CFX - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Colfax Second Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mike Macek, with Colfax. you. Thank sir. ahead, go Please

Mike Macek

morning, everyone, Mike joining I'm you and Vice President thank Macek, for of us. Good Finance.

CFO. Executive Joining me and President Hix, President Matt are and Vice on the CEO; call and today Trerotola, Chris

in Our earnings release section issued this our colfaxcorp.com. the is website, morning of Investors and was available

archived presentation call using the quarterly the website. through Both until on audio walk and today's will found call, and will be available to be our We which presentation earnings on this of slide be a slide today be later you can also website call. the will next the

During those from regarding forward-looking with future some forth might harbor safe set this risks today's statements statements estimates results. results differ and beliefs materially to These in statements forward-looking we release filings the forward-looking and be our call, in and events in we'll language the are including about earnings Actual that uncertainties, making SEC. any subject our speak measures today, make them, slide forward-looking as obligation law. in presentation. relating the required intend during accompanying to call non-GAAP measures today's the earnings and assume and found those not reconciliation made With today. release any by financial statements to we except to update do can today, any be or The only respect our information of press and

who on Slide start to X. will like I'd Matt, Now turn it over to

Matt Trerotola

patients. I'd dedication of by and like Thanks Mike. to start call. safety serving health Good their morning, the and while their our to the everyone, and our joining protecting associates thanks, recognizing colleagues, for customers for continued

QX and from margins. achieved in our flexed challenges actions mitigate quickly world. protect to COVID-XX we safety our on few supply associates strong to mentioned shutdowns. same driven decremental our aggressively of cost and very we At of slowdown sales top navigated time, recover a the and call, I the down successfully policy We chains As a for to priority around last flowing quick took partly range made most our keep the our

aggressive $XX and and focus keep second an on company. overall used of earnings $X.XX XX%, flow, free adjusted and June positive both despite with In investments, as cash past July cash our in positive of to sequentially then million also in and XX% financial being about and in overall hit point down cash June flow worked sequentially both and spending. April, of positive sales sales a reduction customers earned our our were our we as objective the flexibility. share a trend this We generated flow down protected financial shock. we growth pandemic quarter initial per more quarter, improving. May We achieving ample liquidity continued and basis the than XX%. improved CBS even the an reduced We Sales strength of the again, businesses, the low protect of year-over-year finished with key

detail momentum out which the actions progression us we expected our the that Our more shows quarter to range and outcomes. within had COVID. strong relative X monthly regain businesses, will this to enable prior our of played in Slide performance sales in

down of are to a improved more XX% range XX% larger sales to X%. elective resume July in QX impacted of then sales has than by April, product hospitals quarter. increasing June results product The lesser down part that an down experienced Prevention and to to be in consistent Reconstructive a April. declined business, April, ASPs so is from throughout of and And lines of nearly the our XX% down early these and Across and more March a global, down lines uses and curtailment will saw complete in elective number June. declines quarter with in a is improved June recovery the the levels. June. April, In XX% This to broader also May, elective Rehabilitation growth and diversified XX% sequentially of sales better organized we improved as the sales business in total improved, starting procedures In in MedTech and business in procedures views factors quickly preliminary of with end and of orthopedic extent procedures, Following just reopening had under due just in Sales clinics MedTech the difficult only decline FabTech, June. improved the increasing surgeries. than trauma. levels April our just sports

improve the progressed, businesses of improvements demand pace the half through many expect year. improvements facilities, MedTech from Similar regions. sequential served areas continue benefited business, of we reopened in in both is and we in sequential easing second continue The our As in will to of quarter all believe to the but to we QX. we improvement almost restrictions uncertain,

increasingly our MedTech down are We market Both growth. $XXX on X. segments amount the similar a sales and and results included investing QX future maintaining for million on expanding advantages Slide of down were were focused improved are organically. and through quarter. business XX%

in July. expected, As and a we positive much had steeper Reconstructive had improvement growth

are recovering business by teams We demand. the the sequential are encouraged effectively as our working serve improvements to across

adjusted to temporary declines. enabled volume quarter EBITA Our deliver positive significant cost second the despite in us actions

Given driving our innovation. strong and the rolling through improving sales, processes, execution actions recovery QX back commercial temporary strong and sales operating on we're focusing of savings most

in We've of key and initiatives X. launches versus recent We growth continue to Slide on to spending some increase innovation invest expect our last. overall year our highlighted this

team implant important develop out gaps business outcomes. filling portfolio currently opinion building to products. surgeon with where and superior to bag We're We're and in leader about great launch we our on offering. key product with two aligned products new the our surgical fast-growing have Our

that great have EMPOWR benefit made patterns a Partial motion number from our of procedures the patients EMPOWR natural First, expands the and such stability where knee the greater Knee can success.

new adds the expecting products that vitality also year, range the to more Prevention gap market-leading the AltiVate portfolio. two which in product protection design. released continue Knee key excellent shoulder will filled significant user-friendly The the created levels growing with Edge, comfortable brand. growth. in DonJoy above-industry bracing along COVID. We FDA launch Post-Op operational us Brace motion product These offering products our under of focused our to and recently recently surgeons with attract to healthy key progressing to deeply approval consistent back to a prior several combines will vitality, The more in to We're also surgeons. We and improvements, step-by-step new In VersaRom portfolio. penetrate X-ROM this existing a products seamless Hip help received Brace growth Anatomic Rehabilitation, CS support momentum for

to improved protocol, in connected connects care overall can is better compliance medicine strategy practitioners innovation postoperative our with real-time of create health medicine. data to patients to outcomes in and part more digitally experience. capturing lead Connected connected By driving the outpatient Another patient settings. satisfaction medicine and

you team through the suite surgical solution role an continuum transform in is As made we care data. doctors these designed patients digital care. interested active overall patient with COVID digitally patients health imagine, innovative throughout introduced larger software another Motion informed our of great surgeon, has in the care more and to take and team iQ connecting This experience the even Motion activity by process, iQ, more new benefits. the crisis can and This continuous an personalized a to the addition their empowers while and to of care providing solutions. week,

Slide sales XX% Fabrication million. to $XXX declined technology Turning organic X. to

sales business coming FabTech markets. that with our of is truly strengths the faster-growing of from One emerging business global is of a half our it almost

This regions quarter, sequential both the regions than these and sales developed less showed improvement were rate developed, quarter. through developing down and developing

sales in traditional is only at business benefits. well savings projects our decrementals lower acquired years mitigated GCE quarter. of strong million and as as expected last part significantly late strategy in-year with with annualized and equipment Restructuring cost growth We of in track GCE sectors. the opportunities impact Our with and least control benefits $XX the equipment, XX%. the care We grew remain platform. in from several profit improve selling ago medical temporary FabTech to a gas leader within control gas in health on as industrial in systems other resulting space the actions, year margins higher our more GCE and FabTech initiated through of gas

We offense FabTech. effectively investments, launched again we're of new aggressive through in some focusing and market supporting sectors outperformance. By year-end ESAB's year. this to playing highlights also healthier top key products. are expect protecting products the of QX XX customers, Slide continued X on positioned by XX We growth and end for

drive year. market-leading share innovation process at an a that strong products rigorous have new reliably each gain that We and creates ESAB

software. notes documentation our expanded We solutions. introduction FabTech has this This platform weld on with WeldCloud storage offering digital to process WeldCloud also management quarter solution of quality and the focused been adds offering. digital Our our industry-leading document

This also needs the quarter, designed source industrial serve portable the launched XXXix, Aristo power the that of a better to market. is we heavy

portable out a market inverter that a We also XXXi, access Miniarc stick/lift markets. new ROUGE high-growth us TIG ES in to rolled gives the segment

a We will ones here. products launch have from few control gas QX dozens of this key filler year and metal highlighted and

driving field those via world includes for time from around our of focused time, priority. customers turning service our Before when manufacturing technology Slide our working continuing need our Chris, in the growth our I'll they to sites, the the At to remains to year at it half associates teams second same on strategies. This key are and priorities teams safety our X. deliver and a products. are over summarize our teams associates The reliably advancing These home. our of improvements CBS on the top essential protecting

with new markets continue at improving. also our number products. a and time are of to costs are and performance products strong supporting flex when innovative delivery new are These our customers expanding an being responsibly We commercialized

at expect growth portfolio. third cash flow clearly We our that positive. which quarter reshaped strength in to remain improve believe We rate the recover and the of and show the will profit we sequentially

value of technology I'll gratitude healthy expressing my drive close We bolt-on strategic sincere also that by have our opportunities and the our shareholders. acquisition world. investments help associates to can a pipeline around compounding for

and resume have together of execute and shown resilience will commitment, know then XX. we great proud our work am of on the through teams times. our team Chris momentum. extremely Our and rest I to successfully these crisis this winning start in skill will Slide that challenging

Chris Hix

from our Despite total flow. assets. does million the revenues our cash achieve pressure we $X include in flexed Thanks, Matt. The positive free generate to another we reporting of to on objective sale down not the our the are quarter spending COVID, million from $XX

efficient balances reduced levels. operating also cash We to our more

quarter efforts quarter the of $X.X with kept repayment our finished All turns We in and liquidity the million these revolver of of supported X.X the $XXX billion. debt.

flow positive in generate our cash be of QX. quarter to highest again in cash forecasting flow QX are We and seasonally

under current the the to Our organically is in just and of leverage half declined our on XXXX. quarter. Sales this in as return performance. levels four headwinds view we second X% of XX% the to as-reported in consolidated exchange of as sales Xs in XX second in X%. impacted then an rates, in into expect the FX Slide QX headwind is to year rebuild the be mid or overview XX% current range EBITDA turns lower X% Based quarter with the

in During us the within XX% achieve quarter, to our a outlined of as temporary reductions, range. enabled decrementals This last executed expected call. our QX we spending

actions many continue for of we sequentially back align dialing is with to to outlook this sales cost Our strengthen, to the view. temporary and are

into result, low we the a slightly move in the decrementals As QX to XXs. expect

would cash in operating completed by improvements process later also been the reflects that improvements to performance. future in have some year. cases, implemented quickly throughout of company, million QX These accelerating Our our teams that efforts $XX will contribute flow the were

cash to plus $XXX XX%, after As million that guided for originally conversion, COVID free more flow of this year. we we abates to XXXX, return expect or and the

levels share in For should near line The costs count with of the and adjusted be the interest in earnings tax track likely rest mostly be we the on to XXXX, expect mid-XXs. to QX view of call. The last of similar remain months as this in recovery our our Slide discussed we in each XX few drivers provided we that ago quarter's a the results. a long-term provides intact. businesses rate

positioned to demand well Our and aging active conditions. is MedTech populations and medical increasing from the more related serve business

global investments support the remains truly in business to FabTech the supplier world. Our infrastructure developing only

to from increasing revenue. has business our and care health powerful markets. served benefit incentive The MedTech should serve in access patients industry Our to to a continue protect

immobility seek increased arenas seeing activity pain and to will future patients already are for their relief also work backlogs treatment entering surgeons as We linked be who injury are to chronic revenue down and for more and prevention.

revenue normalization expecting flat into to QX continued XXXX. are in down We mid-single-digit and heading

broad of continue of potential have a industrial served. reflect the band wider markets number outcomes to to Our scenarios

continued businesses associated month of recovery line of certainty system quickly on our associates additional of April cash Business invest and sequential to July. and growth second XXXX. with for resume of momentum positive of into but expect of the levels cannot sequentially resilience, to and this QX our that through In to objectives return conditions We predict ensure We're the path and That has Throughout continue waves abates. earnings to power and We We our infection profit as XX. conditions, our quarterly into remarks. acknowledge of improve outcomes, financial our sequential clearly QX the Sales completes quarter. wide flow improvement path delivered pleased demonstrated into should to Slide the our protected our pandemic. play continues prepared well business progression remain the growth, up on already the with pre-COVID continue but in rate momentum of in our the QX. results our confident are XXXX. views. Wrapping preliminary with for teams half our sometime positioned each to expansion responding for lows, back see line potential demand and a of quarter, are off by influence we and we cash offense improved downturn, risks We range of improvements in healthy top and we margin to July the will when at we COVID flow. strength the and this normalization

open call and up ahead Q&A. the go for Let's

Operator

Our from comes the first Scott Instructions] [Operator Davis Research. line of Melius question from

now Your open. line is

Scott Davis

hear morning, Hi, guys. Can me good you okay?

Matt Trerotola

Scott. hey Yes,

Chris Hix

morning, Scott. Good

Scott Davis

of pandemic. the of of you're what or in give mean, us factory some whether couple of mean, prepared that marketing things with can here. the regard? made to, that sales, end that accelerated kind above? just the share it's Or the of a all lean I A you towards of process referring can morning. improvements you interesting remarks Good examples I or anything based basically you kind sound comment given us

Matt Trerotola

of cash you Yes, Scott, working comment was we to process specific active CBS and lot throughout bit that's had of both overall flow, efforts I businesses, focus of improvements mean, related where in And area in the working management part although inventory had the we're flow, – on cash improving the business. businesses laid we had in an on as our already a pivot a in but to – the up serve around as the we a could facilities continue the were business. stay build globe of many And we're inventory inventory the foundation crisis, into we terms very able we're the thoughtfully in as declining, foundation use the got that across position early volumes that and we customers process what on front didn't to to in where our well doing work. where quite

strategically feel to right we inventory not the on amount at to but for was the been able ourselves run time, the us have inventory our up so like the down. revenue keep positioned coming we've same recovery as have of And

Chris Hix

results you're add you're would cycle improving, going generally, of various we've times And the well. frequently reviews able that measuring we also better the the be know, operations got that you I increased as drive as more as our and in to well. in that parts to way

Scott Davis

products? you customer how to Okay. products But just you look in a you educate to launch of this I like times the this? new promising. of the just understand right get to is Or just few and in how little logistically, do time, this is get cycle, those new regular Helpful. part to take a out do your I product the rollouts really pandemic MedTech – to then the it's And going kind offering? longer given guess, mean customers And have that perhaps

Matt Trerotola

time as it's been thoughtful timing. about the Scott, Well, great interesting of as enough, a sort you're long

to had For doctors and us. of than a ever their in there QX, to other had more talk months they've couple time practitioners

a advantage we of issues, full took on We the a that. of of products we new education digital So including that range had lot sessions had.

we market shifted QX. there but here activity, a months whole now to into products then used couple of we QX as So that the the do time products, much a couple designing get I to of we launch got of to a wasn't lot did, them education out of by out with think those the and we've of opportunity bring in the when

opportunity full our bit taken think I have of advantage So products that these on of. was a unique teams a it

Scott Davis

Thank guys. you to very luck you Good Helpful. much.

Matt Trerotola

Scott. Thanks

Operator

Thank you.

goes from Capital KeyBanc from Markets. question next of Our Hammond Jeff line the

line now Your is open.

Jeff Hammond

Hey, guys. morning, good

Matt Trerotola

Hey, Jeff.

Chris Hix

Jeff. morning, Good

Jeff Hammond

just little were to They MedTech. in focus bit forecasting. a weaker wanted So on seemed we margins what than decremental

you Just what kind did gave about decrementals maybe you go of costs and the in we comes to two temp into what know can what talk investments – about segments we XQ? terms you of how overall. have And between back? as think as weighed? an And I may

Chris Hix

we that Jeff, performance starting in difference point the with we're you've we the in had – There's got both the were really in businesses. pleased because profile execution a I margin a with QX different the the Yes, businesses. obviously in think

expect decrementals FabTech in to would just as business come with the we it So lower did.

wide employment levels, a temporary which across compensation, range that we had, really executed spend. we've discretionary so And of initiatives impacted

stay pulled levers sure much we make healthy. to the really, financially all Just we could pretty that

see sales opportunity to those we clear temporary quarter the sales going QX began progressed, into it levels, the became the match spending improving against to As that improving had we and us levels. to

bit, in Instead think getting given the appropriate of sort level that fact and that that we employees, had low QX. we're level to offense, to But We making very fair especially little to turn compensation, opportunity. the with playing being that sure of we in. decreasing And all our the targeting of a saying QX so engaged that's changing the of we're going decrementals to the that we're means in XXs, we're more a still, that's of the really XXs. of furloughs, team similar be and more respect knobs the pivoting the tactics began the high share to improvement market

Jeff Hammond

visibility think catch-up then how thinking I there's of I'm in talk Okay. of you're then I Do XQ? some into of kind all about, this know cadence surgical about catch-ups back? And these piece. think you happen but to just tough, the think up? how And step about XQ been wondering in we is Or catch how that and

Matt Trerotola

or at was Yes. – there's – And been come off a time, essentially the an then the clinic think, really from place. from Yes, there's then as initially, been, that I elective backlog that of build to surgery this there's the down, visits sorry, clinic while up Scott, backlog surgery that back start same up. elective Jeff, shut were there's less understanding the but visits we're building are backlog. started And taking working that back

just math recovery between and be recreation and then normal. came if equation a And an And been that the the there so fast, before super the probably then the bit it's pause be of to wouldn't after of there's backlog got recovery came recovery understanding a the the a slower, the if you start, sort backlog. from the little might of there pause

back as keeping the the so year, of half frame. And that in about think we we're

steady business zone we in our get, a in no-growth for just couple scenario taking it backlog been in through in or comments, progression if more worked been good a off. zone we overall stay zone – was steady stay consistently it's QX quarter is, this a up is within late because in industry that that the share little has positive the quarter, my around it'll zone once the the Reconstructive discussion declines more in in we've back range right that right. little, Reconstructive of likely more a depends doesn't a positive of a business, all it's in that the in or But zone, might July, then And shared positive little positive That years progression. in the QX. in chance quarter positive if industry July. positive changes of we the through the the significant that external the I flat growth the the are, down stronger we how news versus mean now. unless that pull The business, But that in a or a now, something As

Jeff Hammond

And months of the then rehab maybe progression three, would thought you how ago? side what have recovery in happening the relative four is to

Matt Trerotola

Yes.

see I step-by-step also the surgeries. we far, elective is Reconstructive, as what based activities, pace back around been consistent But range with it's then consistent What has portion and in a in we're down broader the what those with that more recovery kind pace and might FabTech have didn't are think That injuries, slower. more we seeing of business of been a a business drivers significant on trauma, with pretty terms thought. business there its go happening that that medicine, workplace of very that's surgery recovery. business world, those of elective there's of a step-by-step a at significant that come of that, sports has quickly well elective frankly, on coming as is there's as sports off And course, surgery. implant portion part, of driven back of is

the that we so it's going back outside those world the activities do. to a is business we're to getting et think more resumed But of more all recovery yet, I'd July of going quarters or expected, number before take cetera. that well, again with the and on full, same consistent that to is some months encouraged are in have lot getting at a activities are with business see couple what people say time, the as And improvement and in what's there's consistent not we've in that and of as clinics of in

Jeff Hammond

guys. Okay, great. Thanks

Matt Trerotola

Thanks.

Operator

you. Thank

the from Joe from Cowen. line comes question next of Our Giordano

Your is now line open.

Joe Giordano

morning. Good guys. Hey,

Chris Hix

morning. Good

Matt Trerotola

Joe. Hey,

Joe Giordano

like in the think in getting July that about curious, the direction in how of to California lot seen just is just curious I'm surgical are up and now July places forward range have that in I of sustainability kind or that a you're there Northeast, up seeing do being worse a the like, it is second important. we different color think of So then waves? like the outcomes number. country, of parts the wide is I'm downs that like as of

Matt Trerotola

Yes, Joe. first, our business the And balanced is that very Well, had there fast longer no and there come some And in came terms certain differences, pullback. country. are led some nicely that states other are cities and that question flare-ups have to there's now that surgical there across accelerating. that then regional is back back, states just have to they're of infections really took and very,

the had essentially, swings. news that impact, there there's stopped And not you but that to everything we're schedule July have bit Whereas go is frankly, be I'm even what's go what, that some is happened some of month-by-month if weeks. flare taking getting a two see in and – it diversification here really doctor it Now a tends a June not that vacation their going things back to that of have I'm situation to will you ups, because happen. to to wide March, specific. seeing degree good Again, quite a back you'll little pulled to local Hawaii. is know take and starts

phenomena, lot the dial to things a one specific starts and a hospital XX% you that doing and And only we get adapting pull the what I staying XX%. have someone doctors doing to causing concerned, got happening and more. Or they to I need and an little docs, the are fantastic close that that we've decides surgical thinking things that very, making decides think in a to our And unless our very feel kind new pivot those do are do back time way, think – that. of we have sure going the that implants business. – they else difficult and up and of down they're in to that of oscillations of and recovered the job there's that the to they're and to that from of and very we job when hospital kind have has We're do a doing not, ambulatory agile bounce away to we doctors from then center, So times that doing we we it's and someone that. that There surgery, that adjust so or some more surgical or in can great are should do a be are business that team most significant takes the and XX% But going to XX% a they – some is like case-by-case incredibly business. to team, little. back unexpected

Joe Giordano

of your shift things apologies accelerated the on And some scoring And that? you of digital have they – like if touched ambulatory But accelerated maybe an towards different uptake of patient kind have bunch am you kind you maybe this seen have offerings already. like I things this morning. kind of and of center? of juggling the for a

Matt Trerotola

Yes.

are they being a the question So of percentage of types done the that multiple to outpatient percentage appropriate an while environments, that need way. time, hospitals A back that same being outpatient having procedures in surgery, of done environment the larger are not things of at now, there's have. ASC. way in procedures That's dealt no larger separations the right to have getting elective with just

of environment. temporary that a on outpatient in amount there stuff being basis, done elevated meaningfully a is So

accelerated that to likely good level. things some great been that stabilize of sure, for through On this to more been doing back that, outpatient But this. the surgery balanced backside for will has a there. kind And there's more of trend we've

patient risk available the very so Our that to as how on active a patients do is is sets that done an for OaraScore they for And made short-term that leader of there. instrument able continually sure EMPOWR a our also the that we've environment advantage is knee to do to up the so it make that working us. them ASC well creates of the and it we right helps product, our patients, that everyone can to can in sets that outpatient ASC to the for the use assessments type workflow be something are the also other and see real We've been be which a we've continues, trend knee and basis, that Knee, – on environment. in outpatient more as in

Joe Giordano

hard Brazil, the Have starting with just Obviously, a to just me, of Russia, that. exposure on kind FabTech. things then pretty like significant have of at from And stabilize you those standpoint? demand world parts for some too, last that you least hit seen markets been have

Matt Trerotola

Yes.

the of an the restarted ongoing we late get are and I of basis. have the in includes various accelerated It's completely early and May As part then that shut all accelerating our on developed one better business in of to is the quarter, most certainly in well facilities And like our that May India some taken and of India. performing down of as developing that but kind emerging April, a time said, was of of Russia. most regions has June seeing through regions than June. shutdown, backside that and kind reopened or on reopened the

Joe Giordano

Great, thanks guys.

Operator

you. Thank

next the Baird. line comes from Halloran Mike question Our of from

open. now is line Your

Mike Halloran

gentlemen. morning, Hey,

Matt Trerotola

morning, Good Mike.

Mike Halloran

continuation So first a a question. on FabTech side, the of bit last little the from

that How decline of in regions July that, we it Or frame, little down this June. mid-teen range? across decline type kind improvement going – mid-teen that, curve? of me. do the kind improvement? what a linear high single the and in high guidance get informs it that about think almost single What arrived to is XX% of you off Comps versus is to digits of easier, the normal kind how range You in seeing but low you're at or sequential seasonality a of decline excuse a

Matt Trerotola

Yes.

versus shut of they're pace. mean, – we which carefully they of to activity I maybe So had driving we've were those and and improvements that was driven them the by and was versus of demand-based economic and we reopen policy driven And quarter down track kind at certainly, what looked then which drivers segment driven segment. trends slowed much reopened were trends those some down through how restarting to it and and how factories the by shut they were of and in much then driven were we then very the at able by terms which down were

We notice, from down typically and looked went be that that quite at Europe, for up things then on summer developed. taken we the our through we QX the how has trajectory a at tried view history. quarter, look best now quarter. as we've to you'll June would QX give QX QX. sequential are we're a going be the from from is different through and that, things to it close to So And based us how should And you we have see expecting in about to based on how

Mike Halloran

side of on on kind pricing and price The out perspective? FabTech, cost from any that thoughts the plays of so quarter. Thoughts commentary your your dynamic how

Matt Trerotola

Yes.

continue more world is quarter high-growth broader are positive And it environment inflation the But in into same we very stable, our the So us. a hits in some price the the pretty while, stable. about pricing in value-based market feeling pricing covering being healthy like we at and related drive actions. there's inflation to proactive versus to covering of the areas when efforts is industry, good time, pricing

Mike Halloran

back last how side rehabilitation are you the reconstruction? impact? the pretty other levels of were then how about guys it versus thinking does it pieces? to How – one, lag coincidental? Is activity you And of and return to that to a Is when timing the about talking correlate you things, there thinking go

Matt Trerotola

Yes.

So meaningful our it's business rehab closely pretty linked. related prevention and elective surgery, is of to a portion again, and that there's

saw cold world, medicine will just in X-ROM is get therapy of the brace part surgery be an be after but the after around also a not surgery gets And meaningful right used a pickup in we our a U.S., others. you again ACL, that's that we right sports rehab that. use related restarted they getting after right and there to that braces launched, As bracing there's business implant is just that or ACL to this brace surgery used

because business just close that to elective the of is really bracing portion But there it with the constricted in rest cases, surgery. bracing So then a going that, with return our a correlation people it's was some of business to weren't pretty clinics.

they the clinic. And to they would have get but weren't able so pain,

came for of – different that. most there's that and sheltering around a reduced the on Some come there. but based also the the the that channel, of But for place that consumer in the didn't bit Rehabilitation of all world of reality, need different trauma policies injuries, the workplace of were people just things like through little it a of sports drivers significantly Prevention all some industries, are of and

just next we're quarters, so drivers open that's that Chris if rest be the the to as get the return, should not about, And normal. as more do get year. to get demand more that's expect we a quarter And of but more people way sure to as several and more talked going economies and these and back or we get into active,

Mike Halloran

time. the for Thanks it. Appreciate

Operator

Thank you.

question Sachs. Joe from next Our of comes from Goldman Ritchie the line

Your line open. is now

Joe Ritchie

guys. morning, Good Thanks.

Matt Trerotola

morning, Joe. Good

Chris Hix

Joe. Hey

Joe Ritchie

little margins XQ. bit Can we a about talk just MedTech in

So if it, as mix should can to dog million closer like the Mix that teens high into – EBITA year. sorry, have be I the doing, in up right, mid-teens because my last in revenue. the to occurring you so whether that's organic background, MedTech, a flat the had let's And $XXX margins I'm in do roughly well? puppy. benefit XQ them benefit, just like understand you back get guys like end call in trying

Matt Trerotola

And the as margin making drive in Chris and add. our margins Yes. are an I I think But our overarching kind we comment on certainly sure that focused that can a are just revenue recovers, of that this in mean, improvements something and talked we've that temporary cetera. fros there's aspects and we be we're that's measures, et what since confident of that the that, what business acquired different quarter, tos In terms in we're some about in we're business. given of any selling investing and I'll we standpoint, healthy going on place can to happen. this. from can

think going kind of that have specifically we're continue are sure have as to that comparisons. not And we're improve is recovers, margin revenue fully focused what so But comment to then – in margins not the that to can the there. able that on business making to be very we on I we from and say ready should I that quarterly

Joe Ritchie

I faster half be is accretive, Okay. that the the guess, year, grow That's should fair just the enough, mix maybe the make Chris. it expectation than Reconstructive correct? second straight prevention for in and rehab sure of that though, business I got to

Chris Hix

for dynamic the time, expect we've seen a That's quite some that see and back the we Yes. would that continue year. of in to half

Joe Ritchie

you're the a Okay. maybe maybe Can just you And equipment Great. then And versus about seeing geographically? on the you're then just on side business my quick what of the what little FabTech. talk bit side? follow-up seeing one consumable also,

Matt Trerotola

in the healthy developed Yes. the of From a sets the as geographic but showed markets than shared, FabTech, more quarter. I acceleration markets were split emerging through markets, down both

little policy that's things We a to the expect broad is going through on both and different based And sets third a what every seeing. obviously, quarter. the country things, move of accelerate markets but at to basis, we are continue as trends into country-to-country other on pace

Chris Hix

was And that yes, between consumables in the versus a had the on quarter case was part – there the there. similar I equipment that equipment consumables and follow-up business there, the the the of in we actually experience pretty think side.

Joe Ritchie

guys. Okay, great. Thanks

Operator

you. Thank

BoA. line next Obin Andrew of comes the Our from from question

is line Your now open.

Andrew Obin

morning. good Yes,

Chris Hix

Andrew. Hey,

Matt Trerotola

morning. Good Andrew. Hey,

Andrew Obin

getting. couple Hey, just we've a of been questions

So and it we impact sports the the Prevention have of about half kind the on of and quantify year. second Rehab think sports college how of the once the one, impact college sports should How resume? of what in should professional we sort and will impact first

Matt Trerotola

Yes.

youth So world college, the our growth around set of sports, other also activities business. drivers sports sports the are of not the activities of broader and but and as one professional Rehab and in Prevention high school

One drivers. growth as the growth drivers, of a talked about, we've but one of certainly of number

And the seen affected recovery of recovery the that assumptions we're a by we've so and the rate is that for that is of to return rate about is And certainly, step-by-step year the and had made that the declines driver. that the and that kind that talking of lockdown a before sports, a to sometime that balance we've immediate all being sports there trajectory high sports, that's and going total giving. of guidance there's year not of resumed, we that's of level be what kind we're into not factored that sports are resumption there's of next the all all we've

Andrew Obin

up asking MedTech under to XXXX thinking scenario MedTech What not XXXX? business be be And second then the asking just you a up could take for but over for just question, XXXX. a you forecast, for about would over XXXX? in which actually I'm it

Matt Trerotola

Yes.

yes. So

year, let's well this is to I of of the that MedTech normal of through first is, whether through to normal and the that passed then sports elective next drags the as and levels back to of kind normal, scenario of first, the through getting that, And treatment, second comfort recreation in least kind right, through it's close backlog as have The elective majority surgery distancing, gotten with is at assumption. surgery things of close year. things comfortable have back resumption social have and say, be the return or would kind vast and et of we So that surgery kind managing that, sort that above we're elective a essentially the that XXXX to activities. cetera, like vaccine that terms with people year or activities of PPE existed comfort this through of in have cleared

certainly but would think positive combination ready what to reasonable that's that that, guide think point us zone think get at XXXX. think there's we assumptions MedTech of a in reasonable XXXX is set which would this next into get to very, not in year, assumptions. positive I very we is of set that going us we to happen, a over We're

Andrew Obin

you so much. Thank

Operator

you. Thank

Steve from from of Tusa comes question the line next Our JPMorgan.

Your line now is open.

Steve Tusa

Hey, good morning.

Matt Trerotola

Steve. Hey,

Chris Hix

Hey, Steve.

Steve Tusa

margin XX%. stable what seems of commentary. much would that from think managed reason of any worse off a trend? or why XXs there kind Is more decremental I kind be XQ is kind to of Just the of of be a mean, don't low I different materially than

all, that at bounce collapse have around this reason kind assuming are why stabilized would band Any then? XQ we revenues within seems So guys front. a don't things you by of on again like

Chris Hix

think it, over and normal in business are MedTech you decrementals XX% around about XX% – FabTech for in the Well, the business. the if

around of given so operating that our to investment levels normal we forth. that's tend So range. flex and And

So the the idea we the shows XXs low that pretty XXs we're and significantly. even in cost that flexed in the maybe

sequentially some in incrementals we to you're and decrementals the toward As of going business. the converting levels into business, point, the natural at back eventually migrating improve then more see us

cost here to So – are as migrate to hands over sort expect certainly, we've levers time. down, on able of – the be us but sales decrementals our the manage think would I see I the got the to

Steve Tusa

Over in you're going to mid-XXs of out? Does that XQ, things Okay. play mean kind be time.

Chris Hix

think shift QX lot a we're significant in No, but don't there'd have in position a in point decrementals. why I think don't about our be this I quarter single to a talk we'd reason a in at a time,

Steve Tusa

Right.

business. it Okay. the comes this kind the of real That makes margins sense. And then at I I guess, on FabTech like think looks opportunity –

that. comfortably average peers got peer You've – that's a above

to that ops up you're that better way you gap than have mean, for the historical I for recovers better kind a on to in on FabTech You really on the the over Should cost the improvements time? this than process structural guys on more the we close incrementals peers improving as thing some goal to better of said materialize leverage way margin, working and to kind business? of up. and of see to obviously deliver order leverage approach that there. Is perhaps the a of processes

Matt Trerotola

Steve. Yes,

the our of front over we continue tell we're kind XXXX of used value the done. revenue to well that from where really over made and make of in back a in intend to business, that as of to with make get of innovation to comments we're structural time. on of we've progress And to been I a as business that in not levels, business. and think, that the in that's our CBS-based trying now combination we And five versus and pricing productivity all, taking kind are to be. there improvements FabTech margin sure years, structural margins as we're in sort some also first And continue position that progress in you key can line business, the the driven business we're last to a margins of there. where we've four, that improve the of substantial We actions we that peer from about to

business. Now I say has structurally that a will of one different peers our other

I've further which us that in the margins, always not on historically to we so we Operating acquisitions than margins strategies, take of to EBITA margin. XX.X% pre-COVID kind talked profit takes both to strategy, the for here, cetera, EBITA get said operating to et that. going headroom we've And execution business, And go range working of for up XX% it's strategy margin but about with I'm because operating in to but kind to is lift closing made of where that about talking that operating innovation kind us. XX%. get and us that's in the margin it we've XX% is were on And what had margins would EBITA margins, been ceiling the not

that on not business. it of we're on advancing lifting closing strategically we're we but in So We're of efforts efforts that that. done, and keep the to to fast both sure backside and COVID, were in the strategic the we also close on going ceiling, through make restructuring can margins

Steve Tusa

don't in one the sequentially. of last capital, cash Right, right. maybe will in on the parts cash there. some cash half, in about there get the you to would bit some parts second flow. Great. could because to flow are but When if seems, moving And obviously, some moving comes Maybe to working hope the going like of on would when on not other get revenue discrete half on we're I hope seeing half bad that I trends? better in from it it's just just really of working a to kind it you And would here improve for parts it just back specific to moving second want then million, what what or example, are capital, think free a in back give directionally maybe, free maybe seasonally pickup be $XXX be that color there I guidance, half. one the like the headwinds second know just

Chris Hix

it, think the had obviously, about revenues, Sure. quarter, Steve, which declining business. starting second our we profit the if a had, in you on impact

we're then receivables there. to that two quarter, quarter, there. we actions counter the for which And had that benefit And the the cash we the working earlier were things for in down of full we the that provided of that, quarter, spending certainly of beginning all had us In we so us. half had the in back working started the taking, the full but we benefit had

better, now roll we're position receivables. to you we're rebuilding in As getting QX, going a the be sequentially into with sales where

end you've So front but rebuild higher the got the you've take least to the going That's certainly the sales, receivables. quarter of we've at got profit or – of higher at to cash. the in some perhaps throughout quarter, that got

company. is the more cash you we'd our QX, we working there'll the my as not largely puts comments, potential a the I reflective, little And so still takes, but be expect in bit normalized, quarter of sure reflective, sequential clock and some largely then potential into reflective what to capital would be one expect of more turn as now for mentioned that our is increasing fully to normalized. but And I'm improvements. and flow highest that's see

Steve Tusa

– reflect be kind close million? could could $XXX XQ the to that of think you So

Chris Hix

I'm lot see conversion a that being specifics, in you'll of and about we it think potential closer longer the business to of not potential. to had talk I but prepared QX the terms term in

obviously, a don't a this reason we have year. view I'm on here is, full recovery QX. expect the hesitating We don't Now full

past rate then, support to we've as one, and could improvement, that's our Steve, COVID. make a will as of the an – investments this be us in momentum also important And our growth. business that help to factor the factor everybody regain year, we depending work that that the just course, way, remind Along continued so of I I'd think a And on and well.

Steve Tusa

Thanks it. lot great color. guys. right, a All Appreciate

Chris Hix

Steve. Thanks

Operator

Thank you.

from of Julian Mitchell from Barclays. next line Our question comes the

open. now is line Your

Julian Mitchell

Maybe how trying you just questions. that you. year-on-year. cost down maybe if I us XX% almost within And how But look realized. one once And we understood stick what Thank MedTech margins not to of QX. on sales EBITA, what My first wanted that, think, was ahead the performance. – The does inform the commenting whether you're QX type to understand gauge recovery, I you guess to the could I would performance, and QX normal? be with savings expect up were return the way that once incremental two help satisfied on to I to we around try margins.

Chris Hix

Yes.

perspective I with delighted have margins we're on the performance. is the the So

the lot downturn If pressure you in gross sort kind profile, think profitability through gross the of obviously there this margin about went the going revenue that profile, was business a business be with of on high of margin the there. to a

of revenue have we to kind that us the that to heavily. us the $XX pretty We with cost cost in talked company. the caused across maintain flexing overall about – in And range plus performance – so downturn, required to flex million QX getting or our our

it the size Just have flex were but heavier profiles may costs. given a side, the business, the I able of to think on been little different we FabTech

cost changes got employment well. cost that by Now of reductions spend suppliers, making cost. having But its better the other naturally discretionary structure with some with on the comes with variable some a the lot flex selling of from it's contracts came business a of some because cost side as

business a – more July. that's mentioned, of quickly returned this growth part recovering in demonstrated or business is Now as this Matt quickly to growth has and

feel with we emerging revenue the profile the cost so a back appropriate eased profile levers And bit business. it's of revenue and the sort those matched are – up that of

revenue with to back So been us to to neighborhood. we I'd where clear I that margins that we've our closer think that. And up get closer provides get quite in before, path say pleased for matching a overall, as and

and Matt As puts there's mentioned, takes. some

in costs extra got you've COVID, through some places. working we're As

I we with the path we're through. continue inefficiencies pleased some the think we've that But to performance and on margins. got got quite overall, You've that work the

Julian Mitchell

think you sharply see some Thanks. to year? that what behind flow lot seen. but very in question, accounts gave And driver out wanted that a sequentially was on of a understand payables payables understand, QX. cash in my how the playing And over receivables, pressure with that falling I second color you'd then free this more than Maybe number inventories. happened And us payable just receivables big balance you help the fell

Chris Hix

Yes.

heavier So had CapEx lot the payables by factors. is QX. Number was a performance driven in had just fell that two the principally CapEx QX in given actual we And timing that of of payment one into spend for that, QX. the we

do So our one supply the we There we then pivoting had factor certainly we make for that ensuring a that's chain through factor. have that second was sure work just as maintain the lot which we we customers, of is COVID. continuity to do. a healthy did supply to of And

sure we that we chain so make supply had to the healthy. And kept

there. a have we that a QX. we provide reasonable of payables accounts could see so sales levels production I sales the there, with of rising do source as up, there's of QX a potential think and you'll ended cash think payable forward in additional and increased and quarter a bit But now Looking that days I and

Julian Mitchell

you. Thank

Operator

you. Thank

the Seaport. Our from comes from Liptak line next of question Walter

Your line is open. now

Walter Liptak

taking questions. guys. my morning, Thanks for good Hi,

Matt Trerotola

Hey, morning. good

Chris Hix

Walter. Hey,

Walter Liptak

wanted ESAB just about the ask I Hey, to channel. one

your a of you refresh customers more You Are about for hold go of up? kind inventories as been any What the sort channel guys are with starting Has were partners? thinking your inventory said improvement. any levels to yet? kind just right there production of

Matt Trerotola

a we leaning don't at business. out out we channel impacts certainly, global stocking a businesses, talked varies not of little say, forward There's But it June or a the went the modest over North in step And through all kind But business, times unlike lot channel has business ESAB a in quarter, July see of that we're world. swings obviously, destocking. as in over channel some very these of some more business, impact I a the here from In And that about. as from starting other channel is is or wide leaning and America, kind would the as it's little. channel Yes. time. positive so we've got a second

that. then North And infrastructure are of activity. demand of market. channels activity some some cautiously are things like to as the think And industrial rebuilding again, markets even and so U.S. – in the world, of things leading in that step-by-step put government-driven terms optimistic other there and of creates and the about constraints here industry America, around the markets reflective in and generally construction more that's the less reflective, shipbuilding the progress we forward are Those progress on some then like more healthy of it's kind markets the and in

Walter Liptak

I from besides Okay. that Great. And comment kind shipbuilding can that? on. on lines, oil sectors? likewise, aerospace. picking picking is gas of benefit And still a things up maybe – there's might still that's that of auto, along we and wonder housing those or get that's a be there if are get other going recovery like some Does those up weak, things are FabTech any some

Matt Trerotola

oil gas supply But and been things. exposed been U.S. has wind in We're as that's chain has Yes. been all construction, general the to obviously, as areas, have been just residential, here automotive Europe. government-driven things. in positive flip towers side, been U.S., the been but infrastructure And a tougher. around Certainly, world, Automotive but has well, all Automotive not the in the alternative playing and of not But right. positive industrial Yes, construction, tougher. here some tougher. those on and the have positive stuff has energy that

a been has yellow the of goods as tougher Some bit well.

things gain of to to ourselves demonstrate to been for back continued everything the coming at while. strategies it's a differential everything that stopped growth coming make kind we bit positioning business went And now for make but that, the sure our one that successfully. here that there, rates. sure has succeed share slower in So definitely fastest of with the standpoint been we've contributes able to proactively business or are – ESAB key that that outperformance segments and And a a back from are most and in are

Walter Liptak

it environment? MedTech even changes in deals any to this And is M&A. look Great. last the on on kind to – at one over With focus And just of Okay. is focus? get the welding possible

Matt Trerotola

there's not and And cetera. year happen see. Yes. year, have been looking next we think the yes, MedTech there this where businesses, come strengthen into just as as the bad. we also the encouraged transparent we're really but ahead meaningful the there overdrive that period constructive process We've focus encouraged in invest that are visibility I and to work got advance the balance rebuilding visibility disproportionately possibilities restarting, deals healthy M&A to do in of dialogue a businesses through M&A starting and was opportunities But on that et really that we're funnel opportunities back, growth a in about of and the any coming it because business and practical us. was more But going the are years. of And we we the is to strategically both to there's M&A by

Walter Liptak

Okay, you. great. Thank

Operator

I questions. over back the Thank closing am Macek no Mike would you. showing turn for At like remarks. this to call to I further time,

Mike Macek

forward day. you call have speaking joining everybody, our look We with a today. good Everybody, to Thanks, going for forward.

Operator

call. Thank Ladies this and you conference for concludes today's gentlemen, participating.

disconnect. now You may

Enovis (ENOV) 8 Aug 202020 Q2 Earnings call transcript