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DATE

Thursday, May 7, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Damien McDonald
  • Chief Financial Officer — Phillip Berry
  • Investor Relations — Kyle Rose

TAKEAWAYS

  • Sales -- $589 million, up 5% on a reported basis, including a 420-basis-point foreign currency benefit, a 240-basis-point headwind from fewer selling days, and a 210-basis-point headwind from the Dr. Comfort divestiture.
  • Organic revenue growth -- 3% companywide; Recon grew 6% organically, Prevention & Recovery grew 1% organically, both with a 240-basis-point selling days headwind; on a days-adjusted basis, company growth was 6%, Recon 8%, P&R 3%.
  • U.S. Recon segment -- Achieved 8% organic growth, with 10% growth in extremities and 6% growth in Hips and Knees; driven by products like the augmented reverse glenoid system and Nebula launch.
  • International Recon -- 3% organic growth, including double-digit growth in Extremities; management cited execution in volatile conditions and reinforced expectations to outgrow the market for the full year.
  • P&R segment -- 1% organic growth, 3% on days-adjusted basis; global bracing up 3% days-adjusted and bone stim achieved high single-digit growth.
  • Adjusted gross margin -- 62%, an underlying improvement of 40 basis points, diluted by approximately $4 million in tariffs for the quarter.
  • Adjusted EBITDA margin -- 17.6%, down 10 basis points on an underlying basis, with the decline driven by increased R&D investment and expense phasing.
  • Adjusted EPS -- $0.89, representing 10% underlying growth.
  • Free cash flow -- Improved by $16 million year over year; management expects full-year free cash flow conversion to exceed 25%.
  • Capital expenditures -- Approximately half of capex dedicated to instrumentation for Recon; front-loaded investment pattern expected in current year.
  • ASC penetration -- Management stated, "primary knees over 25% now in the ASC, shoulders continue to climb now closer to the teens," with hip penetration between the two.
  • Inventory and accounting changes -- Adjusted EBITDA definition updated in consultation with SEC to exclude inventory step-up charges for acquired businesses, impacting prior comparability.
  • Tariffs -- "We paid another $4 million of tariffs in the quarter. That is mostly all in the P&R side of the business." All tariff refund claims have been submitted, but management stated, "our assumption is that we will not get any refunds."
  • Guidance -- 2026 full-year revenue and margin guidance reaffirmed; revenue expected to be split evenly between first and second half.
  • Middle East exposure -- $1 million to $2 million a month in revenue from the Middle East, with anticipated headwinds accounted for in the guidance.
  • Product pipeline -- Noted robust slate of innovations, including Arvis, with commercial deployment underway and positive early feedback from surgeons.

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RISKS

  • International market volumes experienced volatility, with management stating "a slower start to the year compared with our Q4 momentum" and acknowledging ongoing challenges such as "doctor strikes, nurses strikes, pharmacy strikes, waiting list increases."
  • Tariff-related impacts remain substantial, as management reported "$4 million in tariffs we paid" with ongoing inflation pressures requiring continued mitigation; the company does not anticipate receiving tariff refunds.
  • Middle East conflict has created "new headwind as well as the resulting inflation in the supply chain," though management expects to absorb this within guidance.
  • Pricing in Recon is "a little bit down" and further pressured by the shift to ASC settings, with commentary that "the shift to ASCs puts a little bit of pressure there on pricing."

SUMMARY

Enovis (ENOV 2.46%) delivered reported sales growth of 5%, highlighting resilient execution across both Recon and Prevention & Recovery segments. Management indicated the updated definition of adjusted EBITDA, required by SEC comment letter, alters year-over-year comparability and reflects inventory step-up charges for acquired businesses. The launch of Arvis and other product pipeline introductions is positioned to drive future growth; management reported constructive early user feedback on Arvis. Exposure to $1 million to $2 million monthly Middle East revenue and $4 million in quarterly tariffs are acknowledged as headwinds, but management maintains guidance and does not anticipate tariff refunds. International Recon encountered a challenging start due to market disruptions but outperformed underlying market growth based on external data.

  • Management expects margin expansion in the second half, projecting "Margin cadence for the back half, I think, will continue to improve."
  • Revenue split for the year is "to be split evenly between the first and second half of the year," and guidance incorporates ongoing geopolitical and inflation challenges.
  • Free cash flow typically builds through the year due to first-quarter expense phasing; year-over-year improvement of $16 million cited as supporting "confiden[ce] in the guidance that we set out at the beginning of the year."
  • Product launches such as Arvis shoulder are leveraging a flexible business model, offering capital purchase, leasing, or per-case fee options, with the aim of driving competitive conversions and account acquisitions.
  • About half of capital expenditures support new instrumentation for the Recon segment, with front-heavy investment intended to support current growth momentum.

INDUSTRY GLOSSARY

  • Recon: Surgical Reconstruction segment, offering joint replacement implants and associated products for hips, knees, shoulders, and extremities.
  • P&R: Prevention & Recovery segment, covering bracing, bone stimulators, and physical rehabilitation devices.
  • ASC: Ambulatory Surgery Center, an outpatient facility where surgeries are performed outside of traditional hospital settings.
  • Arvis: Augmented Reality visualization system introduced by Enovis to assist surgeons in shoulder and joint procedures.
  • Inventory step-up: Accounting adjustment reflecting the increased value of acquired inventory to fair market value during M&A transactions.
  • Dr. Comfort: Former Enovis product line divested before the quarter, affecting year-over-year revenue comparison.
  • NOPAIN Act: U.S. legislation aimed at expanding access to non-opioid pain management, relevant to Prevention & Recovery sales potential.
  • BaaS: Bracing as a Service, a business model for providing bracing solutions mentioned in the P&R strategy discussion.

Full Conference Call Transcript

Damien McDonald: Thanks, Kyle. Hello, Everyone. We're encouraged by our start to 2026 with the first quarter results reflecting solid execution and continued progress advancing our innovation-led strategy. Our priorities, commercial execution and innovation, operational excellence, and financial discipline continue to guide our actions. Since I joined 12 months ago, we have made meaningful changes to our operating model and senior leadership teams, implemented more rigor around daily management and changed company incentive plans to align with our strategic objectives. We still have more work to do to fully capture the opportunities in front of us. However, I'm energized by how the team has embraced these changes and the One Enovis mindset. Turning to the first quarter results.

I'm pleased with our continued share gains in both our business segments. Our innovation pipeline continues to advance while we benefit from the contributions of new product launches. In the first quarter, we delivered organic revenue growth of 3% with 6% organic growth in Recon and 1% organic growth in Prevention & Recovery. These results include the impact of fewer selling days in the quarter, which represented an approximate 240 basis point headwind to growth. On a days adjusted basis, organic growth was 6% at the company level with 8% growth in Recon and 3% growth in P&R. In U.S. Recon, we grew 8% organically in the first quarter, led by 10% organic growth in extremities.

Our augmented reverse glenoid system, ARG, continued to gain traction and was key to driving double-digit growth in shoulders. In Hips and Knees, we grew 6% organically, and we continue to reinforce our portfolio to compete across hospital and ASC settings. Nebula continues to be a driver of growth in the majority of new instrumentation sets going to competitive users. We're still in the early rollout of Nebula, which unlocks a meaningful segment of the U.S. hip market for our sales teams. Internationally, we grew 3% in Recon on an organic basis, including double-digit growth in Extremities.

We continue to strengthen our global portfolio with cross-compatibility of implant systems and are positioned for sustained above-market growth rates in 2026 and beyond. Innovation remains key to our strategy. We have a robust pipeline of new product introductions planned for the next 24 months. We showcased many of these, including Arvis at the AAOS conference in New Orleans in March. We've started to deploy Arvis through a flexible business model with the primary goal of driving implant utilization. Arvis shoulder cases have started and are encouraged by the early feedback.

Our commercial teams are using this launch as an opportunity to strategically target new customers, and we expect to see continued adoption in the shoulders as we move through 2026. I'm also excited to note, we recently had our first OUS shoulder case in South Africa and remain -- and we see demand for this technology continue to build. Now moving to P&R. This segment grew 1% year-over-year on an organic basis and 3% on a days adjusted basis. Global bracing grew 3% on a days adjusted basis, driven by revenue cycle management and upper extremity bracing. Bone stim was another source of strength for the quarter, delivering high single-digit growth.

So a lot to be excited about across the whole business, and I'll turn it over to Ben to walk through the financial details.

Phillip Berry: Thanks, Damien, hello, everyone. We reported first quarter sales of $589 million, up 5% versus the prior year on a reported basis. Reported growth includes a 420 basis point tailwind from foreign currency, a 240 basis point headwind from selling days and a 210 basis point headwind, primarily related to the divestiture of Dr. Comfort. Days adjusted organic growth was 6% at the company level, 8% Recon, 3% in P&R, with both segments growing above the market. As part of the conclusion of our previously disclosed SEC comment letter process, we revised our definition of adjusted EBITDA beginning in Q1 2026 to no longer adjust inventory step-up charges associated with acquired businesses.

While we continue to believe that our prior non-GAAP presentation was appropriate under the guidelines and provided meaningful comparability for investors, we updated our presentation to align with the SEC staff position on this adjustment. For reference, we have provided a table in the appendix of our Q1 slide presentation that outlines the impact of this change. We had positive business mix in the first quarter, leading to adjusted gross margins of 62%, an underlying improvement of 40 basis points, driven by favorable mix, ongoing productivity, and realized synergies in our manufacturing and supply chain operations.

This was slightly diluted by tariff impacts as we absorbed, mitigated, and continued to offset a portion of the roughly $4 million in tariffs we paid in the quarter. Adjusted EBITDA margin was 17.6%, down 10 basis points year-over-year on an underlying basis, mostly driven by increased R&D investments and phasing of expenses. Our first quarter effective tax rate was 21%. Interest expense was $9 million for the quarter, flat versus prior year. Overall, we posted adjusted earnings per share of $0.89, representing 10% underlying growth versus prior year. We remain focused on disciplined capital allocation. Free cash flow improved $16 million year-over-year in the first quarter.

We continue to expect free cash flow conversion of greater than 25% in 2026 as we've laid out in our prior calls. Turning to guidance. We are reaffirming our 2026 guidance. We expect 2026 revenues to be split evenly between the first and second half of the year. Commercial execution is critical to delivering our 2026 results, and we are seeing some early benefits across both of our business segments. In Recon, our new products remain a bright spot, and we have a healthy pipeline of account conversion targets. In P&R, growth remained stable and slightly ahead of market.

For the company, international market volumes have experienced some volatility in the first part of the year, but we expect them to recover to normal levels in the balance of the year. Our Middle East revenue exposure is about $1 million to $2 million a month. We expect to absorb this new headwind as well as the resulting inflation in the supply chain with no change to our original guidance. To summarize, the first quarter was a solid start to the year, and we remain confident in the power of our diversified portfolio and the continued progress we're making towards sustainable, profitable, capital-efficient growth. Kyle?

Kyle Rose: Thanks, Ben. In an effort to accommodate everyone in the Q&A session and keep things to a reasonable time, we ask our analysts to limit questions to one question and one follow-up. You are welcome to rejoin the queue and we will fit you in if we have time. With that, operator, we'd now like to open it up to questions.

Operator: [Operator Instructions] We will now take our first question from Ryan Zimmerman of BTIG.

Ryan Zimmerman: Good start to the year here. U.S. Recon was really a nice standout in the quarter, particularly when you look at it in the context of some of the larger companies that reported their Hip and Knee numbers. And so, Damien, I'm wondering if you could kind of talk to us about how you see the durability of U.S. Recon. If I look at the comps, they get actually easier over the balance of the year. And so, what's holding you back from maybe taking that guidance up at this point given those dynamics? And then I have a follow-up.

Damien McDonald: First of all, good morning Ryan, I'll jump in first, and I'll let the guys also contribute. Look, great question. And I have to say, first of all, I'm really proud of how the team are executing. There's a lot of good that's happening in that organization. The way they're approaching customer segmenting and targeting, account acquisition and penetration. I think the way they're thinking about pricing discipline is really working for them. So I think that team is doing a great job, and you see that in both Hips and Knees and the Extremities numbers. Why not take up guidance? I think our big issue is it's a very dynamic macro environment. We're working to execute our plans.

But as you might suspect, there's a lot of noise in the markets, and we just want to make sure we keep the team focused on executing what we committed to for the full year.

Ryan Zimmerman: And then as a follow-up, Ben, you did call out the improvement in free cash flow. I think that's been one of the things maybe holding investors back is that enhancement of free cash flow for the year. And so again, I appreciate your sticking to the guidance here. But talk to us about kind of the next few quarters in terms of free cash flow generation. How you see things kind of playing out? What's on the horizon from a capital expenditure standpoint or lack thereof? And what gives you confidence that you can continue to kind of target 25% plus for the year?

Phillip Berry: Yes. Thanks, Ryan. Thanks for the question. Free cash flow for us builds over the course of the year. I think you've seen that pattern from us where we traditionally have negative free cash flow in Q1, given that's when we pay out bonuses. That's also when we have some phasing of expenses like sales meetings and the AAOS that always fall in Q1. So generally, we start off a little bit soft in cash and then we build over the course of the year. We would expect that to continue here in 2026.

I think you saw in first quarter, some of the step down in some of the onetime costs that we've called out that will continue to decline over the course of this year, over the course of the years and coming. And overall, I think we are -- from a CapEx investment, actually, continuing to invest heavily in CapEx to support the growth of the Recon business. So CapEx as a percentage of sales, as I've told people in the past, this year will be about in line with what we saw last year, maybe a little bit below.

But overall, we feel good about where we're starting here, year-over-year improvement of $16 million and still feel confident in the guidance that we set out at the beginning of the year.

Operator: Next question comes from the line of Vijay Kumar from Evercore ISI.

Vijay Kumar: I just want to dive a little bit on the Q1 performance. I know there was some noise around weather. One of your competitors had some disruptions. Q1 also had fewer days, right? Despite all of that, U.S. Recon did 9%, high singles organic. How -- when you -- put that 9% into context for us, right? When you look at the back half, is this sustainable? And what could get better in the back half, right, when you look at first half versus back half?

Damien McDonald: I think what we're excited about is the release of Arvis. We just released that at AAOS. And I think the demand that we're seeing for that is really terrific. And I think people are looking for a portable, scalable, cost-effective solution, especially as things move to the ASCs in the U.S. And so, I think for us, what gives us a lot of confidence about the year is as Arvis continues to roll out and we onboard and certify surgeons, that gives us support in the Extremities market, particularly around shoulder.

I think the way that the Foot and Ankle business performed in the quarter was really solid, too, a big shout out to them for the way they performed. And I think -- so Extremities for us continues to be an opportunity that is growing and being a highlight for us for quite some quarters now. The other thing is, I think Nebula is really continuing to do great things in the hip area. I mean that's a market that we were locked out of. And I think someone reported the other day that something like 40% of their business now is in triple taper, colored stem hips, and we're not anywhere near that sort of penetration yet.

And as I mentioned before, something like 50% of our knee surgeons don't use our hip because we haven't had an offering. So we've got a funnel of opportunity to convert those people over to our hip in a market that's been largely dominated by J&J and Zimmer.

Phillip Berry: Yes. And I'd just jump in, hello, Vijay, the markets are dynamic. The supply chain is dynamic right now. We have momentum building across the anatomies with the launches that we have, with the cross-compatibility that we've done now on the shoulder with putting all of these assets together with the M&A that we've done over the last several years. So we're encouraged by the start. We see opportunity, as Damien mentioned, through commercial execution, they continue to build muscle here. It's going to take a little bit of time, but we're excited marrying the innovation pipeline that we have with the opportunities that are in front of us with regards to still having low market share.

So overall, we're confident in the direction that this business is heading and look forward to see how it continues to perform throughout the course of the year.

Vijay Kumar: And maybe, Ben, one for you on the margin performance in the quarter. I know you spoke about the reclassification on EBITDA. Just to clarify, that doesn't have any free cash flow impact, right? No changes to free cash and how we think of margin cadence given the Q1 performance?

Phillip Berry: Yes. Thanks, Vijay. There's a good slide in the appendix of the presentation materials that we put that lay out the inventory step-up that would have occurred in the prior year. Again, this is acquisition related as we brought Lima on, it's the difference between the acquired inventory and the fair market value assessment. So it's really just accounting change that's onetime in nature. So we feel it's appropriate to look at it both ways, and you have all the information there.

But underlying performance, as I said in my prepared remarks, of 40 bps of gross margin improvement and slightly backwards on EBITDA, but that was partially because we had a really strong start last year with the extra days.

Vijay Kumar: And sorry, margin cadence, how to think of margin cadence for back half?

Phillip Berry: Yes. Margin cadence for the back half, I think, will continue to improve.

Operator: The next question comes from Jeff Johnson from Baird.

Jeffrey Johnson: Just wanted to stick on the Arvis questions. Damien, it sounds like placements here in the first quarter got off to a good start. I guess as you're thinking more about that placement model, should we think about that being a long-term benefit maybe to pricing in your Recon business, you can lock these guys in at more consistent pricing. Does it maybe bring some more stability to your Hip and Knees business and maybe the Extremities business? Again, if you can lock these guys in, you don't have to worry about any kind of customer attrition or anything like that. Just what are the benefits besides just having a good technology out there that is appealing to these surgeons?

What are some other benefits we should be thinking about with Arvis over the next year or 2?

Damien McDonald: Yes. Thanks, Jeff. So our focus out of the gate is on shoulder and then knee. I think if you think about what this offers competitively is a chance to have conversations with competitive surgeons and bring them over to our portfolio. So there's a competitive conversion opportunities and market share gain and, obviously, volume attached with that. And I think, again, what we're offering is a very flexible model. You can -- capital purchase, you can lease, you can fee per case with a volume commitment. So we also believe that we're offering a scalable, portable model that allows people to work between multiple venues.

And as you know, a lot of our customers work in multiple venues and can take this technology with them. So we think that ease of use, portability, scalability is an opportunity for us to lock in people that are current customers, but also importantly, competitive conversions.

Phillip Berry: Yes. And Jeff, I'd just jump in there. I mean we didn't really see, I'd say, any material revenue from Arvis in the first quarter. So we would expect this to continue to build as we gain momentum with the launch.

Jeffrey Johnson: And then, Ben, maybe just one clarifying question because I am getting a couple of questions from investors. I just want to make sure I understand. On the reclass that you talked about today on the EBITDA side, was that driven by a change in your own philosophy? It sounds like you mentioned on the prepared remarks that maybe it was in conjunction with the SEC. Is that a new recommendation from the SEC more broadly for the market? Just want to understand, just given that this kind of makes last year's margins or the margin performance this year look better. Just want to understand the timing on what drove this decision.

Phillip Berry: Yes, Jeff, I mean, as we had put in our 10-K last year, we had a couple of open questions from the SEC through the comment letter process. So we had some good robust dialogues with the staff. So like we had good alignment on most things. This one for us, we still feel that the onetime nature of inventory step-up, especially when you acquire a Recon business that has lots of inventory really does distort the numbers. So we felt it was responsible for us to show comparability. SEC staff had a difference of opinion here, and we had to conform -- we chose to conform to their dialogue here.

So we would expect that to continue across the market based on our dialogue with them, but I can't speak for other companies in their dialogues.

Operator: The next question comes from the line of Xuyang Li from Jefferies.

Young Li: I guess to start, maybe just on OUS Recon a little bit. It doesn't get as much attention, but I would say pretty solid strength of double-digit growth recently. And then this quarter, there's some Middle East noise, maybe some OUS market softness. Can you maybe just expand a little bit on the market softness comment and the pathway forward for sustained above-market growth for the rest of the year?

Damien McDonald: Yes. So we were just with that team last week and talking through a lot of the dynamics there. Look, it was definitely a slower start to the year compared with our Q4 momentum. And that's a challenge. But I would say, and you alluded to this, there's a lot of market volatility. There's doctor strikes, nurses strikes, pharmacy strikes, waiting list increases. And still with all of that, we outgrew the market. And that's with third-party market data. And I'd say the team executed really well in a very dynamic market situation. So we still believe, based on our modeling that we're going to outgrow the market through the next 3 quarters for the full year.

But we do recognize it's pretty challenging, and Ben outlined what we think the impact of the Middle East is on our quarterly run rate.

Young Li: And I guess I was wondering if you can maybe give us an update on your ASC market share currently, where you are versus the industry? It seems like momentum there continues for the industry?

Phillip Berry: Yes, I'll take that one, Xuyang. We continue to see our penetration in ASCs increase. So I think if you look at where we are at on the knee side, primary knees over 25% now in the ASC, shoulders continue to climb now closer to the teens. And I'd say in between the 2 is where we're at in hip. So again, I don't know what's being published out there with competition. I don't see good data on this, but we believe that we're slightly ahead of the market in terms of the mix of ASC of our business versus where some of the competitors are.

Operator: The next question comes from the line of Robbie Marcus from JP Morgan.

Robert Marcus: Maybe to start, you do your best to answer given the market share. But given all the disruption in the first quarter and a lot of investor fears around weather and ACA subsidies and Medicaid. How do you feel about your end market growth? And I don't know if you're willing to put what you think growth rates are on the different ortho and bracing markets where you participate now? And how do you feel about some of these headwinds that investors are concerned about? And are you see them materializing? Because I'd venture to say the answer is no, not really. But I would love to hear your take on end market growth and some of the headwinds.

And I'll leave it at that.

Kyle Rose: Hello, Robbie, this is Kyle. Yes, I mean, I think the way we've seen the year start, I mean, look, there's obviously some weather. There's been disruptions with things like cyberattacks on some competitors. We've got salesforce restructuring with another competitor. I think overall, we think underlying market demand and procedure volumes are stable and healthy as we've seen over the last several years. We don't think that there's as much of a pent-up demand with respect to what we saw coming out of COVID. I think that's broadly been worked through.

But when we think about the overall market growth, and this is more of a U.S. comment, we think about U.S. hips in the 3% to 4% range, U.S. knees in the 4% to 5%. We think about shoulders, 5% to 7%. But when you think about the shoulder market, we've got more exposure to the reverse side of that market, which we think is growing at the higher end of that prior range. And in the international markets as a whole, we think that, that's from a recon perspective, growing in the 4% to 6% in the last several years. As Damien outlined, a little bit slower start to the international market to start the year.

But there's nothing that we're seeing in our end markets that suggests that we've seen any material changes in the fundamentals from a demand perspective.

Phillip Berry: Yes. And I'd just jump in there, too, a little bit, Robbie. I mean I think procedural demand trends are still very robust. So we believe the need to have products like ours for the macro needs of patients are going to continue to drive growth in the market from now into the future. So we feel pretty good about that. I mean, of course, we went through all of the similar things with some of the weather and some of the other things that Kyle talked about. But overall, I think we think the end markets are still robust from a demand standpoint.

Pricing for us is a little bit back to norm on the Recon side, so a little bit down. We think that continues. We also think the shift to ASCs puts a little bit of pressure there on pricing. But overall, we think in terms of demand drivers, those are still pretty robust.

Operator: Our next question comes from the line of Priya Sachdeva from UBS.

Priya Sachdeva: I'd love to just go back to guidance really quickly and specifically thinking about some of the macro dynamics that are going on, and how you're thinking about low end versus high end of guidance, and what you're baking in for either side of the range? I guess maybe we're just trying to understand how derisked 2026 guide is from some of these dynamics. And then just one follow-up.

Phillip Berry: Hello, Priya, thanks for the question. I think the way we think about guidance is generally point people towards the midpoint. So good start to the year for us. Again, Damien laid it out, there's still a lot of uncertainty. So we're trying to be prudent with regards to seeing how more of the year plays out before we make any changes there. So overall, I think we feel like we got off to a good start. We do think Q2 will have some impacts on it from the war-related impacts. But overall, we still feel comfortable that we can perform within the ranges that we set at the beginning of the year.

Priya Sachdeva: And then maybe just one quickly on P&R. You did call out some of these tailwinds that are on the horizon for this segment. So if you could just maybe walk us through some of these potential drivers of growth and where you could really see this business is growing sustainably once those are fully realized.

Phillip Berry: Yes. I really like how the teams are starting to execute here. And we've reshaped the portfolio. I think they've got a great competitive offering. We've been taking market share and growing above market for multiple quarters, both in the U.S. and internationally. I like the Swagger of the BaaS team in the U.S. I think they're doing a great job there, selling our differentiated portfolio. We've got new products coming in that segment as well. So the opportunity, I think, is really for us to take. These tailwinds that we alluded to with cold therapy and the NOPAIN Act. That's an education opportunity for us, and the team is taking advantage of that account-by-account.

The OA opportunity, I think, is another thing for us. We know OA is an increasingly complex disease state with a lot of pain associated with it, where we think we've got good competitive offerings to support it. So I like how that team is executing in the U.S. And internationally, there's a lot going on. The French team, I think, are really killing it, which is tremendous to see. And we've still got opportunities to improve our performance in several geographies and the leadership over there is very focused on that.

Operator: Our next questions come from the line of Keith Hinton from Freedom Capital Markets.

Keith Hinton: I just have a question on P&R on the gross margin side. So it looks like it was up about 100 bps year-over-year. Can you just talk about sort of the tariff impact for P&R in the quarter? How much of that you were able to offset with price or other mitigation efforts? And kind of how we should think about going forward, the ability to expand gross margins in P&R in a more stable tariff environment or how much the exposure is to continued volatility in tariffs? And then I have a follow-up.

Phillip Berry: Yes. Thanks. We're excited about the progress that we continue to make in P&R. I think what we've talked about in terms of now having over 50% of the portfolio growing mid-single digits. A lot of those products that are growing faster come with higher gross margins. So we're getting some mix benefit on the P&R side. We also have been longer at driving the business system within P&R to really start to see the fruits of that read out with regards to some productivity that are offsetting some of these tariff headwinds that I mentioned. I mentioned in my prepared remarks that we paid another $4 million of tariffs in the quarter.

That is mostly all in the P&R side of the business. So we're overcoming that, and we see a long runway here of gross margin improvement opportunities within P&R as we continue to shape that portfolio. So we're going to continue to work at it. We're continuing to mitigate as much as we can some of these inflation headwinds that are coming our way. We have increased prices in some cases to drive offsets. We continue to drive the shifting of production to lower cost areas to offset some of the price changes as well from the supplier side. So overall, we have a pretty robust offense to drive productivity to offset inflation that we see every year.

Keith Hinton: And then just in terms of the conflict in the Middle East, can you talk about that less from a revenue perspective and more from a cost perspective in terms of volatility in the price of oil, just how much of COGS is oil exposed either from freight or petroleum derivatives involved in packaging? And have you seen any issues with traveling based on disruptions to flights and just how any of these things are sort of baked into guidance?

Phillip Berry: Yes. We're seeing a little bit of that in all aspects of what you described. I think the most impact we see in our direct results is with the freight inflation. Overall, we feel pretty well that our supply chain as a company is diverse and somewhat protected to where we can drive alternative measures to offset some of these challenges, but there is some inflation that's hitting us that we're having to offset. But all -- as I mentioned in my prepared remarks, we believe that we'll be able to offset or absorb within the guidance that we've provided.

Keith Hinton: And just very quickly, clarifying. In terms of the inventory turn for the different businesses, when might we start to see more of an impact from a quarterly basis on P&R versus Recon in terms of higher freight?

Phillip Berry: Well, on the P&R side of the business, we turn inventories in, call it, 4 to 6 months. So that generally reads through relatively quickly. P&R side -- or on the Recon side, it's longer. It's a little over a year. But overall, a lot of our freight runs through the period costs as well. So I'd say it's a little bit of a blend of what gets amortized versus what rolls through on a period standpoint.

Operator: The next question comes from the line of Caitlin Roberts from Canaccord Genuity.

Unknown Analyst: It's [ Michaela ] on for Caitlin. Maybe just going back to Arvis, you talked a little bit about this, but can you maybe give some more color on what the surgeon and hospital reception has been like? And maybe if you can talk to shoulder specifically?

Damien McDonald: Yes. I think this has been one of the really encouraging things for us. The early limited market release where we were working with in friends and family was very positive. The case numbers were filled very rapidly in multiple centers. I had a chance to see some of our partners working on it at the Mayo Clinic right at the end of the year. So just the form factor is considerably different with the Gen2, which I think makes a big difference. The software improvements have been really tremendous in terms of anatomy registration and the acuity of the visualization.

So we're very encouraged by what we're hearing from the initial limited market release and now the demand for application in the field. So I think this is exciting for us.

Operator: The next question comes from the line of Mike Matson from Needham & Co.

Michael Matson: I have a follow-up question on cash flow -- free cash flow. So it looks like your operating cash flow improved significantly year-over-year, which is great. But when I look at the CapEx or purchase of property, plant, equipment and intangibles, that was about $10 million larger than last year. So negative $53 million. So can you maybe just talk about what's in that number? I mean, how much of that is kind of like instrument sets and things like that versus integration expenses or other components?

Phillip Berry: Mike, thanks for the question. It's mostly instrumentation. As you know, we're investing to grow the Recon business and a little over half or about half of our CapEx is instrumentation driven. And I'd say this year is a little bit more front half loaded there. So I'd say that's the major drivers that we're just investing for growth. We do have, as I've laid out in the past, some investment that's happening with regards to manufacturing integration. So those costs are reading through as well, which are driving some of the increase. But overall, I'd say it's Recon driven, primarily instrumentation with a little bit of ops for manufacturing integration.

Michael Matson: And then just want to ask one on the foot and ankle part of your Extremities business. I didn't hear any comments there, but I know that market has been kind of challenged. So maybe just comment on your business and what you're seeing in the market.

Damien McDonald: Yes. I gave a bit of a shout out in one of my earlier answers on this. I think the -- we saw a slight rebound in the market in the U.S. We've talked about the challenges in that space and so are some of the competitors, particularly in the elective procedures. I think, again, what matters here is a focus on innovation and a focus on being very responsive to customers, and that's reading through. And I think that's why the team had a really solid quarter.

Operator: [Operator Instructions] Our next question comes from the line of Steve Lichtman from William Blair.

Steven Lichtman: I guess first, just going back to the ASC opportunity. In what ways are you able to leverage the Arvis relaunch and, of course, the product offerings you can provide across both Recon and P&R to continue to expand in what's obviously an important growing market.

Damien McDonald: Yes. I think one of the things for us, Steven, good morning, is the opportunity there at the continuum of care. Often, patients aren't seen as a whole patient. They're seen as episodic in one particular implant or [ BES ] or recovery sciences portfolio. I think one of our key opportunities is to expand that aperture so that people do think about the whole patient. And that's certainly a conversation we're having. I think Arvis is a great accelerator for that. It makes us very visible. It gives us every reason to be a partner with the ASCs, whether it's a corporate ASC or an owner-operated ASC.

And one of our focus areas for the team is how to materially change the trajectory of our full offering in those facilities. It's a strategic question for us. We're seeing the early parts of that read through. We've got a number of interesting opportunities that are already starting to materialize. But for us, thinking about how to really action this over the next 3 to 5 years is a key opportunity.

Steven Lichtman: And then just going back to cash, good to see some of the costs coming down as you talked about heading into the year. What is your outlook for the strategic transactions cost line as you look out over the next few quarters?

Phillip Berry: Yes, I would expect them to improve year-over-year, Steve. And again, this -- like I've mentioned before, this is the third year of really a heavy -- year 3 of a heavy integration of the Lima business that we acquired. So I would see those costs to continue to step down pretty significantly as we enter next year and beyond. But overall, we're still making some investments to finish the integration there.

Operator: Our next question comes from the line of Ryan Zimmerman from BTIG.

Ryan Zimmerman: Sorry, I just didn't get enough. I had to ask a follow-up. Just 2 quick ones for me. I didn't hear, Ben, do you get those selling days back? I think the annual is a net neutral. And when do you get those selling days back? And then 2, I didn't hear anything on tax refund or tariff refunds. And so what are you assuming -- and again, I apologize if I missed that, but what are you assuming for tariff refunds at this point or not assuming?

Phillip Berry: Yes. No problem, Ryan. So we get 1 day back in Q2 and 1 day back in Q4. So that's really how it plays out. That's more like half a day actually in Q2. And so, from a tariff refund standpoint, we've submitted all our claims with regards to tariffs paid, but our assumption is that we will not get any refunds for tariffs that we've paid and that we'll continue to pay tariffs at the rate that we're currently seeing. That's what's embedded in our current outlook.

Operator: Thank you. We have reached the end of the Q&A session. I will now turn the call back over to Damien, CEO, for closing remarks. Please go ahead.

Damien McDonald: Thanks, everyone, for joining us today. With a solid start to the year, but we cannot lose sight of continuous improvement and winning each day. We're operating in an increasingly dynamic macroeconomic and geopolitical environment, and it's more important than ever that we remain focused on disciplined execution. Next week marks my 1-year anniversary at Enovis, and I'm inspired, very inspired by the opportunities ahead of us and the strength of our team. I'd like to thank all of our employees for their ongoing commitment, focus, and dedication to supporting our customers and improving patients' lives. We really appreciate your continued interest, and we support your forward-looking updating models and look forward to the progress throughout the year.

Operator: Thank you so much, ladies and gentlemen. This concludes today's call. Thank you all for joining. You may now disconnect.