Enovis: A Solid Quarter, a New Accounting Pivot, and a Tariff Stance That Stands Apart

Q1 2026 shows above-market growth in Recon and P&R, but management holds guidance amid macro noise while changing its EBITDA definition and assuming no tariff refunds.

ENOV · Earnings Call · 2026-05-07

Enovis (U.S. Recon specialist) kicked off 2026 with encouraging momentum. On the May 7 call, CEO Damien McDonald highlighted a 3% reported organic growth, or 6% on a days-adjusted basis, with U.S. Recon growing 8% organically and extremities up 10%. The commercial execution narrative that has been a central theme since McDonald's arrival continues to deliver, as he noted: "I'm really proud of how the team are executing." The company also reaffirmed its full-year guidance, despite the strong start, citing "a very dynamic macro environment."

The Quarter

The quarter was marked by a notable divergence between reported and days-adjusted growth—a 240 basis point headwind from fewer selling days. Even after stripping that out, the 6% organic advance was driven by strong adoption of newer products. The Arvis Ultra platform, now in its early launch, is already contributing to shoulder case growth, with the first OUS procedure completed in South Africa. Damien pointed to the runway ahead: "We still have work to do to fully capture the opportunities in front of us," but the early feedback on Arvis has been positive.

Gross margin expanded to 62.0%, up 260 basis points year-over-year, driven by favorable mix and productivity, partially offset by tariff impacts. Gross margin rose to 62% in Q1, reflecting the company's shifting mix toward higher-margin extremities and bone stim. Management also highlighted that free cash flow improved by $16 million year-over-year in Q1, a step toward the targeted 25%+ conversion for 2026.

Accounting Change and Tariffs

A significant new development is the change to adjusted EBITDA definition. CFO Phil Berry explained that as part of the SEC comment letter process, the company will no longer adjust for inventory step-up charges associated with acquisitions—a move that formally aligns its non-GAAP presentation with the SEC staff's position. "We had a couple of open questions from the SEC through the comment letter process... we chose to conform to their dialogue," he said. This change, though non-cash and onetime in nature, could alter comparability for investors and may signal broader market practice.

On tariffs, Enovis paid roughly $4 million in Q1, almost entirely in P&R, and has submitted refund claims. However, the company's assumption notably diverges from many peers that expect refunds. As Berry stated: "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." This conservative stance is at odds with the broader market's optimism around tariff refund flows, as seen in the global keyword trajectory and numerous peer calls.

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.
Phillip Berry, Chief Financial Officer · 2026-05-07

Cash Flow and Outlook

Cash flow generation remains a critical investor focus. In Q1, free cash flow was negative but improved $16 million year-over-year. Management reiterated confidence in the 25%+ conversion target for 2026, building on prior quarters' commentary. The strategic transaction costs from the Lima integration are expected to step down meaningfully in the coming quarters, providing a tailwind. As Berry noted in the prior quarter's call, "We see it as continuing to drive incremental improvements in our conversion over the next several years." This consistency is reassuring, especially as the company balances growth investments with deleveraging.

The company's balance sheet remains leveraged, with net debt of $1.3 billion, but the path to improved conversion is clearer now that integration and EU MDR costs are fading. The stock has recovered 6.7% over the last 90 days, though it remains well off its 2014 peak, reflecting both the cyclical and structural challenges the company has faced.

Ultimately, this quarter reinforces a narrative of disciplined execution and incremental progress. The new EBITDA definition change is a governance positive, and the conservative tariff assumption differentiates Enovis from peers that are more optimistic. With U.S. Recon growing well above market and Arvis gaining traction, the company appears on track—even if guidance stays prudently anchored.