Enovis Corporation (ENOV) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to day 2 of our Global Healthcare conference. Today -- my name is Joe Ritchie. I cover the U.S. Global Cap Goods team. And today, we're excited to have Colfax with us here. Just for a brief background in March of this year, Colfax announced that it was splitting up its welding business called ESAB, with its MedTech business called DJO. And today, we're going to obviously be talking about the MedTech side of the business. We're excited to have both Chris Hix, the CFO of Colfax, who will also be the CFO of MedTech; as well as Brady Shirley, President and COO of the MedTech business here with us today. So Chris and Brady, thanks for being with us here today. And Chris, I'm going to turn it over to you because I know you have some prepared comments and want to step through a presentation.

Okay. Great. Thanks, Joe, and good morning, everyone. Thank you for your interest in Colfax. If we go to the second page there, I'll just remind folks that we do have a safe harbor statement that you can look at your leisure. So we're going to go ahead and start on Page 3. I might just do a quick introduction of myself. I've been CFO of Colfax for 5 years. And really, the lion's share my curves at a company called Roper Industries, which became Roper Technology, company that we grew from $70 million of revenue up to close to $2 billion during the time that I was there. And then I was CFO of 2 other businesses, multi-industry businesses before joining Colfax. So on to Colfax itself, this is a company that was founded by Mitch and Steve Rales that was focused on applying its business system to improve and grow industrial businesses. New senior team, Matt Trerotola, CEO and myself and others joined about 5, 6 years ago, and really focused on a couple of things: number one, accelerating the adoption of our business system for growth and improvement of the businesses, but also taking a fresh look at the portfolio. And really coming to a realization that a deeply cyclical industrial portfolio is 1 where it's more difficult to sustain the continuous improvement philosophy that we build into all of our businesses. Now business system is very effective in making businesses better, but for the effort put in, the amount of benefit you get is less in a more cyclical business. So we took the opportunity to fine-tune the portfolio a bit. Divesting 2 of our 3 industrial businesses, those that were longer lead to longer cycle, deeper, more deeply cyclical industrial businesses. And investing in MedTech business, DJO, that's a leader in the orthopedic space that you're going to hear more about from Brady Shirley here shortly. And with the idea that we then have 2 businesses, our fabrication technology, our welding and cutting business that Joe referred to at the beginning and our MedTech business. Neither business dramatically cyclical. In fact, MedTech, not a cyclical business at all. And both businesses capable of generating great improvement in margins. High and consistent levels of cash flow and with terrific opportunities for reinvestment. As Joe said, we came to the decision and announced in the first quarter of the year that we'll be separating our company into 2 businesses, which I'll talk about here shortly, both of them with terrific opportunities and with a similar objective in over the near to midterm, of creating $3 billion revenue businesses and very successful in their spaces. So if we go to the next page here, this is really similar to what we talked about back in March, but we did announce that we'd separate into 2 businesses. And the rationale for that, I think, is pretty straightforward that if you look at these 2 businesses, they have distinctly different investment opportunities, different market dynamics in many cases, one being more regulated than the other. And we determine that and the Board determined that they'd be more successful if they could be separate entities. So it was important that we had a clear justification and rationalization for that. And then the other point, I guess, I'd make is that there's a lot of questions at the time about the capital structures of the 2 businesses, given the leverage levels we had, we completed a very successful equity offering back in March as well. And I think that demonstrated that we're on a really good path here, and we'll talk a little bit more about that as well. So if we go to the next page, it's important to understand why we separate, but it's also important that everyone understands that we're ready to be separate businesses as well. On the leadership side, what we demonstrate on the slide here is about our leadership continuity, but we've also are expecting really good board continuity as well. People heard Mitch Rales, our Chairman, talk about being on both -- serving on both boards, having a continued interest in this. And so we appreciate having that strong board continuity. At the same time, we're going to have a lot of familiar faces on MedTechCo. The Colfax team really migrating more in that direction, the senior team. And then of course, ESAB has had a very successful operating team that led by Shyam Kambeyanda, who joined back in 2016, and it's that operating team that will continue to lead ESAB going forward. So terrific continuity among the team and the Board. And then also importantly, our DNA, our entire way of operating our businesses will continue with strength in both of the businesses. We believe in these 4 pillars of having terrific talent of having our CVS, our Colfax business system for continuous improvement driving innovation and then doing acquisitions to really accelerate the implementation of our strategy. And after ESAB being in the portfolio, that's our fabrication technology business, for 9 years. You can imagine that's deeply embedded in that business. MedTechCo, we've owned for 2.5 years and has made tremendous progress, really building on some of the success that Brady Shirley had started when he joined back in 2016 and then really accelerating it by the use of our business system. And now more recently, some acquisitions that Brady will talk about. And if we get all this right, and I think ESAB is a terrific example of that, you end up outgrowing your competitors. We've done that now 3 straight years. You end up expanding margins. And in fact, in our case, faster than any competitors for 3 straight years, and you generate terrific healthy cash flow. And that's what the business model does. All in the interest of compounding value. We take those -- so we take that cash and we reinvest it in our businesses, both for capital needs, and then also for acquisitions that all come out of a terrific strategy for how to continue to grow and great successful platforms. So if we flip the page. So the state of play is really 2 great businesses that are ready to be independent. We talked about fabrication technology. I would just highlight. I know this is a MedTech conference who won't spend a lot of time on it, but we've created really the only truly global player in the space. We've made terrific investments along the way, rationalize the footprint of the company, driven outstanding supply chain improvements, created a very effective commercial organization that's enabled us to take share year in and year out. And we've got a terrific digital initiative underway. We're now the leader in driving that sort of what we call WeldCloud or the ability to link systems and monitor productivity and utilization of equipment and all. We've got all that now, and it's considered really the leading offering in the space. Our MedTech platform, we're in a great space. You're going to hear more about that here shortly. Orthopedic. It's a big global market and one that has excellent secular growth drivers, and we intend to take our same innovation engine approach, let's say, that we've driven an ESAB to become the innovation leader, and we're using that to amplify the great work that Brady and the team have been doing for the last several years. To create an innovation -- stronger innovation engine in that business. I'm not going to belabor the point on the peers. I think that folks in the MedTech space know who the orthopedic players and other MedTech players are that we should think about as peers for our company. And for FabTech, there's an obvious one, Lincoln and ITW Miller. So 2 great businesses in really attractive spaces that are ready to go out and be independent. In the next slide, this is just a quick turn, just to reflect on where the leverage was at. We were at 2.9 turns at the end of the first quarter with a goal towards getting down toward -- not a goal, but a forecast getting down to the low 2s depending on whether we do other acquisition investments that could change that. But we've got plenty of room in the balance sheet to continue to give us the flexibility to execute our strategic growth program. And with that, I think I'm going to wrap up on the next slide here. Just by talking about our company, we're off to a great start in 2021. We had terrific performance in the first quarter. We laid out guidance back in February that talked about what we expected to have happened from both the COVID recovery as well as market expansion and other successes that we're having to continue to outgrow the markets and really in both of our businesses. And I would say that things played out to that -- in that direction or even better, we exceeded people's expectations, even our own in the first quarter, and that enabled us to de-risk the guidance. We took up the lower end for the full year. And I think we're off to a terrific start there. We gave a little bit of guidance for Q2. I'm not really going to comment on Q2 performance there, that'll wait for our earnings update at the end of the second quarter. And then lastly, we've been talking about the amount of cash that we're generating, both good free cash flow conversion and just the absolute levels of free cash flow and we're right on track to deliver that as well. So off to a great start. Really excited about this year. I'm glad to have COVID getting further and further in the rearview mirror as we all are. So with that, I'm going to go and turn it over to Brady Shirley to dig into our MedTech business in a little bit more detail.

Thanks, Chris. Good morning, everyone. I'll try to be brief. So we have plenty of time to answer questions, but I'll walk through thoroughly. As Chris mentioned, certainly a fantastic market, $50 billion orthopedic market sitting inside the $450 million of MedTech. I've been in the space for almost 29 years. And so it's the only space I know, which is great, and it's the only one I prefer to know. What I thought it would be worthwhile for you to see over on the left-hand side of this chart, you can see where we're very specifically focused, which is in joint reconstruction. We have breadth and depth there. Actually, predominantly across extremities, I'll talk about that in a slide or 2, but it's the -- or 5 piece, $5 million that goes up and down for incident rehabilitation. I think it's worth noting here, and I'll mention it in 2 other slides. And so I want to bring it up here. For us what's unique is that through our -- through those 2 pieces, and you'll see it in our continuum, we actually play deeply into each of the spaces across orthopedics and yet when we go direct into extremities, hip and knee and joint reconstruction. So I wanted you to see on this slide, I won't spend any time talking about the competitors here we'll go to the next slide, but just keep that in mind as we get to a couple of other slides later. Mike, there you go. As Chris said, this is really a journey that began in 2016, late 2016, November to be exact. As you can see from a performance perspective, it makes sense for us to just label this as pre Colfax. From a growth for the company was a CAGR of 2% during that time. Margin -- adjusted EBITDA margin was 19%. The mix component you see there in the middle, that's recon to P&R was only about 16% and really importantly, you can see the P&R vitality there of only 7%. If you step forward to 2019, 2020, and we use some of each of those numbers just because of COVID impact, it made it cleaner to do this. And so you can see, in 2019, we've stepped up our growth to that mid- single-digit growth. You'll also notice the EBITDA margin changed a fairly substantial change, 300 basis points change. And a critical component was our Recon business went to 25-plus from a mix perspective. And as early as 2020, based on some of the things that we really kicked off at the beginning of 2017, we started to see the vitality in our P&R business come up. And then you can see our point to the future. If you've heard us talk about this, we have a significant focus around a few very specific points. One is to really be a high single-digit grower. We saw that in the first part of 2020. As a matter of fact, we were up over 7%. And pre COVID shutdown in 2020 and feel very confident that as the market comes back, we'll be moving back in this high single-digit space. Number two, we've really targeted to have a 25% plus net margin or adjusted EBITDA margin. And we feel like both the progress we've made, pre Colfax of progress in with Colfax really accelerating that progress that we're well positioned to do so. And you can see that our targets for vitality, which will be a big driver, and I'll mention that in other slides, maintain that 30% plus that we've had for a long time in Recon and then moved to a 20%-plus in P&R. Next slide, Mike. I'll quickly just describe the 2 segments of our business. First and foremost is this fast-growing Recon business. As you know on the left, it's really more than 50% in extremities, but also a really solid play in the larger hip and knee. We're #1 in reverse shoulder. We're #3 in the shoulder in the U.S. and we've been growing at 5x plus market rate for quite some time now in hip and knee. We -- really, when people ask me about this business, you can see the nice CAGR there on the top right-hand side, constantly ask, how have you guys done this? What are the big drivers? And I would simply lay it out this way to say it's a proven playbook. It's really based on superior clinical outcomes, both in our reverse shoulder and our total knee. Those were the 2 pieces that as we spend our time focusing with customers and really the biggest driver behind our growth is that they see better outcomes, in particular with our reverse shoulder and with our Power 3D knee. We have fantastic KOL teams. We have very specific smaller teams, but with some of the best design guys in the industry. And those are specific to extremities and hip and knee. Fantastic innovation cadence. We've really invested heavily in R&D here, and we continue to do that and quite frankly, a great medical education platform. You see that bottom piece, the jewelry brand and contract in power at that's what I met by that $5 million segment earlier, where we read all the way across and prevention recovery. What we've done here in Recon without DonJoy, without that DonJoy name and brand and depth across the industry would be very -- it would have been very difficult for us to grow as we've done so in Recon. We're also very excited about foot and ankle. You guys have probably read about some of the acquisitions we've done there recently. Let's go to P&R. Quickly on P&R, we're the #1 player globally embracing. That's where this big DonJoy brand comes from aircast also. We're #1 in Rehab and we're #1 in diabetic Foot Care. You can see the first bullet there on the bottom left. I won't touch all these, but we have industry-defining products across the ortho continuum, and I'm going to describe that in just a moment. The other thing that I think is really unique here. We've certainly been a long-term leader with a great brand. We sit in. We actually have an office care solution where we sit in about 50% of the orthopedic clinics in the U.S. really managing all of that process for them. But what's unique is we also have motion and b, which is a workflow solutions software that lays across already 40% of the U.S. orthopedic clinics. So it's a very widely used high trust platform, and we continue to bolt-on other applications too as we play across the continuum. Next slide, Mike. We talk about continuum, as I said, I've been in MedTech for almost 29 years, and all of that with a touch in orthopedics. And certainly the last 15, just very specific in orthopedics when you look at an OAB patient, what the continuum looks like for orthopedic and OA patients is it really starts with prevention and then there's surgical intervention in the middle and on the far eyes recovery as you look across these, what's unique about DJO is in our MedtechCo platform, is we're the only player that's in North. We're the #7 orthopedic player in the world, but we're the only player that has deep products in both the left side and the right side. And what you've seen us building out over the last 5 years is really that surgical intervention piece. We'll continue to build there actually while we strengthen the -- and the recovery side as well. If you think about it, with everything moving -- not everything, but with a significant amount of orthopedic procedures moving into the ASC and actually more rapidly because of COVID, playing across this continuum. Is really critical for us. As a matter of fact, as we look at ASC procedures, we're convinced that the reason -- our percentages are better or a higher percentage of our business is done in ASCs. It's because of the fact that we're with the clinician all the way across the patient's journey. Next slide. Just a couple of call outs, I guess, as far as what we've done. I mentioned vitality earlier. You can see that we moved from 7% to 11% in our P&R, and I told you, we really are focused on a target there 20% since 2017, which is the -- I became the CEO at the end at the very end of 2016, we've increased new product introductions by 300% and you can see some of the key categories on the right. I'll call out one simply because I know I'll get questions about it and sometimes easier just have mentioned it. And that's a computer-assisted surgery or digital health care. There's -- you hear a lot about that. Certainly, in the orthopedic space. We've been a leader there in the shoulder for a long time. We launched a PSI and preoperative planning system called MatchPoint in 2015. Today, about 40% of our shareholder procedures run across that. And we've continued to be very excited about that as it's evolved over time. You also have probably heard that we made a significant investment or an investment in an AR technology that we're very excited about. That we think is really where the puck is going, related to guidance in orthopedic surgery as things move to the ASC, the platform has to change as well and the size and scope and mass of what you bring as well as the cost to those procedures really has to be different than the ASC. And so we felt that with the future that AR would be the driving force there. And we've talked both about AR as well as some of the other microbot technologies and all that you can wrap around that. You can see some of the other critical categories. We've recently made a nice acquisition in the modality side of our recovery sciences, really high-margin segment. For us in the fastest-growing segment there. We acquired a company called LiteCure that we talked about there in the fourth quarter. And our focus, as Chris said earlier, certainly, it's about continuous improvement in our platform. It's about growing by investing in innovation and then also adding bolt-ons. And what you see here from an innovation perspective, and you'll see on the next page from a bolt-on perspective is we're really accelerating the strategy of high single-digit growth mid-60s plus gross margins and mid-20s plus net margin. Next slide. As I mentioned from a funnel perspective, on the left-hand side, most of these have happened in the last 6 months, we've been very active. You've heard us talk about MedShape and Trillium, both fantastic foot and ankle acquisitions that really positioned us with $65 plus million in revenue stepping in. I've always felt that from what I've seen in the industry over time is if you can get in that $100 million range. Then you've got a critical mass to really compete well and grow rapidly in a space. And so we had added the STAR ankle actually prior to MedShape. We felt like with our footprint that was already there from P&R and foot and ankle as well as just the velocity that we had in our upper extremity business from a recon perspective. At foot and ankle make a lot of sense. It's growing high single digits. In an area that we just knew and understood. And so we've made some acquisitions there. As I mentioned, like here, and then inside of the bottom left, that's the AR technology. We've taken a strong equity position there. You'll hear us talk about that as we go forward. I'll just mention the 3 categories we're looking at really quickly. #1 is we do want to strengthen and extend our current business, we're about 70-30, if you look at U.S. to international revenue. In our bracing business, we have a very similar share in Europe to what we have in the U.S. as well as in other continents. But our surgical implant recon business has been predominantly focused in the U.S. So you'll see us make plays across the period. You can already see where we've made foot and ankle expansion, you'll see us make recon geographical expansions and we'll continue to focus looking at high-growth and high-margin opportunities in P&R, and there are some significant ones there that will help us reshape that business. And then we'll expand further into the orthopedic market, and finally, there are logical adjacencies to -- within the broader MedTech off of orthopedics, and you could see some that we have listed there on the right. But for us, it's really about driving the strategy that we've talked about, doing it in a thoughtful way off of our great brand. Next slide. And finally, if I were to just quickly summarize as you've heard us talk about MedTech, DJO has been a historical company that still sits here as the orthopedic player. But as we move forward, and we'll be putting out a name soon, we've really positioned ourselves and we're positioned currently as a med tech innovator really to drive value creation. And we have a foundation in this fantastic orthopedic market that as Chris said earlier, has great trends, great drivers underneath it. But there's also a lot of opportunity for adjacencies outside of orthopedics. We do have a strong team, a strong blend of both long-term MedTech players as well as some good disciplined components and high level executives like Chris and Matt, they will be joining the team here we truly have a clear strategy, great product. If you look at our NPI pipeline, it's fantastic as well as just a really good focused funnel around the right acquisitions, bolt-on in particular. And CBS kind of overlaying that to compound value. So we're very well positioned. I couldn't be more excited. And I've been part of Colfax now for the last 2 years, and this will be a new chapter as we go into MedTech, but we're well positioned to to really outperform in the market. So thank you, guys, for having us this morning. Looking forward to your questions, and I'll pass it back to Joe.

Great. Thank you, both, Chris. And Brady, that was a great introduction. Brady, I wanted to maybe start with you. You just mentioned it's been a little over 2 years now since DJO got folded into Colfax. And remember, part of the excitement that you had when you first joined was what CBS could do for the DJO platform at the time? Can you just maybe just walk us through, for those that aren't as familiar with it, how has CBS kind of changed the trajectory for the MedTech business over the last 2 years?

No, it's a great question, Joe. It's interesting because I am new, but I will say relatively new, I guess. But I will say this when I talked about CBS really, as Chris said, is about continuous improvement. I think sometimes -- and actually would have to admit when I was coming in or when we were acquired, my first viewpoint was, okay, operational improvement. This would be about driving continuous improvement there. And certainly, there's fantastic focus there, great discipline over time and a great engine but what I learned and what our teams have learned and what I've seen from an impact perspective, is it's really about the same thing across the business. And I really see it in 3 segments where it's impacted us. #1 is certainly the great operational foundation. We've seen that in just really what's happening, how we're pleased in our customers. And now certainly, all of us have had challenge from COVID-19, but we've seen great improvement just in the underlying foundation of what we do from an operating perspective, supply chain and manufacturing. But second to that is -- and I would say with as much focus has really been on the innovation engine. And in other words, the idea there is really -- don't just spend, but lets intentionally invest in the right places and have the right be pipeline, really driving they say vitality, I say freshers. So we call it freshtality together. But in essence, that's what it's really about. It's how do you make sure that you've got the right freshness in your product line and the engine behind that. And that's a CBS piece. And it certainly I started some CBS items before we were acquired. But I would tell you, it really matched well. And then third is just the acquisition offense. To really bolt-on and accelerate strategy. And I would tell you that we've made 6 acquisitions in the last 2 quarters. And I think DJO had probably gone 5 to 6 years without any acquisition. So it's really freed it up. And I would say this -- even though we mentioned 3 categories, I think it's important is really the cash component. As Chris said, if you're going to invest well and you're going to make the right acquisitions, and you've really got to have the right cash conversion. And so there are some CBS aspects there that really been ingrained in the business led by Chris and the teams at DJO that have really changed our ability there as we go forward to invest in the business. So it's made a great impact on DJO, and I couldn't be happier. People ask me all the time, what do you think about CBS? And my answer is I'm still here, and I'm still smiling, which means I really like it and like where we're going.

That's great to hear. Glad you're still smiling, Brady. Yes, well, I definitely want to dig into the acquisitions in a minute. Clearly, you've made a few over the past year. But maybe just broader, if you guys can just maybe provide an update on what you're seeing on the broader health care environment, we know elective procedures is an important part of your business on the surgical side. Any update that you would give us and what your -- and how the -- how your conversations are evolving with your customers?

Joe, it's playing out really as we thought as we thought it would this year. As we've watched it, we certainly did not think there would be just this massive return in 2021, where everything was out of the system. We -- our view was that as different regions, maybe as the world became clear from a COVID perspective, that you would see more inpatient space for elective surgery as well as continued expansion at the ASC, and that's really what we've seen so far. There are some regions in the U.S. that have been better than others. We've certainly seen the West Coast. There's a few hotspots there kind of later than other areas. And then globally, we all know how challenging things have been in India, for instance, as well as a few hot spots in Europe. But it's really played out pretty similar to what we saw, and we think that this is a recovery that will really play through 2021 and 2022 before you see all the normal activities that drive all the aspects that really create orthopedics as a market perspective, but it's playing out largely as we thought and continuing to improve.

Yes. Brady, would it make sense to talk a little bit about the ASC dynamic within that?

Yes. I -- one of the things -- so outpatient surgery for orthopedics has been something that's been talked about so much for a long time and ASC has been talked about. But if you look at pre-COVID most of the discussion around outpatient was really outpatient hospital versus ASC, probably 5% of reconstructive cases were done in ASCs prior to COVID-19. And what's happened is hospitals have had some limited space from an inpatient perspective, we really saw a lot move to the ASC more rapidly. I mean, I know for us, year-to-date we're nearing 20% of the revenue that we're seeing in our Recon business is playing into the ASC space. And that's quite a significant change from what was happening, let's say, in 2019. And that's not an outpatient. That's just ASC. There's certainly more an outpatient. And really, as we see this move forward, the continued expansion in ASC and the load that the ASC can take as well as further open inpatient is where you're going to see it move. Because I'll tell you, a lot of the electric procedures, orthopedics, at least felt like orthopedics was moving back more rapidly through access in the ASC, and then as other electric procedures have opened further, there continues to be a little bit of compression in the inpatient model. So ASCs are very important as we go forward. And I actually think that I think it's actually an acceleration that will likely stick. I don't know that it'll stick exactly perfectly, but I think it will be something that we'll look back at 3 or 4 years from now and say, that really changed how rapidly we were going to move orthopedic procedures to -- and Recon procedures to the ASC.

No, it's great to hear. I know you guys are well positioned in ASCs in the U.S. You did mention that one of the growth areas, potentially from an M&A perspective, is really growing Recon abroad, right? And so I'm curious, as you think about expanding internationally, yes. What needs to happen in order for you to be able to gain share and get and really develop an installed base abroad? Is it developing the channel like you did in the U.S.? Just curious, any thoughts around that?

Yes. I mean, Joe, it really is -- of course, there's a regulatory component that we -- with the change from MDD to MDR, and that's something that everyone has all the MedTech companies and all of -- companies have been working through certainly with us. With our current products, we're 70-30 now in U.S. to international place. When you think about Recon the recon channel, just like in the U.S. for us, our P&R business is very complementary, it really helps us in our Recon business, but Recon is a different channel. They're clinically technical. It's a very different subset and how it focus. That's the same outside the U.S. And so really -- and look, I've been in orthopedics for a long, long time. And if you look at the big 3 or 4, you can look back over 15 years, and you'll see that they made some substantial acquisitions that when I say substantial, I mean, for footprint. And they did that to give them that channel that they can -- could then build-out. Literally, all 3 of the big 3 did exactly the same thing, and I was part of 1 of them when it took place. And so that's when we talk about Recon, our opportunity there to expand globally is now certainly, you have to have the products and the regulatory -- a regulatory, but you've got to have a channel to put it into. And that's why we put that in our funnel and have some good focus there.

That's great. And maybe just talking a little bit about the recent acquisitions that you did and the expansion into extremities and foot and ankle. I know you guys are really excited about the growth prospects in that market. Just maybe talk a little bit about the rationale and how you see that market evolving?

Yes. Sure. I'll talk about 2 of them, not the acquisitions of the 2 segments. So first of all, on foot and ankle, it's an interesting segment of orthopedics. The shoulder has been growing really fast over extremely for a long time, foot and ankle has been the fastest growth for the last few years and likely will continue to be. It's similar to the shoulder, it's not nearly as large, but it's about $1.1 billion in the U.S. but it actually -- there are 6 components in the foot. When you think of the foot, it literally goes from the back, which is the ankle to the hind foot, mid foot, forefoot. And if you look at how it's served, is served both by MDs and podiatrists. And it really kind of starts at the back of the foot with the MDs predominantly, and then that gets smaller and that the podiatrists are heavy and the 4-foot goes to the back. So our viewpoint was number one, we wanted to maintain that superior clinical outcomes. For us, it's been my experience, if you're going to sustainably grow in a marketplace and something that you're never looking over your shoulder, then you know that the customers that are coming to you, their patients are doing better recalls of it and that they can point to that. So first and foremost, in foot and ankle, our view was we want best outcomes, period. And then second, we wanted to really capture around the hind foot first so we could build from the ankle towards the forefoot. And we did that by the star ankle, which has, by far, the best long-term survivorship certainly been in the market for a long time. We view that as an opportunity to put some of our technologies into and to modernize a really poor gas on what already has, even in the most recent data that's come out, the best outcomes that were out there. So we saw med shape -- we viewed MedShape as a big opportunity with a great protected approach on the hind foot and a very fast-growing fixation piece with NiTiNOL that was playing towards the forefoot. And then we saw Trilliant because there's a fixation component to foot and ankle that really plays across and Trilliant had fantastic growth also with good intellectual property around a polyaxial. So by putting those together, it gave us breadth across, but we were heavier in the high ended ankle to start with. And that was very intentional. So from that, we can launch across some of the other verticals that are there just through technology acquisitions or even innovations. And so that's a fast-growing deal. The business we bought were growing greater than 20%. And so we're pretty excited about not only our ability to be in this fast growing segment, but to outgrow it like we have in the shoulder for a long time. And then as I mentioned on LiteCure earlier, as we look at our rehabilitation business, something where we're the global leader there's -- the modalities are really changing what's happening because -- and some of that's driven by the payers, too, if you look at what's happening underneath there, from a postoperative rehabilitation, it's moving to modalities to more rapidly get people recovered and to do so with less visits and less just physical time. The fastest-growing modalities out there is really the half hour laser. So -- and focus laser. So our view was let's acquire the best of those companies. We're already the leader here, bring that in-house and really change both our margin footprint as well as move into one of the higher growth segments. And so that's really the specific focus around those two, Joe.

That's super helpful, Brady. And we're going to be bumping up on time, so we can talk for a lot longer. But Chris, I wanted to get you in here as well. And just talk about the long-term targets you guys have laid out a high single-digit growth target, mid-60s gross margins, 25% -- greater than 25%. EBITDA margins. Just help us understand kind of like the framework for getting there in the coming years?

Sure. Yes, great question, Joe. So from a growth perspective, there's really 2 elements of this. It's largely the organic story, and that is driving a lot of the continued success in innovation that brady highlighted. We've talked about the substantial increases in innovation that we've had up to this point. But really, we're still in the early part of that journey. So using innovation to drive more growth, especially in the P&R side. On the Recon side, it's more about filling out the bag. We've got a high percentage of the bag that's full in the major anatomical areas, but there's still other elements that we've got to complete. So there's a product sort of element to that. There's always going to be a commercial excellence part that we can do, where we continue to fine-tune the channel, fine-tune our selling approaches. I'd say that Brady's comment earlier about being really well positioned in ASCs, puts us in a place where we can continue to drive very good growth as well. So there's an organic piece of that that has, of course, underneath a foundation of strong operational execution. Recall that when we bought the business, the total growth in the business was in low single digits. It had a very good robust recon segment and a P&R segment that was actually shrinking, we stepped in with CBS to stabilize the operations, immediately got that back within 6 months back to growth, and so we've got that strong foundation under there now that we're building on top of, again, with innovation, commercial processes and being in the right sort of segments there. So that's the organic piece. And then inorganically, we're going to continue to build out the fast-growing parts of our business and look for new segments, like foot and ankle is a terrific one that expands our Recon segment and finds a niche that's really in a much earlier stage of development than, say, some of the more mature segments of the market like hip and knee. So you'll see us continue to position and use acquisitions to really accelerate the strategy and help drive the growth. Now we do expect that, that growth helps to drive margins just the operating leverage that you get through that -- through executing a growth strategy like that is going to help you drive the margins. We have high incremental margins in really both of the businesses. And so we expect that we'll benefit from that. In addition to that, we'll continue to operate our continuous improvement playbook. We think that, that can drive some success. And then the last thing I would highlight is just as the portfolio continues to shift to -- from P&R to more recon, there's a natural acceleration of the margin improvement that we'll get from that as well. Now that's not the strategy. The strategy is not to artificially improve margins. It's just one of the benefits that we'll get from building out that faster-growing Recon segment. So that's really, I think, the way we're looking at it here, really for the near to midterm in the business.

That's great, Chris. Chris and Brady, thanks so much for spending time with us today. It's always good to see you. Hope you enjoy the rest of your week.

All right. Take care, Joe. Thank you.

Thanks again, and thanks, investors for your interest in Colfax. Thank you.