Q4 2024 Earnings Summary
- Lima Acquisition Exceeded Revenue Expectations: The company initially expected Lima revenues of $290 million to $300 million but ended the year over $320 million, surpassing projections and indicating successful integration and cross-selling opportunities exceeding expectations.
- Strong International Performance: The revenue beat was driven by markets outside the U.S., where the business outperformed expectations despite integrating two large businesses, highlighting strong international growth potential.
- Successful Integration of Lima: Despite some integration challenges in the U.S., the overall performance was within expectations, and the company stated that the integration of Lima has gone "fantastically well," suggesting future growth and operational efficiencies.
- Integration challenges in the U.S. market from the Lima acquisition may be impacting growth in U.S. Recon sales. The company acknowledged "visible growth impact in the U.S." due to integration efforts, leading to discussions about Lima integration challenges.
- Potential exposure to tariffs on products manufactured in Mexico could negatively affect cash flows and profitability. A 25% tariff applied to goods from their Tijuana facility could represent a $3 million to $4 million exposure per month, with a 4 to 6 months delayed reaction due to inventory turns.
- Delayed realization of Lima acquisition synergies, with significant benefits not expected until 2026. While some cost synergies are anticipated in 2025, significant operational benefits are described as "more of a year 3 execution," meaning the remaining synergies will come in 2026.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +11% (from $505.22m in Q3 2024 to $560.98m in Q4 2024) | Total Revenue increased by roughly 11%, driven by robust organic performance and acquisition-related contributions that built on prior period momentum, reflecting a favorable market environment and integration of recent acquisitions. |
Reconstructive Segment | +18.6% (from $231.0m in Q3 2024 to $274.0m in Q4 2024) | The Reconstructive segment rose by 18.6% as the Lima acquisition and strong organic growth compounded previous period gains, resulting in higher reported sales. |
Operating Income | Deteriorated from a loss of $31.74m in Q3 2024 to a loss of $664.75m in Q4 2024 | Operating Income sharply deteriorated, largely due to escalated operating expenses including higher SG&A, depreciation, and amortization charges linked to acquisition integration and cost inflation, which built on the more modest negative performance of the previous quarter. |
Net Income | Dropped from –$31.26m in Q3 2024 to –$703.34m in Q4 2024 | Net Income plunged dramatically as the deepening operating loss was compounded by higher transaction, integration, and non-operating costs such as elevated depreciation and amortization expenses, reversing the relatively smaller loss seen in Q3 2024. |
Depreciation & Amortization | Increased nearly fourfold, from $71.23m in Q3 2024 to $284.80m in Q4 2024 | Depreciation & Amortization surged sharply due to the Lima acquisition which significantly boosted the amortization of acquired intangibles and depreciation expenses on new assets, marking a stark contrast to the previous period. |
Adjustments for Non-Cash Items | Jumped from $58.69m in Q3 2024 to $1,017.25m in Q4 2024 | Non-cash adjustments increased dramatically as new fair value measurements, impairment charges, and losses on currency hedges related to recent acquisitions and integration activities materialized in Q4 2024, far exceeding the lower impact from the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2024 | approximately $2.1 billion | no current guidance | no current guidance |
Comparable Revenue Growth | FY 2024 | 5% to 5.5% (≈100 basis points of integration headwinds) | no current guidance | no current guidance |
Adjusted EBITDA | FY 2024 | $373 million to $378 million | no current guidance | no current guidance |
Interest Expense | FY 2024 | approximately $60 million | no current guidance | no current guidance |
Depreciation | FY 2024 | approximately $115 million | no current guidance | no current guidance |
Tax Rate | FY 2024 | effective tax rate guidance remains unchanged | no current guidance | no current guidance |
Share Count | FY 2024 | guidance remains unchanged | no current guidance | no current guidance |
Adjusted EPS | FY 2024 | raised EPS range to $2.75 to $2.80 | no current guidance | no current guidance |
Interest and Other Expenses | FY 2025 | no prior guidance | $42 million to $46 million | no prior guidance |
Adjusted Tax Rate | FY 2025 | no prior guidance | approximately 23% | no prior guidance |
Share Count | FY 2025 | no prior guidance | approximately 57 million | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $3.10 to $3.25 | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | expected to be positive in 2025 | no prior guidance |
Q1 Revenues | FY 2025 | no prior guidance | $555 million to $563 million | no prior guidance |
Q1 Adjusted EBITDA | FY 2025 | no prior guidance | $97 million to $100 million | no prior guidance |
Full Year Revenues | FY 2025 | no prior guidance | $2.19 billion to $2.22 billion | no prior guidance |
Constant Currency Organic Revenue Growth | FY 2025 | no prior guidance | 6% to 6.5% | no prior guidance |
Recon Growth | FY 2025 | no prior guidance | high single‐digit growth expected | no prior guidance |
P&R Growth | FY 2025 | no prior guidance | stable growth in low single digits | no prior guidance |
Currency Headwinds | FY 2025 | no prior guidance | approximately 1% to 2% | no prior guidance |
Adjusted EBITDA | FY 2025 | no prior guidance | $405 million to $415 million | no prior guidance |
Depreciation | FY 2025 | no prior guidance | $125 million to $130 million | no prior guidance |
EBITDA Margin Improvement | FY 2025 | no prior guidance | 60 to 70 basis points improvement versus 2024 | no prior guidance |
-
Margin Expansion Guidance
Q: What's the expected margin expansion for fiscal 2025?
A: They anticipate 60 to 70 basis points of margin improvement in 2025, driven by their normal 50 basis points from core operating leverage and mix, plus an additional 10 to 20 basis points from year two synergies of the Lima acquisition. -
Free Cash Flow and Debt Reduction
Q: How will free cash flow and debt levels progress in 2025?
A: They expect to generate positive free cash flow in 2025, moving towards their long-term goal of 70% to 80% free cash flow conversion over time. They plan to reduce leverage from about 3.5x to the low 3s by year-end and aim to get under 3x in 2026. -
Pricing Assumptions for 2025
Q: What are the pricing expectations for 2025?
A: For Recon, they anticipate 1-2% downward price pressure in 2025, returning to historical norms. For P&R, they expect pricing to remain flat, with opportunities for positive pricing offset by areas of slight negative price. -
Tariffs Impact
Q: How will potential Mexico tariffs affect free cash flow?
A: They are proactively managing the supply chain to mitigate impacts and do not expect to increase inventory levels materially. There may be a 4 to 6 months lag due to inventory turns in P&R, but they don't foresee a significant impact on free cash flow projections for 2025. -
Synergies and Dis-synergies from Lima Integration
Q: What is the status of synergies and dis-synergies from the Lima integration?
A: They experienced about a 1% net dis-synergy impact on the Recon business in Q4 2024, offset by cross-selling synergies starting to ramp up. They expect these effects to neutralize in Q1 2025 and anticipate positive net synergies in the back half of the year. -
M&A Strategy Post Lima
Q: What is the M&A strategy following the Lima acquisition?
A: The focus in 2025 will be on small bolt-on acquisitions. They have attractive technology and channel additions in the pipeline to accelerate growth but are prioritizing completing the Lima integration and deleveraging the company. -
Recon Growth Guidance
Q: Is there a path to double-digit Recon growth in 2025?
A: While their strategic goal is high single-digit growth, they have multiple paths to achieve double-digit growth in the Recon business. They are aggressively executing to capitalize on healthy momentum, especially with the business outside the U.S., which had a double-digit year in 2024. -
Hip Business and New Products
Q: What are the expectations for the Hip business in 2025?
A: New hip products, including the collared stem, will launch in the first half of 2025. They anticipate recapturing procedures and surgeons lost previously and aim to return to growth well above market rates in the U.S. as these products roll out. -
Cross-Selling Opportunities
Q: How are cross-selling opportunities progressing post-Lima integration?
A: Cross-selling is ramping up, with initial impacts outside the U.S. contributing about 1% growth in 2024 and expected to reach a handful of points of growth over time. They are leveraging their expanded product portfolio to drive share gains globally. -
Q1 Phasing and Extra Days
Q: Why does Q1 guidance imply almost 10% organic growth?
A: They will have 2 to 3 extra selling days in Q1 2025, which will boost growth but will be offset in Q4. Additionally, strong business momentum is contributing to a robust start to the year.
Research analysts covering Enovis.