Enovis Corporation (ENOV) Earnings Call Transcript & Summary

Hello, everyone. My name is Steve Tusa. I'm the electrical equipment and multi-industry analyst here at JPMorgan. Given this is a diversified group, we have some health care exposure, and a big part of that is from Colfax. And we're very happy to have Matt, Brady and Chris with us today to talk about the company that's going to come out as a public one here in a little while. But I'll be back in about 20 minutes for the Q&A. And if you have any questions, of course, log them in on the conference website, and we'll get them answered. But with that, I guess I'll hand it off to Matt. Matt, thanks for...

Thanks a lot, Steve. It's great to be here. Hello, everyone. Wish we could have done it in person, but maybe next year. So I'm going to kick things off and Brady is going to jump in for a bit as I work through this, and then we'll take your questions at the end. I want to give you an update on our company's trajectory and the opportunities that we have ahead as we go forward as Enovis, as a focused specialty med tech player. You can skip through the disclaimer to Page 3. And I'll do a quick -- just a quick introduction to say that Colfax, our company, was founded by Mitch and Steve Rales, about 10 years after they founded Danaher. We spent most of our life so far as an industrial player in a number of industrial businesses driving improvements in those businesses with a lean, continuous, improvement-based business system, focusing on talent, focusing on acquisitions and innovations. And we've been shaping the portfolio in a positive direction over time. Over the last 3 years, we have really been through a full kind of reshaping and transformation of our portfolio, and announced earlier this year that we would now separate into 2 exciting, focused public companies. One is Colfax, which will be renamed Enovis, that will be a specialty med tech player. And I'll talk primarily about Enovis here in the presentation, as will Brady. But we will also create a new company, ESAB, through a tax-free spin, who will be initially focused as a leader in the fab tech space and then growing from there in the industrial space. And on the first page, I just thought I'd give you a quick update on that separation progress that we announced earlier last year. We were right on top -- track for the tax-free spin of ESAB. Later in the quarter, we put something out, just a little while ago, talking about right around the end of the quarter as when we expect that to happen. We've talked about setting each of the businesses up with capital structures that fit the respective strategies of the business with ESAB coming out at about 2.5 to 3x leverage and a healthy cash flow. So plenty of opportunity to bring that leverage down over time and to do acquisitions that will enhance and expand the business over time. And based on the trajectory we're on, that would -- that puts our Enovis company coming out lower than that level of leverage was an extra room to invest and grow in the med tech space. We've built out the teams, the leadership team of Enovis. It will come -- it will be me and Chris and Brady and the others that have been leaders of Colfax. Shyam Kambeyanda and his team will lead our ESAB business. He's been leading that business for a while. And we've built out the corporate structure to support that new company that will create as we spin ESAB. We've also made a lot of progress on creating 2 great Boards, a little bit of healthy overlap. Mitch Rales has publicly talked about the fact that he'll be on both of the Boards, and that we'll have a little bit of healthy overlap. But beyond that, we'll have separate and distinct Boards that have the experience and capabilities for each of the businesses and where they're going. And also, there will be terrific, diverse Boards of each of the companies. So we're right on track for the separation and convinced that this creates a path to maximum value for our shareholders as these 2 focused companies will execute their strategies. The next page, Page 4, is just a quick snapshot of the visions of each of these companies. And we talked about this quite a bit, back in March at our Investor Day -- or April at our Investor Day and talked about, in depth, the strategies of each of these companies. ESAB, a leader in fab tech that will grow organically but also through bolt-on acquisitions. Our ESAB business has more than doubled its margins in the last 4 or 5 years, applying our business system and driving innovation and improvements and bringing in acquisitions and enhancing the business. And that's both a demonstration of what we're in the process of doing in our MedTech businesses, but also there's still plenty of headroom in our ESAB company that we're launching to keep driving margin improvement over time, while also fueling growth of the business. On the right, Enovis, specialty med tech innovator, a business that we're going to grow to be a consistent, high single-digit, organic grower, and we see a path to build strong margins. We'll talk about that here that in that -- in the presentation. And this is a -- the strategic path here, as Brady will talk about, is about aggressively investing in our terrific Recon business that grows at double digits, and shaping and improving our prevention and rehab businesses to reestablish them as strong industry leaders that grow at above market, and then moving into attractive adjacencies that strengthen and expand our company. On Page 5, there's just a snapshot of what is Enovis is all about. And the name of Enovis was chosen because it really symbolizes innovation and vision and the [ O ] really is the continuous improvement in the center that we're carrying forward as a powerful part of the culture of Colfax. We intend this company to be focused as a specialty med tech player starting in orthopedics, focused on innovation that creates superior outcomes for patients and focused on partnering very closely with our surgeons and other partners as we do that. There's a lot of great organic investment factors of innovation that we can drive across the businesses, but also a lot of acquisition opportunities. And we've already had a great, fast start of acquisitions that make the businesses stronger and better. Before COVID, we had the business growing in the mid-single-digit range in the back half of '19 and even early '20. And we expect to be able to pick up at mid-single-digit plus organic growth in a more normalized environment, and have clear strategies for how to build from there to consistent high single-digit growth, while at the same time, driving up the margins of the business over time. Brady is going to jump in here and talk a little bit about each part of Enovis and the key growth and margin strategies, and I'll come back after that and wrap things up.

Thanks, Matt. Matt touches a little bit, but if you'll go to Slide 7, I'll give just a little bit more color there. As you can see, today, pro forma, about $1.5 billion, 75-25 split between P&R and Reconstructive. And as Matt said, we've got a -- just a really fantastic, fast growing, and we'll talk about that in Reconstructive as well as P&R. We, historically, have really worked hard to be great at P&R and really work well across the entire patient continuum of care while building this Recon business. And I'm going to talk about that as we move forward. So let's jump into Slide 8. On Slide 8, just talking about Recon. First and foremost, if you look to the left, you can see that it's about a $20 billion addressable market. We've got pro forma, about $500 million in the space. What's unique about our position is we're about 50% in extremities. We have a really strong position in the shoulder that's been built historically. And as a matter of fact, #1 in Reverse Shoulder, #3 in the U.S. in shoulder. I mean we've got a fast-growing business in hip and knee, one of the larger segments as well as a really fast-growing business focus in foot and ankle today. How we've done that is really focused on superior clinical outcomes. People have asked me today multiple times and constantly do about our position and how we grow so well. And I would tell you, it really is about that. It's about us making sure that -- and whether it be what we've done in Reverse to really reshape the shoulder market or the plays that we've made in knee or even when you watch us do acquisitions, they'll always be focused around making sure that we're delivering outcomes that are a significant improvement on what's there now. We also have just really grown our Recon business off the backbone of a fantastic group of KOLs that have helped us to just design and have an innovation cadence. It's really been unmatched over the last 5 or 6 years, and a best-in-class education program. So need opportunities for us as things are moving to the ASC, we continue to -- we're already at a larger share than others -- or not share, but actually a percentage of our business is done in the ASC is larger than what we're seeing in the marketplace today, and we expect that to be the case going forward in Recon. As we step into Slide 9, as Matt said, our focus intention there is to really double that by 2026. Our organic business from 2014 through pre-COVID was a CAGR of about 17%. And as you can see, year-to-date through 9 months, not at double digits versus '19, but really close and really having, once again, a fantastic year against our [ peers ]. We have made some acquisitions in foot and ankle, as I mentioned. Really excited about all 3 of those acquisitions and how we put together a really great platform there. And we've talked about that platform and getting that to $100 billion and then going beyond that. And then in July, we announced an acquisition of Mathys. If you look at our P&R business, which I'll talk about in a moment, we've been very dispersed, fantastic share across the globe, but Recon has been predominantly a U.S. business. And Mathys really created an opportunity for us to buy a fantastic European business, give us a footprint outside the U.S., a significant footprint and give us a platform to launch some of the great products that we developed in the U.S. as well as bring some of the technologies that Mathys has developed over time from Europe into the U.S. So pretty excited about that. We've got a really nice running start in Recon. From a P&R perspective, it continues to be the largest segment of our business, competes in about a $5 billion market space. But what's been unique, if you've heard us talk about it over time, is that our P&R business really plays across all segments in orthopedics and does so predominantly at the physician clinic level. That has given us a great advantage as we step deeply in the shoulder years ago as we moved into hip and knee and as we moved into foot and ankle, elbow and other spaces, each time, we're walking into a place where we have a known brand recognized for our service and fantastic relationships. So P&R, fantastic leader on multiple continents there, but it also is a big driver for our Recon business. Historically here, as you can see, more than half of that business has been made up of bracing. We've been a pioneer on some of the key technologies that you see in the pictures on the right-hand side, but also a pioneer of workflow solutions that today -- in the last couple of years, we've heard a lot about digital and orthopedics. And in reality, there's been momentum for us that's been building over the last 7 or 8 years, all focused on the workflow solution that's in the clinic. And as that expands in the ASC, we're uniquely positioned to carry that there. We also have a really good, solid, long-term historical market share in rehab. And we've added to that with some of the acquisitions that we've made that really position our rehab business as that market's moving as well as inpatient surgeries move into an ambulatory surgery center, well, that -- the same thing's happening in postoperative rehab. And so our team has done a great job of really identifying unique opportunities to take the largest player in rehab and really move us along with where the market is going. So a great, long-term business here that we value a lot and continue to. We'll grow our P&R business as well as doubling down on Recon. Slide 11, if you've heard us talk -- before, we talk a lot about the orthopedic care continuum. And if I would just simply describe it to you, just think about the patient journey that takes place from actually performance from our perspective, but really prevention, surgical intervention to recovery and rehab. And what's been unique about DJO for a long time and Enovis as we step into a new chapter has been that we've been the largest player on the outside edges. And as we grow our surgical intervention component, we're strengthening there as our health care providers are starting to own the entire episode of care as they move to ambulatory surgery centers. So we've got fantastic leverage across all of those. We have workflow solutions that are in place that we feel will actually deliver the right workflow solution from in the office all the way to postoperative care and the connected medicine solutions to go along with that. And then if you look at Slide 12, as Matt said, we've been talking about this since last March. And if I were just to summarize, I would say this, from a -- our view is that high single-digit growth, as we were doing in the first part of 2020 pre-COVID, we expect it to really be able to grow organically high single-digit growth through these parameters you see on the left. One is accelerating innovation. We were starting that pre-COVID but -- and pre-Colfax, certainly, but when Colfax came in, we had a really unique opportunity to do the 2 things on the outside edges there. One is really invest in innovation, particularly in our P&R business because we have a really nice freshness already on Recon business, but also to expand through M&A with some bolt-ons to accelerate some of those. I think we've been able to do a lot of that, particularly over the last 1.5 years. Focusing on winning in the ASC, we have such a footprint there historically in P&R and a growing footprint there in our Recon business that for us, a big part of our strategy, knowing how much of surgery is moving there, particularly reconstructive surgeries moving there, using the advantages in the workflow solutions that we have to help us win in that space. Lead in digital health care, in general, meaning even outside of the surgical environment. Rapid growth in foot and ankle, fantastic high single-digit growing market that we've stepped into in a significant way. And really, like the start that we've had and are looking forward to, how we grow that to 100 rapidly and then beyond. And then continuing to really be focused on M&A. M&A that makes sense for us to help reshape our business and also reshape the addressable market. You can see we've talked a lot about margin expansion. Talked about it in our plan since last March of moving our segment margins to 25% net margin. Certainly, with COVID, we have some inefficiencies that we have to recapture. But we're getting strong levers on our growth, and that's a big part of our strategy is doing exactly that. Shifting our portfolio more towards Recon. You saw the $1 billion -- you moved to $1 billion Recon business, that significantly changes both our gross margin and our net margin. Using CBS really to drive productivity across the business but very specifically focused on what's been historically our larger business in P&R and bringing better productivity into that space. Streamline our SG&A as we bring the company together to a stand-alone, separate piece, and then unique acquisition synergies. I'll pass it back to Matt.

Hey, thanks, Brady. And as Brady was talking, I realized that I had double clicked and skipped over the page about our Colfax business system. And just because Brady's got it here on the page on strategy, Page 12, I'll just make a quick comment here that one of the key corporate capabilities that we've been driving into all our businesses, including the MedTech businesses, is a lean business system based on continuous improvement using lean tools and driving that through the supply chain, through the innovation engine, through the commercial processes and the back-office processes. And we've got a real good start to the lean journey and the CBS journey with Brady and the team and these MedTech businesses. And our ESAB business really is a great example of how powerful the business system is. That's a business that we really built into a business that systematically outgrows peers and continues to expand margins. And we've got a real good start in our MedTech businesses of driving that continuous improvement with our business system, and we'll carry that forward as a Enovis as a critical part of how we drive this strong organic growth as well as the margin expansion and cash flow improvement over time. On Page 13, we finish up just talking a little bit about how we've been driving acquisitions. That's another key part of how we add value in our businesses. And all of our acquisitions are driven off of strategy. And since we've acquired DJO, we've been able to work together to get a great set of acquisitions done that advance the strategies of the businesses, that expand the portfolio on attractive dimensions. And Brady talked about a number of these on the right, like Mathys that doubled our addressable market in our Recon businesses. Just great opportunities to accelerate the growth of Mathys. And get after [ $515 million ] of synergy cost opportunity in -- mostly in the operational aspects of the Mathys' business and the joint supply chain. So just a terrific opportunity, off to a great start with that acquisition. Put 3 businesses together to be a great foot and ankle platform, Brady talked about that. Now LiteCure is a great example of a strategic bolt-on business that we acquired into the P&R platform that has nice double-digit growth, a great technology and some attractive vectors. Natural cross-selling opportunities, they remain U.S.-based and we get to bring them into our European business. So now all great examples of how we add value through acquisitions based on strategy and then ultimately, buying great businesses and integrating them and getting after the value creation opportunities. And Insight is a great example of a technology investment we've made that supports the computer-aided surgery strategy that the team is driving within the surgical business with an augmented reality capability that's really terrific. We're getting great feedback on that technology. So really great progress so far, driving our strategies ahead and shaping our portfolio in a positive way with acquisitions. And on the right, just gives a flavor of the kind of things that we have in the pipeline as opportunities ranging from more bolt-ons and geographic opportunities to things that would move us into other areas, the orthopedic space, as Brady talked about. Our P&R business touches every piece of orthopedic surgery and so we can really look into and understand deeply those other pieces where we don't participate and decide -- like in the case of foot and ankle, that we want to jump in with both feet or potentially decide that we want to jump into a subsegment, say, within sports medicine, for example. And then we also see opportunities beyond orthopedics for logical directions we can go in med tech with our company and logical ways that we can expand our capabilities and add value for our shareholders. I'll wrap up on the final page. Just we've talked about that we're right on track for the separation to create 2 great public companies. We've got a clear strategy for how to drive strong growth in med tech and strong margin improvement in med tech. And we've been advancing the strategy through COVID and have continued to outperform our markets and to lay the foundation for this kind of performance on a go-forward basis. And we've got a great start using acquisitions as an accelerator and more to come on that front as well. With that, we'll go to questions. Steve?

Great. Thanks, guys. Super interesting times. And in advance, best of luck with the new company, of course. First of all, just on some of the near-term dynamics around COVID, any change in activity? I know elective procedures is probably not the right term for you guys. But I guess, rehab events or things like that, and anything you're kind of seeing at your customers related to COVID that you want to update us on?

Steve, an elective surgery is a fair way to ask us, for sure. When you look at our Recon business, it's very much so elective surgery base. So it has played out basically as expected for us. And what's been interesting is certainly in this wave of COVID, it has been staffing that's been the bigger driver for the marketplace to try to overcome and really manage its way through. But even at the heightened points that we are today, there's a lot of elective surgeries still going on. As you also know, the world hasn't shut down in sports, and a lot of the other feeder activities that really play into our P&R business have remained pretty constant through this time. So...

Right. Okay. And as far as supply chain is concerned, how are you guys managing that? Any particular items that stand out that you're having any trouble with? How are you managing through this environment on the supply chain side?

Yes, I'll jump in for a sec, Brady, and then you can [ build ]. We -- there's a couple of different aspects of that, right? In terms of the service level aspect of it, the -- our surgical supply chain is terrific. I think it's done a nice job remaining agile through this. Our P&R supply chain is something we worked very, very hard on in 2019, together, and really improved it foundationally to -- from not serving customers that well to where in late '19, we're really serving customers really well with that supply chain. And I think those investments in that process work has served us well through COVID, for sure. We've had our share of challenges like everyone with all kinds of different supply challenges, et cetera. But I think we've been able to deliver to customers as well or better than competition through that P&R supply chain through these challenges. So the delivery aspects of it, we feel like we're on a good path, but having some of the same challenges that others do in some of our businesses. The cost part of what we've talked about pretty openly that for the last 5 or 6 quarters, we've had some pretty meaningful pressure on the business, particularly the P&R part in terms of inflationary pressure from inputs and expediting costs and just inefficiencies in terms of how we manufacture from having all different shortages in different weeks and some labor challenges as well. So I think we've been transparent that we've had some cost pressure on the business. And I think we also have talked about an expectation that we're going to keep driving the fundamental improvements, but some of these inflationary pressures are probably going to be with us for a little bit. And so we are taking ground every quarter, but we do expect that there will continue to be some inflationary pressure and some inefficiencies as we work through the coming quarters here before things really kind of clear on the back side of COVID.

And obviously, you guys are not buying too many semiconductors. So that's one area that stood out. Is there anything else within your bill of materials you guys buy that -- I know a couple of months ago was resins and certain things pop up in certain areas. It doesn't sound like you guys are really having really any issues as far as availability of your components other than just the cost.

Yes. Again, I mean our bracing and rehab business are very diverse, right? So there's a whole lot of SKUs and a whole lot of different inputs. And so there are different plastics and fabrics and some small semiconductor components, et cetera. So we have had to kind of always do a lot of hard work to be agile and use our CBS tools to be able to continue to find ways to make products and serve our customers. And we've chosen to spend the money it takes in order to serve our customers well. But I would say it's not -- we don't have one, big, isolated thing that is affecting us versus kind of many different challenges week in, week out and month in, month out. We've done a lot of hard work through the last year to make the supply chain more resilient, to dual source in areas that we weren't dual-sourced before, as an example, and to hold bigger buffers and different things that prepare ourselves for the fact that this is going to still be with us a little bit longer.

Right, right. Just moving a little bit longer term and higher level, what do you think is least well understood about your company that's coming out of Colfax, the Enovis story? What do you kind of come across in your travels recently? Obviously, it's a new one for even those that cover Colfax over time. It's somewhat new relative to other companies I cover. What do you want to kind of hammer home and something that's maybe least well understood?

I'll give my answer. Brady, you might want to give yours. So the first is I think -- I don't know -- I think it's well understood because it's publicly available. But I think people are sometimes may be pretty surprised when they find out we've been growing 17% CAGR in Recon for 5 years organically before COVID. And now have a sizable Recon business that grows well into the double digits. That's -- I think that's a tremendous feat that -- Brady's led a lot of that journey of that business becoming as fantastic as it is and it's a fantastic business with a lot of future runway. But I would say what is less understood actually is that our P&R businesses are very good businesses, right? I think when people look at some of the data of how DJO was growing a little before we bought them and stuff, they can see there was plenty of surgical growth. But P&R really wasn't growing. And I think that what people are surprised when they learn more is really what's there, right? Iconic brands like DonJoy and Aircast, a history of innovation, a powerful position in 60% of the orthopedic clinics in the U.S. as well as in some very strong channels outside the U.S. The bracing business was a great business. It came on some tough times. We're building it to be great again. And the same goes for the parts of the rehab landscape that we participate in. And so I think that if people can sort of continue to know that we've got this fantastic Recon franchise and get to know the quality of that P&R portfolio and what we can do with it over time, I think they can get really excited about our opportunity to be a high single-digit grower over time and a lot of optionality from there. Brady, what do you think are the biggest surprises people have about us from your vantage point?

Matt, I would say the combination of the 2 is a surprise. I think -- and when I say surprise, it's just how people have a tendency to ask questions, Stephen, and that is -- usually, it's let me talk about your P&R business or let me talk about the Recon business versus an understanding of how they fit together. And that's one that is -- I guess it surprises me more because I've been asked in -- over the last few months, that -- people have asked me that a lot. But that's one that, I think, maybe surprises others when they dig in to the business to just see how complementary they are of each other. So...

So let's kind of get into that. Yes, you have this kind of high single-digit organic growth type of outlook, where are you on this curve today, if you kind of adjust for COVID, I guess? And what needs to happen to accomplish that number? Any examples of upselling or cross-selling that kind of -- those kind of initiatives maybe? Just talk a little bit about how the 2 can work together to get to that growth number over time.

Yes. I mean what we really talk about, Stephen, is this double-digit growth and a healthy double-digit growth, as Matt said, and I mentioned in the slides, we've had greater than 15% CAGR organically in Recon for a long time. The acquisitions we've made and otherwise should keep carrying that forward. And then really growing a hard single digit in our P&R business. So the combination of those 2, much like what we saw pre-March and -- or by the middle of March in 2020, we were up 7.9%, and we expect to get back to that place. And that's where Recon's running in the teens, and we're with a mid-single digit from a P&R perspective. What I would tell you is the cross-selling piece is kind of unique because for the longest time, the ASC was not talked about a lot by some of our -- we're the seventh largest orthopedic company. And a lot of our -- the larger competitors didn't really talk about it. And what's happened now is in that environment where the orthopedic surgeon -- they really own the process all the way through the entire episode of care. That's where if you're doing something meaningful for that surgeon with the person they're taking care of all the way across, providing a workflow that manages them through the process while they have them in the clinic, there's a handoff there to what you're doing in the surgical theater as well as in postoperative rehab tying that back to the clinician. That's a really big deal. And that's the piece where it -- I don't know that I'd even call it cross-selling as much as us just doing what we do, and the business is touching the aspects of the episode of care but using our MotionMD as the guiding component that sits across that digitally has been a unique play for us.

So when you think about this strong growth in Recon, are you -- is that being driven more by kind of building out the -- what you're bringing to that to the existing surgeons? Or is it about gaining new surgeons? Like what is kind of the breakdown of that strong growth? It's got to be a little bit of both, given how strong it is, but just curious what's kind of the bigger driver there.

Yes, so I'll break it into 2 categories historically. One would be extremities. So let's talk about the shoulder and the reverse. We really brought the change of -- from anatomic to reverse to the U.S. through Dr. Frankle's design. And so that has been -- it's been acquiring new surgeons, but it's been acquiring procedures out of anatomic into reverse. That was the early days. That's what it was really about. And then as we go forward, there is a completion of that component that we've certainly taken an advantage of and which is why we've grown 2x plus market even while we're the #3 player in shoulder. In the hip and knee side of the business, which is usually where that question is asked, we've been building our bag. And we've gone from 50% of the bag to nearing 80%. And -- but what I would tell you is that because of where we started from a dollar size perspective, as we've taken share over time, we, today, our surgeon -- new surgeon acquisition is probably doubled what it was 3 years ago from a dollar perspective. But it's still about the same percentage as I lay it against the same-store sales, the way we term it. And the reason it is, is because we're at around 80%, and so there's still a lot of build to be done for us to finish that out. There are still many surgeons who may use our reverse and not use our anatomic. That's an opportunity in the shoulder and vice versa. And in the hip and knee, there are surgeons that, as we've been building our bag, used our knee because the data is so fantastic there. And now as we're building out -- we're starting to pick them up, but there are also surgeons who are waiting on us to have a more complete line. And each time we take a step closer there, then you have to determine are you calling that same-store sales or a conversion, but it's a little -- it's a blend of both. But the backdrop is all about the outcome. So -- I mean, how you grow in this space is, are you delivering great outcomes or not. And that's really what it's about.

Are there any concerns about robotic offerings from some of your competitors? And any technologies you're looking to develop there?

We like robotics. I wouldn't say concerns. We're certainly not coming from a position of anti-robot. I -- we've been growing a lot. We've been growing very rapidly while these robots have been lost and while they're out there, so it hasn't been a concern from a growth perspective. But we also think -- but we do believe that there are right enabling technologies for today's that has been predominantly inpatient and for tomorrow that will be predominantly done in the ASC. And the team that we put together on this some time ago really looked across the anatomies that we serve and felt that from preoperative planning all the way through the surgical procedure, that many of the anatomies will be different. There won't be a one size fits all or one technology that you throw it all. And so we've spent our time trying to look at each of our key anatomies and applying the right technology there. We made a significant investment in an AR [ company, spot, 10-K approved ]. We're doing cases with that today. We have not fully launched that. I'm very excited about what that looks like in the footprint of an ASC and what an ASC requires as well as other technologies that we think really preserve what -- where the puck is going. And in ASC, it's about cost, it's about space and it's about time. And so for all of us, every company that serves, that's going to walk in the ASC sustainably, you have to deliver enabling technology, these computer-assisted technology. They've got to be something that the footprint works for an ASC, it doesn't add time and procedure, it doesn't add cost. And we think the investments that we've made and that we're doing cases with out there today are going to really be a big deal for them.

So when you think about kind of the acquisition outlook here, you've done some deals in the foot and ankle space, pretty solid historical growth. Will you continue to focus on things like that? Or are there more, I guess, external adjacencies is what I'd call them, the new platforms, if you will, for growth.

Yes, Steve, we've talked openly about seeing a clear path to $2 billion plus that is really about organic growth and strategic bolt-ons. We'll be somewhere in the $1.6 billion -- $1.5 billion and $1.6 billion range pro forma going in -- stepping into next year. And so the path from there to $2 billion plus is a pretty quick one that we don't -- we can do with smaller bolt-on acquisitions within orthopedics that strengthen and enhance our businesses. We've also talked openly about the fact that we can definitely see -- as we start thinking about how do we get from $2 billion to $3 billion and keep strengthening and enhancing the organic growth of our business and do things that are strategically relevant, we can certainly see more that we can do within the existing businesses and around the existing businesses, but we can also see other attractive places within orthopedics. Brady talked about in our P&R business, we really see all parts of orthopedic surgery and have insights to those surgeries and the procedures and the growth rates and the kind of trends. And I think that gives us an opportunity to be very thoughtful about what other parts of orthopedics we step into and how and when. But it's certainly a large and attractive landscape for us to think about beyond just joint surgery, but the other surgical parts there in orthopedics. And then there's also plenty of attractive stuff elsewhere in med tech that would be strategically relevant, other kinds of surgical areas. There's a whole set of minimally invasive surgical technologies that our success model, our outcome-based success model from our surgical business could apply into. We've got a good position in a number of energy-based technologies, laser technologies. There's a number of other attractive segments in med tech that are based on energy technologies. And we've got a great position in clinics, right? We've got a software solution that is phenomenal for driving workflow in orthopedic clinics. And we can envision directions we could go with that in other clinic-based adjacencies. So plenty to think about in terms of kind of larger moves that we might be able to make. But for the next year or so, we'd envision being really focused on strategic bolt-ons. Driving the strategies that Brady talked about to get our organic growth up and start getting our margins up, and then strategic bolt-ons that enhance and accelerate that, that's our short-term focus.

Great. Guys, we're at time here. Thank you so much for having -- taking the time. And best of luck as a -- as the fresh, new company comes out here.

Yes, thanks a lot, Steve. Good talking to you. Take care.

Thanks, everyone.