Enovis Corporation

11/06/2025 | Press release | Distributed by Public on 11/06/2025 05:25

Quarterly Report for Quarter Ending October 3, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of Enovis Corporation ("Enovis," "the Company," "we," "our," and "us") should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I. Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2025 (this "Form 10-Q") and the Consolidated Financial Statements and related footnotes included in Part II. Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K") filed with the Securities and Exchange Commission (the "SEC") on February 26, 2025.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. Statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding: the Company's January 2024 acquisition of LimaCorporate S.p.A. (the "Lima Acquisition"); projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, synergies or other financial items; plans, strategies and objectives of management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance, industry or market rankings relating to products or services; future macroeconomic conditions or performance, including the impact of inflationary pressures; changes in government trade policies, including the implementation of tariffs; the outcome of outstanding claims or legal proceedings; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be characterized by terminology such as "believe," "anticipate," "should," "would," "could," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy," "targets," "aims," "seeks," "sees," and similar expressions. These statements are based on assumptions and assessments made by our management as of the filing of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the following:
•the effects of the Lima Acquisition on the Company's and the Recon segment's combined operations, including any effects on relationships with customers, suppliers and other third parties;
•an inability to identify, finance, acquire and successfully integrate suitable acquisition candidates;
•the availability of additional capital and our inability to pursue our growth strategy without it;
•our indebtedness and our debt agreements, which contain restrictions that may limit our flexibility in operating our business;
•our restructuring activities, which may subject us to additional uncertainty in our operating results;
•any impairment in the value of our intangible assets or goodwill, because of a sustained decline in, including but not limited to, operating performance at one or more our business units or the market price of our common stock;
•a material disruption at any of our manufacturing facilities;
•any failure to maintain, protect and defend our intellectual property rights;
•the effects of contagious diseases, public health emergencies, terrorist activity, man-made or natural disasters and war;
•significant movements in foreign currency exchange rates;
•the availability of raw materials, as well as parts and components used in our products, as well as the impact of raw material, energy and labor price fluctuations and supply shortages;
•the competitive environment in which we operate;
•changes in our tax rates or exposure to additional income tax liabilities;
•our reliance on a variety of distribution methods to market and sell our medical device products;
•extensive government regulation and oversight of our products, including the requirement to obtain and maintain regulatory approvals and clearances;
•tariffs and other trade measures;
•safety issues or recalls of our products;
•failure to comply with federal and state regulations related to the manufacture of our products;
•improper marketing or promotion of our products;
•impacts of potential legislative or regulatory reforms on our business;
•risks associated with the clinical trial process;
•failure to comply with governmental regulations for products for which we obtain clearance or approval;
•our exposure to product liability claims;
•our inability to obtain coverage and adequate levels of reimbursement from third-party payors for our medical device products;
•audits or denials of claims by government officials;
•federal and state health reform and cost control efforts;
•our failure or the failure of our employees or third parties with which we have relationships to comply with healthcare laws and regulations;
•our relationships with leading surgeons and our ability to comply with enhanced disclosure requirements regarding payments to physicians;
•actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements;
•service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure;
•non-compliance with anti-bribery laws, export control regulations, economic sanctions or other trade laws;
•non-compliance with non-U.S. laws, regulations and policies;
•if the completed spin-off of ESAB Corporation ("ESAB") into an independent publicly traded company (the "Separation") and/or certain related transactions do not qualify as transactions that are generally tax-free for U.S. federal income tax purposes, we and our stockholders could be subject to significant tax liabilities;
•potential indemnification liabilities to ESAB pursuant to the Separation and distribution agreement and other related agreements;
•changes in the general economy;
•the impact of the current shutdown of the U.S. government or any future shutdowns;
•disruptions in the global economy caused by escalating geopolitical tensions, including in connection with Russia's invasion of Ukraine;
•the loss of key members of our leadership team, or the inability to attract, develop, engage, and retain qualified employees; and
•other risks and factors listed in Part II, Item 1A. "Risk Factors" in this Form 10-Q and Part 1, Item 1A. "Risk Factors" in Part I of our 2024 Form 10-K.
Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. We do not assume any obligation and do not intend to update any forward-looking statement, except as required by law. See "Risk Factors" in this Form 10-Q and our 2024 Form 10-K for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate.
Overview
Please see Part I, Item 1. "Business" in our 2024 Form 10-K for a discussion of the Company's objectives and methodologies for delivering shareholder value.
Enovis conducts its operations through two operating segments: Prevention & Recovery ("P&R") and Reconstructive ("Recon").
•P&R - a leader in orthopedic solutions, providing devices, software, and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease.
•Recon - an innovation market-leader positioned in the fast-growing surgical implant business, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger, and surgical productivity tools.
We have a global footprint, with production facilities in North America, Europe, North Africa, and Asia. We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the medical market.
Our business management system, Enovis Growth Excellence ("EGX"), is integral to our operations. EGX includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders, and associates. We believe that our management team's access to, and experience in, the application of the EGX methodology is one of our primary competitive strengths.
Results of Operations
The following discussion of Results of Operations addresses the comparison of the periods presented. Our management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA as defined in the "Non-GAAP Measures" section below.
Items Affecting Comparability of Reported Results
The comparability of our operating results for the nine months ended October 3, 2025 compared to the prior periods in 2024 was affected by additional calendar days due to the prior year nine-month period ending on September 27, 2024.
Additionally, the comparability of our operating results for the nine months ended October 3, 2025 and nine months ended September 27, 2024 is affected by the following additional significant items:
Strategic Acquisitions and Divestiture
We complement our organic growth plans with strategic acquisitions. Acquisitions can significantly affect our reported results.
On October 7, 2025, we completed the sale of our Dr Comfort Footcare Solutions U.S. operations of our P&R segment to Promus Equity Partners in an asset deal, with an effective date of October 4th, 2025. The sale includes inventory, machinery and equipment, and intangible assets for consideration of up to $60 million in cash, consisting of an upfront payment of $45 million and up to $15 million payable in the future upon the achievement of certain milestones.
In the nine months ended October 3, 2025, the Company completed seven transactions for $37.7 million total purchase consideration, including deferred consideration and estimated contingent consideration which included the acquisition of three distributors, two businesses, and two purchases of intellectual property. Three transactions are in the P&R segment and four are in the Recon segment. See Note 3, "Acquisitions, Investments and Divestitures" in our Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for additional information regarding these transactions.
On January 3, 2024, the Company acquired Lima, a privately held global orthopedic company focused on restoring motion through digital innovation and customized hardware for total fair value consideration of $865.6 million, net of acquired cash.
The fair value total consideration includes 1,942,686 contingently issuable shares of Enovis common stock, as determined based upon a €100 million value divided by the thirty-day volume weighted average price of Enovis common stock as of the close of business on September 21, 2023 (the "Contingent Acquisition Shares"), which issuance was dependent on the non-occurrence of certain future events and was settled within one year of the acquisition closing. The Contingent Acquisition Shares were issuable in two equal tranches. The first tranche of 971,343 Contingent Acquisition Shares was issued to the sellers on July 16, 2024 and the second tranche was issued on January 15, 2025. This acquisition expanded and complements our current product offerings internationally within our Recon segment.
Foreign Currency Fluctuations
During the three and nine months ended October 3, 2025, approximately 40% and 42%, respectively, of our sales were derived from operations outside the United States, the majority of which are in Europe, with the remaining portion primarily in the Asia-Pacific region. Accordingly, we can be affected by market demand, economic and political factors in countries in Europe and the Asia-Pacific region, and significant movements in foreign exchange rates. Our ability to grow and our financial performance will be affected by our ability to address challenges and opportunities that are a consequence of expanding our global operations through our recent acquisitions, including efficiently utilizing our international sales channels, manufacturing and distribution capabilities, participating in the expansion of market opportunities, successfully completing global acquisitions and engineering innovative new product applications to create better patient outcomes.
The majority of our Net sales derived from operations outside the United States are denominated in currencies other than the U.S. Dollar. Similar portions of our manufacturing and employee costs are also outside the United States and denominated in currencies other than the U.S. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. For the three months ended October 3, 2025 compared to the three months ended September 27, 2024, fluctuations in foreign currencies increased Net sales by 1.9%, increased Gross profit by approximately 1.8%, and increased operating expense by approximately 1.6%. For the nine months ended October 3, 2025 compared to the nine months ended September 27, 2024, fluctuations in foreign currencies increased Net sales by 0.9%, increased Gross profit by approximately 1.1%, and increased operating expenses by approximately 0.7%.
Seasonality
Sales in our P&R and Recon segments typically peak in the fourth quarter. General economic conditions and other factors may, however, impact future seasonal variations. Additionally, our fourth quarter of 2025 will have fewer calendar days due to the third quarter closing on October 3, 2025 in the current year compared to September 27, 2024 in the prior year.
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP performance measures, are included in this report because they are key metrics used by our management to assess our operating performance.
Adjusted EBITDA excludes from Net income the effect of Loss from discontinued operations, net of taxes; Income tax expense (benefit); Other (income) expense, net; non-operating (gain) loss on investments; debt extinguishment charges; Interest expense, net; Restructuring charges; Medical Device Regulation ("MDR") fees and other costs; strategic transaction costs; stock-based compensation; depreciation and other amortization; acquisition-related intangible asset amortization; strategic purchase of economic interest on future royalty payments; goodwill impairment charges; and fair value charges on acquired inventory. We also present Adjusted EBITDA and Adjusted EBITDA margin by operating segment, which are subject to the same adjustments. Operating income (loss), adjusted EBITDA and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment. Adjusted EBITDA assists our management in comparing operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.
Our management also believes that presenting these measures allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP or prepared in accordance with Regulation S-X. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.
The following table sets forth a reconciliation of net loss, the most directly comparable financial statement measure, to Adjusted EBITDA, for the three and nine months ended October 3, 2025 and September 27, 2024, respectively.
Three Months Ended
October 3, 2025 September 27, 2024
P&R Recon Total P&R Recon Total
(Dollars in millions)
Net Loss (GAAP)(1)
$ (570.9) $ (31.3)
Net Loss margin (GAAP) (104.0) % (6.2) %
Loss from discontinued operations, net of taxes - (2.2)
Income tax expense (benefit) 4.0 (9.1)
Other (income) expense, net (0.4) (0.2)
Interest expense, net 8.8 11.1
Operating income (loss) (GAAP) $ (225.6) $ (332.9) (558.5) $ 2.4 $ (34.1) (31.7)
Operating income (loss) margin (GAAP) (77.5) % (129.0) % (101.7) % 0.9 % (14.8) % (6.3) %
Adjusted to add (deduct):
Restructuring charges(2)(3)
0.5 2.9 3.4 3.3 4.5 7.8
MDR and other costs (3)(4)
2.4 - 2.4 2.7 2.6 5.3
Strategic transaction costs (3)(5)
2.5 13.2 15.7 1.7 19.7 21.4
Stock-based compensation (3)
4.2 4.7 9.0 4.8 3.1 7.8
Depreciation and other amortization 5.0 25.7 30.7 4.5 23.9 28.4
Amortization of acquired intangibles 23.4 20.3 43.7 23.3 19.5 42.8
Goodwill impairment charge 229.9 318.6 548.4 - - -
Inventory step-up - - - - 8.4 8.4
Adjusted EBITDA (non-GAAP) $ 42.3 $ 52.5 $ 94.8 $ 42.8 $ 47.4 $ 90.2
Adjusted EBITDA margin (non-GAAP) 14.5 % 20.4 % 17.3 % 15.6 % 20.5 % 17.9 %
(1) Non-operating components of Net income (loss) are not allocated to the segments.
(2) Restructuring charges include $1.5 million expense classified as Cost of sales on the Company's Condensed Consolidated Statements of Operations for the three months ended October 3, 2025, and there were $2.7 million similar charges for the three months ended September 27, 2024.
(3)Certain amounts are allocated to the segments as a percentage of revenue as the costs are not discrete to either segment.
(4) MDR and other costs includes (i) $2.1 million for the three months ended October 3, 2025 and $3.5 million for the three months ended September 27, 2024, respectively, in non-recurring costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union for devices which were introduced to the market prior to the regulation and (ii) $0.4 million for the three months ended October 3, 2025 and $1.8 million for the three months ended September 27, 2024, respectively, of expenses to resolve certain infrequent, non-recurring regulatory or other legal matters. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations.
(5)Strategic transaction costs includes: (i) $9.2 million for the three months ended October 3, 2025 and $17.5 million for the three months ended September 27, 2024 related to non-recurring integration costs associated with the Lima Acquisition, which includes payroll and retention costs for roles to be eliminated or that are dedicated to integration activities, professional and consulting fees specifically incurred to consummate the acquisition and advise and facilitate on post-acquisition integration matters including legal entity consolidation, costs associated with rebranding and marketing acquired business under Enovis name, such as marketing materials, trade show redesign costs and product labeling, and integration related costs associated with sales agent and distributor network rationalization, including contract termination and retention expenses, supply chain and portfolio integration, and quality management system consolidation, (ii) $6.1 million for the three months ended October 3, 2025 and $2.6 million three months ended September 27, 2024 of non-recurring (non-Lima) acquisition integration costs and other costs associated with non-recurring projects, including global ERP rationalization and establishment of a new shared service center, and (iii) $0.4 million for the three months ended October 3, 2025 and $1.3 million for the three months ended September 27, 2024, respectively, related to the Separation of our former fabrication technology business. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations.
Nine Months Ended
October 3, 2025 September 27, 2024
P&R Recon Total P&R Recon Total
(Dollars in millions)
Net Loss (GAAP)(1)
$ (663.2) $ (121.6)
Net Loss margin (GAAP) (39.7) % (7.9) %
Loss from discontinued operations, net of taxes 0.3 (2.2)
Income tax expense (benefit) 13.0 (25.4)
Other (income) expense, net 0.5 (9.8)
Interest expense, net 27.3 48.0
Operating income (loss) (GAAP) $ (223.2) $ (398.9) (622.1) $ (9.0) $ (102.0) (111.0)
Operating income (loss) margin (GAAP) (26.1) % (48.8) % (37.2) % (1.1) % (13.9) % (7.2) %
Adjusted to add (deduct):
Restructuring charges (2)(3)
4.0 4.2 8.2 12.9 12.4 25.3
MDR and other costs (3)(4)
5.3 3.7 9.0 7.8 6.9 14.8
Strategic transaction costs(3)(5)
6.6 34.6 41.2 3.7 61.3 65.0
Stock-based compensation (3)
14.0 11.0 25.0 13.3 8.5 21.8
Depreciation and other amortization 13.9 75.0 88.9 13.6 72.1 85.7
Amortization of acquired intangibles 69.5 59.0 128.5 69.5 55.2 124.7
Goodwill impairment charge 229.9 318.6 548.5 - - -
Purchase of royalty interest - 45.8 45.8 - - -
Inventory step-up - 18.1 18.1 - 37.4 37.4
Adjusted EBITDA (non-GAAP) $ 119.9 $ 171.2 $ 291.1 $ 111.8 $ 151.8 $ 263.7
Adjusted EBITDA margin (non-GAAP) 14.0 % 20.9 % 17.4 % 13.8 % 20.6 % 17.0 %
(1) Non-operating components of Net loss are not allocated to the segments.
(2)Restructuring charges include $1.7 million expense classified as Cost of sales on the Company's Condensed Consolidated Statements of Operations for the nine months ended October 3, 2025, and there were $2.7 million similar charges for the nine months ended September 27, 2024.
(3)Certain amounts are allocated to the segments as a percentage of revenue as the costs are not discrete to either segment.
(4) MDR and other costs includes (i) $7.6 million for the nine months ended October 3, 2025 and $12.3 million for the nine months ended September 27, 2024, respectively, in non-recurring costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union for devices which were introduced to the market prior to the regulation and (ii) $1.4 million for the nine months ended October 3, 2025 and $2.4 million for the nine months ended September 27, 2024, respectively, of expenses to resolve certain infrequent, non-recurring regulatory or other legal matters. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations.
(5)Strategic transaction costs includes: (i) $28.1 million for the nine months ended October 3, 2025 and $55.1 million for the nine months ended September 27, 2024, respectively, related to non-recurring integration costs associated with the Lima Acquisition, which includes payroll and retention costs for roles to be eliminated or that are dedicated to integration activities, professional and consulting fees specifically incurred to consummate the acquisition and advise and facilitate on post-acquisition integration matters including legal entity consolidation, costs associated with rebranding and marketing acquired business under Enovis name, such as marketing materials, trade show redesign costs and product labeling, and integration related costs associated with sales agent and distributor network rationalization, including contract termination and retention expenses, supply chain and portfolio integration, and quality management system consolidation, (ii) $11.8 million for the nine months ended October 3, 2025 and $5.7 million for the nine months ended September 27, 2024, respectively, of non-recurring (non-Lima) acquisition integration costs and other costs associated with non-recurring projects, including global ERP rationalization and establishment of a new shared service center, and (iii) $1.3 million for the nine months ended October 3, 2025 and $4.2 million for the nine months ended September 27, 2024, respectively, related to the Separation of our former fabrication technology business. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations.
Total Company
Net Sales
The following table summarizes our Net sales for the three and nine months ended October 3, 2025 and September 27, 2024, respectively. As noted in the Items Affecting Comparability of Reported Resultssection above, the nine months ended October 3, 2025 include the impact of additional calendar days due to the prior year nine-month period ending on September 27, 2024.
Three Months Ended Nine Months Ended
Net Sales Change % Net Sales Change %
(In millions)
For the three and nine months ended September 27, 2024 $ 505.2 $ 1,546.6
Components of Change:
Existing Businesses(1)
33.0 6.5 % 113.1 7.3 %
Acquisitions(2)
1.1 0.2 % 2.8 0.2 %
Divestitures(3)
- - % (4.3) (0.3) %
Foreign Currency Translation(4)
9.6 1.9 % 14.1 0.9 %
43.7 8.7 % 125.7 8.1 %
For the three and nine months ended October 3, 2025 $ 548.9 $ 1,672.3
(1)Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.
(2)Represents the incremental sales as a result of acquisitions of businesses for twelve months from the acquisition date. Excludes (i) acquisitions of former distribution partners as such transactions primarily represent a shift from a third-party distribution model to a direct sales model, and (ii) acquisitions of intellectual property as such transactions involve the purchase of technologies that have not been commercialized.
(3)Represents the decrease in sales as a result of divestitures of businesses for twelve months from the divestiture date.
(4)Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates.
The increase in Net sales during the three months ended October 3, 2025 compared to the prior year period was primarily attributable to an increase in sales from existing businesses across both of our segments and favorable foreign currency translation.
The increase in Net sales during the nine months ended October 3, 2025 compared to the prior year period was primarily attributable to an increase in sales from existing businesses across both of our segments, additional calendar days due to the prior year nine-month period ending on September 27, 2024, and favorable foreign currency translation, partially offset by a $4.3 million decrease in sales from the 2024 divestiture of our hosiery business in P&R.
Existing business sales in Recon increased $21.2 million and $74.1 million during the three and nine months ended October 3, 2025, respectively, due to higher sales volumes compared to the prior year period, driven by broad market strength. Existing business sales in Recon for the nine months ended October 3, 2025 was also impacted by the additional calendar days due to the prior year nine-month period ending on September 27, 2024.
Existing business sales in P&R increased $11.8 million and $39.0 million during the three and nine months ended October 3, 2025, respectively, due to higher sales volumes compared to the prior year period. Existing business sales in P&R for the nine months ended October 3, 2025 was also impacted by additional calendar days due to the prior year nine-month period ending on September 27, 2024.
The weakening of the U.S. dollar relative to other currencies resulted in $9.6 million and $14.1 million favorable foreign currency translation impacts during the three and nine months ended October 3, 2025, respectively.
Operating Results
The following table summarizes our results of continuing operations for the current year and prior year periods.
Three Months Ended Nine Months Ended
October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024
(Dollars in millions)
Gross profit $ 328.9 $ 286.5 $ 995.8 $ 873.2
Gross profit margin 59.9 % 56.7 % 59.5 % 56.5 %
Selling, general and administrative expense $ 263.6 $ 249.9 $ 799.7 $ 769.6
Research and development expense $ 29.7 $ 20.5 $ 89.0 $ 67.3
Operating loss $ (558.5) $ (31.7) $ (622.1) $ (111.0)
Operating loss margin (101.7) % (6.3) % (37.2) % (7.2) %
Net loss from continuing operations (GAAP) $ (570.9) $ (33.5) $ (662.9) $ (123.8)
Net loss from continuing operations margin (GAAP) (104.0) % (6.6) % (39.6) % (8.0) %
Net loss (GAAP) $ (570.9) $ (31.3) $ (663.2) $ (121.6)
Net loss margin (GAAP) (104.0) % (6.2) % (39.7) % (7.9) %
Adjusted EBITDA (non-GAAP) $ 94.8 $ 90.2 $ 291.1 $ 263.7
Adjusted EBITDA margin (non-GAAP) 17.3 % 17.9 % 17.4 % 17.0 %
Items excluded from Adjusted EBITDA:
Restructuring charges (1)
$ 3.4 $ 7.8 $ 8.2 $ 25.3
MDR and other costs $ 2.4 $ 5.3 $ 9.0 $ 14.8
Strategic transaction costs $ 15.7 $ 21.4 $ 41.2 $ 65.0
Stock-based compensation $ 9.0 $ 7.8 $ 25.0 $ 21.8
Depreciation and other amortization $ 30.7 $ 28.4 $ 88.9 $ 85.7
Amortization of acquired intangibles $ 43.7 $ 42.8 $ 128.5 $ 124.7
Goodwill impairment charge $ 548.4 $ - $ 548.5 $ -
Purchase of royalty interest $ - $ - $ 45.8 $ -
Inventory step-up $ - $ 8.4 $ 18.1 $ 37.4
Interest expense, net $ 8.8 $ 11.1 $ 27.3 $ 48.0
Other expense (income), net $ (0.4) $ (0.2) $ 0.5 $ (9.8)
Income tax expense (benefit) $ 4.0 $ (9.1) $ 13.0 $ (25.4)
(1) Restructuring charges include $1.5 million and $1.7 million expense classified as Cost of sales on the Company's Condensed Consolidated Statements of Operations for the three and nine months ended October 3, 2025, respectively, and there were $2.7 million similar charges for the three and nine months ended September 27, 2024.
Three Months Ended October 3, 2025 Compared to Prior Year
Gross profit increased $42.5 million, or 14.8%, in the three months ended October 3, 2025 compared with the prior year period due to a $30.1 million increase in our Recon segment and a $12.4 million increase in our P&R segment. The Gross profit increase was attributable to growth in sales volume, improved mix of higher margin products sales, and the decrease of $8.4 million in inventory fair value step-up amortization charges. Gross profit margin increased by 320 basis points due to the decrease in inventory fair value step-up amortization charges and supply chain productivity, partially offset by impact of tariffs.
Selling, general and administrative expense increased $13.7 million in the three months ended October 3, 2025 compared to the prior year period, primarily due to a $9.2 million increase in commissions on increased sales and increased investment in the business in selling, general and administrative costs of $10.3 million, offset by a $5.7 million decrease in strategic transactions costs driven by a reduction in acquisition integration costs.
Research and development costs increased compared to the prior year period from increased spending within recently acquired businesses in our Recon segment, which is investing in surgical productivity solutions and computer-assisted surgery technologies.
Amortization of acquired intangibles increased compared to the prior year period due to the additional business, distributor, and intellectual property acquisitions in 2025.
The goodwill impairment charge recorded during the three months ended October 3, 2025 was predominantly driven by an impairment indicator associated with a sustained decrease in the Enovis publicly quoted share price and market capitalization, relative to the carrying value of our reporting units. In estimating the fair values of the reporting units for the interim quantitative impairment test of Goodwill, we increased the weighted average cost of capital and reduced market multiples to the low end of acceptable ranges in order to align each reporting unit's fair value model with the Enovis overall market capitalization.
Interest expense, net decreased in the three months ended October 3, 2025 compared to the prior year period due the lower interest rates in the current year compared to the prior year period.
The effective tax rate for Net loss from continuing operations during the three months ended October 3, 2025 was (0.7)%, which differs from the U.S. federal statutory tax rate of 21%, primarily due to non-deductible goodwill impairment charges, an increase in valuation allowance on U.S. deferred tax assets, non-deductible expenses, and U.S. taxation on international operations. This was partially offset by tax credits for research and development and non-U.S. income taxed at lower rates. The effective tax rate for the three months ended September 27, 2024 was 21.4% which was higher than the 2024 U.S. federal statutory rate of 21%, primarily due to tax credits for research and development, non-U.S. income taxed at lower rates and non-taxable fair value gain on contingent acquisition shares. This was partially offset by an increase in valuation allowance on interest limitation carryforwards, non-deductible expenses and U.S. taxation on international operations.
Net loss and Net loss from continuing operations increased in the three months ended October 3, 2025 compared with the prior year period, primarily due to the aforementioned Goodwill impairment charge, the increases in selling, general, and administrative expense and research and development costs, partially offset by the increase in Gross Profit and lower interest expense, net. Adjusted EBITDA increased due to improved scale of aforementioned gross profit growth over a more stable fixed base of selling, general, and administrative expenses. Adjusted EBITDA margin decreased due to the timing of the aforementioned increased investment in the business in selling, general and administrative costs and net impact of new tariffs.
Nine Months Ended October 3, 2025 Compared to Prior Year
Gross profit increased $122.6 million in the nine months ended October 3, 2025 compared with the prior year period due to a $84.7 million increase in our Recon segment and a $37.9 million increase in our P&R segment. The Gross profit increase was attributable growth in sales volume, improved mix of higher margin products sales, and the decrease of $19.3 million in inventory fair value step-up amortization charges. Gross profit margin increased by 300 basis points due to improved product mix, supply chain productivity, and the decrease in inventory fair value step-up amortization charges.
Selling, general and administrative expense increased $30.1 million in the nine months ended October 3, 2025 compared to the prior year period, primarily due to a $26.8 million increase in commissions on increased sales and increased investment in selling, general and administrative costs of $27.1 million offset by a $23.8 million decrease in strategic transaction costs driven by higher transaction costs in 2024 and a reduction in acquisition integration costs.
Research and development costs increased compared to the prior year period from increased spending within recently acquired businesses in our Recon segment, which is investing in surgical productivity solutions and computer-assisted surgery technologies.
Amortization of acquired intangibles increased compared to the prior year period due to the additional business, distributor, and intellectual property acquisitions in 2025.
The goodwill impairment charge recorded during the nine months ended October 3, 2025 was predominantly driven by an impairment indicator associated with a sustained decrease in the Enovis publicly quoted share price and market capitalization, relative to the carrying value of our reporting units. In estimating the fair values of the reporting units for the interim quantitative impairment test of Goodwill, we increased the weighted average cost of capital and reduced market multiples to the
low end of acceptable ranges in order to align each reporting unit's fair value model with the Enovis overall market capitalization.
Purchase of royalty interest increased in the first half of 2025 as we completed strategic purchases of economic interest on future royalty payments in our intellectual property ("royalty interest") for a fixed price of $56.5 million, which will be paid over nine years. We accrued a liability and recognized a $45.8 million charge for the net present value of the purchases.
Interest expense, net decreased in the nine months ended October 3, 2025 compared to the prior year period due to a $16.3 million increase in interest income on the cross-currency swap derivatives. This was driven by the increase in the hedging position entered into during the third quarter of 2024.
Other expense (income), net was an expense in the nine months ended October 3, 2025 compared to the prior year period due to the $21.7 million decrease in the fair value gain on the Contingent Acquisition Shares, which reached final settlement on January 15, 2025, partially offset by an $11.1 million decrease in the prior year loss recognized in the first quarter of 2024 on the non-designated forward currency contracts to manage the risk from the Euro-denominated purchase price of the Lima Acquisition which closed in January 3, 2024.
The effective tax rate for Net loss from continuing operations during the nine months ended October 3, 2025 was (2.0)%, which differs from the 2025 U.S. federal statutory tax rate of 21%, primarily due to non-deductible goodwill impairment charges and an increase in valuation allowance on U.S. deferred tax assets, non-deductible expenses, and U.S. taxation on international operations. This was partially offset by tax credits for research and development and non-U.S. income taxed at lower rates. The effective tax rate for Net income from continuing operations during the nine months ended September 27, 2024 was 17.0%, which was lower than the 2024 U.S. federal statutory tax rate of 21%, primarily due to an increase in valuation allowance on interest limitation carryforwards, non-deductible expenses and U.S. taxation on international operations. This was partially offset by tax credits for research and development, non-U.S. income taxed at lower rates and non-taxable fair value gain on contingent acquisition shares.
Net loss and Net loss from continuing operations increased in the nine months ended October 3, 2025 compared with the prior year period, primarily due to the aforementioned Goodwill impairment charge, the decrease in Other income, net and the increase in Purchase of royalty interest, partially offset by the increase in Gross Profit and lower interest expense, net. Adjusted EBITDA and Adjusted EBITDA margin increased due to improved scale of aforementioned gross profit growth over a more stable fixed base of selling, general, and administrative expenses.
Business Segments
As discussed further above, we report results in two reportable segments: P&R and Recon. Operating loss, adjusted EBITDA, and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment. See Item 2. "Non-GAAP Measures" for a further discussion and reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.
Prevention & Recovery
Enovis Prevention & Recovery develops, manufactures, and distributes rigid bracing products, orthopedic soft goods, vascular systems, and compression garments, and hot and cold therapy products and offers robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management. Our Prevention & Recovery products are marketed under several brand names, most notably Donjoy, Aircast, and Chattanooga, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries. Many of our medical devices and related accessories are used by athletes and other patients for injury prevention and at-home physical therapy treatments. We reach a diverse customer base through multiple distribution channels, including independent distributors, direct salespeople, and directly to patients.
The following table summarizes selected financial results for our Prevention & Recovery segment:
Three Months Ended Nine Months Ended
October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024
(Dollars in millions)
Net sales $ 290.9 $ 274.2 $ 854.1 $ 811.0
Gross profit $ 155.8 $ 143.4 $ 458.8 $ 420.9
Gross profit margin 53.5 % 52.3 % 53.7 % 51.9 %
Selling, general and administrative expenses $ 118.0 $ 105.6 $ 350.2 $ 320.9
Research and development expense $ 9.6 $ 9.1 $ 28.6 $ 27.1
Amortization of acquired intangibles $ 23.4 $ 23.3 $ 69.5 $ 69.5
Goodwill impairment charge $ 229.9 $ - $ 229.9 $ -
Restructuring charges $ 0.4 $ 3.0 $ 3.9 $ 12.5
Operating income (loss) (GAAP) $ (225.6) $ 2.4 $ (223.2) $ (9.0)
Operating income (loss) margin (GAAP) (77.5) % 0.9 % (26.1) % (1.1) %
Adjusted EBITDA (non-GAAP) $ 42.3 $ 42.8 $ 119.9 $ 111.8
Adjusted EBITDA margin (non-GAAP) 14.5 % 15.6 % 14.0 % 13.8 %
Three Months Ended October 3, 2025 Compared to Prior Year
Net sales increased $16.7 million, or 6.1%, in the three months ended October 3, 2025 compared with the prior year period, driven by strong existing business volume growth and favorable foreign currency translation of 1.4%. Gross profit increased $12.4 million and Gross profit margin increased by 120 basis points, primarily due to an improved mix of higher margin product sales, partially offset by the impact of tariffs.
Selling, general and administrative expenses increased slightly as a percentage of net sales. Operating loss and Operating loss margin increased due to the Goodwill impairment charge of $229.9 million, slightly offset by operating leverage with the aforementioned higher gross profit exceeding the aforementioned increase in Selling, general and administrative expenses. Adjusted EBITDA and Adjusted EBITDA margin decreased slightly due to the timing of the aforementioned increased investment in the business in selling, general and administrative costs and the net impact of new tariffs, partially offset by the increase in gross profit and improved mix of higher margin product sales.
Nine Months Ended October 3, 2025 Compared to Prior Year
Net sales increased $43.1 million, or 5.3%, compared with the prior year period, driven by solid existing business volume growth and additional calendar days due to the prior year nine-month period ending on September 27, 2024, partially offset by a $4.3 million decrease from divesting the compression hosiery business in April 2024. Gross profit increased $37.8 million and Gross profit margin increased by 180 basis points primarily due to mix of higher margin products sales and supply chain productivity.
Selling, general and administrative expenses increased slightly as a percentage of net sales. Operating loss and Operating loss margin increased due to the Goodwill impairment charge of $229.9 million, slightly offset by operating leverage with the aforementioned higher gross profit exceeding the aforementioned increase in Selling, general and administrative expenses. Adjusted EBITDA and Adjusted EBITDA margin increased slightly compared with the prior year period due to the aforementioned improved product mix, supply chain productivity, and operating leverage.
Reconstructive
Enovis Reconstructive is a global medical technology business focused on developing, manufacturing, marketing, and distributing innovative surgical solutions that restore mobility and improve patient outcomes. Our portfolio includes a broad range of differentiated implants, instrumentation, and enabling technologies used in elective and non-elective joint replacement, limb reconstruction, and foot & ankle procedures.
We serve orthopedic surgeons and healthcare systems worldwide with products for shoulder, hip, knee, and extremity reconstruction and fixation, including both primary and revision procedures. Our offerings are supported by proprietary surgical techniques, surgeon education, and digital tools that enhance preoperative planning, intraoperative precision, and postoperative recovery.
Our strategy is focused on accelerating growth through innovation, expanding market presence in both established and emerging markets, and delivering exceptional clinical and economic value to our customers. Backed by a strong commitment to research and development, surgeon collaboration, and commercial execution, Enovis Reconstructive is positioned as a leading partner in advancing the future of reconstructive surgery.
The following table summarizes the selected financial results for our Reconstructive segment:
Three Months Ended Nine Months Ended
October 3, 2025 September 27, 2024 October 3, 2025 September 27, 2024
(Dollars in millions)
Net sales $ 258.0 $ 231.0 $ 818.2 $ 735.6
Gross profit $ 173.1 $ 143.0 $ 537.0 $ 452.3
Gross profit margin 67.1 % 61.9 % 65.6 % 61.5 %
Selling, general and administrative expenses $ 145.6 $ 144.2 $ 449.5 $ 448.8
Research and development expense $ 20.1 $ 11.4 $ 60.4 $ 40.2
Amortization of acquired intangibles $ 20.3 $ 19.5 $ 59.0 $ 55.2
Goodwill impairment charge $ 318.6 $ - $ 318.6 $ -
Purchase of royalty interest $ - $ - $ 45.8 $ -
Restructuring charges $ 1.5 $ 2.1 $ 2.6 $ 10.1
Operating loss (GAAP) $ (332.9) $ (34.1) $ (398.9) $ (102.0)
Operating loss margin (GAAP) (129.0) % (14.8) % (48.8) % (13.9) %
Adjusted EBITDA (non-GAAP) $ 52.5 $ 47.4 $ 171.2 $ 151.8
Adjusted EBITDA margin (non-GAAP) 20.3 % 20.5 % 20.9 % 20.6 %
Three Months Ended October 3, 2025 Compared to Prior Year
Net sales increased by $27.0 million, or 11.7%, in the three months ended October 3, 2025, due to strong sales volumes and favorable foreign currency translation of 2.5%. Gross profit increased over the same period, primarily due to higher net sales and a decrease of $8.4 million in inventory fair value step-up amortization charges.
Selling, general and administrative expenses increased by $1.4 million over the same period primarily due to an increase in commissions driven by higher sales and increases in existing business investments to support growth partially offset by a decrease in Lima Acquisition integration costs. Research and development expense increased compared to the prior year period due to an increase in new product development projects and activities and spending within our recently acquired businesses, which are investing in surgical productivity solutions and computer-assisted surgery technologies.
Operating loss increased, primarily due to the Goodwill impairment charge of $318.6 million, slightly offset by the aforementioned gross profit increases and a $6.5 million decrease in strategic transaction costs including the integration and transaction costs for the Lima Acquisition. Adjusted EBITDA increased primarily due to the aforementioned sales growth and gross profit increase.
Nine Months Ended October 3, 2025 Compared to Prior Year
Net sales increased by $82.6 million, or 11.2%, due to strong sales volumes, favorable foreign currency translation of 1.1%, and additional calendar days due to the prior year nine-month period ending on September 27, 2024. Gross profit increased $84.7 million in the nine months ended October 3, 2025 compared to the prior year period, primarily due to higher net sales, improved operating leverage and a decrease of $19.3 million in inventory fair value step-up amortization charges.
Selling, general and administrative expenses increased by $0.7 million over the same period primarily due to an increase in commissions driven by higher sales and increases in existing business investments to support growth, nearly entirely offset by a decrease in Lima Acquisition integration costs. Research and development expense increased compared to the prior year period due to an increase in new product development projects and activities and spending within our recently acquired businesses, which are investing in surgical productivity solutions and computer-assisted surgery technologies. Purchase of royalty interest increased over the same period as we completed strategic purchases to buyout the economic interest in future royalty payments in connection with the termination of certain legacy product development agreements for a fixed price of $56.5 million, which will be paid over nine years. We accrued a liability and recognized a $45.8 million charge for the net present value of the purchases.
Operating loss increased, primarily due to the Goodwill impairment charge of $318.6 million and the $45.8 million purchase of royalty interest, slight offset by the $26.7 million decrease in strategic transaction costs including the integration and transaction costs for the Lima Acquisition. Adjusted EBITDA increased primarily due to increased gross profit from the Lima Acquisition and improved operating cost leverage.
Liquidity and Capital Resources
Overview
We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings, and the issuances of equity. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures, restructuring and other non-routine costs, and interest and principal repayments on our debt. We believe we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes. We believe that our sources of liquidity are adequate to fund our operations for the next twelve months.
Equity Capital
In 2018, our Board of Directors authorized the repurchase of our common stock from time-to-time on the open market or in privately negotiated transactions. No stock repurchases have been made under this plan since the third quarter of 2018. As of October 3, 2025, the remaining stock repurchase authorization provided by our 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.
Term Loan and Revolving Credit Facility
Our credit agreement (the "Enovis Credit Agreement") consists of a $900 million revolving credit facility (the "Revolver") with an April 4, 2027 maturity date and a term loan with an aggregate principal amount of $400 million, which was funded on January 3, 2024, the date the Lima Acquisition was consummated. The term loan requires quarterly principal repayments at 1.25% of the initial aggregate principal amount, which is $5 million each quarter, and matures on April 4, 2027 (the "2024 Term Loan"). The Revolver contains a $50 million swing line loan sub-facility. All facilities under the Enovis Credit Agreement (including the 2024 Term Loan Facility) are secured by certain personal property of the Company and certain of its subsidiaries, subject to limitations and exclusions. As of October 3, 2025, there was $355 million available on the Revolver.
The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments, or pay dividends. There are also restrictions on repayments of junior financing and amendments to junior financing documents. In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum senior secured leverage ratio of not more than 3.50:1.00 for the fiscal quarter ending June 30, 2024 and thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00. The Enovis Credit Agreement contains various events of default (including failure to comply with the covenants under the Enovis Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Revolver.
Convertible Notes and Capped Calls
Our $460 million aggregate principal senior unsecured convertible notes were issued in October 2023 via a private placement pursuant to Rule 144A in conjunction with the financing for the Lima Acquisition (the "2028 Notes"). The 2028 Notes have an interest rate of 3.875%, payable semiannually in arrears on April 15 and October 15 of each year, beginning April 15, 2024. The 2028 Notes will mature on October 15, 2028 unless earlier repurchased, redeemed, or converted. We also entered into privately negotiated capped call transactions with certain of the initial purchasers of the 2028 Notes. The capped call transactions are intended generally to mitigate potential dilution to our common stock upon conversion of any 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2028 Notes, as the case may be, with such reduction and/or offset subject to a cap.
Other Indebtedness
In addition, we are party to overdraft facilities with a borrowing capacity of $30.0 million. Total letters of credit and surety bonds of $47.5 million were outstanding as of October 3, 2025.
Cash Flows
As of October 3, 2025, we had $33.6 million of Cash and cash equivalents, a decrease of $14.6 million from the balance as of December 31, 2024 of $48.2 million. The following table summarizes the change in cash and cash equivalents during the periods indicated:
Nine Months Ended
October 3, 2025 September 27, 2024
(Dollars in millions)
Net cash provided by (used in) operating activities $ 128.7 $ 25.2
Purchases of property, plant and equipment and intangibles (141.1) (127.5)
Payments for acquisitions, net of cash received, and investments (26.9) (765.4)
Other investing
1.7 (4.6)
Net cash used in investing activities (166.4) (897.6)
Net borrowings of debt 25.1 878.0
Other financing (4.6) (11.1)
Net cash provided by financing activities 20.5 866.9
Effect of foreign exchange rates on Cash and cash equivalents 2.6 0.5
Decrease in Cash and cash equivalents $ (14.6) $ (5.0)
Cash flows from operating activities can fluctuate significantly from period-to-period due to changes in working capital and the timing of payments for items such as restructuring and strategic transaction costs. Strategic transaction costs primarily relates to integration costs of acquired businesses such as the Lima Acquisition. Cash flows provided by operating activities increased $103.5 million year-over-year. This improvement was primarily due to the increase in gross profit, lower strategic transaction costs of $23.8 million, lower interest paid of $22.3 million, lower restructuring costs payments of $9.6 million, and lower investment in working capital of $1.3 million, offset by increases in Selling, general and administrative and Research and development expense.
Cash flows used in investing activities during the nine months ended October 3, 2025 were $166.4 million compared to $897.6 million in the prior year period due to six small acquisition transactions during 2025 compared to the Lima Acquisition purchase price of $757.7 million, net of cash received, in the prior year and overall higher capital investments in the current year driven by recent acquisitions, including surgical implant instruments that support sales growth in Recon.
Cash flows provided by financing activities during the nine months ended October 3, 2025 include $25.1 million of net debt borrowings primarily used for the recent acquisition transactions and capital expenditures. Cash flows provided by financing activities for the nine months ended September 27, 2024 include net debt borrowings of $878.0 million primarily used for the Lima Acquisition and to a lesser extent capital expenditures and operations.
Critical Accounting Policies and Estimates
The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position. Except as noted below, there have been no significant additions or changes to the methods, estimates and judgments included in "Item 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in our 2024 Form 10-K.
Goodwill and Intangible Assets
We evaluate the recoverability of Goodwill at the reporting unit level annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. For the quarter ending October 3, 2025, the Company identified an impairment indicator associated with a sustained decrease in the Company's publicly quoted share price and market capitalization, relative to the carrying value of our reporting units. Accordingly the Company performed an interim quantitative assessment of Goodwill as of the last day of the third quarter of 2025.
Determining the fair value of a reporting unit requires the application of judgment and involves the use of significant estimates and assumptions which can be affected by changes in business climate, economic conditions, the competitive environment and other factors. Generally, we measure fair value of reporting units by equally weighting a discounted cash flow approach and market valuation approach. The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flow models include the weighted average cost of capital, revenue growth rates, long-term rate of growth, profitability of our business, tax rates, and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization.
We base these fair value estimates on assumptions our management believes to be reasonable but which are unpredictable and inherently uncertain. Based upon the results of the quantitative impairment test, the Company determined the carrying values of each of the Reconstructive and Prevention & Recovery reporting units exceeded their fair values as of October 3, 2025. In order to align each reporting unit's fair value model with the Company's overall market capitalization, the Company increased the weighted average cost of capital and reduced market multiples to the low end of acceptable ranges. As a result, the Company recognized a non-cash goodwill impairment charge of $540.8 million ($222.3 million for the Prevention & Recovery reporting unit and $318.6 million for the Reconstructive reporting unit).
A further sustained decline in our share price and market capitalization, future cash flows, end-markets and/or geographic markets could result in additional impairment charges that could materially affect our financial statements in any given year. Actual results could differ from our estimates and projections, which would also affect the assessment of impairment. As of October 3, 2025, after recognition of the impairment charge, we have Goodwill of $1.2 billion ($558 million for the Prevention and Recovery reporting unit and $661 million for the Reconstructive reporting unit) that is subject to at least annual review for impairment. See Note 8 "Goodwill" in our Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for additional information.
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