond. Now, I'll turn the call over to Chris to take you through our Q3 financial results and near-term outlook.

Well, thanks Matt. I'll start my prepared remarks on Slide 10. We had a strong operating quarter in Q3 with above-market organic growth and core margin expansion. Our company grew 7% with a strong organic component of the acquisition and FX factors offset each other. Gross margins grew 140 basis points year-over-year, reflecting our faster-growing higher margin Recon segment. We also reduced the net inflation pressures that had been increasing each quarter in our P&R business. We expect another strong quarter of year-over-year gross margin expansion in the fourth quarter. Our year-over-year EBITDA margins of 14.9% in the quarter reflect several key drivers. Recent acquisitions joined Enovis with less than company average margins, which reduced year-over-year margins by a full point. We expect margins to expand as these acquisitions scale from fast growth. Our core margins increased 40 basis points in the quarter or 80 basis points year-to-date, despite having significant pressure from net inflation. Besides having strong operating performance, our EPS results of $0.59 in the quarter included one-time tax benefits that temporarily pushed our tax rate below 10% in Q3. We expect the tax rate to pop back into the mid-twenties in Q4 and in the full year at around 18%. We are working to implement changes that can sustainably reduce our tax rate to 20% or lower next year. Our Q3 results also include higher interest costs that reflect the current value of the ESOP retained stake and higher interest rates. We are pleased with the results of Q3 and are positioned for a healthy finish through the year as shown on Slide 11. As Matt noted earlier, we expect Q4 organic growth to be at or higher than Q3 rates. We are expecting about 6.5% full-year organic growth supported by strong product vitality and operating execution to continue our fast growth and market share gains. Overall market growth is improving seasonally, but there are pockets of pressure from procedure cancellations, caregiver staffing, and other market disruptions. We are projecting total growth of about 10% for the year, including roughly three points of currency headwind. We're updating our full-year EBITDA toward the lower end of previous guidance to reflect market demand trends, persistent inflation, and currency challenges that we believe will continue into 2023. We expect to outgrow our markets and expand our margins this year, despite the combined 100 basis points of FX and net inflation pressures that we are absorbing. This performance includes strong sequential margin growth in Q4 to reflect our seasonally highest revenues. Our 2022 EPS outlook includes this year's margin expansion, increasing interest costs, and recent one-time tax benefits. We are pleased with our forecast for double-digit EPS growth this year. So to summarize on Slide 12, we've created a company with sustainable market outperformance, both for growth and margins. We have strong teams, a healthy innovation engine, a business system that drives continuous improvement, and a successful M&A strategy with capacity for a lot more. We are shaping the company to be an enduring med tech growth leader. On a personal note, this will be my last earnings call as I am headed to retirement at the end of the month. I'm retiring with satisfaction having been part of a strong team that has accomplished a lot, and I'm pleased that we have such a strong new CFO, Ben Berry, who will step into my shoes. And with that, let's go ahead and open up the call for questions.

Our first question comes from Vijay Kumar from Evercore ISI. Please proceed.

Congratulations on a steady execution here. Maybe my first question is on the top line here. Q4 implied 8% organic, and that's coming in a pretty tough comp. Can you just talk about the visibility here at high singles? What's driving this growth? And any early thoughts on '23, should we still be looking at the high singles above industry growth model for '23?

Yes. Thanks for the question, Vijay. And so yes, we did try to give a narrow guide at this point in terms of how we expect the year to finish out from a growth standpoint. And we think that our growth in Q3 is nice and strong and shows nice share gain across our businesses. We're expecting to see sort of a normal seasonal step up on the recon side as we head into Q4. At this point, the possibility of a real kick up late in the year is probably off the table. That was a possibility going back a few months. But at the same time, we're not feeling some of the heavier pressure on that business than there was, say, back in June and July. So we're expecting a sort of a normal seasonal finish to the year on the Recon side. And on the P&R side, we feel like the markets are steady and they're feeling some of the backside of that Recon pressure. So we feel good about the path to have the same or better growth here in the fourth quarter of the year as we head into '23.

Got you. And Chris, maybe one on margins here. If I just look at the guidance at the midpoint, I think our EBITDA margins for the year is around 15%, up 50 basis points year-on-year. Can you just talk about the different moving parts? What's implied in total FX headwinds in the 15%? What is the impact of inflation, M&A? The reason I ask is, of those 3 buckets, FX inflation, and M&A, what pieces improve? Or should we expect any improvements heading into '23?

Yes, I'll take that. This is Ben. Thank you for the question. Yes, if you think about our margin performance this year, I mean, we're continuing to control the controllables. As Matt mentioned, we've taken some of the costs out of the system, which has given us some benefit as we've managed through some of the FX pressure and the inflation that we mentioned in the prepared remarks of about 100 basis points. We do expect some of that to continue as we go into next year. It continues to be a tough environment. And what we're showing is that we're showing that we're expanding while a lot of our competitors are contracting. So we're making a good step forward, but we do expect some of those pressures to continue as we go into next year.

And then I'll just add one comment that is we started the year with the expectation that margins would expand roughly 150 basis points plus or minus, then it's interesting. If you look at that piece that we're absorbing FX and inflation, which is about 100 basis points, we're pretty much right on track with the controllable part of the business. So executing where we can, and now as we're gaining ground on the inflation price dynamic, we'll see that continue to help us to drive margins a little bit as we go forward here.

Our next question comes from Vik Chopra from Wells Fargo. Please proceed.

Congrats on a great third quarter, and Chris, thanks for all your help this year here, and best of luck on your retirement. I had 2 questions. I guess I'll ask 1 upfront. Just following up on Vijay's questions on 2023. I know you're not providing guidance right now. But can you give us a framework on how to think about 2023, specifically any items you're aware of now like FX and inflation running through the P&L that you can share? Any potential headwinds and tailwinds? And the second question I had was on your European business. Obviously, Mathys performed really well this quarter. Just given talks of a potential recession in Europe, have you seen any demand disruption when it comes to procedure volumes? And are you expecting a slowdown in Q4 in procedure volumes in Europe?

Thanks a lot, Vic. Let me try to pick those up. I think we're certainly not ready to guide 2023. We'll do that early next year. I'll say a few things, though. First, I think what we're demonstrating this year in terms of our growth and our relative growth really shows that we are capable of driving our company to consistent high single-digit organic growth performance. As far as next year, we'll have to kind of see how things look as we turn the corner on this year into next year. But I think the back half of this year does have a little bit of recovery tailwind in it and maybe a little extra price in it. And so I think we're probably not going to be super leaning in on next year versus having kind of a thoughtful kind of guide there. And as far as the inflation part, as was commented on before, we're confident that we'll be able to keep moving our margins forward. But we also expect that next year is going to have some of the same currency and inflation pressure that we're feeling this year. And so we'd expect to take another good step forward towards our 20% goal. But as I said in my comment, the path to that goal has gotten a little bit longer based on the way this couple of years are playing out. On the Europe question, we're seeing pretty healthy demand in Europe and strong performance by our Mathys team. A lot of positive energy in that business, both between the existing products and some of the innovation in Hip they've been bringing to market and then bringing our products from the US over there. And so we are seeing a kind of a healthy finish to the year and not seeing a lot of market pressure over there. Certainly, the one market that's still dragging is Australia. That's one that we had thought might really kick here at the end of the year, and we're now seeing it just sort of slowly improving back. But the markets on the continent are in a solid place right now, and we're certainly very excited about the momentum we've got in the Mathys team over there.

Our next question comes from Matthew Mishan from KeyBanc. Please proceed.

I would like to clarify the change in the fourth quarter guidance. It seemed to suggest that there would be a stronger increase in the fourth quarter, especially considering your strong third quarter. What has shifted in your perspective regarding fourth quarter organic growth?

Yes. Matt, thanks for the question. In our comments on the last call, I think we tried to be transparent that we were keeping a pretty wide band on the fourth quarter in terms of what the growth could be. And keeping in the frame, the full range of possibilities from heavy COVID pressure that might even lead to a small deceleration to a real kicker with everything kind of clearing in the back half of the year and some backlog clearing. So I think we did signal a wide range of possibilities in the fourth quarter. And what we're now dialing in, as you can see, is an expectation that we'll have at least the growth we had in the third quarter and potentially a little bit of acceleration. And I think that's really what we're seeing in terms of the elective path that there is a normal seasonality playing out, but there's still pockets around the market of pressure, pockets of pressure in the US, whether it's cancellations in certain areas or staffing pressure in certain areas. And a couple of markets outside the US Australia, the one I mentioned, that's one of the larger ones that's still under some pressure. And then on the P&R side, we have seen in Q3 and expected in Q4, a little bit of the backside of the elective pressure that there was back in June and July. In our P&R business, some of the impacts are delayed there. And so as we're kind of seeing some of that and thinking about how it can affect the P&R business in Q4. We've put a thoughtful guide out there as to what we now expect is going to happen down the back half of the year, which should be a good, strong finish, about 6.5% full year growth for the company, something we're certainly proud of in terms of how it stacks up and how it shows our ability to make good, strong progress on our strategic goals.

Alright. Excellent. And then I think you mentioned that the path to the 20% is extended, that's your long-term goal. I'm not sure you ever put a time frame on that. But can you put that comment into context and how we should think about a timeline to achieve that 20%?

Yes. As Chris said, as we talked about our path to 20%, we talked about the various factors that would drive that very credible path in terms of taking the structural costs out of the system, driving productivity, recovering some of the price/cost squeeze that we had started to already feel back then and the scaling of the acquisitions as they grew up against high gross margins that we have in those acquisitions. We talked about that credible path and talked about a pacing that implied maybe closer to 150 basis points a year of progress or 100 to 150 basis points a year of progress to move towards that. And at the time, we could see a very credible path to how that could happen. What's happened this year, and we're expecting to see carry a little bit into next year, is that there is this currency pressure and continuing waves of inflation and so while we can execute that on an underlying basis, the headwinds that are offsetting a portion of that. And so we're trying to be transparent here to say that until this inflation and currency situation clears, our annual progress towards that goal is going to be a little more modest and there's still that big opportunity there to eventually have larger strides of annual progress and to blow past that 20% goal. But we're trying to be transparent about what the first couple of years here look like. Yes. That's a great question, Matt. First of all, as the leader in bracing and the only player that really plays along the full orthopedic continuum of care in our company, we really have decided we're going to lead the way in connected bracing, because there clearly is a great opportunity there that really has the potential to meet the health care system need of better outcomes at less total cost. And so we're confident that with the technology that's available and the need there, there's a big opportunity, and we're leading the way here. And we've got a great, great solution out there that we've got some really good positive feedback on. Now at the same time, this is going to be a journey in terms of how things develop over time, because I think we've got a great solution. We're now working with a number of very excited docs about getting that into their protocols and being able to start to demonstrate the benefits that that solution provides. And we're confident that we've seen in other parts of the health care industry that if you have a great solution, you demonstrate the benefits that it brings over time, the reimbursement can follow. Fortunately, the solution doesn't have a lot of extra cost. And so getting it out there into the marketplace, in an environment where it's not reimbursed is a great way to lead the way and to start to get some of the data developing that could lead to reimbursement over time. And we've seen other apps in the US getting funded connected. There's also several countries outside the US now that have reimbursement for connected medicine solutions. And so we feel like that's the way things are going to likely go here over time, and we're going to be a company that's leading the way.

Our next question comes from Xuyang Li from Jefferies. Please proceed.

Congratulations on your retirement, Chris. Thanks for all your help during this transition and best of luck going forward and looking forward to working with you, Ben, as well. I guess maybe for the first question, good to see that Foot and Ankle returned to strong double-digit growth in the quarter. It sounds like you made a lot of good progress with the channel integration and helped by some new products as well. Should we assume most of the disruption seen in Q2 is behind us? And can you give us an update on the STAR Ankle outlook for the intermediate period as you modernize it?

Thank you for the question, Xuyang. We are enthusiastic about the advancements and opportunities in Foot and Ankle. The channel integration has been successfully navigated, and we feel we are on a solid trajectory. Regarding the STAR product, we anticipate that as we move into next year, we will introduce a new cutting guide to the market and update the poly in that product. We have already begun to reintroduce STAR to the marketplace and generate excitement about the upcoming changes. We believe that next year will mark the recovery of STAR, and there is significant market share to regain. Many surgeons who trust and enjoy STAR are eager about the opportunity to use it again. Additionally, we have an impressive innovation pipeline with new products set to launch, including the Arsenal Ankle plating that we introduced last quarter. With the integrated channel, strong innovation, and our focus on STAR next year, we are confident that our Foot and Ankle business will experience considerable growth, and there are also promising opportunities for additional offerings in this area.

Alright. Great. That's really helpful. I guess on the M&A environment, I think you have around $1 billion in capacity in the intermediate term. How's the pipeline looking and your discussions with targets and valuation going? And are there any areas you're more focused on either from a product or scale perspective?

Our M&A pipeline is strong, focusing on areas we've discussed previously related to unique offerings that can enhance our Recon businesses and support growth opportunities for expanding our geographical market access. We also aim to refine our P&R portfolio positively in terms of growth and margins. There are various prospects in the pipeline. While the valuation environment is less exuberant, we are targeting high-value businesses. I believe we will identify valuable opportunities in the upcoming quarters, and I expect discussions around valuations to be more favorable than last year. However, for these high-value businesses, we will need to offer a fair price to acquire them.

Our next question comes from Kyle Rose from Canaccord Genuity. Please proceed.

I'm hoping you can hear me this time.

Yes. I got you loud and clear, Kyle.

Sorry about that, gentlemen. And yes, Chris, we echo the sentiment. Congrats on a well-deserved time off and Ben, we look forward to working together. When we think about just the medium-term margin outlook and I'm not looking for guidance, but just directionally, when we think of the puts and takes, you're now lapping Mathys from an M&A perspective. I think you called out 1% with respect to EBITDA headwinds there. Just wondering, how should we expect the pace of that rolling off from a headwind perspective moving forward?

Yes, Kyle, it's Chris. When we make acquisitions, we look for those that align with our goal of finding differentiated solutions with significant growth potential. Often, these acquisitions are at an earlier stage and may not yet have optimized their cost structure, resulting in lower margins initially. However, they tend to have strong growth that can improve margins over time. As we evaluate acquisitions, we see that in the following years, around years two through five, many of them start to improve significantly in terms of margins, contributing positively to our overall margins. This has been our strategy from the beginning. Looking at the current year, we are facing challenges from our recent acquisitions, such as Insight, which includes the ARVIS system. However, these are also the foundation for future growth and margin expansion. We plan to continue enhancing productivity and managing our cost structure efficiently to support our growth. We anticipate good operating leverage from these gross margins. All of this is ahead of us, along with the growth from our acquisitions. There's also the factor of inflation and foreign exchange, which we acknowledge is out of our control and may continue to impact us as we move into 2023. We are making progress in pricing to help counteract these effects. While we still carry the burden of net inflation from the past few years, we expect it to be less of a hindrance moving forward, although it will still affect us for a while. In terms of margins, it's too soon to provide definitive insight about 2023, but these are the considerations we'll be focusing on as we prepare for discussions about next year early in the new year.

Alright. That's fair. And then, Matt, I think you spoke in your prepared remarks just about seeing a strong demand funnel for both the US Hip or both the US Knee and Shoulder business. I wonder if you could just characterize that as well as some of the upside performance you've seen recently? Are there specific pockets of strength that you're seeing? Is it regionally? Is it by specialty, ASC versus hospital? Just really trying to understand what's driving some of that sustained top line share taking?

Yes, Kyle. I want to make two points. My initial comment was regarding the demand in Europe and outside the US, including Australia. We're seeing positive movement in the funnel for AltiVate and EMPOWER as we pursue cross-selling opportunities. We've had successful events recently that allowed us to engage with surgeons in various countries beyond the US, showcasing the strengths of these two products. There's considerable enthusiasm building as surgeons are eager to test these products and consider switching. In addition, here in the US, we are successfully gaining market share across all types of procedures. We’ve experienced double-digit growth across all categories. We're particularly seeing success with our EMPOWER Knee and are establishing a stronger presence in the ASC environment compared to the overall market. We've introduced several innovative solutions across different anatomical areas this year and last. In the Hip and Knee sectors, especially with the Knee, ARVIS is generating significant excitement and momentum.

That does conclude today's questions. I would now like to turn the call over to Matt for closing remarks.

Thank you for joining us. Before we finish, I want to express my gratitude to Chris for his many years of outstanding service to our company and for his partnership with me. I know everyone on the call wishes you the best as you approach your retirement at the end of the year. Thank you, Chris.

Thank you, Matt. Thank you, everyone.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.