SEC Filing - Enovis

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cfx-20220701

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 1, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number - 001-34045

Enovis Corporation

(Exact name of registrant as specified in its charter)


Delaware		54-1887631
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2711 Centerville Road,	Suite 400
Wilmington,	Delaware	19808
(Address of principal executive offices)		(Zip Code)


(302)			252-9160
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ENOV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of July 28, 2022, there were 54,129,530 shares of the registrant’s common stock, par value $.001 per share, outstanding.

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			2
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income (Loss)			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
Note 1. General			7
Note 2. Recently Issued Accounting Pronouncements			8
Note 3. Discontinued Operations			8
Note 4. Acquisitions and Investments			9
Note 5. Revenue			10
Note 6. Net Income Per Share from Continuing Operations			12
Note 7. Income Taxes			12
Note 8. Equity			14
Note 9. Inventories, Net			15
Note 10. Debt			16
Note 11. Accrued Liabilities			17
Note 12. Financial Instruments and Fair Value Measurements			18
Note 13. Commitments and Contingencies			19
Note 14. Segment Information			19
Note 15. Related Party Transactions			21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			42

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			43
Item 4. Mine Safety Disclosures			43
Item 5. Other Information			43
Item 6. Exhibits			44

SIGNATURES			45

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ENOVIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in thousands, except per share amounts

(Unaudited)


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021

Net sales	$	395,117	$	356,124	$	770,574	$	667,207
Cost of sales	179,211		155,531		348,768		295,332
Gross profit	215,906		200,593		421,806		371,875
Selling, general and administrative expense	225,481		197,913		444,747		375,992
Research and development expense	15,661		11,039		30,503		21,402
Insurance settlement gain	(33,034)		—		(33,034)		—
Restructuring and other related charges	2,245		1,992		4,664		2,963
Operating income (loss)	5,553		(10,351)		(25,074)		(28,482)

Interest expense, net	4,546		5,689		11,610		18,629
Debt extinguishment charges	20,104		29,870		20,104		29,870
Unrealized gain on investment in ESAB Corporation	(135,537)		—		(135,537)		—
Income (loss) from continuing operations before income taxes	116,440		(45,910)		78,749		(76,981)
Income tax expense (benefit)	(4,211)		(3,783)		(3,847)		(3,000)
Net income (loss) from continuing operations	120,651		(42,127)		82,596		(73,981)



Income (loss) from discontinued operations, net of taxes	(43,666)		71,829		10,690		123,923
Net income	76,985		29,702		93,286		49,942
Less: net income attributable to noncontrolling interest from continuing operations - net of taxes	130		355		397		645
Less: net income attributable to noncontrolling interest from discontinued operations - net of taxes	—		705		966		1,581
Net income attributable to Enovis Corporation	$	76,855	$	28,642	$	91,923	$	47,716
Net income (loss) per share - basic
Continuing operations	$	2.23	$	(0.83)	$	1.52	$	(1.53)
Discontinued operations	$	(0.81)	$	1.39	$	0.18	$	2.50
Consolidated operations	$	1.42	$	0.56	$	1.70	$	0.98
Net income (loss) per share - diluted
Continuing operations	$	2.21	$	(0.83)	$	1.51	$	(1.53)
Discontinued operations	$	(0.80)	$	1.39	$	0.18	$	2.50
Consolidated operations	$	1.41	$	0.56	$	1.69	$	0.98

See Notes to Condensed Consolidated Financial Statements.

ENOVIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Dollars in thousands

(Unaudited)


	Three Months Ended			Six Months Ended
		July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Net income		$	76,985	$	29,702	$	93,286	$	49,942
Other comprehensive income (loss):
Foreign currency translation, net of tax expense of $—, $896 , $338, and $3,176		(30,876)		8,784		(84,337)		(44,397)
Unrealized gain on hedging activities, net of tax expense of $—, $(737), $2,711 , $3,506		—		(2,150)		9,028		10,231


Amounts reclassified from Accumulated other comprehensive loss:
Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $—, $314, $199 , $631		—		1,045		629		2,100


Other comprehensive income (loss)		(30,876)		7,679		(74,680)		(32,066)
Comprehensive income		46,109		37,381		18,606		17,876
Less: comprehensive income (loss) attributable to noncontrolling interest		(1,303)		(369)		(408)		673
Comprehensive loss attributable to Enovis Corporation		$	47,412	$	37,750	$	19,014	$	17,203

See Notes to Condensed Consolidated Financial Statements.

ENOVIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share amounts

(Unaudited)


	July 1, 2022		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	95,605	$	680,252

Trade receivables, less allowance for credit losses of $8,182 and $6,589	255,201		254,958
Inventories, net	400,852		356,233
Prepaid expenses	29,529		26,046
Other current assets	33,782		29,176
Investment in ESAB Corporation	263,070		—
Total current assets associated with discontinued operations	—		956,614

Total current assets	1,078,039		2,303,279
Property, plant and equipment, net	226,894		235,113
Goodwill	1,925,201		1,934,258
Intangible assets, net	1,114,325		1,154,028
Lease asset - right of use	71,032		76,485
Other assets	88,224		74,700
Total non-current assets associated with discontinued operations	—		2,738,049

Total assets	$	4,503,715	$	8,515,912

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	449,459	$	7,701
Accounts payable	159,136		155,208

Accrued liabilities	204,206		225,391
Total current liabilities associated with discontinued operations	—		635,284


Total current liabilities	812,801		1,023,584
Long-term debt, less current portion	—		2,078,625
Non-current lease liability	55,208		56,549
Other liabilities	144,243		122,159
Total non-current liabilities associated with discontinued operations	—		573,562

Total liabilities	1,012,252		3,854,479
Equity:
Common stock, $0.001 par value; 133,333,333 shares authorized; 54,111,118 and 52,083,078 shares issued and outstanding as of July 1, 2022 and December 31, 2021, respectively	54		52
Additional paid-in capital	2,897,207		4,544,315
Retained earnings	680,947		589,024
Accumulated other comprehensive loss	(88,941)		(516,013)
Total Enovis Corporation equity	3,489,267		4,617,378
Noncontrolling interest	2,196		44,055
Total equity	3,491,463		4,661,433
Total liabilities and equity	$	4,503,715	$	8,515,912

See Notes to Condensed Consolidated Financial Statements.

ENOVIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Dollars in thousands, except share amounts

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount
Balance at December 31, 2021	52,083,078	$	52	$	4,544,315	$	589,024	$	(516,013)	$	44,055	$	4,661,433
Net income	—	—		—		15,068		—		1,233		16,301
Distributions to noncontrolling owners	—	—		—		—		—		(941)		(941)
Other comprehensive loss, net of tax of $3,248	—	—		—		—		(43,466)		(338)		(43,804)
Conversion of tangible equity units into common stock	1,691,845	2		(2)		—		—		—		—


Common stock-based award activity	255,957	—		11,056		—		—		—		11,056
Balance at April 1, 2022	54,030,880	54		4,555,369		604,092		(559,479)		44,009		4,644,045
Net income	—	—		—		76,855		—		130		76,985

Other comprehensive income, net of tax of $—	—	—		—		—		(29,443)		(1,433)		(30,876)
Distribution of ESAB Corporation	—	—		(1,666,732)		—		499,981		(40,510)		(1,207,261)


Common stock-based award activity	80,238	—		8,570		—		—		—		8,570
Balance at July 1, 2022	54,111,118	$	54	$	2,897,207	$	680,947	$	(88,941)	$	2,196	$	3,491,463


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount
Balance at December 31, 2020	39,498,896	$	40	$	3,478,086	$	517,367	$	(452,106)	$	44,487	$	3,587,874
Net income	—	—		—		19,074		—		1,166		20,240
Distributions to noncontrolling owners	—	—		—		—		—		(1,054)		(1,054)
Other comprehensive loss, net of tax of $6,840	—	—		—		—		(39,621)		(124)		(39,745)
Conversion of tangible equity units into common stock	114,804	—		—		—		—		—		—
Common stock offering, net of issuance costs	5,366,666	5		711,316		—		—		—		711,321
Common stock-based award activity	218,744	—		12,433		—		—		—		12,433
Balance at April 2, 2021	45,199,110	45		4,201,835		536,441		(491,727)		44,475		4,291,069
Net income	—	—		—		28,642		—		1,060		29,702


Other comprehensive income (loss), net of tax of $473	—	—		—		—		9,108		(1,429)		7,679
Conversion of tangible equity units into common stock	2,058,000	2		(2)		—		—		—		—

Common stock-based award activity	190,105	—		23,510		—		—		—		23,510
Balance at July 2, 2021	47,447,215	$	47	$	4,225,343	$	565,083	$	(482,619)	$	44,106	$	4,351,960

See Notes to Condensed Consolidated Financial Statements.

ENOVIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

(Unaudited)


	Six Months Ended
	July 1, 2022		July 2, 2021

Cash flows from operating activities:
Net income	$	93,286	$	49,942
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation, amortization and other impairment charges	117,300		128,721
Stock-based compensation expense	19,793		17,262
Non-cash interest expense	1,658		2,676
Unrealized gain on investment in ESAB Corporation	(135,537)		—
Debt extinguishment charges	20,104		29,870
Deferred income tax expense (benefit)	2,174		(3,865)
(Gain)/Loss on sale of property, plant and equipment	352		(1,437)


Changes in operating assets and liabilities:
Trade receivables, net	(33,123)		(83,458)
Inventories, net	(92,910)		(79,338)
Accounts payable	15,919		124,354

Other operating assets and liabilities	(48,329)		(21,975)
Net cash (used in) provided by operating activities	(39,313)		162,752
Cash flows from investing activities:
Purchases of property, plant and equipment and intangibles	(47,796)		(44,641)
Proceeds from sale of property, plant and equipment	2,746		3,191
Acquisitions, net of cash received, and investments	(35,123)		(230,650)



Net cash used in investing activities	(80,173)		(272,100)
Cash flows from financing activities:
Proceeds from borrowings on term credit facility	450,000		455,641
Payments under term credit facility	(785,000)		—

Repayments of borrowings on revolving credit facilities and other	(607,618)		(383,384)
Repayments of borrowings on Senior notes	(300,000)		(700,000)
Repayments of borrowings on Euro senior notes	(386,278)		—
Distribution from ESAB Corporation, net	1,143,369		—
Payment of debt issuance costs	(2,938)		—

Proceeds from issuance of common stock, net	1,727		730,002


Payment of debt extinguishment costs	(12,704)		(24,375)
Deferred consideration payments and other	(6,857)		(6,201)
Net cash (used in) provided by financing activities	(506,299)		71,683
Effect of foreign exchange rates on Cash and cash equivalents and Restricted Cash	2,020		(1,095)
Decrease in Cash and cash equivalents and Restricted cash	(623,765)		(38,760)
Cash and cash equivalents and Restricted Cash, beginning of period	719,370		101,069
Cash and cash equivalents, end of period	$	95,605	$	62,309

See Notes to Condensed Consolidated Financial Statements.

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

Enovis Corporation (the “Company” or “Enovis”) was previously Colfax Corporation (“Colfax”) until its separation into two differentiated, independent, and publicly traded companies on April 4, 2022, as discussed below. Colfax was a leading diversified technology company that provided fabrication technology and medical device products and services to customers around the world, principally under the ESAB and DJO brands.

On April 4, 2022 (the “Distribution Date”), the Company completed the separation of its fabrication technology business (the “Separation”) through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corporation (“ESAB”) to Colfax stockholders. To affect the Separation, Colfax distributed to its stockholders one share of ESAB common stock for every three shares of Colfax common stock held at the close of business on March 22, 2022, with the Company retaining 10% of the shares of ESAB common stock immediately following the Separation. At July 1, 2022, the Company’s investment in ESAB was measured at fair value based on ESAB’s closing stock price, and was valued at $263.1 million. The Company intends to divest its retained stake in ESAB, in a tax-efficient exchange for its outstanding debt no later than 12 months after the Distribution Date. Upon completion of the Separation, Colfax, which retained the Company’s specialty medical technology business, changed its name to Enovis Corporation. On April 5, 2022, the Company began trading under the stock symbol “ENOV” on the New York Stock Exchange.

Since the Separation occurred in the second quarter of 2022, Enovis has classified its fabrication technology business as a discontinued operation in its historical financial statements for all periods presented.

Following the completion of the Separation, the Company revised its reporting structure to now conduct its business through two operating segments, “Prevention and Recovery”, which consists of the Company’s bracing, recovery sciences, and footcare product lines, and “Reconstructive”, which includes the Company’s surgical implant product lines.

In connection with the Separation, ESAB issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to Enovis. The distribution proceeds were used by Enovis in conjunction with $450 million of borrowings on a term loan (the “Enovis Term Loan”) under the new Enovis credit facility (the “Enovis Credit Agreement”), and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest under the Company’s previous credit agreement, which was legally extinguished upon completion of the Separation, $302.8 million of outstanding debt and accrued interest on its 2026 Notes at a redemption price of 103.188% of the principal amount, and other fees and expenses due at closing. Additionally, on April 7, 2022, the Company completed a full redemption of its €350 million principal 3.250% Euro Senior Notes due 2025 using cash on hand at a redemption price of 100.813% of the principal amount.

Immediately following the Separation, the Company effected a one-for-three reverse stock split of all issued and outstanding shares of Enovis common stock. As a result of the reverse stock split, prior-period share and per share figures contained in the accompanying Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.

The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Certain prior period amounts have been reclassified to conform to the current period presentation. The Condensed Consolidated Balance Sheet as of December 31, 2021 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), filed with the SEC on February 22, 2022.

The Company makes certain estimates and assumptions in preparing its Condensed Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates. The COVID-19 outbreak, which was characterized as a pandemic by the World Health Organization on March 11, 2020, has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities in the Condensed Consolidated Financial Statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption are difficult to

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

forecast. Furthermore, historical seasonality trends have been disrupted by the commercial impacts caused by the COVID-19 pandemic.

2. Recently Issued Accounting Pronouncements

The Company has not adopted any new accounting standards during the six months ended July 1, 2022. There are no recently issued accounting pronouncements that are expected to have a material effect on the Company’s financial position, results of operations or cash flows.

3. Discontinued Operations

Separation of Fabrication Technology Business

On April 4, 2022, the Company completed the Separation of its fabrication technology business into an independent, publicly traded company: ESAB, a global organization that develops, manufactures and supplies consumable welding and cutting products and equipment, as well as gas control equipment, into diversified end markets such as medical and alternative energy. The spin-off was effected through a pro-rata distribution of 90% of the 60,034,311 outstanding common shares of ESAB to Enovis stockholders of record at the close of business on March 22, 2022 (the “Record Date”). Enovis stockholders received one share of ESAB for every three shares of Enovis stock they owned on the Record Date.

The carrying value of the assets and liabilities of the Company’s former fabrication technology business’ discontinued operations, other contributed legal entities, discontinued operations containing asbestos, and certain pension assets and liabilities, as of December 31, 2021 were as follows:


	December 31, 2021
ASSETS	(in thousands)
Cash and cash equivalents	$	39,118
Trade receivables, net	383,742
Inventories, net	420,062
Prepaid expenses	52,140
Other current assets	61,552
Total current assets associated with discontinued operations	956,614
Property, plant and equipment, net	286,278

Goodwill	1,533,037
Other intangibles, net	521,434
Lease asset - right of use	107,944
Other assets	289,356
Total assets associated with discontinued operations(1)	$	3,694,663

LIABILITIES
Current portion of long-term debt	$	613
Accounts payable	348,965
Accrued liabilities	285,706
Total current liabilities associated with discontinued operations	635,284
Long-term debt, less current portion	54
Non-current lease liability	88,777
Deferred tax liabilities	116,198
Other liabilities	368,533
Total liabilities associated with discontinued operations(1)	$	1,208,846

(1) Total assets and liabilities include asbestos-related contingencies and insurance coverages previously reported by Colfax as discontinued operations. See Asbestos Contingencies section below for more information.

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The financial results of the discontinued operation for the three and six months ended July 1, 2022 and July 2, 2021 include the fabrication technology business through the date of Separation and separation-related costs incurred and are presented as income from discontinued operations, net of income taxes, on the Company’s Consolidated Statements of Operations. The following table presents the financial results of the fabrication technology business:


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
	(in thousands)
Net sales	$	—	$	629,803	$	647,911	$	1,197,932
Cost of sales	—		411,412		423,580		779,746
Selling, general and administrative expense(1)	35,463		130,425		174,664		257,724
Restructuring and other related charges	—		3,488		5,304		6,563
Operating loss	(35,463)		84,478		44,363		153,899
Interest expense	—		12,117		8,035		24,837
Pension settlement gain	—		(11,208)		—		(11,208)
Income from discontinued operations before income taxes	(35,463)		83,569		36,328		140,270
Income tax (benefit) expense	8,203		11,740		25,638		16,347
Income from discontinued operations, net of taxes	$	(43,666)	$	71,829	$	10,690	$	123,923

(1) Selling, general and administrative expenses for the three months ended July 1, 2022 include certain transaction costs incurred to effect the Separation.

Total income attributable to noncontrolling interest related to ESAB, net of taxes was $1.0 million for the six months ended July 1, 2022, and $0.7 million and $1.6 million for the three and six months ended July 2, 2021, respectively.

Cash used in operating activities related to discontinued operations for the six months ended July 1, 2022 was $29.6 million. Cash provided by operating activities related to discontinued operations for the six months ended July 2, 2021 was $122.6 million. Cash used in investing activities related to discontinued operations for the six months ended July 1, 2022 and July 2, 2021 was $3.2 million and $14.4 million, respectively.

Asbestos Contingencies

The Company retained certain asbestos-related contingencies and insurance coverages from its previously divested businesses for which it did not retain an interest in the ongoing operations except for the contingencies. The net costs and cash flows associated with these contingencies and coverages were reported by the Company as discontinued operations. In conjunction with the Separation, all asbestos-related contingencies and insurance coverages from its divested businesses were transferred fully to ESAB. The Company has classified asbestos-related selling, general and administrative activity through the the date of Separation in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations, net of taxes. Subsequent to the Separation, the asbestos-related selling, general and administrative activity and asbestos assets and liabilities are no longer reflected in the Enovis financial statements.

4. Acquisitions and Investments

2022 Acquisitions

During the six months ended July 1, 2022, the Company completed three asset acquisitions, one business acquisition and two investments, which are carried at cost as they do not have a readily determinable fair value. Two of these transactions were completed by the Company’s Reconstructive segment, and the other four transactions were completed by the Prevention & Recovery segment. The asset acquisitions broaden the Company’s product offering and distribution network. Aggregate purchase consideration for the three asset acquisitions was $18.2 million, of which $8.6 million was paid in cash and $9.6 million of deferred and contingent consideration. The investments were acquired for $12.0 million in cash consideration.

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

On May 6, 2022, the Company completed a business acquisition in its Reconstructive segment of KICo Knee Innovation Company Pty Limited and subsidiaries, an Australian private company doing business as 360 Med Care, by acquiring 100% of its equity interests. The entity is an Australian medical device distributor that bundles certain computer-assisted surgery and patient experience enhancement programs to add value to its device supply arrangements with surgeons, hospitals, and insurers. The acquisition is accounted for under the acquisition method of accounting, and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the acquisition date. The Company paid $14.3 million for the acquisition, net of cash received, and recorded estimated contingent consideration at fair value of $12.8 million related to certain future revenue targets. The Company allocated $13 million to goodwill and $18.2 million to intangible assets acquired. Purchase accounting procedures are ongoing and revisions to contingent consideration, intangible assets acquired, and adjustments for working capital true-ups may be recorded in future periods during the purchase price allocation period. The 360 Med Care acquisition broadens our customer base in Australia and adds to our overall product offerings.

Investments

As of July 1, 2022, the balance of investments held by the company without readily determinable fair values was $31.9 million. The investments are carried at cost minus impairments, if any, plus adjustments for fair value indicators from observable price changes in orderly transactions for the identical or similar investment of the same issuer. There have been no impairments or upward adjustments in the current year or since acquisition of the investments.

The Company holds equity securities in ESAB Corporation for total value of $263.1 million which are recorded at fair value. During the three and six months ended July 1, 2022, the Company recorded an unrealized gain of $135.5 million over cost basis. The company does not hold other equity securities measured at fair value.

2021 Acquisitions

During the six months ended July 2, 2021, the Company completed three acquisitions in its Reconstructive segment for aggregate net cash consideration of $208.1 million. The acquisitions are accounted for under the acquisition method of accounting, and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the respective acquisition date.

The Reconstructive segment acquired Trilliant Surgical (“Trilliant”), a provider of foot and ankle orthopedic implants, in the first quarter of 2021 for net cash consideration of $79.6 million. The Reconstructive segment’s acquisitions in the second quarter of 2021 included MedShape, Inc. (“MedShape”), a provider of innovative surgical solutions for foot and ankle surgeons, which was acquired for net cash consideration of $124.6 million. The Trilliant and MedShape acquisitions further expand the Company’s U.S. foot and ankle product lines. The purchase accounting for all acquisitions made in the six months ended July 2, 2021 has been completed. The Company also made two investments in medical technology businesses during the six months ended July 2, 2021 for a total of $14.8 million. Both investments were carried at cost as of July 1, 2022, as they do not have a readily determinable fair value.

During the second half of 2021, the Reconstructive segment acquired Mathys AG Bettlach for total acquisition equity consideration of $285.7 million, which included cash acquired of $14.7 million. Purchase allocation procedures for this acquisition are ongoing as of July 1, 2022. For further information on prior year acquisitions and investments, refer to Note 5. “Acquisitions” in the Notes to the Consolidated Financial Statements in the Company’s 2021 Form 10-K. There have been no material changes to purchase accounting estimates for the prior year acquisitions since the issuance of the Company’s 2021 Form 10-K.

5. Revenue

The Company provides orthopedic solutions, including products and services spanning the full continuum of patient care, from injury prevention to rehabilitation. Substantially all its revenue is recognized at a point in time. The Company disaggregates its revenue into the following segments:

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
	(In thousands)
Prevention and Recovery	$	263,783	$	266,919	$	508,618	$	501,593
Reconstructive	131,334		89,205		261,956		165,614
Total	$	395,117	$	356,124	$	770,574	$	667,207

Given the nature of the Company’s business, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of July 1, 2022 is immaterial.

The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue.

In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2021 and 2020, total contract liabilities were $9.2 million and $15.0 million, respectively. During the three and six months ended July 1, 2022, revenue recognized that was included in the contract liability balance at the beginning of the year was $2.6 million and $6.2 million, respectively. During the three and six months ended July 2, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $2.3 million and $3.1 million, respectively. As of July 1, 2022 and July 2, 2021, total contract liabilities were $3.1 million and $13.6 million, respectively, and were included in Accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The contract liabilities as of December 31, 2021 included $4.9 million of certain one-time advance payments.

Allowance for Credit Losses

The Company’s estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. In calculating and applying its current expected credit losses, the Company disaggregates trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. The business segments are further disaggregated based on either geography or product type. The Company uses a loss rate methodology in calculating its current expected credit losses, leveraging historical write-offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts using an adjustment for current and projected macroeconomic factors.

A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Condensed Consolidated Balance Sheets is as follows:


	Six Months Ended July 1, 2022
	Balance at Beginning of Period		Charged to Expense, net		Write-Offs, Deductions and Other, net		Foreign Currency Translation		Balance at End of Period
	(In thousands)
Allowance for credit losses	$	6,589	$	343	$	1,391	$	(141)	$	8,182

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

6. Net Income Per Share from Continuing Operations

Net income per share from continuing operations was computed as follows:


	Three Months Ended			Six Months Ended
		July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
		(In thousands, except share and per share data)
Computation of Net income (loss) per share from continuing operations - basic:
Net income (loss) from continuing operations attributable to Enovis Corporation(1)		$	120,521	$	(42,482)	$	82,199	$	(74,626)
Weighted-average shares of Common stock outstanding – basic		54,080,549		51,291,986		53,969,738		48,902,883
Net income (loss) per share from continuing operations – basic		$	2.23	$	(0.83)	$	1.52	$	(1.53)

Computation of Net income (loss) per share from continuing operations - diluted:
Net income (loss) from continuing operations attributable to Enovis Corporation(1)		$	120,521	$	(42,482)	$	82,199	$	(74,626)
Weighted-average shares of Common stock outstanding – basic		54,080,549		51,291,986		53,969,738		48,902,883
Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units		441,300		—		489,134		—
Weighted-average shares of Common stock outstanding – diluted		54,521,849		51,291,986		54,458,872		48,902,883
Net income (loss) per share from continuing operations – diluted		$	2.21	$	(0.83)	$	1.51	$	(1.53)

(1) Net income (loss) from continuing operations attributable to Enovis Corporation for the respective periods is calculated using Net income (loss) from continuing operations less the continuing operations component of the income attributable to noncontrolling interest, net of taxes, of $0.1 million and $0.4 million for the three and six months ended July 1, 2022, respectively, and $0.4 million and $0.6 million for the three and six months ended July 2, 2021, respectively.

As a result of the reverse stock split following the Separation, prior-period share and per share figures contained in the Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.

For the three and six months ended July 1, 2022 and the three and six months ended July 2, 2021, the weighted-average shares of Common stock outstanding - basic includes the impact of 6.1 million shares, as adjusted for the reverse stock split, for the actual or potential issuance of shares from tangible equity unit purchase contracts. In January 2022, the final remaining amount of tangible equity unit purchase contracts were converted into approximately 1.7 million shares of the Company’s common stock, as adjusted for the reverse stock split. All issuances of Company common stock related to the tangible equity units were converted at the minimum settlement rate as a result of the increase in the Company’s share price. All the issued shares are included in the Common stock issued and outstanding as of July 1, 2022. See Note 8, “Equity” for details.

The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and six months ended July 1, 2022 excludes 0.4 million of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.

The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and six months ended July 2, 2021 excludes 0.5 million and 0.4 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

7. Income Taxes

During the three and six months ended July 1, 2022, Income from continuing operations before income taxes was $116.4 million and $78.7 million, respectively, while income tax benefit was $4.2 million and $3.8 million, respectively. The effective tax rate was (3.6)% and (4.9)% for the three and six months ended July 1, 2022, both of which differed from the 2022 federal statutory rate of 21% mainly due to non-taxable unrealized gains on the investment in ESAB offset by non-deductible costs related to the tax-free separation transaction.

During the three and six months ended July 2, 2021, Loss from continuing operations before income taxes was $45.9 million and $77.0 million, respectively, while the income tax benefit was $3.8 million and $3.0 million, respectively. The effective tax rate was 8.2% and 3.9% for the three and six months ended July 2, 2021, respectively, both of which differed from the 2021 U.S. federal statutory rate of 21% mainly due to U.S. taxation on international operations and other non-deductible expenses.

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

8. Equity

Outstanding shares

As discussed in Note 1, the Company effected a reverse stock split immediately following the Separation on April 4, 2022 and all share and per share figures contained in the accompanying Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented. As of December 31, 2021, the outstanding shares for the Company after the reverse stock split were 52,083,078.

Share Repurchase Program

In 2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. No repurchases of the Company’s Common stock have been made under this plan since the third quarter of 2018. As of July 1, 2022, the remaining stock repurchase authorization provided by the Board of Directors was $100 million. The timing, amount and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. There is no term associated with the remaining repurchase authorization.

Accumulated Other Comprehensive Loss

The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the six months ended July 1, 2022 and July 2, 2021. All amounts are net of tax and noncontrolling interest, if any.


	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension and Other Post-Retirement Benefit Cost		Foreign Currency Translation Adjustment		Unrealized Gain on Hedging Activities		Total
	(In thousands)

Balance at January 1, 2022	$	(85,559)	$	(475,125)	$	44,671	$	(516,013)

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment	470		(61,257)		—		(60,787)
Loss on long-term intra-entity foreign currency transactions	—		(21,779)		—		(21,779)
Gain on net investment hedges	—		—		9,028		9,028


Other comprehensive income (loss) before reclassifications	470		(83,036)		9,028		(73,538)
Amounts reclassified from Accumulated other comprehensive income (loss)	629		—		—		629

Net Other comprehensive income (loss)	1,099		(83,036)		9,028		(72,909)
Distribution of ESAB Corporation	84,460		469,220		(53,699)		499,981
Balance at July 1, 2022	$	—	$	(88,941)	$	—	$	(88,941)

ENOVIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension and Other Post-Retirement Benefit Cost		Foreign Currency Translation Adjustment		Unrealized Gain on Hedging Activities		Total
	(In thousands)
Balance at January 1, 2021	$	(112,783)	$	(360,977)	$	21,654	$	(452,106)

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment	583		(71,276)		(2,076)		(72,769)
Gain on long-term intra-entity foreign currency transactions	—		29,925		—		29,925
Gain on net investment hedges	—		—		10,231		10,231


Other comprehensive income (loss) before reclassifications	583		(41,351)		8,155		(32,613)
Amounts reclassified from Accumulated other comprehensive loss	2,100		—		—		2,100

Net Other comprehensive income (loss)	2,683		(41,351)		8,155		(30,513)
Balance at July 2, 2021	$	(110,100)	$	(402,328)	$	29,809	$	(482,619)

Tangible equity unit offering

On January 11, 2019, the Company issued 4.6 million in Tangible Equity Units (“TEUs”) at the stated amount of $100 per unit. Net cash of $447.7 million was received upon closing. The gross proceeds and deferred finance costs from the issuance of the TEUs were allocated 84.4% to equity (the “TEU prepaid stock purchase contracts”) and 15.6% to debt (the “TEU amortizing notes”) based on the relative fair value of the respective components of each TEU. See Note 10, “Debt” for additional information on the TEU amortizing notes. The TEU prepaid stock purchase contracts were mandatorily converted into shares of Company common stock on January 15, 2022, unless previously settled at the holder’s option. All the TEU prepaid stock purchase contracts converted at the minimum settlement rate. Approximately 1.3 million and 1.6 million TEU prepaid stock purchase contracts were settled into approximately 1.7 million and 2.2 million shares of Company common stock as adjusted for the reverse split, during the six months ended July 1, 2022 and July 2, 2021, respectively. Since the 4.6 million TEU prepaid stock purchase contracts were mandatorily converted into shares of Company common stock at the minimum settlement rate or greater, 6.1 million shares, as adjusted for the reverse split, are included in basic net income per share calculations for all periods presented. See Note 6, “Net Income Per Share from Continuing Operations” for additional information.

9. Inventories, Net

Inventories, net consisted of the following:


	July 1, 2022		December 31, 2021
	(In thousands)
Raw materials	$	83,048	$	66,824
Work in process	30,183		29,506
Finished goods	338,568		298,450
	451,799		394,780