Enovis CORP Q1 FY2025 Earnings Call

Hello, everyone, and welcome to the Enovis Corporation Q1 2025 Results Call. My name is Ezra, and I will be your coordinator today. I will now hand you over to your host, Kyle Rose, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, Ezra. Good morning, everyone and thank you for joining us today for our first quarter 2025 results conference call. I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call today are Matt Trerotola, Chair and Chief Executive Officer; and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investor section of our website enovis.com. We will be using a slide presentation in today's call, which can also be found on our website. Both the audio and the slide presentation 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 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. For further details regarding any non-GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn it over to Matt, who will begin on Slide 3.

Thanks, Kyle. Hello, everyone, and thanks for joining us this morning. Let's start on Slide 3 and talk about some of the quarter's highlights. We had a strong start to the year, and I'm excited about the future of Enovis. In the first quarter, we delivered reporting growth of 8% and 11% on a comparable basis. When we look through the extra days and currency to the effective growth rate, it's right in line with our high single-digit strategic goals. Our teams have made tremendous progress using new products to drive share gain, and we have a clear line of sight to a multiyear cadence of meaningful NPI. We expanded our adjusted EBITDA margins by 160 basis points, reflecting the mix impact of Recon, stable pricing trends and EGX-driven productivity improvements. In Recon, on Slide 4, we delivered comparable growth of 13%, which includes some tailwinds from additional selling days. U.S. Recon grew 11%, including 12% growth in U.S. extremities and 10% growth in hips and knees. We're once again consistently growing well above market rates in the U.S. as our teams are energized, focused on growth and have great innovation supporting their surgeon conversion efforts. Outside the U.S., we grew 14% in a resilient market, showing the power of the global position that we've built. We exited the first quarter with strong momentum and excitement from recent and upcoming new product launches, including the augmented reverse glenoid system in shoulders, the nebula stem and surgical impactor in hip and the next generation of ARVIS hardware and software. In P&R, on Slide 5, our 8% comparable growth reflects a stable market environment, disciplined execution and the benefit of additional selling days. Overall, this business is performing in line with our strategic plan and will benefit from the Manafuse LIPUS technology launch in recovery sciences and several key new bracing products in the coming quarters. Adjusted EBITDA margins in P&R improved 50 basis points year-over-year as we continue to use EGX tools to drive consistent productivity improvements and proactively shape the portfolio for profitable growth. Most of our tariff exposure is in P&R, and the team is doing a fantastic job driving initiatives to minimize the net impact. I wish we didn't have to deal with this, but our EGX tools and post-COVID inflation experience have us well-prepared to get through this without stalling our growth or changing the longer-term upward arc of our margins. Before I pass it to Ben, I'd like to make a few personal comments. This is my 40th earnings call as the CEO of Colfax and now Enovis. Across that period, our teams around the world have relentlessly worked to build a great company that creates better futures for our customers, great opportunities for our employees and substantial value for our shareholders. I'm incredibly thankful to our team and proud of what we've achieved, and I truly appreciate the 10-year dialogue that I've had with many of you about our plans, progress and opportunities ahead. We have a strong foundation, an incredibly talented team, great operational and strategic momentum, and I'm passing the baton to a fantastic leader who I'm confident will lead the company to compounding value creation in the years to come. I'm committed to making sure that this transition is smooth even with the dynamic tariff backdrop. Now I'll let Ben take you through the P&L details. Ben?

Thanks, Matt. Hello, everyone. I'll begin on Slide 6. We are pleased to report first quarter sales of $559 million, up 8% versus the prior year and 10% on a constant currency basis. The quarter included approximately 120 basis points of negative currency headwinds and roughly 350 basis point benefit from additional selling days. We were encouraged with the continued growth acceleration in our Recon business across anatomies as we've seen positive early results from our recent product launches. We are confident that our channel integration efforts are fully behind us as we exit the first quarter. Overall, our Recon business grew 13% with double-digit growth globally across our main segments in both hip and knee and extremities. Our growth in P&R was strong, growing at 8%, mid-single-digit growth when adjusted for selling days. We had positive business mix in the first quarter, leading to adjusted gross margins of 61.7%. This is an increase of 300 basis points year-over-year. The growth was driven by favorable segment and product mix and momentum from EGX initiatives across our manufacturing operations and supply chain. Despite ongoing investments in key R&D initiatives and medical education programs, our first quarter adjusted EBITDA grew 19%, delivering a margin of 17.7%, up 160 basis points versus the same quarter last year. First quarter effective tax rate was 23%, approximately 70 basis points higher than last year. Interest expense was $9 million for the quarter versus $20 million in 2024. Overall, we posted adjusted earnings per share of $0.81, an increase of 62% versus prior year. Turning to Slide 7. I will provide updated guidance, which includes adjustments for currency movements and the current tariff situation. For revenues, we reiterate our 2025 organic constant currency revenue growth of 6% to 6.5% year-over-year, which includes high single-digit growth in Recon and low single-digit growth in P&R. Based on the most recent rates, primarily due to the strengthening Euro, we expect our foreign currency impact to be flat versus prior year. This compares to negative currency headwinds of 1% to 2% in our previously contemplated guidance. Because of this, we are increasing our revenue range by $30 million to $2.22 billion to $2.25 billion, which we expect to phase in equally over the coming quarters. On margins, we are lowering our adjusted EBITDA range to $385 million to $395 million. This is a reduction of $20 million versus our prior guide and reflective of the incremental tariffs that we expect to impact profit in the second half of 2025. We are lowering the depreciation range by $5 million to $120 million to $125 million and also lowering our interest expense range by $4 million to $38 million to $42 million. No adjustments have been made to our tax rate or our share count outlook. Considering these changes, we are updating our adjusted earnings per share range to $2.95 to $3.10, down $0.15 from our prior guidance. Lastly, we maintain our expectation for positive free cash flow in 2025. Let's turn to Slide 8, where I will provide a more detailed view of the current global trade environment and the implications to our business. Based on the current announced rates shown on the slide, we expect $40 million of 2025 tariff exposure that we have clear plans to mitigate to $20 million. The impacts are well over 90% in our Prevention and Recovery business, so we will focus our commentary there. While the majority of our trade flows into the U.S. are from Mexico and fall within the USMCA exemption, we have several smaller portions that are subject to tariffs. China is less than 10% of our P&R cost of goods, but given the very high rates in place, they represent 75% of our tariff exposure. Fortunately, these are mostly Class 1 products that are relatively easy to shift to other geographies. In fact, we have been working diligently for the last few years to build resilience in our supply chains and have active projects to shift the procurement or production of these goods to other parts of the world. We are accelerating these projects and expect to transition at least 50% of this exposure by the middle of 2026. We also see supply chain opportunities on the smaller exposures from other countries and have a great commercial and sourcing playbook that we use to recover all of the post-COVID inflation. Our plans to mitigate as much as possible of the 2025 impact are in-flight, staffed, and even if current levels continue, we expect to exit the year on a path to recover a portion of the 2025 impact in 2026. The tariff situation remains very fluid. We are monitoring the events closely, and we will provide updates as appropriate as we gain further visibility into the outcomes as the situation evolves. To summarize, on Slide 9, we had an encouraging start to 2025 and continue to see solid momentum to start the second quarter. We are pleased with our improving business mix and are excited about the new product innovations that should continue to ramp over the course of 2025. The underlying fundamentals of the business are strong, and we are poised to manage the business responsibly through this dynamic environment and maintain momentum towards our strategic goals.

Great. Thanks, Ben. Operator, please start the Q&A.

Thank you very much. Our first question comes from Vik Chopra with Wells Fargo. Vik, your line is now open. Please go ahead.

Hey, good morning and congrats on a nice start to the year. Two questions for me. The first one, Matt or Ben, I guess, you've laid out a number of mitigating actions in the slide deck. I'm just curious, which of these you view as having the most significant potential to create durable supply availability over the long-term? And then I had a quick follow-up please.

Yes, thanks a lot, Vik. Yes, as Ben mentioned, I think the best opportunity we have is quickly moving the sourcing of products out of China. That's where most of our tariff exposure is coming from. We've already been working on that and brought it down over the past 12 months. And so we feel comfortable that there are a number of other countries. In some cases, the same suppliers can move the product to another country. In some cases, we have to resource. And by working aggressively on those, we can reduce the amount that we need to work on other mechanisms like commercial actions and things; that becomes a smaller number. And so that's the sustainable way through this.

Okay. Got it. That's super helpful. Just one more question for me. In the deck, you noted 12% plus extremities growth in Q1. Would just love to hear what you're seeing with the ARG launch? And maybe just talk about general trends in the market overall? Thank you.

Yes. Firstly, the ARG launch is progressing very well. As with any launch, we are approaching it gradually, and we are only a few months in, but it's going excellently. You have observed, particularly in Q4 and now in Q1, the positive impact on our extremities growth, and our shoulder growth has comfortably regained its momentum above the market level as we continue to feature the successful AltiVate product along with the new ARG. So, that is performing well. Regarding your inquiry about the broader market conditions, we had a strong start to the year, building on a solid finish last year. January and February were particularly promising. March saw some impacts from vacations and events, which moderated activity compared to those earlier months, but overall, the quarter marks a solid beginning to the year, and we are seeing a healthy trend in April. In the U.S., we anticipate at least normal growth for this year, and the international markets are also off to a positive start.

Operator, next question?

Thank you very much. Our next question comes from Vijay Kumar with Evercore ISI. Your line is now open. Please go ahead.

Hey guys, thanks for taking my questions. Matt, wishing you the best as you transition here. And maybe one on the U.S. performance here, bracing came in pretty strong, 10%. That's well above your normalized trends. And when I look at the U.S. large joint performance, ex days perhaps, 7%, 8%-ish. Was that in line with your expectations? Maybe just talk about the U.S. performance, bracing better. Was Recon in line, or perhaps any timing element out there?

Yes, I'd say, Vijay, thanks for the comments; certainly, a healthy start in the U.S. market in bracing. We were happy with that. I think that was consistent with what I commented about the strong market environment that we saw in January and February. Often that flows over and helps pricing as well. So we feel good about that start. The team did some great work last year driving clinic conversions that are helping us get off to a great start this year as well. And there's some great NPI in that business. As we said on the slide, our spine products that we've been building out there grew double-digits in the quarter. So some good things going on there. We're happy with that. On the Recon side, our Q1 was fully in line with the expectations that we had. We've been talking consistently about quarter-by-quarter progression in that business. And what we saw was consistent with that. Certainly, January and February suggested that it might have been even better, but then March took back a little bit of that. But when you step back on the whole quarter, we feel like it was a good, strong quarter for our U.S. surgical business. And we're early days on the ARG launch. We just got our hip products into the market. We've got a number of enabling tech products that we got in, in Q1 and that are coming later in the year. So there's plenty of reasons to believe that we can sustain and build on that U.S. surgical performance.

Understood. Maybe, Ben, one for you on gross margins. Really strong Q1. You were up sequentially. Any one-timers here on the gross margins? Or is this a sustainable number?

Yes, Vijay, I think it's very much a positive business mix that we're getting in both sides of the business. I think the new products that Matt outlined are really contributing well, and same on having really strong extremities recovery on the Recon side, seeing the benefit of the higher gross margins there. Definitely feel like we've continued to mix and shape the company towards higher gross margin performance year after year. And other than the fact that we'll have some headwinds in the second half of the year with the tariffs, as I outlined on the call. But overall, I think underlying performance in gross margin is positive, and I would expect that to continue.

Thanks, guys.

Our next question comes from Robbie Marcus with JPMorgan. Robbie, your line is now open. Please go ahead.

Great. Good morning and thanks for taking the questions. Two for me. First, I wanted to ask on second quarter. It looks like first quarter was pretty much right in line with the Street on an organic basis. How should we be thinking about the seasonally stronger second quarter within the guide just given the integration last year made for some funky comps? And then I have a follow-up. Thanks.

Yes, thank you, Robbie. From our perspective, due to the favorable conditions we experienced in the first quarter, you can expect a slightly varied pattern regarding seasonal performance from one quarter to the next. This remains consistent with what we discussed in our previous call regarding the splits between the first and second halves of the year concerning our revenue expectations. Our outlook has not changed, and I believe you have the information needed to consider our approach to the second quarter.

Great. Maybe on cash flow and financing. You're still calling for positive free cash flow. It was decently negative in the first quarter, and it looks like you hit the revolver for $70 million. Just maybe speak to the confidence and the progression of free cash flow through the year and where you expect to end the year on leverage? Thanks a lot.

Yes. Seasonally, the first quarter is always our lowest as we pay out bonuses and things like that in the first quarter. So we're slightly ahead of our operating plans in terms of cash flow in the first quarter, and we see clear signs for us to continue to drive improvements over the course of the balance of the year. So still very confident in the guidance that we've put out there and feel like we continue to take ground on getting up the cash flow conversion curve that we've laid out, very much a step forward this year as we see some reduction in some of the integration costs. And this is the last year where we're still spending a little bit more heavily on the EU MDR. So there's a clear line of sight to continue to improve free cash flow for the company. And I would expect that to continue as we move into the second quarter and the balance of the year. Obviously, we've got some challenges with the tariffs coming our way. So that will put a little bit of a headwind in terms of our overarching operating plans that we had to start the year. But as we said, we're going to mitigate as much as we can and still be in a position where we can deliver positive cash flow in the year.

And the year-end leverage, where should we expect that to settle out?

Yes. I think we're still in the operating view that we'll be in the 3 to 3.5 range in terms of leverage as we exit the year.

Thank you very much.

Our next question comes from Caitlin Cronin with Canaccord Genuity. Caitlin, your line is now open. Please go ahead.

Hey guys, it's someone on for Caitlin. Thanks for taking the question. Our first one, can you provide an update on the ARVIS shoulder launch, how it's progressing so far? When do you expect a broader rollout? And are you still expecting an OUS launch of the ARVIS tech this year?

Yes. Thanks for the question. The ARVIS shoulder launch is going really well. We've specifically only put it in a certain number of surgeons' hands to make sure that we get some great feedback and control the rate of the launch. But the response from the surgeons that have gotten a chance to use it has been extremely positive. And I would say the other effect that we probably underestimated is as we bring ARVIS to local events around the country, we are finding that the number of surgeons that want to come out to the local events and learn about AltiVate so that they can see ARVIS is significant. So we're excited about the response to the product as well as just the buzz and energy it's creating around our shoulder business as a whole and the growth acceleration there. So feeling very good about that.

Awesome. Thanks. And just one more. Can you speak a little bit to the cadence of other new product launches planned for this year? And if it's still aligned with your original expectations?

Yes. We're excited about our new product launches, which encompass more than just enabling technology. We have an impressive lineup of new products, some of which were launched late last year and are gaining traction this year, along with additional products set to debut this year. Regarding our knee revision products, we've made significant progress. We introduced some fantastic products around a year ago and then added the Lima line. With our current offerings and those from Lima, we believe we have the best revision cone solutions available. We're pleased with the momentum in knee revisions from these earlier launches. The ARG product, launched late last year, is ramping up steadily each quarter and is proving beneficial for the shoulder segment. Additionally, we've recently entered the market with our collared stem, the nebula, and the hip impactor, which are currently in a controlled launch and will ramp up gradually on a quarterly basis. Each anatomical segment has exciting advancements, including our guidance technologies such as ARVIS and NAV 360 in knee and gap balancing for both products this year. Overall, there are many positive developments in our Recon division and on the P&R side, we are also seeing great progress with spine braces, ROAM OA continuing to ramp up, and the Manafuse product enhancing our recovery sciences bone stem business.

Great, thanks so much.

Our next question comes from Dane Reinhardt with Baird. Dane, your line is now open. Please go ahead.

Good morning everyone. Thank you for taking my questions. I wanted to follow up on Robbie's inquiry about cash flow. First, could you update us on your plans for capital expenditures this year? The company has grown by 50% since the Mathys and Lima deals in recent years, but capital expenditures have also increased nearly threefold since a few years ago. I'm curious about your expectations for capital expenditure levels in the coming years. Additionally, I recall that your long-term free cash flow goal or conversion rate is around 70% to 80%. Could you provide a timeline for achieving that target?

Yes, thank you for the question. As our business continues to evolve, particularly with the addition of Lima and the scaling of our foot and ankle division, we are investing in the necessary equipment to support that growth. This has resulted in elevated capital expenditures as we work to capitalize on opportunities for above-market growth. Additionally, we're investing to expand our facilities and pursue integration synergies identified in the Lima acquisition. Currently, we're in a phase of higher operational capital expenditures as we implement the necessary equipment for the next phase of our synergies that will benefit our bottom line. We anticipate that for the next one to two years, capital spending will remain elevated on the operational front, but we expect to achieve greater efficiency after 2026. As we progress with growth investments, you'll see improvements in capital expenditures over time. While these changes won't happen immediately, we foresee steady enhancements in the coming years. Our integration spending levels are expected to decline significantly, and this year marks the peak of our expenses related to European medical device regulations. As we stabilize our capital expenditures, our free cash flow entitlement is already approaching the level you mentioned. By enhancing supply chain efficiency and scaling our business, we aim to reach the target range of 70% to 80%, with the potential for even better performance over time. We remain committed to investing in the business's growth while maintaining discipline in driving profitable growth and ensuring that this growth is reflected in our cash flows. Overall, we believe that over the next few years, we will align with the targets we've established, allowing us to reinvest in the business and pursue a continued agenda of mergers and acquisitions to strengthen and align with our strategic objectives.

Okay. Thank you for that. I appreciate it. And then just my follow-up. I think in past quarters, you've maybe broken out the growth in extremities between shoulder and foot and ankle. And I think for a few quarters last year, foot and ankle was kind of leading that. Just wondering if you could provide an update there kind of between those two subsegments in extremities? Thanks.

Yes. So in the first quarter, definitely, our shoulder business drove the extremities growth and will return to a nice healthy above-market there. We feel like our foot and ankle business was above the market growth, but we do think the first quarter in foot and ankle had a little slower market growth than usual. And so shoulder drove, foot and ankle still above market. We still feel comfortable that the combination of those can grow well above market and be a double-digit piece of the overall Recon equation.

Thank you very much. Our next question comes from Danielle Antalffy with UBS. And your line is now open. Please go ahead.

Thank you so much. And congrats on a great start to the year. Just a quick question for you on the broader macroeconomic environment, if I could. I appreciate all the commentary on tariffs, but one of the questions is, do we go into a recession? I'm certainly no economist, so I can't opine. But just curious if you could lay out how recession-proof or not you think the business is? And then I just have one quick follow-up.

Yes. Thanks for the question, Danielle. One of the really great things about the businesses we're in and the markets that we serve is that they have consistent long-term growth and typically have had limited impacts even in significant recessionary periods. I think if we go to some of the worst recessionary periods, maybe the markets we serve kind of went flat. And that's something we studied quite a bit. And so we feel like our markets should remain healthy. Sure, if there's a recession, there could be some modest impact from some of the discretionary decisions that are made. But we would think that in a recessionary period, our markets will perform substantially better than many other markets.

Got you. Okay. That's helpful. And then you guys have laid out margin expansion goals annually in the past. And I'm just curious if the tariff dynamic changes any of that or if we could still think about, about 50 basis points per year as sort of the underlying goal here? Thanks so much.

Yes, thanks for the question, Danielle. We remain committed to achieving profitable growth and expanding our margins. The updated guidance we provided today will slightly delay our progress towards these goals compared to what we had anticipated for this year. However, as I mentioned earlier, we believe this is a temporary situation that we will overcome quickly, regaining momentum by 2026. Fundamentally, our business is well-positioned for profitable growth, benefiting from a favorable mix, ongoing scale from recent acquisitions, and additional synergies from the Lima acquisition. All these factors will lead to strong, profitable growth. We see opportunities in each segment for both gross margin enhancement and efficiency improvement. We remain optimistic about our capacity to generate solid, profitable growth. Of course, the impact of tariffs in 2025 could influence our performance that year, but we are confident that we will swiftly return to improving margins as we move into 2026.

Thank you.

Our next question comes from Mike Matson with Needham. Mike, your line is now open. Please go ahead.

Hi guys, this is Joseph on for Mike today. Maybe just to start it off, gross margin saw some great improvement there. Could you maybe give us some color about maybe why more of that improvement didn't flow through to the EBITDA margin?

Yes. I'd say, again, as we are investing in the business for growth, some of the phasing of our operating expense spend, especially as we get off to a strong start with some of the conferences that we attend and some of the medical education events that we invest in, as well as I think we've described a lot of the new products that we're launching, which requires some investments as we're really launching those products. So overall, we continue to invest in the business to make sure we're creating sustainable growth momentum. And the increases in gross margin are really helping us make those investments while still delivering good, strong profit expansion at the same time. So that's the formula that worked in Q1. Overall, I think we've set the business up to continue to be in that kind of momentum.

Okay. Great. And then maybe just one on the Manafuse launch. Just wondering if you can maybe talk a little bit more about the product and the opportunity here. I mean, should we be thinking about this more as a sort of product cycle upgrade? Or are there any features on Manafuse that are very differentiated from either your legacy bone stem products or maybe competitors? And then just an add-on to that, have you guys heard anything about potentially reclassifying these devices? Is there any risk to that? I don't think we've heard much about that. That was discussed more in 2020.

Thank you for the question. Manafuse will expand our market and drive growth for our business. We cater to the spine market with our bone stem products, and we also address the fracture market, which is a smaller segment of our overall business. There is substantial growth potential within our existing spine technology as well as in the fresh fracture segment. Additionally, we see a promising opportunity emerging with LIPUS ultrasound technology to penetrate further into the fracture market. This market could potentially be as large as or even larger than the spine market, given its broader range of indications compared to the fewer conditions in the spine sector. We are enthusiastic about how the Manafuse product allows us to tap into additional market opportunities within the same channel, engaging both existing and new customers. This innovation raises the growth potential of our business from a low single-digit rate to a mid-single digit opportunity, with the possibility of achieving high single-digit growth within the P&R sector. It is a business segment characterized by high gross margins and strong profitability. Regarding reclassification, we are not currently engaged in any significant discussions about it. However, we believe that if any reclassification were to occur, it could potentially accelerate our growth rate due to the innovative opportunities and enhanced market access it would provide. While we do not anticipate any reclassification in the near future, we see an equal amount of opportunity in such a scenario as there could be challenges.

Okay. Great to hear. And congrats on the quarter.

Thank you.

Thank you.

Thank you very much. Our next question comes from Russell Yuen with William Blair. Russell, your line is now open. Please go ahead.

Hey guys, this is Russell on for Brandon Vazquez. I have two for me. Starting at a more higher level. Could you guys talk about what you're seeing in regards to the pricing environment and whether there's any potential for price given any potential inflation or tariff headwinds?

Yes, sure. So on the P&R side, we've talked for a while about a sort of a flatter price environment that emerged after some of the upward pricing post-COVID. And we're still in sort of a flattish price environment in P&R, but certainly with various sources of inflation starting to flow through there again. So we're going to be kind of looking carefully at that. As far as Recon, after a kind of a more stable price environment, there is now a little bit of downward trend in the Recon price environment. There's a nice offset there that a lot of the new products are mix-enriching. The net effect is pretty decent there. But definitely, we've seen the Recon market move into a little bit more of a downward price environment now. But it certainly remains to be seen with questions about tariffs and inflation and things as to whether that might shift as we work through this year.

Great, thanks. And then secondly, on the Recon side, internationally, you guys grew pretty well, more specifically with like cross-selling. Could you guys talk about more on the durability of that and where you're seeing the pockets of strength?

Our international team has performed exceptionally well. We brought those teams together early last year, which involved a lot of effort to unify our channel and develop our full offering. We experienced significant growth throughout last year, and we've had a strong start to this year following a solid first quarter last year. I'm very pleased with that outcome. While the markets have had a healthy start, our growth is definitely outpacing those market trends. This reflects the strength of our assembled commercial channel and our comprehensive product line, which allows us to focus on the products with the most growth potential in each country. We are still in the early stages of cross-selling and are achieving strong growth rates. Regarding the question about sustainability, it appears that the markets are currently a bit stronger than they may be in the long run. As markets continue to stabilize, we will increase our cross-selling efforts and widen our advantage over those markets. We are confident that our international operations can fulfill their role in our broader strategic growth for Recon.

Thank you very much. Our next question comes from Young Li with Jefferies. Young, your line is now open. Please go ahead.

Great. Thanks for taking the questions. Matt, it was great working with you over the past three years and good to see that you're leaving the company at a strong position and the smooth leadership transition. First question on P&R. Pretty good start to the year, above-guidance performance. You talked about some of the new products driving that. I think the outlook for the year still assumes low single-digit growth. So just kind of curious, the comps get easier through the year, why sort of the decelerating expectations for that business?

Yes. Thanks. Well, thanks for your comments. I really do believe, as you said, that the company is very strong and has great momentum. So we feel very good about the timing here. As far as P&R, yes, great start. Look, P&R is the part of the company where we need to work through the tariff impacts and try to have maximum mitigation of those impacts. It's also got the most diverse set of end markets and both kind of in terms of indications and customers as well as geographies. While we did have a good, strong start there, we think that the appropriate thing to do is to still have the same full-year guidance and work on trying to outperform that. But wait until we see some more of the movie to lock that in.

Okay. Very helpful. I guess just on the tariff mitigation efforts, I think you guys called out SKU optimization and rationalization. Can you quantify how much revenue could be impacted?

Yes. We're still working through that. As you can probably imagine, Young, is we're aggressively working on the project plan to shift a lot of those products to other geographies. Now there are some products that just have smaller margins that we will take advantage of, shaping in a more aggressive move this year with regards to our overall end-goals of trying to create more growth momentum and mix advantages within the P&R business. So we won't quantify it yet. But as Matt said, in terms of our conservative view regarding the guidance right now has contemplated some of those moves with regards to some SKU trimming and rationalization. We'll continue to work that as we go forward here.

Great, thank you very much.

Thank you. Thank you for joining us this morning. As I said earlier, this will be my last earnings call as the CEO of Enovis as my successor, Damien McDonald, will take the helm next week on the 12th. I want to take this opportunity to thank each of you for your attention and support of Enovis and its predecessor, Colfax, throughout my tenure. You're in good hands with Damien and Ben and the rest of the team. Thank you for listening in today, and we look forward to sharing our second-quarter results with you in early August.

Thank you very much, Matt, and thank you for all the speakers on today's line. Thank you, everyone for joining. You may now disconnect your lines.