Enovis Corp (ENOV) Q3 2026 Earnings Call Transcript

DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• VP of Investor Relations - Kyle William Rose
• Chief Executive Officer - Damien McDonald
• Chief Financial Officer - Phillip Benjamin Berry

TAKEAWAYS

• Net Sales -- $559 million, representing 2% reported growth and 5% organic growth driven by performance in the Reconstructive segment.
• Organic Revenue Growth -- 5%, reflecting gains in Reconstructive and Prevention & Recovery segments despite geopolitical headwinds.
• Reconstructive Organic Growth -- 6%, supported by 8% growth in extremities and 5% growth in hips and knees.
• Prevention & Recovery Organic Growth -- 3%, led by 5% organic growth in the United States and double-digit growth in the regeneration business.
• Adjusted EBITDA Margin -- 18.5%, representing a 120-basis-point expansion due to operational productivity and favorable business mix.
• Adjusted EPS -- $0.88, representing a 17% increase compared to the prior year.
• Adjusted Gross Margin -- 60.9%, an increase of 60 basis points aided by $8 million in tariff refunds and productivity gains.
• Free Cash Flow -- $35 million for the quarter, bringing the year-to-date total to $37 million compared to negative $13 million in the previous year.
• Net Leverage -- 2.9x at quarter end, finishing below the company's internal target for the fiscal year.
• Full-Year Revenue Guidance -- $2.32 billion to $2.35 billion, narrowed from the previous range of $2.31 billion to $2.37 billion.
• Full-Year Adjusted EBITDA Guidance -- $428 million to $438 million, raised from the prior range of $425 million to $435 million.
• Full-Year Adjusted EPS Guidance -- $3.58 to $3.79, increased from the previous outlook of $3.52 to $3.73.
• R&D Talent Investment -- $4 million incremental investment planned for the fourth quarter to support technical development for eCential Robotics integration.
• Currency Headwind -- $1 million expected impact on fourth-quarter profitability based on recent exchange rate fluctuations.
• Share Repurchase Authorization -- $200 million, a new program approved by the board to provide capital allocation flexibility.
• ASC Procedure Penetration -- over 25% for primary knees and over 20% for hips, indicating a continuing shift toward ambulatory settings.
• Nebula Stem Performance -- 80% of new instrumentation sets were placed with competitive users during the quarter.
• Middle East Conflict Impact -- 100-basis-point headwind for international growth and 40 basis points for total company organic growth.
• Tariff Refunds -- $8 million, which significantly benefited adjusted gross margins during the third quarter.
• Inflationary Pressures -- $3 million, resulting from raw material and freight costs tied to geopolitical dynamics.
• Selling Day Benefit -- 150 basis points expected contribution to top-line growth in the fourth quarter due to an extra selling day.

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RISKS

• McDonald stated, "the past several quarters, market dynamics in Western Europe remain challenging," noting international growth pressures.
• McDonald stated, "the conflict in The Middle East continues to weigh on growth," identifying it as a headwind to international performance.
• Berry stated, "currency has moved in a negative way since last quarter, so that is going to hit us for about $1 million in Q4," regarding near-term foreign exchange risks.

SUMMARY

Enovis Corporation (NYSE:ENOV) reported 5% organic revenue growth for the third quarter, led by gains in its Reconstructive segment and consistent performance in Prevention & Recovery. Management reported it is narrowing its full-year revenue outlook while raising guidance for adjusted EBITDA and adjusted earnings per share based on year-to-date execution. The company stated it is advancing its surgical technology strategy through the pending acquisition of eCential Robotics and the international expansion of its augmented reality surgical guidance tools. The board of directors also approved a new share repurchase authorization to provide flexibility for capital deployment in a volatile market environment.

• Augmented Reality Expansion: McDonald reported the completion of the first Arvis shoulder cases in Europe, marking a milestone for the platform's international rollout.
• Robotics Roadmap: Management indicated it expects to launch a knee robotics system within 2 years of closing the eCential Robotics acquisition, with a shoulder application to follow.
• Product Performance: The Nebula hip stem has become the company's top selling stem, with a multiyear growth cycle supported by placement among competitive users.
• Surgical Settings: Berry reported that over 25% of primary knee procedures and over 20% of hip procedures are now performed in ASCs, reflecting a strategic focus on that channel.
• Capital Allocation: The board authorized $200 million for share repurchases, allowing the company to address share price dislocation while maintaining a target leverage range of 2.5x to 3.5x.

INDUSTRY GLOSSARY

• Arvis: Augmented Reality Visualization and Information System used for surgical guidance.
• ASC: Ambulatory Surgery Centers, which are outpatient facilities for surgical procedures.
• ARG: Anatomical Radial Head system used in extremity reconstruction.
• eCential Robotics: A medical technology company specializing in surgical robotics and navigation.
• MDR: European Union Medical Device Regulation, a set of standards for medical device safety and performance.
• MotionMD: A cloud-based software platform for orthopedic clinic workflow and inventory management.
• Nebula: A primary hip stem system designed for multiple surgical philosophies.
• P&R: Prevention & Recovery, a business segment focused on bracing, supports, and rehabilitation equipment.
• Recon: Reconstructive, a business segment focused on joint implants for hips, knees, and extremities.

Full Conference Call Transcript

Operator: Good morning. And welcome to the Innovus Third Quarter 26 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a-- Please note this event is being recorded. I would now like to turn the conference over to Kyle William Rose, VP of Investor Relations. Please go ahead.

Kyle William Rose: Good morning, everyone, and thank you for joining us today for our third quarter 26 earnings conference call. I am Kyle William Rose, Vice President of Investor Relations. Joining me on the call this morning are Damien McDonald, chief executive officer and Ben Berry, our chief financial officer. Our earnings release was issued earlier this morning and is available in the Investors section of our website, enovis.com. We also posted a slide presentation to accompany today's call on our website. Both the audio and the slide presentation of this call will be archived on our website later today. During this call, we will be making some forward-looking statements about our beliefs and estimates regarding future events and results.

Including statements related to our pending acquisition of Essential Robotics. 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 to update them except as required by law. For further details regarding any non GAAP financial measures referenced during this call, The accompanying reconciliation information can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn the call over to Damien.

Damien McDonald: Thanks, Kyle. Good morning, everyone, and thank you for joining us today. I will start with an overview of our third quarter results across recon and P&R. And give a short update on Essential Robotics. Ben will then walk through the financials and our outlook for the fourth quarter and the full year before we open the call for questions. In the third quarter, we delivered organic growth of 5%, with 6% organic growth in recon, and 3% in P&R. In U. S. Recon, we grew 5% organically with extremities up 5% and hips and knees up 3%.

In extremities, we are now past the anniversary of the ARG launch, and ARG continues to be a strong growth opportunity for the future. As planned, Arvis is expanding in shoulder, and we build upon the launch that began in Q2. Shoulder remains a healthy market, and it is where we have 1 of our leading share positions globally. In hips and knees, Nebula continues to drive growth with over 80% of new instrumentation sets going to competitive users in the quarter. While we have now annualized the launch of the Nebula in The U.

S, we remain in the early stages of a multiyear product cycle I am proud to note that it is now our top selling stem, and we have got a long runway ahead of. We are competing and winning in both hospital and ASC settings, and the ASC continues to be a good fit for our portfolio. Internationally, recon grew 8% organically. As we have noted, the past several quarters, market dynamics in Western Europe remain challenging. And the conflict in The Middle East continues to weigh on growth. Despite these challenges, shoulder grew double digits and led the international business.

We continue to win competitive accounts outside The US and I am excited to announce we completed the first ARVIS shoulder cases in Europe last month. On Essential Robotics, we announced our binding offer to acquire the company on September 1. Since then, we have completed the works council consultation, and we expect the deal to close by the end of the year. Integration planning is well underway. Our recon team is working with the essential team in Grenoble on the knee and shoulder programs and the timelines we laid out are unchanged. In fact, through our integration planning, we are making investments to secure the talent and technology required to accelerate our development upon deal close.

We expect to bring the knee robot to market within 2 years and shoulder to follow soon thereafter. Since the announcement, I have spent a lot of time discussing robots with surgeons. What I hear most is how much opportunity there is to develop innovative enabling technology and implant systems which solve known problems and anticipate the evolution of surgical workflows and patient outcomes. This is an exciting inflection point for our recon business, and we believe it will be a meaningful contributor to our sustained above market growth. Now moving to P&R, which grew 3% organically including 5% organic growth in The U. S.

Global bracing grew 3% driven by business mix and new products in spine, core knees, and lower extremity bracing segments. Recovery science was driven by double digit growth in regen as we accelerate the launch of Manifuse and capitalize on key competitive conversions. Now I will turn it over to Ben, who will walk through the financial details.

Phillip Benjamin Berry: Thanks, Damien. Hello, everyone. We reported third quarter sales of $559 million up 2% versus prior year on a reported basis and up 5% On an organic basis. Reported growth included a 30-basis-point headwind from foreign currency, and a 250-basis-point headwind related to the divestiture of Doctor. Comfort. As a reminder, Q3 is the last quarter in which the Doctor. Comfort divestiture affects our year over year comparison. Recon grew 6% organically with extremities up 8%. And up 5% in hips and knees. P&R grew 3% organically. The ongoing conflict in The Middle East was a 100-basis-point headwind, to international growth, which represents about 40 basis points to total Enovis growth in the quarter.

We delivered adjusted gross margins of 60.9%, up 60 basis points driven by mix and operational productivity. This includes $8 million of tariff refunds, offset by roughly $3 million of inflationary pressure from higher raw material and freight and distribution costs tied to the Middle East conflict. Our teams continue to work on mitigation actions to soften the overall impact of inflation in this dynamic market. Adjusted EBITDA margin was 18.5%. Up 120 basis points year over year. Our third quarter effective tax rate was 23%, Interest expense was $8 million for the quarter versus $9 million in the prior year. Overall, we posted adjusted earnings per share of $0.88 up 17% versus prior year.

Free cash flow in the quarter was $35 million bringing year-to-date free cash flow to $37 million up $50 million versus the prior year. We remain confident in our 2026 target of greater than 25% free cash flow conversion. I am encouraged by the strong demonstrated progress we have made on cash generation, which now gives us more flexibility as we think about capital allocation. In the future. We exited the quarter with net leverage of 2.9x, which is below the goal we set for the year. When the Essential transaction closes, leverage will step up by about a 0.5 turn.

While we remain committed to improving our balance sheet and paying down debt, we are also focused on continuing to make capital allocation decisions that we believe will drive long term growth and shareholder value. To this end, today, we announced that our board has authorized a new $200 million share repurchase program. We do not plan to materially waver from our leverage commitments However, we plan to use this opportunistically and stay within a range of 2.5 to 3.5x leverage. We see real value in our long term growth strategy, and share repurchases are another tool we can utilize to create shareholder value.

Turning to full year guidance, we are narrowing our revenue range to $2.32 billion to $2.35 billion We expect organic growth to be approximately 5% and we are increasing our adjusted EBITDA range to $428 million to $438 million We are also raising our adjusted earnings per share range to $3.58 to $3.79. As we outlined last quarter, in Q4, we expect modest acceleration in both segments, driven by Arvest and Shoulder continued Nebula conversions, and new products in P&R. Our outlook assumes the procedural environment we saw in the third quarter holds through year-end with typical Q4 seasonality.

On the profit side, our updated guidance assumes an incremental $4 million investment in enabling technology R&D talent and a $1 million negative impact from currency. We continue to expect free cash flow conversion of greater than 25% in 2026. To summarize, the third quarter was in line with expectations we set in August in a market that remains dynamic. Cash generation continues to improve, and we are carrying new product momentum in both segments into the fourth quarter. I would like to turn it over to Kyle to start the Q and A. Kyle?

Kyle William Rose: Thanks, Ben. In an effort to accommodate everyone in the Q and A session, and keep things to a reasonable time, we ask that analysts limit questions to 1 question and 1 follow-up. Young are welcome to rejoin the queue. We will fit you in if we still have time. With that, we would now like to open up the call to-- open up the call to take your questions. Operator?

Operator: We will now begin the question and answer session. To ask a question, you may press *1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan Zimmerman of U. S. Bancorp, BTIG. Go ahead please.

Analyst: Hey. Good morning, everyone. This is Izzy on for Ryan. Thanks for taking our questions. I just wanted to start on The US recon business. Specifically with knees and hips. Was a little bit softer than what we saw your growth for both extremities and the international business be. And we have heard some comments from your peers about softness in the large joint market. So was curious what your take is on the outlook of the market and what will help get your knee and hip growth back in line or better.

Damien McDonald: Yeah. Good morning, Izzy. Thanks for the question. Look, we have been saying since Q1 that the market is more volatile than we would normally seen. Both in The U. S. And internationally. I know there is a lot of swirl about markets even from those who have much larger perspectives than we do. But we are we are focused on controlling the controllables. it is a dynamic market environment, and We think we are building a strong, resilient customer organization. So our focus is really on gaining market share and candidly, not being a victim to the market. Understood. that is helpful. Thank you.

And I understand that it is still a little bit on the early side, but I was hoping you could maybe provide some color on your thoughts around 2027? Thanks for taking the questions. Yeah. With 2027, we are going to point everyone back to what we outlined in September when we did the essential announcement. Our view has not changed since then, and we are gonna comment fully in February when we do the Q4 full year results. Operator, next question please.

Operator: Our next question comes from Vijay Kumar of Evercore ISI. Go ahead, please.

Vijay Kumar: Hi, guys. Thank you for taking my question. I guess my first 1, when you look at the recon assumptions getting back to high singles in Q4, is the bridge between Q3 to Q4 just a comp from days headwinds Could you also comment on what is happening within ASCs? Young know, what percentage of recon procedures are being done in ASCs, and what is the growth rate in the ASCs have been?

Phillip Benjamin Berry: Hey, Vijay. Thanks for the question. Yeah. I think as you recall, we get an extra selling day in Q4. So that is going to contribute about 150 basis points, a little bit more than to the top line growth. So, that plus some of the dynamics that we talked about with, just normal Q4 seasonality will drive some of the acceleration there. In terms of ASC, we continue to see movement there. In terms of our knee business, I think what we are seeing is a little over 25% primary needs going through the ASC. it is about 20% or a little bit more than that in hips, and we are climbing closer to that hip number and shoulder.

We are still in the, I would say, the high teens in terms of percentage of our procedures going through the ASC. So we see the ASC as a continued strategic channel for us and 1 that we will continue to be focused on in terms of setting our business up for success.

Vijay Kumar: that is helpful. Then maybe 1 on free cash. Third quarter was pretty impressive. 68% free cash conversion. Is this a sustainable number for you guys, you know, when you think about fiscal 27? I know with the deal coming on, like, does it impact a free cash conversion, or is this a sustainable number?

Phillip Benjamin Berry: Yeah. Thanks, Vijay. Again, we will point you back to what we talked about in September, where we see a step up to at least 50% free cash flow conversion next year and a $100 million of cash generation. So, we still see, line of sight to that. We will try to do better than that. But overall, I will point you back to that in terms of thinking about next year.

Vijay Kumar: Thanks, guys.

Operator: The next question comes from Jeff Johnson of Baird. Go ahead, please.

Jeff Johnson: Yes. Thanks. Good morning, guys. Damien, maybe follow-up on your comment about controlling the controllable. US hip and knee growth was 3% this quarter. It does seem, as others have said, that The U. S. Market, especially for U. S. Hips and knees, it may have slowed a bit this quarter. Just are you seeing anything? Even if you can or cannot control, I guess, surgical schedules, higher cancellation rates, extended, you know, willingness to pay co pays, deductibles, things like that. So patient's slowing down. Anything at all there? And then I guess the corollary or follow-up on that is just that you talk about nebula being 1 of the drivers of acceleration in 4Q.

So if US hip and knee was 3 this quarter, you pick up the extra day, that is 4.5, and then Nebula on top of that, should we see US hip and knee growth above the mid single digits next quarter? Thank you.

Damien McDonald: Hey. Good morning, Jeff. So was there an option d there that was all of the above? I would point you to that. All of the things you mentioned, we are seeing all of that. it is pretty choppy, and we are, like I said, very focused on market share gain and using EGX to get after the targeting and segmenting account acquisition, account penetration, being very disciplined on price, and, you know, again, making sure we have the best sales force. So we are doing a lot on Salesforce training. So the way we are countering all of those things that you mentioned is by focusing on our performance.

Phillip Benjamin Berry: Yeah. And in terms of hip and knee growth in The U.S., Jeff, we do not guide particularly on anatomy level growth given some of the dynamics in the market that Damien talked about. But we see momentum building there. We still see a large opportunity in US hips and knees in terms of ability to take market share as we continue to reinforce the core portfolio and build more strength there with enabling tech. So overall, I think the way you are thinking about it makes sense. But like I said, we do not guide for anatomy level.

Jeff Johnson: Yeah. Fair enough. And then just 1 follow-up. I think, you know, last quarter, that low single digit U. S. Shoulder number is what caught a lot of us off guard. I think you explained it well with some of your ARVIS shoulder training during the period last quarter, so that all made sense, encouraging to see that shoulder number get back to high single digits in The U. S. This quarter. But just what can you talk about the competitive environment? Young do have a couple of your competitors out there with you know, new shoulder systems, maybe even some robotic applications in shoulders even though early stage there.

Just how to think about the shoulder competitive environment and until you get the robotic option out in a couple of years on shoulder, can you sustain market, above market growth? How are you thinking about that in The U. S? Thank you.

Phillip Benjamin Berry: Yeah. I mean, I think it is it is definitely a competitive environment. We are pleased with our position in the market. We believe we are continuing to take share. Young know, we are the global No. 3 player in shoulder, No. 2 internationally, knocking on the door of being No. 2 globally. We really are encouraged by the portfolio that we have built. In the shoulder, in terms of the dynamics that we have in terms of products that can be used for different philosophies. That continues to build with new product innovations, things like ARG that are complementing that overall portfolio.

Young know, putting the LIMA and legacy Enovis portfolios together just adds strength, adds compatibility, gives more options. And what we are really seeing right now is really strong uptake and interest in the Arvest platform. And given where shoulders are in terms of the enabling tech curve, which still needs a lot of development in terms of use cases there. We feel like Arvis will continue to be a player here in terms of giving the surgeons enabling tech tools that really help aid them in a way that makes surgery more in the shoulder. So we are encouraged by the portfolio, the momentum Arvis' contribution to that, and we would expect that to continue into the future.

Jeff Johnson: Thank you.

Operator: Our next question comes from Robbie Marcus of JPMorgan.

Robert Marcus: Hi, everybody. Thanks for taking the question. This is Lily on for Robbie. 1 on guidance, you beat EPS by about $0.11, but guidance, by my math, is moving up by $0.05 at the midpoint. So hoping you can unpack that a bit more. Why not flow through the full upside? And are there any incremental headwinds or expenses down the P&L we should be baking into the fourth quarter?

Phillip Benjamin Berry: Hi, Lily. Thanks for the question. As I mentioned in our prepared remarks, we are investing in enabling tech resources, particularly in R&D to really get ahead of bringing Essential into the family. We see lots of opportunities to really derisk that program. And to add some strength with regards to talent within the organization. So that is about $4 million that we are gonna make investments in Q4 to support that acquisition. On top of that, currency has moved in a negative way since last quarter, so that is going to hit us for about $1 million in Q4. So contemplating those 2 things is really the reason why we did not flow everything through.

Robert Marcus: Great. And then just a follow-up to that. Young delivered pretty significant SG&A leverage this quarter. With expense actually down a bit year over year. So what drove that? And was there anything onetime or timing that drove greater than expected leverage in the third quarter? Thanks.

Phillip Benjamin Berry: Yeah. Nothing I would point to as 1-time. Overall, I think it is just phasing of expenses through the year. We generally invest a little bit heavier in the first part of the year. Young have the softer Q3 with regards to international markets. That generally reduces expenses in the quarter. So overall, not. Nothing unexpected there, and it is just really phasing.

Robert Marcus: Perfect. Thanks very much.

Operator: Our next question comes from Terry Ross of Wells Fargo. Go ahead please.

Ross Osborn: Hi, good morning. This is Ross Osborn on for Terry. Thanks for taking the questions. Starting off, I would be curious to hear where Lima stands. How much integration spending carries into 2027, and how much of this 50 bps underlying EBITDA margin expansion comes from Lima Synergies? Versus improvement elsewhere in the business?

Phillip Benjamin Berry: So the integration expense in the quarter. So Lima integration expense? Oh, so, yeah, I think we continue to. Like we laid out, this is the third year of integration. On the Lima where we are continuing to finish a lot of that journey with regards to the investments we needed to make to integrate that into the organization. So we are we are continuing to track to our stated plans there. This will be the last big meaningful year of investments in integration on Lima. And it is going very well in terms of the way that we laid out the plan in terms of executing against that plan.

And a lot of what we are doing this year is cleaning up some things, moving some things from manufacturing to other locations. So that is all continuing to track. In terms of the synergy value, yes, it continues to contribute to our mix and gross margins. We see that as an opportunity. To continue to drive improvement there. And that is 1 of the key drivers as we lay out how do we, you know, drive our 50 basis points of improvement every year. So it is a contributor. it is not the contributor. But overall, I would say it is tracking to what our expectations were.

Damien McDonald: I mean, the other 1 that is stepping down a lot too is the EU MDR. Right? So year over year, that is the other step-down.

Ross Osborn: Okay. Great. And then on capital deployment and with your leverage within your comfort range, and a new $200 million authorization program, Is repurchasing shares now a near term priority or more so optionality? What capacity remains after essential, and how do you rate buybacks? Against debt reduction in M&A?

Phillip Benjamin Berry: Yeah. Thanks, Ross. I mean, we believe that company's valuation is significantly below where our value lies. Young look at where the stock has traded off quite considerably over the last 12 months. And it is dislocated given our performance and our outlook for future. So we wanted is flexibility to take advantage of this dislocation. And as we think about share buybacks, we are going to be very disciplined and focused on how we do that. it is really gonna depend on if we feel like the shares are really dislocated from where they should be. And right now, the way that the value that we are trading, we would say that we do see that.

So we will use this as a capital allocation tool. But like I said, we will be disciplined about how we deploy it.

Ross Osborn: Thank you.

Operator: Our next question comes from Young Li of Jefferies. Go ahead please.

Young Li: All right. Great. Thanks for taking the question. I guess to start, just on Essential. So, the deal has not closed yet, but you know, what has been the early feedback on that from your customer base as well as from your reps Young know, are there any features that Essential offers that the customers or reps are more excited about?

Damien McDonald: Yeah. Good morning, Young. I have to say, we have had a great response from our customers, both on the knee side and the shoulder side. In fact, Ben and I just last night, were with a group of physicians that we are very close to, and we had a long conversation about this. In both therapeutic areas, both anatomies, there. there is a lot of excitement about what we can bring to the table. And it is not just about the robot. it is you know, we have always talked about enabling tech. Planning, navigation, assistance, and we think the whole ability to bring an ecosystem to an offering for physicians is really key here.

And meeting the physician where they are. So, you know, a lot of people work in large hospitals, and then they also work in small ASC clinics. And being able to give them an ecosystem that seamlessly moves between those venues we view as exciting and so do they. The reps are just excited to be able to compete Young know, in terms of a contractual basis, a lot of accounts you know, require the assistance part of the equation. We have got that now coming into the bag, and I think they view that as a really great opportunity to compete.

And candidly, a lot of a lot of shareholders also viewed it as that just being able to compete head to head and also shape the direction of where we are going in shoulder with a new form factor is exciting.

Phillip Benjamin Berry: Yeah. And I will pile in there, Young. I think that we continue to be very impressed with the Essential team. Their talent, their ability to collaborate, the speed in which they operate. So overall, we are really excited about this acquisition and what it is going to bring to Enovis in the future.

Young Li: Okay. Great. Really, really helpful. Then I guess 1 more just on the US extremity side. Young know, the shoulder's leading the growth there. Can you talk a little bit more about what is going on in The US foot and ankle side? Young know, that market is typically viewed as a little bit more deferrable, kind of like knees. Young know, how's that business doing? Any changes in the macro or competitive dynamics you will call out?

Phillip Benjamin Berry: Yeah. Thanks, Young. I think foot and ankle market is continues to be a little bit volatile quarter over quarter. I think underlying performance through the first 9 months, we are very pleased. With the foot and ankle business. Portfolio continues to get stronger with some of the new innovations that we are launching. We have got some other things coming here. Later this year and into next year that we are really excited about.

We still see this as a market that over time is gonna grow into the high single digit range, and we are really excited about the portfolio that we are putting together to continue to capitalize on that growth and take share So overall, I would say in the quarter itself, it was a little bit softer than what we would have anticipated. Could that have been some deferrals? Maybe. It. Young know, if we look at where it was coming from certain product lines, it is nothing that we are concerned about, and we saw a nice rebound as we stepped into the first month in the in the fourth quarter there.

So overall, I think foot and ankle continues to be a growth driver for us, and we are excited about portfolio we are building. Quarter over quarter, you know, there could be things that pop up. But overall, if you look at it over the course of time, we expect this business to continue to grow high single digit plus.

Operator: The next question comes from Caitlin Roberts of Canaccord Genuity. Go ahead, please.

Caitlin Roberts: Hey, it is Michaela on for Caitlin. Thanks for taking the question. Just 1 from us today. We were just wondering if are you seeing any impact from recent competitive dynamics, including the new knee launch from 1 competitor and then the weakness another competitor has called out in hips related to the lack of an impactor.

Damien McDonald: Again, I think we have got a great knee portfolio, and we are continuing to take share with that, which is exciting. On the impact of side, we can definitely tell you that having an impactor and, by the way, a triple type of collared stem with nebula has really made a tremendous impact on our ability to take share and partner with new clinics. So definitively, an impactor is a key part of that equation.

Caitlin Roberts: Awesome. Thank you.

Phillip Benjamin Berry: Next question.

Kyle William Rose: Next question, operator?

Operator: Yes. Our next question comes from Vik Chopra of BMO Capital. Go ahead, please.

Vik Chopra: Hey, good morning, and thanks for taking the questions. I had 2. And apologies if these have been asked, I have been bouncing around. So you said that US hips and knees grew 3% in the quarter. By our math, that is still ahead of the market. I am just curious what you are seeing in underlying procedural volumes exiting the third quarter. And how much of that growth represents share gain versus the market? And I had a quick follow-up.

Phillip Benjamin Berry: Yeah. I think Vik, the way that we see it is, yes, we continue to feel positive with regards to our US hip and knee performance. As you stack it up versus the overall market. We have seen some nice start to Q4 here. Again, it is still early in the quarter, so we will have to see how that plays out. But overall, as Damien mentioned, you know, we are excited about the portfolio we are building there. Still see a large opportunity for us in growth in terms of our hip and knees, particularly in The U. S. Market.

Vik Chopra: Great. Thanks, Ben. You delivered about 5% organic growth in the third quarter. Young know, as we look into 2027, maybe just talk at a high level about the biggest drivers and potential offsets to sustaining that 5% or better organic growth? Thank you.

Damien McDonald: Yeah. Again, with that commenting on 2027 I think what gives us confidence about going into the New Year in a choppy market, and there is been a lot of talk about that in various forums. We have continued to take share. In global hip and knee, global shoulder, PNR is growing above the market. Young know? So I think our underlying performance and commercial execution is what gives confidence about how we not only finish off the year, but where we are heading into next year. Operator, next question please.

Operator: Yes. Our next question comes from Steve Lichtman of William Blair. Go ahead, please.

Steve Lichtman: I want to ask on the P&R business. it is delivered pretty steady 3% underlying growth here the last few quarters. Young give us your latest outlook on the market there and the state of your business overall. Just so how are you feeling overall about where your PNR business sits today?

Damien McDonald: Yes. We are really proud of how that business has shaped. We talked about the portfolio now that more than 50% of it is growing mid-single-digit or greater I think the team is really executing. In The US, you know, really as a. In my prepared remarks, regen with Manifuse has done a great job of doing competitive conversions, and that is really leading the way. But broadly, we have got some great things going on and some tailwinds like the no pain act driving cold therapy, and, you know, where we are going with the 0A portfolio. So I think in The US, we are seeing, you know, really solid above market performance there. Internationally, it is been challenged.

I mean, we have a big presence in international, and we have talked about markets like France and Germany where, by the way, we skew towards France and Germany for that portfolio. Being under pressure. But, again, I think those teams are working hard to counter all of those changes and the dynamics in those markets. So overall, we are really, really pleased with how that group's going.

Steve Lichtman: Great. And then just a follow-up. Ben, you highlighted some of the drivers of free cash flow improvement. Sorry if I missed it, but 1 thing not sure you mentioned was leverage on the CapEx side. It looks like that was down. Is that more of a timing thing? Or do you see that continuing to run lower year over year? And what might be driving that? Thanks.

Phillip Benjamin Berry: Yeah. Thanks, Steve. I think if you if you look at how we deploy instruments, in CapEx, it is generally first half weighted. So we can capitalize on those placements throughout the course of the year and as we build into next year. So I would I would point it more towards the phasing of spend versus anything at the. At this point. Overall, I would say we see CapEx as a percentage of sales to tick down over the next couple years, but it will continue to grow because of the investments that we are making on the recon side of the business. Got it. Thanks, Ben.

Operator: The next question comes from Mike Matson of Needham. Go ahead please.

Michael Matson: Hi, guys. This is Joseph on for Mike. Maybe just a couple product ones on P&R. It looks like maybe in the quarter, there was some SKU rationalization or you know, discontinuing a product maybe in US other P&R or just wondering what that was, and maybe the reason for that is that, you know, a margin problem that was being addressed. And then maybe just MotionMD, you guys called out penetration there in the slide deck. Excuse me. I saw on the website that you guys list some metrics there, including maybe 75 integration partners.

I am just wondering in terms of penetration, you know, what is this ceiling there, if you can quantify it at all, and, know, how is growth looks like, in that product?

Damien McDonald: Yeah. Thanks, Jason. I think what you are referencing is the divesting of Doctor. Comfort that we did last year. So this is the last quarter that is in the comparable, but that is what is driving that down in terms of the rationalization, I believe. And on MotionMD, we do not declare the metrics broadly. But I will say there is a number of things that are really important for us. We have a 99% customer satisfaction rating with the software and the service that is attached to that. And that provides enormous stickiness. Again, without declaring the number of accounts that we service, it is it is a significant number and growing year.

And we have got demonstrable ability to show how we can reduce inventory at the clinic level, how we increase the speed of processing of claims, and the return of claims. So we are, very proud of how that team works, and it is a real core competence And I think a differentiator in the PNR space.

Michael Matson: Okay. Great. Yeah. And then maybe just on the robotics launch, I guess my assumption for the launch in 2028 would be to target, you know, current customers that are already using Astra, Arvest, and Portal. Maybe you can touch on that strategy, you know, whether it is more broad based or targeted. And just based on your, you know, initial conversations, you guys have a good idea. what is maybe your expectation of how many of those Astra customers would be in interested in integrating robotics or maybe feel comfortable with just the navigation and planning of Arvis and Portal?

Damien McDonald: Yeah. that is a that is a whole bunch of questions there, and we do not even own the company yet So first, we are interested in getting to the close, which we think is on track to be done before year end. Once we do that, we will start talking about how we are gonna frame this up, but I am definitely not in a position to talk about strategy yet. But we certainly have some great ideas. And, again, as I said earlier, the reaction to this from our key customers has been really very positive.

Phillip Benjamin Berry: Yeah. And I will just weigh in there too. I mean, I think we see an ability here to create a seamless ecosystem between Arvis and the robot. And as we do that, we do not believe there is a 1-size-fits-all. So we will continue to try to leverage this to take as much market share as we can. And to really drive you know, penetration into the market, as best we can. But I think it is still a little bit early in terms of our go to market approach. But overall, I think we are gonna have some flexibility for customers and some really good products for them to leverage.

Michael Matson: Okay. Yeah. Fair enough. Thanks very much. Thanks, Jason. Cheers.

Operator: The next question comes from Keith Hinton of Freedom Capital Markets. Go ahead, please.

Keith Hinton: Hey, guys. Good morning. This is Keith on for Keith. Thanks for taking the question. We have just 1 quick 1. So if we exclude the tariff refund, gross margin would have been down 80 basis points. Year over year. So can you give any color on what the drivers were there and how we should think about gross margin in 4Q and heading into 2027?

Phillip Benjamin Berry: Yeah. I think the way to really think about it is the mix of the business in the third quarter that was really driving that and some of the pricing pressure that we saw there. So, overall, that is the key contributor Not commenting on guidance in terms of that line for the fourth quarter, but overall, I think we still see gross margin as the company grows and as Recon becomes a bigger part of the portfolio, we see opportunities to expand gross margins year over year.

Keith Hinton: Got it. Thanks so much.

Operator: Again, if you have a question, please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to Damien McDonald, CEO, for any closing remarks.

Damien McDonald: Thanks, Cindy, and thanks, everyone, for joining us today. The third quarter played out largely as we expected, and I want to thank our teams for delivering on our commitments and taking share regardless of the challenges posed by the dynamic and volatile markets we face We appreciate all of you for your continued interest. Thanks for your support, and we look forward to updating you in the fourth quarter and our full year results in February. Thanks, everyone.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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