Innovus at 24th Annual Needham Conference: Strategic Growth Plans

On Tuesday, 08 April 2025, Innovus (NYSE: ENOV) presented at the 24th Annual Needham Virtual Healthcare Conference, offering insights into its strategic initiatives and future outlook. The company discussed its product innovation and geographic expansion, alongside a CEO transition. While Innovus faces challenges like tariffs, it remains optimistic about growth opportunities and market share gains.

Key Takeaways

• Innovus is focusing on product innovation and geographic expansion, especially in its Reconstructive business.
• Damian McDonald will replace retiring CEO Matt Chartola, ensuring a smooth leadership transition.
• The company is leveraging its success in the Reconstructive segment with products like the Empower knee and AltaVate shoulder implant.
• The Lima acquisition is exceeding expectations, with significant cost synergies anticipated.
• Innovus is actively managing tariff challenges, with the USMCA exemption mitigating much of the risk.

Financial Results

• Lima acquisition synergies surpassed expectations, reaching nearly $20 million in the first year.
• Guidance for 2025 includes 60 to 70 basis points of improvement, partly from Lima synergies.
• Innovus aims for mid-single-digit growth in its Prevention and Recovery (PNR) business and plans to increase gross margins from the low fifties to about 60%.

Operational Updates

• Damian McDonald will assume the role of CEO in May, with Matt Chartola available for a smooth transition.
• Innovus continues to gain market share in the Reconstructive business, with high patient satisfaction for the Empower knee.
• Plans to introduce the collar hip stem and Avapace hip products into the US market are underway.
• The AltaVate shoulder implant is driving growth, with plans to expand its reach outside the US.

Future Outlook

• Innovus expects continued growth in its Reconstructive business.
• Full integration of the Lima acquisition is anticipated by Q2, accelerating sales growth.
• The ARVIS navigation system will launch more features in 2025, enhancing planning and navigation technology.

Q&A Highlights

• The board has been planning the CEO succession, leading to the appointment of Damian McDonald.
• Innovus is gaining market share in the hip and knee categories with its differentiated products.
• The company is benefiting from the trend towards Ambulatory Surgery Centers (ASCs) in the hip and knee market.
• The Lima acquisition is slightly ahead of original planning assumptions.

For more detailed insights, refer to the full transcript below.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Good afternoon. Thanks for joining us at the twenty fourth Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the med tech and diagnostics equity research team at Needham and Company. I'm pleased to introduce Innovus. Speaking on behalf of Innovus, we have CFO, Ben Barry.

Instead of a standard presentation, we are gonna do a q and a session. If you do have any questions you'd like to ask, you can submit them electronically through the conference website or feel free to email them to me at nevmats@venomco.com, and I'll do my best to fit them in. So with that, we're going to move on into the the q and a here. So I guess, Ben, I just wanted to start out with the news that Matt Chartola, CEO, has announced that he's retiring. You announced this back on February 26.

So I guess why was this the right time for for this decision? And can you give us an update on where the board is in terms of searching for a new CEO?

Ben Barry, CFO, Innovus: Yeah. Thanks, Mike. Thanks for having us and hosting us again at at your conference. So, yeah, we we go through an annual process with regards to a talent review with the board where we, you know, talk about what, you know, potential succession plans look like and and as leaders have have different ideas around their trajectory and timeline. So Matt had been discussing with the board for a little while with regards to his intentions as he was getting, you know, down the road with in terms of his his time serving as the CEO here at both Colfax and and Innovus and and starting to work with the board on what that succession timing, you know, might look like.

And as he got to a point in in his career where he's been now the the CEO of the company through two major transformations, Colfax becoming a novice and then a novice with regards to reshaping the company towards Lima over a ten year period, along with some of the the personal aspects of his life with his, you know, daughter graduating and and going to college and and him now being an empty nester. He was ready to start to move on to the next phase of his career to do more boat board work and create more free time to to travel and experience more things, you know, with his wife. So he was working with the board to to figure out when the appropriate time to transition was. As we, you know, took the company, got Lima mostly integrated with regards to the heavy heavy work with regards to commercial in integration last year, got to a point where the company is really well positioned, to continue our growth against our LRP. And so he felt it was the right time, you know, be close to 60 by the time he steps down to to to move on to the next phase of his career.

So, you know, the board has been, you know, going through a process since they knew that that was gonna, you know, play out, and and and we just announced a couple weeks ago that Damian McDonald is gonna join the company, to be our new CEO effective in in the May. So Damian comes from, you know, really strong background, career in med tech, spent some time together with Matt actually at Danaher. You know, good good robust experience across various different, aspects of med tech and then was also the public company, CEO of Livinova for five years, but before he moved on there. So overall, we're excited about the the the quality of talent that that Damian brings to the organization. Matt's gonna stay on to to make sure that there's an appropriate transition and that there's a a good handoff in place and that he'll be around in an advisory, capacity over the next year or so.

But but overall, I think we'll be very well planned in terms of our our transition plan and and make sure that the company is set up to continue on the strong momentum and trajectory that we're on.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Thanks, Ben. Sorry. I guess, the news around Damien was announced subsequent to my writing of these questions. So I apologize for not mentioning that when I asked that question, but I'm glad you commented on on his hiring as well.

So so now I wanna move on and just talk about some of the different, you know, businesses at at Innovus. So, you know, starting with the Reconstructive business. So, you know, you've you've been Innovus has been gaining share for for years in this business. Can you maybe just talk about, you know, what's allowed that to occur and, you know, what you've been doing right to kinda capture share from some of these much bigger companies like, you know, Zimmer and Smith and Nephew and JJ?

Ben Barry, CFO, Innovus: Yeah. You know, I I think it starts with with product innovation. We really made our name for ourselves launching the the AltaVate reverse shoulder. That that gained a lot of momentum. It's still a relatively young implant.

It's about ten years old, but but really started to change a bit of the preference from a philosophy standpoint in terms of shoulder design within The US market about a decade ago and shifted really a lot more procedures to where now I think about 60% of procedures are done in a in a style that's more similar to what ALTIVATE is. So we really created momentum for the company with with that product, you know, several years ago. And and also we we launched a product called the Empower three d knee, which which also created a lot of momentum, a product designed to to be more kinematically designed and and and mimic more how the natural knee, operates and and created a a really strong performance around patient satisfaction, which was a differentiator for us. So we were really driving growth in a relatively small recon business, really driven behind both the Altivate and the Empower platform,

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: but

Ben Barry, CFO, Innovus: we were still very much a US based business at that point in time. So over the past several years, we've been building out the portfolio both through a series of acquisitions that that allowed us to have, you know, foot and ankle products as well as, you know, acquisitions that were creating global and and geographic scale for the company with an acquisition that we did with Mathis back in 2021 and then Lima last year. So we've really built out our recon portfolio with at at two strong products that we're growing in The US market to now a billion dollar player that's more diversified and globalized within a 23,000,000,000 plus addressable market. So we're still relatively small share position, but we've got a lot of momentum within each of our anatomies that are helping us chip away at at share gains to allow us to grow above the market pretty much in each anatomy, that we have. So so overall, we've created momentum through product innovation, but then also through, you know, building out a portfolio through both organic and inorganic means.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And so it sounds like you think that you've kind of been you know, those four kind of recon categories, knees, hips, shoulder, and foot, ankle, you've probably been gaining share in all four of those. Maybe not in every any given quarter, but kind of over the longer term.

Ben Barry, CFO, Innovus: Yeah. Over the last ten plus years, I'd say we've outperformed the market pretty much across the anatomies in in which we've participated in. So I'd say we're gaining share across the board.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. Alright. And then moving on to just the hip and knee category within reconstructive. So, you know, the Empower knee has been, you know, proven to be differentiated and sort of allow for market share gains as you noted previously.

So can you maybe just provide a little more detail on Empower and kind of what sets it apart and why it's been able to help you capture share?

Ben Barry, CFO, Innovus: Yeah. So so with within the knee, there's a lot of products that have been on the market for a long time, and and I think what you had seen over over time was good survivorship, but, you know, a gap in patient satisfaction. So only about eighty percent of patients that that got a a total knee replacement were satisfied, which mean it didn't quite feel like their their normal knee. So the the Empower three d is really designed around the kinematic alignment and motion of how a natural knee moves. So when you walk, your knee pivots laterally, and when you squat, your knee pivots medially.

So our implant is designed to pivot in both of those ways depending on if you're walking or squatting. And what it's done for us is, you know, created really strong patient satisfaction levels. So I I I mentioned about eighty percent of patients satisfied in in the broader market. But with our Empower three d, we're getting over ninety percent of of patients satisfied with our knee. So it feels more like a natural knee.

It's good for a younger, more active patient, which is a good patient candidate for outpatient settings. We've really, you know, spent a lot of work with regards to trying to drive more education into the market around the benefits of this type of design, and it's really created good momentum for us in terms of, you know, our knee growth over the last, you know, several years.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then I know more recently you launched your first revision knee. So, you know, the the revision version of the Empower knee. So maybe you can just talk tell us about the the revision knee segment kinda, you know, how big is that relative to primary knees, and, you know, how has how is your your revision specifically done? And, you know, is it fully launched at this point, or are you still putting more sets out there?

Ben Barry, CFO, Innovus: Yeah. I'd say that we're we're continuing to to expand. It's it's been an area where, you know, as as I talked a little bit about our journey of, you know, becoming a a small US based, recon player to now a larger, more globalized player. Over that period of time, we we had to fill out our our product portfolio in terms of, you know, having broader offerings to compete in emerging market segments. So and and that's true to the the revision knee.

So about twenty percent, of knee procedures are done, you know, as revisions. We didn't have a product there for for several years. And and and just over the last couple years, we've we've launched the the revision platform of of Empower. We've been building out, additional capabilities with regards to offerings there as well. So we've just become much more competitive in a broader portfolio offering.

So it allows us to continue on our aggressive, you know, surge in conversion strategy with regards to, you know, having a full product offering and and allowing us to to be more competitive when we're going head to head against some some of the competitive offerings out there. So so far, it's done really well. We were able to leverage some of the Lima, you know, products, synergies that came in as well with regards to, their augments to to help with the revisions. So their cones, that that we're able to leverage right right away within our revision system, and then we also launched the Innovus version of those as well last year. So we've we've built out our product offering on the revision side, and I say we're we're much more competitive and robust with regards to our portfolio offering in knee because of that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Alright. And then you're moving on to hip. I think you're you're launching, you know, collar hip stem, later this year. Maybe you could just give us an update on that and kinda why it's important, to that part of the business.

Ben Barry, CFO, Innovus: Yeah. Our hip our hip business has has performed well, especially outside The US. And then in The US, we were performing pretty well for for a long period of time. But over the past twelve months or so, there's there's been a trend in the market to move to a new approach when it comes to the direct anterior procedure, and and to get confidence with regards to placement of the implant. Stems with collars have become much more popular, and then assistance to get those in with an impactor device.

So that was a product portfolio gap, that that we had in our US market, not so much an impact in our product line outside The US where we've performed well and we have a more robust product offering with the acquisitions that we did with with Lima and Mathis. So we needed to remediate within The US portfolio to bring those those types of of products and and devices into the market. So we're we're ramping those up now. We just recently got FDA approval of our new stem, and we're building inventory now with the impactor to be able to ramp that up in the second part of the year. So what that provides for us is just a more competitive portfolio in The US hip.

It allows us to go to surgeons that have converted to our knee, but maybe not our hip and and really try to drive conversion to both their knee and hip portfolio. And it it allows us to just be more competitive as we look for share gaining opportunities. So we're excited about the prospects of these products coming into the market. We're continuing to look at opportunities to more globalize the portfolio as well with some of the products that are performing well in other parts of the world. So overall, I think we're making good progress, and and we're really excited about the HipStem and the Impactor launch here, in the second half of the year.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And, I think I heard that you had some plans to bring some of the Avapace hip products into The US. Can you maybe talk a little bit about that?

Ben Barry, CFO, Innovus: Yeah. Again, I think it it goes to how do we maximize the portfolio strength that we have now that we've put all of these businesses together, and and Mathis has some really strong performing, hip products, and and we think that there are components and products that that we can leverage as we bring those into The US market. So I'd say this is a a consistent view for us now as we're globalizing our portfolio, focusing on, you know, key driving, product lines with within each of those portfolios and and and figuring out the best way to to maximize those. So as you can imagine, we're looking across the landscape both of what Lima had outside The US and what Mathis had outside The US with both stem designs, material, components. You've got three d printing capabilities that we've brought over now with with Lima.

So we're looking at how do we maximize all of those portfolios, but within that can come, you know, some specific product lines, you know, that that were being sold outside The US.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, we've seen hips and knees, you know, for a few years now moving in more into the ASC setting. You know, from Innovus' perspective. I don't know if you have a feel for how much of the markets transition into ASCs right, you know, as of now, but so that'd be my first question. And then my second question would just be, I think that this is sort of, know, I guess, Novus has been a beneficiary of this trend.

Can you maybe talk about that? Is that correct? And and, you know, why if if that is true, then why why is it know, helped to notice maybe worse than some of your competitors?

Ben Barry, CFO, Innovus: I haven't seen a whole lot of information lately from from our competition with regards to the view on on how much of the product is is done in the ASC. But I can tell you the the last that that our view was around 10 to 15% of of market needs. We're we're going through an ASC setting, and we were a little north of 20%. And then last year, I I didn't hear a whole lot from from competitors around how many shoulders were done, but we went, you know, from about 5% to 10% last year with regards to percentage of our our shoulder procedures moving into the ASC. So the so the ASC, we believe, will be a continued growing trend in terms of market shift of procedures into those types of, more outpatient environments and clinic based settings.

And and one of the things that is a benefit to us is those contracting environments are generally a little bit easier to work with with regards to getting on, aligned with a with a contract versus some of the big hospital systems. So so from a contracting environment, it's a little bit easier to maneuver generally in in ASC type settings. Also, you know, if you think about those types of settings, they're they're generally around driving good volume in primary procedures where our portfolio originally was was set up to to really be successful. We're we're building that out now with regards to our portfolio breadth. But if you think about efficiency, repeatability into those types of settings, we have products and, you know, really good towards younger active patients.

We've streamlined instrument sets as well to be cost conscious with regards to what's needed to perform those procedures. And and like I said, from a contracting perspective, it's set up to be a little bit more advantageous for us, as well to to go and and operate. So you put all those together and we benefited and we're a little bit above the market, we believe in terms of our penetration within ASCs, and I would expect that to continue as we go forward.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Great. And then just moving on to to shoulders. So you you already kinda called out the AltaVIII shoulder. It's been, you know, wildly successful for Novus.

But I was just wondering if you could, you know, for for kind of more of the the laypeople on this call, if you could maybe explain, you know, what it is about it that's that's different and why it, you know, kinda captured share.

Ben Barry, CFO, Innovus: Yeah. You know, it it really was, it's set up in in a way that is a a design that was was put together to really address mobility and and impingement in a way that that was different from how traditional procedures were being done. So it's got a lateralized center of rotation. It's got an inlay stem, and it's, got an an angle of the neck shaft that's a little bit more unique. You put all that together with really strong base plate blade base plate repeatability, and it's created a a really strong performing product line for us over over over a many year period.

So at at ten years post post launch, it's shown no no decline in patient outcomes and and continues to perform really well. And and like I said, from a patient outcome standpoint, you know, it it gets really strong scores for for mobility and repeatability and and then also just, you know, not as much impingement as what you've seen in in some traditional shoulder design. So overall, ULTOVATE continues to perform well, and we expect a good opportunity for us to continue to expand Altivate outside The US as well as we would expect the market to shift more like what we've seen happen in The US over time as well. So so we feel like Altivate will continue to be a growth driver for us.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then I think earlier, you also mentioned, though, that, you know, some of the competitors have kind of, you know, moved more toward the similar kind of design philosophy of AltiVate. So, I mean, is there any risk here that if the competitors I don't wanna say copy, but, you know, sort of, approximate, I guess, what what you guys have with with AltiMate that it kinda you kinda lose your competitive edge there to some degree? Or

Ben Barry, CFO, Innovus: Well, I I'd say that, you know, we still have the the strong performance data with regards to Altivate in in the market for as long as it's been now. And and what I would say is it's validated the design in a sense with regards to some of the similar type of designs. And one of the things that has allowed us to become the global number three player in in shoulder is on the backs of the performance of Altivate. And then I'd say the the the market shifting to to more designs, like the Altivate. So by by having the product in in at the right time of those markets shifting, we were able to continue to to grow above the market and gain share, you know, in in the broad market and and establish ourselves as the number three, global player.

So we we feel like Altivate still has some runway in front of it. We're continuing to to build out on that platform like we just recently launched, augmented glenoids, which, you know, a little over 10% of of shoulder procedures have some sort of bone deformity or complication that these products will then address. So we're continuing to build out, you know, even the supplemental offerings within Ultivate to help establish good momentum going forward. And I think enabling technology is also gonna play more in shoulder down the road as well, and and we'll have some offerings that are gonna come to support that that you'll marry together with with things like Altivate to create good momentum of growth for the future as well.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And so the the the data is an important point, I think. So I guess what you're saying is that, you know, if you have ten year data and the competitors launched their product, you know, three years ago, I mean, you're they're never gonna be able to catch up in terms of, you know, by the time they get to ten year data, you'll have eighteen year data or seventeen year data or something like that. So you're always gonna have better long term data, I guess.

Hope hopefully, it continues to perform. But okay. And then let's see. So the just a couple more on shoulders. So, you know, there's been a lot of discussion about the robotic launches in shoulder from Stryker and some of BioMed.

I know that they're kind of in limited releases still at this point, but and I know I ask you this question every year, but I think it's something that there's, you know, decent amount of investor concern about. So I just wanted to get your latest take on kind of what, if any, threat that those things pose to Innovus and, you know, whether or not you're I know you don't have a robot at least right now, but you do have navigation and ARVIS and things like that. So how you're kind of, you know, trying to compete with with that with what those companies are bringing to the table.

Ben Barry, CFO, Innovus: Yeah. I mean, I I think that the enabling technology products and and capabilities are gonna continue to be something that are important in in our field. And if you think about what we've been focused on so far, it's really been around how do we get really good planning and really good navigation to essentially create the brains of a workflow that will then expand into broader areas over time. So as you as we think about robotics, we think about it in a way of, let's think about that workflow of of the patient journey around enabling tech to how that original plan gets designed and developed, how that gets brought into, the procedure intraoperatively, and then how does that, you know, go from a patient reported outcome standpoint to create that that cycle of of a patient journey? So from our standpoint, we wanna build off of a really strong planning system that we have in match point, improve that, and then also really build out our capabilities around navigation and guidance.

So we create the brain to then add additional feature sets to down the road, and that could be robotic application, or it could be some sort of assistance for for the surgeon from a repeatability and efficiency standpoint. So, as as I was saying, we have now a a product line in Arvis, which is continuing to be built out from both a a feature standpoint and from a hardware standpoint that will allow us to address the navigation and guidance component. Take your preoperative plan, overlay that as you're performing the procedure. And I would say the early feedback that we're getting from our KOL surgeons that are right now working on, the soft launch of ARVIS in the shoulder has been extremely positive. It's been an area where our education events have continued to to show high demand, with regards to people interested in in learning more about it.

And I think from the benefit standpoint of what Arvest brings in the shoulder could be even more advantageous than than what it could offer in the knee. So we're we're launching more features and and and hardware updates throughout the course of 2025. We're gonna be launching that product line outside The US in 2025 as well. And we think that once we get the the planning navigation guidance, working really well, then we can start to think about things like robotic application as those things continue to evolve and develop over time. But right now, we're we're happy with what we've got with Arvest in the shoulder.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Great. And then just moving on, just wanna briefly touch on foot and ankle. So, you know, you've you've built this business through a series of acquisitions. You know, I just you know, I know you have kind of a pretty wide range of products at this point.

Are there any kind of obvious gaps in that product offering that you've looked to fill either, you know, internally or externally?

Ben Barry, CFO, Innovus: We've done a a pretty good job, I believe, of building out the portfolio depth within foot and ankle to to be competitive and and have some differentiators that are pulling other parts of that portfolio along. So if I think about, you know, our our offering, we've got the the DynaNail platform, which has been a big differentiator for us, and and that's a super elastic nickel titanium nitinol product that, really drives good fusion and outcomes in in very complicated, cases. So that that's been a product that's been performing extremely well for us, as well as our minimally invasive product line that we brought in, from NovaSTEP, on on the bunion side. Those two have been really dynamic for us in terms of helping pull the rest of the plates and screws portfolio along, as we've gone. I I think there are some slices within foot and ankle, given it's a more diverse set of procedures, to to where there could be some things that we would look at.

But but we are very much in the situation where it's more of a make buy, type analysis for us now to where we have the capabilities to organically develop what we need. But if there are better things that we could get quicker through small acquisitions, then then we'll contemplate those as well. But I don't see any glaring gaps with with with regard to the portfolio that we've built in foot and ankle and and really some some flagship products that are helping pull through the broader portfolio.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then I wanna ask a few on prevention and recovery. So I guess maybe just from a high level, you know, sometimes I think talking to investors, they kind of there's maybe some misconceptions about this business and people thinking it's just like a super commoditized, low margin, slow growth business. And, you know, I I think you have some strong brands there, and, you know, the margins aren't maybe as bad as people think.

But I just wanted to kinda get your your overview of the business and maybe why that isn't completely accurate.

Ben Barry, CFO, Innovus: Yeah. Our our PNR business is a is a global market leader. We're we're the global market leader in bracing We're the global leader in in recovery sciences. And if if I look at the the business of PNR, we we've really been able to take that business and stabilize its growth through a focus on, a really strong operations, but then also increasing our, innovation cadence and cycles, within our PNR business.

So we've been improving our ability to lean into categories within PNR that are growing faster, than the broader, PNR market that come with with higher gross margins as well. And that's been one of the reasons why you've seen us get into this more stabilized growth pattern, with PNR. And there's more to do there as as we talk about our strategy, to shape PNR. It's investing in areas that are gonna grow faster that come with higher gross margins, and then looking at areas where we can prune or potentially divest some things that maybe are slower growing or less attractive. And we did some of that last year with regards to divesting a small part of that business that that was less or not not profitable at all.

So we're we're in the process of looking at how do we, you know, shape PNR towards higher growth, higher gross margin? And and what I would say is PNR for for us as as the market leader gives us the ability to drive some of the market performance, but it's also a really strong cash generator for for the company. So one of the thing that makes us a little bit more unique is a mid cap player on on the large joint recon side, which requires heavy capital investment to support the growth. The PNR side of the business is less capital intensive, so we can really drive that cash, to invest in, the growth of recon and then continue to look at opportunities to to drive, the right mix, you know, within within PNR itself. So we've made a lot of progress there.

We we continue to see PNR as a as a business that we can shape towards more mid single digit growth over time, go from a low fifties gross margin closer to 60% over time and and really maintain that strong cash profile that will help us in terms of, you know, creating deleverage opportunities and more m and a opportunities into the future.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. So just wanna move on to the Lima acquisition. It's been, you know, well over a year now since you closed the deal. You know, you guided to 40,000,000 of cost synergies by year three.

Are you still confident in that number? How much of that did you capture in '24, and how much do you expect in '25? I don't remember if you gave an update for '25 or not. But

Ben Barry, CFO, Innovus: Yeah. Yeah. So so I'd I'd say that, you know, Lima has gone extremely well. It's it's slightly ahead of our original planning assumptions in terms of its performance pretty much across the board. We're we're really pleased with what we've, with with what we've got with with Lima, not just from the underlying portfolio and product performance, but the talent and the capabilities, as well from both an r and d and in a manufacturing standpoint.

So all of that's going extremely well. Year one, as I said, was slightly ahead of our financial expectations. So what we talked about from a synergy standpoint was 10 to 15,000,000, of cost synergies in year one on our way to 40,000,000 plus, you know, by year three. We were north of that 15,000,000, so probably closer to to 20, not quite, in year one. And as we talked about our guidance outlook for 2025, we talked about 60 to 70 basis points of improvement where 10 to 20 of that would be coming from additional year two Lima synergies.

The next large tranche of Lima synergies will come with the manufacturing operations and shifting some of that to to to Lima's facilities. So so we've still got a clear line of sight to that 40,000,000 plus. We'll get a little more here in 2025, and then we'll complete the journey as we get into 2026 and beyond.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, there were some sales to synergies in '24, you know, which you had expected, and I think they ended up being kind of where you thought they would be. But are we completely past that now as we enter 2025? I mean, I think it's even at a point where maybe it starts to come go from being a, you know, a headwind to actually being a tailwind.

Ben Barry, CFO, Innovus: Yeah. That that's our view. We we did the hard work up front in 2024 to make sure that the channel got integrated quickly. We we knew that that was gonna be some heavy lifting, and that's where most of the disruption would come. We're we're largely complete there.

There's some markets, in in the international space that, you know, Lima would be direct and Mathis would be indirect, and we're putting those together. But we we don't expect any major disruption, anything of of materiality that that would come through at this point. And to your point, I think what we see is acceleration coming. As as we get through q one and into q two, all of that will be behind us with regards to the comp. So I think our view is is we're in a good spot.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Great. And now I wanna move on to financial questions. So have to start with one on the the t word, unfortunately. So for tariffs, you know, so I I know we've talked about this before, but you you know, you do have some plants in Mexico.

So maybe start with that. What we've heard from some other med tech companies is that it sounds like USMCA compliant manufacturing is not gonna be tariff. So, you know, how much of your business falls under that? And then maybe just if you could follow that up with any additional exposure outside of, you know, Mexico with the new tariffs were announced on April 2.

Ben Barry, CFO, Innovus: Yeah. We we talked on our our q four call that our exposure at the current contemplated tariffs at that time, it was 25% Mexico, twenty five Canada, and additional 10% of of China. At that point in time, unmitigated gross exposure was 3 to 4,000,000 a month. Since then, USMCA exemption was put in place and now extended. Hopefully, that's for for a nice long period.

TBD on on some of this is that the the situation continues to be somewhat dynamic and fluid. But, yes, about 90% of our, products manufactured in Mexico are compliant with USMCA, and we've done the work to make sure that they're all qualified and registered there. So that mitigates a lot of that risk that we had talked about on our our q four call. Now the new tariffs in place to Europe and some of the other APAC countries, it it will give us some additional exposure that will be more than offset by, not having the the Mexico exposure. So our view is that we're probably slightly favorable to what we provided on our q four call in terms of what the exposure looks like before we get after mitigation activities.

But there still are some uncertainties as we think about how, the global supply chain reacts to some of these tariffs and reciprocals and and things But right now, I would say some exposure that's new from that previous outlook would be products coming in from Europe, like like the Lima products to support The US Lima business, that we acquired and some of the raw materials that are going into our US factories, and then some small amount of finished goods that are coming from, APAC countries in which we had, built resiliency in the supply chain that are now under tariffs. So we're through all of that, but I'd say our view is the situation's gotten slightly better, not worse, but still working through what that means for us in terms of how do we mitigate that going forward. View right now is our first half is is likely gonna be clean, and then we'll have to work through what what the impact potential looks like as we get into the second half of the year.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And just to be clear, so the European exposure, I mean, you've acquired you acquired Mathis as well, but is it just the case that Mathis is mostly, like, selling into Europe as per other international regions as opposed to being, you know, I guess, exported back into The US or something?

Ben Barry, CFO, Innovus: That's right. We we are very much a regionalized supply chain, you know, selling in region for region, but there are some complexities there, especially with some of the acquisitions. So Mathis wasn't selling anything in The United States, but Lima was making all of their product in Italy that was being sold into The US. So so that's the only impact that we have right now on on the major recon side from from Europe.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. I think we're basically out of time, so we're gonna have to wrap up there. But thanks again, Ben, for for coming. Hope you have some good news at the conference.

Ben Barry, CFO, Innovus: Alright. Thanks, Mike. Appreciate it.

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