CONMED Corporation (CNMD) Earnings Call Transcript & Summary

Good morning, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Very happy to host our next session, which is with CONMED. I have Curt Hartman, the CEO and joining us afterwards for Q&A will be Todd Garner, the CFO. Just some housekeeping, feel free to submit questions online or e-mail or chat on Bloomberg. I'll do my best to answer all of them during the session. So with that, Curt, I'll turn it over to you and join you in a little bit.

Thank you, Robbie, and good morning, everybody. Thank you for joining Tom this morning here at the 40th Annual JPMorgan Conference in a virtual format. There's a presentation that all of you should have access to, and I'll be calling out page numbers as I move forward here. On Page 2, you'll see our forward-looking information statement. Really no changes in that but in there for your consideration. Going to Page 3, it's titled CONMED Vision, and I want to start with this slide, and we started with this slide in public settings and internal settings for a number of years now. And really, if you think about our vision, it's to power health care providers to deliver exceptional outcomes for their patients. We serve the health care provider. They serve the patient. Our focus is on the health care provider. Behind that vision, we put 3 very simple words. It's about taking care of our people. It's about delivering innovative products. And if we do both of those right, then we will greatly advance the profitability of the company. And finally, we underpin that focus and that vision with our operating principles, and these are displayed proudly throughout CONMED. They're contained in e-mail signature boxes. They're displayed in lobbies of all of our facilities. And these are the operating principles by which we conduct ourselves in our facilities and externally with our vendors, with our customers and with each other, candidly. Turning to Page 4. If you translate all that into what are the objectives that we strive for with respect to our shareholders. First and foremost, it's about aggregating growth in the top line and then that delivers profitability. We intend to do that over the long term to significantly increase the valuation of the company. And for reference, when I took over at CONMED, the valuation of this company was just under $1 billion. As of this morning, it's just shy of $4.2 billion. So our focus on this growth in aggregation, profitability aggregation has yielded returns, and we intend to continue on that pathway. Second is to increase our market share. I'll show you the markets that we participated in in a few slides, and they are large and attractive markets, and they are growing markets. And we're a small market share player relative to some of the big participants. So we believe we have an opportunity to continue to invade and therefore, grow in those large growing markets. And finally, and this really goes back to a statement or a stake we put in the ground in 2018, that at time that we believe from our [ chair ], it's about delivering above-market revenue and profitability growth over the long term, again above-market revenue growth and profitability growth over the long term. And we've been on that journey since 2018 when we put that statement out. If you go to Slide 5, and I'm going to cover these slides from left to right. This is the orthopedics business. It's mislabeled in the sense that we're really focused on the Sports Medicine segment of orthopedics and broader orthopedics category. And within Sports Medicine, within our portfolio, we have all the soft tissue products, whether that's soft tissue of the shoulder, the knee, the hip or increasingly the extremities, foot and ankle, hand and wrist, elbow. And those sports medicine anchors are used to repair soft tissue injury, either reattaching to the bone or actually reattaching the soft tissue to itself as in a meniscal repair with Allograft Tissue through our partnership with MTF. We have powered instruments that are used in both small and large bones, surgical cutting and shaping amputations and then visualization that is used both in arthroscopy where the median is screwing to the center of the joint, the knee joint, the shoulder joint or where the median could be compressed gas when we do surgery on the abdomen. If you look at all those categories, you'll see the dollar value of 1 market share point over on the right, and that would represent about 8% growth for the total company based on the 2019 revenue. We used 2019 because we believe that was the last what I would call a normal year. Finally, if you look on the left side of the slide, this is through Q3 of 2021. You can see that our orthopedics business is far more heavily concentrated outside the U.S. 64% of that revenue comes from the international market, 36% from the U.S. market and about 71% of this revenue is single-use, recurring. That international concentration is a historical phenomenon when CONMED acquired the whole Linvatec assets out of Bristol-Myers Squibb in 1997. The management team that was in [indiscernible] at that time teamed with that business, and we've been able to greatly enhance our position through that very experienced management team. And one of my first hires was a gentleman to run international and really drive attention to this market and continue to drive attention to this market. The next slide, Slide 6, looks at our general surgery market, again, same title, large and attractive markets. If you look at the categories, we participate in the access, the energy and instruments category, the endoscopic technologies for the upper and lower GI and critical care category, which is the legacy portfolio of ECG and MFE electrodes. Again, if you go to the right and look at the dollar value of 1 market share, it's about $99 million, which would represent about 10% growth for the total company. So again, large markets measured in billions, all growing and all -- an opportunity for CONMED to participate in market share [ attained ] through innovative products. Going back to the left, if you look at the Q3 2021 pie distribution. You can see this is just the reverse of the orthopedics business. About 70% of this business is located in the U.S., about 31% in the international market. This view was one of the reasons we were excited to pursue AirSeal back in 2016 and Buffalo Filter in 2019. We knew we had a good strong international business. We had an underdeveloped general surgery channel based on history and approach. We knew that those 2 platforms would allow us to further advance our credits in general surgery in the international markets, and we think that's exactly how things have played out for us. Conversely on the other side of the previous slide, when I looked at the U.S. market, it's really been about playing catch-up with the product portfolio in the U.S. market as well as the sales force and distribution methodologies, all of which we talked about in 2021. If you go to Slide 7 now and talk about our '21 guidance that we issued going back to January 27, 2021. And just as a reminder, I put the numbers on this slide. Because of COVID, we had a very broad revenue range expectation, $975 million to $1.020 billion and adjusted cash EPS of $2.85 to $3.20. If you fast forward to October 27 when we last issued the guidance or updated or refreshed our guidance, we said we assumed a continued acceleration of procedures in Q4 with no new setbacks related to COVID and poor staffing. And with that, we said the revenue would be at about $1.015 billion mark, which was the low end of our prior full year range and adjusted cash EPS would be $3.18 to $3.23. So I put this up there, so you can see the 2021 journey. But as we turn to Slide 8, I wanted to share with all of you a few thoughts on how we've been managing through the pandemic. And on the left-hand side of the slide are that we would identify as the key challenges, starting first and foremost with the uncertain macro environment that limits visibility, whether that's a new round of COVID, whether that's staffing issue, whether that's supply chain, all of those things impact visibility on a one-to-one basis. The way we've tried to adjust to this environment and operate in this environment is with fact-based objectivity and looking internally and externally trying to align what we see with what's happening. And oftentimes, we found over the last couple of years that the headlines don't always match what's really happening in the marketplace. Sometimes the markets are ahead of the headlines. Sometimes the markets are lagging the headlines. Sometimes the headlines and the reality aren't aligned whatsoever. So we continue to push our team around the globe for that fact-based objectivity to support statements with numbers, support statements with reality. And we think we've become pretty good at this and it's helped us to take some of the uncertainty out of the core of U.S. business. Next challenge that we looked at is the customer. The customer's exhausted. This has actually worsened as the pandemic just went on, and this creates capacity challenges, right? So what we've done in this scenario, and we talked about this at length in 2020 was prioritizing the customer agenda over ours. We also have products that allow the facility to have a safer operating room environment, whether that's the Buffalo Filter smoke evacuation filtration portfolio or the AirSeal in the smoke evacuation mode. And we've seen great receptivity to both of those offerings in today's environment. And then we have to finally respond to their needs, and their needs are varying depending on where they are in the globe and where they are in that latest iteration of COVID with speed and agility. We can't be slow to respond. We have to be timely, and we have to be great listeners to what the customers are facing and how we can we best help them. And then finally, and this one is, I think, from a new standpoint, taken on more prominence in the last 6 months, but candidly, I would tell you, it's been there since March, April 2020, that's the supply chain constraints and the inflationary pressures. And what we've really done here is a couple of things that we think that have served the company and our customers very well. Number one, we've done an immense upgrade in talent around the material procurement and waste reduction initiatives within the company. And there's been tremendous focus on this that began back in 2020 in the March time frame when we started talking daily with our vendors. And Todd has talked about this in the previous session when we thought this would just happen for a couple of months and things will go back to normal. This literally is a daily offense at this point in time where we're constantly talking with our suppliers, our logistic partners and providers and ensuring that they understand our partners and we understand the dilemmas and difficulties that they're facing. The next thing we're doing is really focus on growth products. The growth products, things like AirSeal, things like Buffalo Filter have really helped drive a favorable mix in the market profile, and we don't see that changing anytime soon. That's also in line with our historical innovation practice and things that work their way into our innovation pipeline must be accretive at the gross margin level. Product quality goes about the same. It's a ticket to entry to the world of medical devices, and there's no excuse for sacrificing product quality, so product quality remains, first and foremost, at the forefront of everything we do, understanding that in this industry, there are audits that occur regularly by various agencies. But in a COVID environment, those audits have been slowed down, if not completely delayed. I think I read last week that the FDA had actually started pushing audits again. But I bring this up because we've never lost focus on it. This has been at the forefront of everything we've done at CONMED and continues to be at the forefront. And then finally, I already talked about our contact with our vendors. And this is just a much enhanced approach for CONMED and a much enhanced approach for our suppliers to spend more time with higher frequency with them to understand our priorities and for us to understand their challenges. Going to Slide 9 and talk a little bit about product mix and growth drivers, and this is the slide we introduced last year. We just want to update it through Q3 of 2021. Before I talk about this slide, I want to talk about the comments on the left. Our global general surgery market products, we expect that to grow above market rates for the long term. We've greatly added to the sales force on a global basis there. That has driven improved customer engagement. And we've also added new products. That's not listed there because our general surgery business tends to be focused through AirSeal and Buffalo Filter. But I do think it's important that we highlight our new product innovation teams on the general surgery side is very strong, and we're excited about that new product portfolio in addition to what AirSeal and Buffalo Filter are bringing. On the orthopedics business, we believe we'll grow at above market rates for the long term. We've been dealing that outside the U.S. really since about 2016. We have a leader who stepped in to run U.S. orthopedics who was running all of international. He took over U.S. orthopedics in October of 2020. He has over the course of the past 14 months revamped that entire offerings, and we're excited about where we're going to go with Orthopedic business in 2022. And it's really been driven by innovation and improved customer engagement, again through an expansion of the sales force. And then finally, the AirSeal and Buffalo Filter product categories, which on the right-hand pie chart represent that quadrant in the upper left, we expect those 2 combined to continue to grow above 20% on a global basis on an annual standpoint. Very, very happy that [ we did both ] of those acquisitions, how we've integrated them, how our sales teams have picked up that technology and how customers have embraced the benefits that they bring to the operating room. And just finally in this, the shadow box comment. Our growth drivers are accretive to corporate average margins, and that's going to drive an improving operating margin, which absolutely [indiscernible]. I want to move to Slide 10 here. I introduced a slide last year about CONMED's efforts around environmental, social and governance. And I said it last year at this point that it was a new chapter in the CONMED story that we had hired somebody from the outside to come in and really spearhead this campaign, work with outside partners, with inside folks. And we've made great progress in 2021, and I'm very excited about our progress. Where we're at today, which is the in-process and future steps, we aggregated a tremendous amount of data, and we're running that through internal audit assurance. Anything we publish, we want to make sure that internal audit has reviewed it, feels confident in our ability to aggregate that data and continue to publicize that data with accuracy. We have management and Board review teams that's in the place. And once we get through step 1 and step 2, we'll be publishing our data externally sometime in 2022, probably more likely in the first half than the second half, but it could push into the second half depending on how long our internal audit assurance process takes. And then from there, we'll be establishing a long-term goal and align resources. And you can see this road, the internal alignment moving to the framework and the reports and disclosures. You can see where the CONMED logo is. We're not quite to that publication step and the rating agency response, but we do feel like we've built the right-sized program for the company. And the other part of this was as we build in and dug up the material, it was great to see our employees well in front of us. A lot of this data was already available. It was about rightsizing it. It was about using the right numerators and denominators to ensure that on a go-forward basis, the data made sense. But it's great to see the employee data that go around the globe as it flows to ESG. Go to Slide 11, just a few of our ESG highlights. I'm very proud of our facility in Chihuahua, Mexico. They've held the Clean Industry Certification since 2015. You can see that that's 7 years now that they've held that certification, that was candidly well before ESG became a mainline topic. And I bring that up because our employees are doing the right thing. Everybody on the call knows we're a leader in the surgical smoke evacuation market, which includes the air quality in the operating room, beneficial not only with the air quality but to both our employee and health care workers' health. On the social side, CONMED has provided financial and workforce support of the national and local organizations in 2021 that involved TEAMFund. You can look that up on the website. It's a great organization that provides financial resource for start-ups and help underserved community around the globe. And then all of our geographic locations are supportive of the Local United Way chapters, whether that's in Largo, Florida, Utica, New York, Westborough, Massachusetts, Denver, Colorado, et cetera. We've all partnered locally with those Chapters to enhance our presence in the community. And then finally, on the governance standpoint, a couple of highlights. 30% gender diversity on our Board of Directors and Committee Chair rotation every 5 years. We think that's best practice. And we've operated under that principle really for the last 4 or 5 years. And then finally, just through some of our added disclosures, some website enhancements that we undertook in 2021, MSCI, which is one of the ESG rating agencies improved CONMED's ESG rate from a BBB to an A in 2021. So bringing this home, closing thoughts on Slide 12. And this really has not changed. And if we're serious about our strategy, we shouldn't expect it to change because the best testament to a strategy is when it's challenged like the COVID environment, the strategy holds true. In this case, our strategy has held true. And our focus remains on solving unmet needs for health care customers and that will drive increased market share. We believe we'll continue to operate in all of our categories in large and attractive markets, and then we have ample opportunity for above-average revenue and profitability growth. We think that aggregating growth over the long term can drive the meaningful shareholder value, and we hope you agree with us on that. And ultimately, underlying all of this with the final statement that at CONMED, we'll focus on doing things the right way and being good corporate citizens. That brings me to the end of this presentation, Robbie. We appreciate the time and attention this morning.

Yes. Great. Thanks, Curt. So maybe to start it off, I'm not sure how much you can say here, but given you haven't preannounced fourth quarter, but any high-level thoughts on the environment, COVID-19 trends, how CONMED's been able to overcome these trends throughout the past 2 years, might be a good place to start here.

Todd, you want to grab that one out of the gate?

Sure. Well, the good news is the business has been very resilient through what's been an incredibly unpredictable and volatile macro environment, right? I would say -- obviously, everybody knows that in Q2 of '20, we had the government lockdowns, right? That then started to ease in kind of May and June 2020. And I would really say since then, while it's been -- Curt talked about this, we now daily manage the company in this kind of very agile, flexible, responsive way. When you take a step back, the business has been very resilient. Our customers have been very resilient. Having said that, it would have been a whole lot better. We'd be selling a lot more. Our growth will be a lot more. Our margins would be better if COVID had followed those arcs that you saw it in the early country where it was -- it looked like it was only going to be a few months. Now we live in this environment where you don't know. A year ago, as we started here at this meeting, there was a lot of optimism, right, that we had finally -- the vaccines were out. We made it through 2020. And we thought in our guidance what Curt showed that '21 would be the transition year to post pandemic. Now we sit here a year later, we all hope and would love for '22 to be the transition year to get to the post pandemic. But frankly, I'd say that with less confidence in that being the case, given what -- where we were a year ago and what has happened. And so you just can't know what's happening next. You can't -- and so you've got to stay responsive, and you've got to stay close to your customers and be based in reality like Curt said, and we've really tried to do that. And that's now just part of our daily operating. Robbie, we're not announcing anything on Q4 today. We're not updating our numbers. We'll talk about how the year finished and what '22 -- what we think '22 looks like at the end of this month. I will say, I will remind everybody, and this is a public format. So I will remind everybody what Curt just covered on the guidance that our Q4 guidance, we are very clear on the assumptions because it was again an uncertain time when we gave that meeting at the end of October, and our assumptions were that the Delta variant, right, would recede as other surges had, which meant we should get back to normal through the quarter that -- it should be obvious to everybody did not happen. Delta was much more stubborn on the back end of that arc than other surges have been. So that didn't happen as we expected. And then obviously, we -- the other -- second part of those assumptions were no new setbacks. I think everybody knows there's been huge setback. So clearly, the assumptions going into our Q4 guide have been challenged. And we'll -- but like I said, the business has been fairly resilient along the way, and we'll talk about how that affected our results in a few weeks.

So maybe, Todd, and Curt, we could pick up there and again, sticking more from a higher level since you haven't preannounced anything here. There's been employee shortages at hospitals. There's been a lack of ICU beds for available non-COVID patients. But as you look as it impacts your business, you also have some non-hos inpatient related procedures. So as you think about the impacts to CONMED's business, what's the most acute? Where is it maybe not as strong? And if you could lay out how it impacts the different businesses, that would be helpful.

Yes. I think it's a great question, Robbie, and I think we've talked about this before. If you look at our businesses' performance, and I'm going to use the way we manage them. The U.S. Orthopedics business, really U.S. and international mix here, the U.S. Orthopedics business is more heavily concentrated in the surgery center and in a hospital environment. On the general surgery side, the Advanced Surgical business with our AirSeal and Buffalo Filter set is far more heavily concentrated in the hospital. And the advanced endoscopic technology business is a mix of both the surgery center setting for the colonoscopy procedures, but also a hospital setting for the interventional GI procedures. So as hospitals tighten up as space constraints occur in a hospital, as staff issues impact hospital's procedure capabilities, the general surgery business did more heavily weighed upon in that scenario. On the flip side, the Advanced Surgical business has 2 great platforms that are very attractive in today's marketplace. So there's a little bit of balancing that goes on within that business, even in those previous settings of COVID patient volume increases and staffing shortages. The orthopedics side, again, a lot of our business there in the U.S. market is in the surgery center. But then you got to factor in the patient. Are they going to come forward largely with soft tissue issues, many of which they're capable of living with until they feel that the operating room environment is safe for them to participate in. So you get a little bit of that dynamic at play when you have COVID heavy environment. Outside the U.S., I think outside the U.S., a simple statement, I would say, as governments have been far more aggressive about literally shutting things down. Canada, you can go almost city by city where they have shut things down; Australia, you can go city by city where they have shut things down; Europe, it tends to be more at the country level. You don't have that mix between surgery centers and hospitals. Procedures are largely done all in the hospital setting. So when they slow things down, it slows everything down. Todd, I don't know if there's anything you'd add to that.

No, I think that's a good summary.

So last year at the conference, you talked about how the Buffalo Filter and AirSeal businesses combined were about 25% of sales, had a long-term growth profile of 20% or more and add that to the rest of the business. It implies something like a high single-digit to low double-digit type of long-term growth profile. Two-part question here. One, any update on where the Buffalo Filter and AirSeal businesses stand as a percentage of sales and maybe further through 2021 through the third quarter? And then second part of the question, does that long-term growth profile still hold assuming at some point trends normalize?

Go ahead, Todd.

Yes, Robbie. So the best we can do is in the slide deck. We've updated that through Q3 of '21, the pie chart, Slide 9 shows -- and you can see though that it is a tick better than 1/4 of revenue is represented now through 9 months year-to-date '21, it's -- obviously, it's growing faster than the rest of the portfolio. So it is a little better than a 1/4 of the business. We continue to believe that it should be at least a 20% grower on a long-term kind of annual basis. And we're very bullish on that mix and that positive momentum continuing. And so that's our latest disclosures on that. And I think I might ask the second part of your question, Robbie?

Last year at the conference, you gave out a longer-term growth outlook that implied something in the high single digits, low double-digit range. Does that still hold if trends normalize?

Yes. So no changes in that long-term outlook. And if you do the math on that, right, if you've got 25% or a little better than 25% of your portfolio growing 20% or better, that 5% by itself, if everything else is 0. As Curt said, we don't expect everything else to be 0. In a normalized environment, we would expect to grow faster than our markets. And I would say in a pre-COVID world, our markets were at least mid-single-digit growth, right? So if the other 75% of the portfolio is growing better than that, then to your point, you do that math and you get into the high single digits on that stake we've put in the ground and our expectation, if we're less than that, it'd be disappointing. And then obviously, we're working to be better than that, right? We want to grow well above our markets. And so if we're successful in executing that, it's not a stretch to have you approaching the double-digit revenue mark in a normalized environment.

Well, I'm hoping that 2022 can be what 2021 was thought to be. So I'll stay the optimist here. Maybe switching gears a little bit and diving into some of the businesses. In orthopedics, you recently expanded the sales force, particularly in the U.S. This business had underperformed a little bit of late. Maybe speak to some of the changes you've seen, how that's progressing. And really what the focus is of the sales force expansion? How will more feet on the street help in the U.S. ortho business?

Right. No, it's a great question, Robbie. I am just being brutally candid. Since I've been at CONMED, our performance in U.S. orthopedics has not been consistent, and that has been the issue. We've had good quarters, and then we'll follow up with a bad quarter. And that has not been the type of performance that we expected or what we're striving for. We didn't have that same challenge in the international market. So we knew it wasn't a CONMED problem, it was U.S. orthopedic problem. And a year ago, October, the gentleman, who was running our international business, also took over the U.S. ortho business. And he has done yeoman's work over the last year and 2 months really kind of repositioning that business, reconnecting with customers, rebuilding the innovation cadence, reconnecting marketing sales and customers and revamped the management team, candidly. So we're excited. We know what he can do based on how the business has unfolded in the international markets. We know what he is bringing from a Goffman's standpoint to the U.S. ortho business. And as we go into 2022, all other things set side, we're excited about what we're seeing this business focused on and the accountability of this business is bringing day in and day out at this point in time. So hopefully, the business overall as a platform is better positioned. The sales force expansion is a specific response to a lot of the innovation that investors saw at various trade shows in prior years. As you ramp up your innovation, there's only so much time in a day for sales reps. In the world of implant devices like anchors, sales reps often spend a far higher percentage of the time standing in the case, and we want reps selling while we're standing in the case. So that was part of the innovation offense. But the other thing about innovation offense is you got to get to new customers. And what we found through our data was we were not getting to new customers. We didn't have enough feet on the street. We were hesitant to expand early because we wanted the new products to gain traction before we expanded. But in our most recent look here as we went through the business in depth in 2021, we said there's lots of geography where we can put more feet on the street and that's been part of the offense. And just to remind everybody in the U.S. ortho business, we have both dedicated reps that are CONMED direct employees, but we also have 1099 distributor principles. I'm agnostic. Both sales models work just fine. It's about having the right people with the right product and the right coverage. And we're trying to address that right coverage challenge that we've had with this Most Reaching expansion that we announced at the end of the second quarter call of 2021.

And Curt, you also have some interesting new product launches, if I'm correct. These are smaller in scale, but still innovative and different, saw a bunch at your booth at AOS. Maybe just highlight some of the more impactful ones.

You're right. I think, Robbie, the offense at U.S. ortho, if you go back to 2015, 2016, was filling gaps. The offense 2017 moving forward was to try to innovating the space and whether that was the shoulder where it kind of has a bigger presence or the near the hip where we have a smaller presence or whether we were stepping into the extremities, foot and ankle, hand, wrist and elbow. And I'll use that last one. I think that's a touch point. One of the products we introduced a couple of years ago was a product called TruShot. If you watch that procedure before TruShot, to put the anchor in, it took about 3 hands to hold all the equipment, the guidewires, the drill, et cetera. The TruShot platform consolidates 3 steps into 1 step, and it allows a surgeon to use both hands to do the procedure and not rely on the nurse assist of any sort to do that procedure. It's just a phenomenal device. It's preloaded with the anchor. There's no loading of the anchor down on cannula. It's very easy visually and audibly to understand where the anchor is and where it was set. That's just one example. Another one is, in the shoulder, we have a great shoulder anchor system. So we came up with a shoulder anchor system that instead of uncleaning the suture, which was very just manual process, no value add, we actually spooled up the suture, call it the fishing real type device. So once the anchor was set, you could hold the cannula off the device and unspool the sutures, which is a real timesaver. And these are efficiency plans. And when you think about surgeons and staff being in the operating room, this little factor with our equipment should not slow things down. Our equipment should speed them up and allow them to do the job that they need to do to fix the patient. So a lot of our products are designed to help make the procedure more efficient, more [ time-consuming ] while solving the unmet need. And those are the type of things that our orthopedics business has really been focused on. Now along the way, we've done the typical upgrades. One of the hallmark products is the whole power tool system at CONMED. On the wire [indiscernible] side, we introduced a brand-new one in the beginning of 2021 that was one of the R&D initiatives that we stayed focused on through COVID in 2020. We said we want to get that into the market in 2021, knowing we didn't know where procedures were going to be, but we thought that was an important product to get out into the market. We've been very pleased with that. So while we're doing those innovative things like TruShot and Y-Knot Pro, we're also doing the typical product updates that we did like within the whole power tool platform.

Great. Maybe shifting Todd, a question for you. Pre-COVID, you were talking about 50 to 100 bps of annual operating margin expansion for CONMED. Fast forward 2 years, there's been a lot of moving pieces, pullback spend, revamp in spend, higher cost inputs, cost savings to offset some of that. But as you're sitting here now, and again, I realize you haven't given 2022 guidance, so this is more just a higher-level longer-term type of comment. But any reason that that framework would change given all of these moving pieces coming out of COVID?

Yes, terrific question. And we are confident -- and I'm actually very pleased by the execution over the last couple of years on the margin profile. I said before, obviously, it would be better if we weren't dealing with all these headwinds and all this storm. But I remain convinced that we're doing the right things for the long term. And the mix is powerful. And as we get more sophisticated on the material side, which is a big part of our cost of sales, I think we're doing all the right things. Having said that, the biggest uncertainty sitting out there today is the supply chain, right, and inflation and where that goes from here. And so while I'm confident and feel very good about everything we're doing long term, when do we start to really see the benefits of that. It's been masked so far by lower volumes than we were supposed to have seen and by higher cost pressures than we were supposed to have seen. And it's the cost pressures in the supply chain, I think, that are at the top of my list that we're working on and thinking about. And we're not in control of all that, right? And so again, so long term, we feel very good about what we're doing. Short term, I don't think anybody knows. Do we have 6 more months of this, 36 more months of this? I don't know. So far, we've been able to offset it. Our actions have been better than the headwinds, and we've been able to offset those and still show improvement. Will that continue? It's hard to say in the short term, but I feel good about it in the long term.

All right. Well, hopefully, next year, we'll do this in person. I'm going to again play the optimist here. That's a good place to end. Curt, Todd, thank you so much for joining today and to everybody else, have a great day.

Thank you Robbie.

Thank you Robbie.