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The call showed solid operational execution and clear commercial momentum—particularly in Recon and extremities—with meaningful innovation catalysts (Arvis, Nebula), margin expansion at the gross level, EPS growth, and improved free cash flow. However, offsetting risks include tariff costs (~$4M), international volatility including Middle East exposure (~$1–2M/month), a Q1 selling-days headwind (~240 bps), a conservative stance on guidance, and an SEC-driven change to adjusted EBITDA presentation that reduces non-GAAP comparability. On balance, positive fundamental performance and a constructive outlook outweigh the near-term headwinds and reporting adjustments.
Management reaffirmed 2026 guidance, saying full‑year revenue is expected to be split evenly between H1 and H2 and that they can absorb current headwinds—including roughly $1–2 million per month of Middle East revenue exposure and supply‑chain inflation—without changing the guide; they reiterated a target free cash flow conversion of greater than 25% for 2026 (Q1 free cash flow improved $16M YoY). For context, Q1 results were $589M sales (reported +5%), with reported tailwinds/headwinds of +420 bps FX, –240 bps selling days and –210 bps related to the Dr. Comfort divestiture; company days‑adjusted organic growth was 6% (Recon 8%, P&R 3%), reported organic growth 3% (Recon 6%, P&R 1%), adjusted gross margin 62% (+40 bps underlying), adjusted EBITDA margin 17.6%, adjusted EPS $0.89 (+10% underlying), about $4M of tariffs paid in Q1 (assumed non‑refundable), and CapEx expected roughly in line with last year as a percent of sales; they also updated the adjusted EBITDA presentation to no longer adjust inventory step‑up per SEC dialogue.
Reported Q1 sales of $589 million, up 5% year-over-year. Company organic revenue +3% and days-adjusted organic growth +6% (selling days headwind ~240 bps). Reported results included a +420 bps FX tailwind and a -210 bps headwind related to the Dr. Comfort divestiture.
Recon delivered strong performance: company days-adjusted Recon growth +8% and organic Recon +6%. U.S. Recon grew 8% organically, led by extremities at +10% and hips & knees at +6%. International Recon grew 3% organic with double-digit growth in Extremities. Nebula rollout is unlocking hip opportunities; ARG and other new systems are driving shoulder and extremities share gains.
P&R reported +1% organic growth (3% on a days-adjusted basis). Global bracing grew ~3% (days-adjusted) and bone stimulation delivered high single-digit growth, reflecting pockets of strength within the segment as portfolio reshaping continues.
Adjusted gross margin of 62%, with an underlying improvement of ~40 basis points driven by favorable mix, productivity, and synergies. Adjusted EBITDA margin was 17.6% (underlying down ~10 bps due to higher R&D and expense phasing). Adjusted EPS was $0.89, representing ~10% underlying growth versus prior year. Effective tax rate ~21%; interest expense ~$9 million (flat).
Free cash flow improved by $16 million year-over-year in Q1. Management reiterates expectation of free cash flow conversion >25% for 2026. CapEx is being invested to support Recon growth (instrumentation comprises ~half of CapEx) and is expected to be roughly in line with prior year as a percentage of sales.
Robust innovation pipeline with recent launches: Arvis (AAOS showcase and early shoulder cases, including first OUS shoulder in South Africa) and Nebula instrument sets driving conversions. ASC penetration is growing (primary knees >25% in ASCs, shoulders in the teens), and Arvis's flexible commercial model (purchase/lease/fee-per-case) positions the company to accelerate ASC adoption and competitive conversions.
Ladies and gentlemen, thank you for standing by. Hello, and welcome to Enovis First Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would like to turn the conference over to Kyle Rose, Vice President of Investor Relations. Please go ahead.
Good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings conference call. I'm Kyle 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 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 estimates 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 can be found in our earnings press release and in the appendix ...