Enovis Corporation (ENOV) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today. My name is Derek Leckow. I'm Enovis' Vice President of Investor Relations. Let me start by noting that we will be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the safe harbor language included in Slide 2 of today's materials and in our filings with the SEC. Actual results may differ materially from any forward-looking statements that we make today, and these forward-looking statements speak only as today, and we do not assume any obligation or intend to update them except as required by law. With that, let's get started. Joining us on the call today are Matt Trerotola, Chief Executive Officer; Brady Shirley, Chief Operating Officer; and Chris Hix, Chief Financial Officer. Matt joined Colfax as CEO in 2015. His background includes leading life sciences and industrial businesses at Danaher and DuPont. Brady joined DJO in 2014, and his background includes growing orthopedic businesses and product lines at several companies including Stryker. Chris joined Colfax as CFO in 2016. His background includes transformation and value creation across several industries. We have a great agenda to take you through today, and Matt will kick things off discussing the vision and strategic priorities of Enovis and highlighting our core capabilities. Next, Brady and Matt will provide a deeper dive into our growth strategy. And then Chris will wrap things up with a financial update, and then we'll begin the Q&A session. A couple of logistical comments before we get started. The slides, which you will see on the screen today, were also posted to our website this morning. [Operator Instructions] With that, it's now my pleasure to turn the call over to Matt. Matt?

Thanks a lot, Derek. Thanks, everybody, for joining. It's great to be here and to have a chance to share. I'm really excited to share about Enovis, to share our strategies and share the great momentum and opportunities that we have ahead. We've got a great presentation, and Brady and Chris and I will share it and then we'll take your questions. I'm going to start on Page 4 with the key messages that you'll hear today. We've got a big industry with a huge market, lots of room for us to expand, a very attractive orthopedics market. We've got a great team, proven business system, a clear strategy for how we're going to drive to high single-digit organic growth that's fueled by innovation and some great momentum at this point in time. We've also got an opportunity as we grow to drive strong margin improvement through a combination of recovering some of the pressure of the recent years and then driving productivity and scale over time. And we've also got great opportunities to expand through acquisitions and ample capital to accelerate our growth and compound value. This Slide #6 introduces Enovis. Since we bought -- acquired DJO, Brady and I have been working together and working with the team to create a company that incorporates the best things about the DJO businesses, the histories and momentum in those businesses, the exciting expansions from the past few years as well as the proven capabilities and culture of Colfax. And this page describes that company. Enovis is a company that is focused on differentiated solutions that create better outcomes for patients. We're also focused on using technology to improve and transform clinical workflows. We're powered by a culture of talent, innovation, continuous improvement. And our purpose is creating better together. And we're fundamentally committed to partnering with others in the industry and in our communities to create better together. The next page, Page 7, introduces some different aspects of the company. You can see that we're about $1.5 billion in revenue, and we have solid margins to start with plenty of upside over time. And about 2/3 of our company is the strong global leadership positions in bracing and rehab in our P&R portfolio. And you'll hear about how we've restored these businesses to above-market growth and have some really exciting innovation paths, including breakthrough opportunities in connected medicine. Our Recon business has grown from about 20% of the portfolio to about 1/3 of the company in the past few years, and it's been a double-digit organic growth engine, fueled by innovation for better patient outcomes. We've made acquisitions that have almost doubled the addressable market for Recon for us, including establishing a very -- a strong position in the very attractive foot and ankle segment. We've got the majority of our revenues in the U.S. but also have presence in many attractive markets outside the U.S. This is a great position to grow and expand from. A little bit more about our markets. We participate in the huge $50 billion-plus orthopedics market that has strong long-term growth drivers. And we've got attractive market positions in this market. Our Recon business is heavily exposed to the higher growth extremities segment. And our P&R business spans this market, giving us visibility and access across all parts of orthopedic surgery. There are some great trends that you see on the right in terms of aging population. People want to become -- remain more active over time, the continued quest for innovation that creates better outcomes and better lives for patients, and the ongoing trend to transition more business into an outpatient -- more surgeries into an outpatient care environment and the growth and opportunities that come with this. Overall, these trends support mid-single-digit growth in this market for a long, long time and create a great opportunity for us with the exposure that we've got to attractive parts of this $50 billion-plus industry. We've got a unique position that spans the entire care continuum in orthopedics. And there's a little bit more detail in the appendix on this that really talks about some of the different care paths in orthopedics and how our products and other products are all along those care paths. But what this really means is that we have got products and solutions for before surgery or injuries, for present -- prevention and for conservative care treatment before surgery, for example. We've got braces and laser rehab treatments, for example, that can be used before. We've got also a significant presence in surgical implants. And then we've got great technologies and solutions for recovery and rehab, again braces and rehab and recovery technologies. This position of strong positions all along this continuum but also spanning the continuum has created strategic advantages for us already in recent years. Part of what has enabled our surgical business to grow so successfully has been the contract access and the brand knowledge of the DonJoy products from the strength there that, that business has been -- had for very many years. In addition, we had cross-selling opportunities. As we acquired into foot and ankle, we had calls coming in from surgeons that were aware of our braces in the space and they wanted to hear about the technologies that we had bought and when they might be able to try them. And we've partnered with surgeons, not just partnered with surgeons on technologies for surgery but we've had the opportunity to partner with surgeons to help to shape the technologies that we bring to the rest of the continuum as well. So this position has been a strategic advantage. It's going to be an even stronger strategic advantage going forward. With the significant movement into the ASC, the ambulatory care environment that's going on in the industry and the strong growth there, this is a setting that by definition often spans many parts of this care continuum. In many cases, you have orthopedic clinics that then have ambulatory service centers put into them. And now you have an environment where you're spanning this continuum. And it's often owned in part or all by surgeons, and over time, there'll be more and more reimbursement that's done on a more bundled care type of setting that is for the patient's episode of care. So there's going to be a strong incentive for these clinics to care about the continuum of care, and we're in a great position to serve that. In many cases, we're already in the clinics, the orthopedic clinics, as they bring in surgery centers. We're known there. Often, they are running our MotionMD software. And this just gives us great access as they move into ambulatory surgery as well. In addition to the ASC trend, the trend of connected medicine sort of by definition spans the continuum of care. And we are terrifically positioned to pioneer connected medicine and the opportunities and advantages that it can create for us over time and the great opportunities it can create for our customers and their patients. And we're partnering right now with many in the industry to develop and launch and learn from those connected medicine products. This page shows the terrific position that we have in the industry. There are a handful of large and broad players in the top of this triangle here. These players show the very high level of margins that are possible in the orthopedics industry as you scale and grow. But this large and broad position can create some limits in terms of organic growth potential. At the bottom of this triangle, you see many small players who are terrific partners and acquisition targets, and we showed in the past few years some of the great opportunities that can come from acquiring or investing in these many small players that are innovating on specific procedures or specific subsegments or products within the industry. We are in the attractive position of having enough scale and scope to be profitable and to be a strong and attractive partner for surgeons and to be a strong channel to market for new technologies. But at the same time, we are and can continue to be an agile innovator who outperforms the market significantly in terms of growth, and we can shape our business over time to the most attractive other areas in orthopedics as well as beyond orthopedics. In addition, as the large major show, we've got plenty of headroom for margin expansion going forward as well. The next slide, Slide 11, shows that from this great position, we have a clear strategy for how we're going to grow in the next couple of years to become a $2 billion company with sustained high single-digit growth and 20% EBITDA margins. We'll share the details as we walk through the presentation here, but the simple elements are as follows. We'll further strengthen the strong leadership position in P&R that results in sustained mid-single-digit growth over time, just a bit above the market. We've already shown that we can bring this business back to above-market growth, and our strategies will sustain and expand on that position. Second, we'll continue the very strong growth that we've shown in Recon as we've significantly expanded that segment and expanded the addressable market there. This has been a double-digit organic grower for us, and we've got that opportunity going forward. Third, as we grow, we'll recover our margins by recovering the recent COVID pressure, capturing the margin potential in recent acquisitions and also using our business system to drive productivity and scale over time. And finally, we'll continue to make attractive acquisitions and investments that accelerate our growth and strengthen our margins. This will create a strong path of compounding value creation for our investors. On Slide 12, I'll step back and look at a little longer time horizon. Today, we're about $1.5 billion of revenue, which is up about $300 million in the last few years. We've got a clear path and plan to grow in the next few years to about $2 billion primarily organically but a healthy funnel of bolt-on acquisitions that can help to carry us there as well. And from there, there are multiple paths for how we grow to a $3 billion-plus business over time both from how we expand and grow our Recon business, continue to shape our P&R business and extend the leadership there and also follow other high-growth paths within and beyond ortho. We've got a great team with deep and relevant experience. You can see on the bottom our leadership team with deep med tech experience as well as depth in our key strategic capabilities of talent, acquisition, innovation and lean continuous improvement. We've also got a great Board shown across the top, chaired by Mitch Rales, made up of leaders with depth of experience in med tech and life sciences and capabilities like technology, high-performance culture experience, strategic growth, financial and operational improvement that are all highly relevant to our vision and strategy. Page 14 introduces our powerful business system. I've mentioned this a few times already, EGX, Enovis Growth eXcellence. This is a business system that is modeled after our powerful improvement Colfax Business System, CBS, which have roots in the Danaher business system. We've also added some exciting new growth tools in recent years. This is a set of values, tools and processes that are used to drive growth but also to drive the margin and cash flow improvements that will fuel our growth. We use these to create lean, reliable supply chains, powerful innovation and commercial processes and lean and scalable support processes. Talent and culture are a key part of this business system, and this page really talks about talent and culture. We've got a clear purpose, creating better together, that's stated on the page and a set of values on the page with continuous improvement at the core. We've made strong progress in the last 3 years, cultivating this culture in our med tech businesses and improving the strength and depth of our talent. We've also been very focused on developing and engaging our talent so that we can retain and grow them as we grow. And you can see great examples on the right of the things that we've been doing. Our broader leadership team is now a great balance of deep ortho and med tech experience complemented by leaders with depth of experience applying our business system and with experience in key functional areas critical to our success. Our business system drives significant impact over time, and you can see that here. As we separate from ESAB, that business has tremendous momentum from many years of applying our business system, CBS. They've brought a lot and, very importantly, now have had many quarters of sustained above-industry growth. They've also driven substantial improvement in margins over time. It has been sustainable, and they still have plenty of headroom for more margin improvement over time. The performance and trajectory in that business shows the power of this business system that we're bringing into Enovis. And I've had personal experience not just with the ESAB business but going back further into my career, applying a very similar business system in businesses within life sciences and industrial in my time at Danaher. On the bottom of the chart, you can see that we've got a great start over the last 3 years of kickstarting the journey with our business system and our med tech businesses. And so Enovis will start with great momentum applying the business system. We've already successfully taken our P&R businesses from below-market growth to above-market growth by improving the supply chain performance and the innovation performance of those businesses. And we've laid the productivity foundation for strong margin performance over time, expansion with the business system and the other elements that we've talked about. This is a journey, and we're about 3 years in with a whole lot of momentum building, and I think you can see from the example on the top of the page how powerful that journey can be as it builds and grows and expands. So we've made a lot of progress in the last few years. We've significantly grown our company by about 25%. We've more than -- increased the Recon part of the company by more than 50%, and we've kept the Recon business growing well above market while bringing the P&R business from below to above market. And so some very strong progress through the past 3 years that create that momentum that I've talked about as we move forward as Enovis. And this is really the simple formula for how it will drive to high single-digit organic growth over time. And you'll hear a lot about the elements of this in the balance of the portfolio. We've demonstrated double-digit organic growth in Recon as that's becoming a larger and larger part of our portfolio. And we've got a path for how to sustain that strong growth in Recon. In P&R, we've demonstrated that we can grow above market in that sort of mid-single-digit growth range. And if you put those together today, we're at mid-singles-plus at least. And certainly, as Recon becomes a larger part of the portfolio, that gives us the opportunity to drive to sustained high single-digit organic growth. And we'll also have opportunities as we add other acquisitions that help to accelerate our organic growth as well that could get us to that sustained high single even faster. I'm going to pass it over to Brady to talk about our growth strategies, and I'll come back and talk after he covers a couple of sections. Brady?

Thanks, Matt, and good morning, everyone. I look forward to telling you about our strategy for growth as well as answering your questions today. As you may know, I became the CEO of DJO about 24 months before we were acquired by Colfax. And before I open the next slide, I would just tell you that I'm really excited about our strategy and quite frankly the progress that we've made together over the last 3 years and really excited about where we're headed. So we'll jump in on Slide 20. As Matt said, we have a very clear strategy, quite frankly logical, both to grow and to expand our margins in the next few years. And I'd say we're off to a good start even while facing the unique times that we've all seen recently. First, we're very focused on shaping our leading P&R positions for sustained mid-single-digit growth while expanding our margins within that segment. Second and in 3 focus areas, we are rapidly expanding our high-margin double-digit growth engine, Recon growth engine, A, by continuing our double-digit growth in our U.S. surgical business; B, rapid growth in our new foot and ankle franchise; and C, by really significantly expanding the reach of our fantastic product platforms and system platforms that we've developed through globalization. And we'll talk about that a little further in the presentation. Third, we're very focused on expanding our margins through operating leverage, fueled by this high single-digit growth that you've heard us talk about, a richer and richer mix from our Recon segment and our proven business system that Matt just talked to you about for a few minutes, EGX. And then finally, as you've seen from us over the last several quarters, we'll continue to accelerate these key strategies through attractive acquisitions and technology investments. We indeed have tremendous opportunities to drive strong and profitable growth. And as I said, we are underway. First, we're going to talk about, as I said, shaping P&R. On Slide 22, as Matt said, P&R is about 2/3 of our company today with strong leading positions, in particular in bracing and recovery sciences and truly with positions across all the ortho segments. The bottom gives you a visual of some of the most well-known brands within ortho, from the DonJoy braces that you can see on any given Sunday or Saturday to the Aircast walker boot that has largely obsoleted below-knee casting over the last several years, and also our 70-plus year Chattanooga brand that has been the go-to for physical therapists around the globe for a long, long time. As you know, in the other bullets, we are the leader globally in these segments and across P&R, so a fantastic position. Our MotionMD workflow solution is a critical tool and it's in almost half of the U.S. clinics today and a big driver for us. And these are great positions really to grow and expand from. On Slide 23, based on the breadth of our offering, we, me and Matt, are often asked about what are the market segments that really drive P&R. As illustrated on the slide, bracing and recovery sciences, which is 90% of P&R, is really driven largely by 3 segments in ortho: one, the large joint reconstruction segment that has a blended 5% to 6% procedure growth; two, sports medicine from performance to prevention to post-op at 6% procedure growth; and then third, trauma and injury, the smaller of the 3 from a percentage of our revenue but critical in ortho growth at approximately 3%. As you can see, the combined WAMGR there of about 5% procedural growth generates 3% to 4% revenue growth across these segments with approximately 1% price pressure in the segment over time. On Slide 24, as I said earlier, though I started aspects of this journey, we, the DJO team before Colfax, I would tell you that we, meaning me, Matt and us and Colfax, over the last 3 years have had a great alignment together and have been able to really accelerate P&R to perform above market. Our bracing and rehab business, as you can see on the chart, have had a long history of mid-single-digit growth as leaders that continuously invested in innovation. But the page also shows you that though the business grew 3% from 2014 to '17 and even higher, if you isolate it to bracing and recovery sciences that due to some challenging service levels, low single-digit vitality that began before I was the CEO and then some needed SKU rationalization for the business that there were -- late '17, 2018 and really the first half of 2019, were somewhat challenging. But working together, we really reestablished for us the -- for our customers the service levels. We invested in vitality and NPI and invested in MotionMD. And you can see the results in the second half of 2019 and early pre-COVID 2020. The business returned to above-market growth and has maintained that above-market growth throughout the pandemic. And as you can see by our 2022 guidance, we are excited and confident about what the segment will do as we move towards a more normal global environment here in health care. On Slide 25, really, these next couple of slides are -- I'm using them to highlight some of the investments that we've made in P&R that led the business back to growth. As you can see, beginning in 2018 and accelerated by Colfax, we moved our vitality to mid-teens in a short period of time really with a focus on getting to and sustaining 20% vitality for the segment. I've been in orthopedics for almost 30 years -- and med tech, and one thing I know is business that really grow have fantastic vitality. And so our target there and one that we've covered a lot of ground on so far is to get to the 20% for this business segment and really stay there. First in modernizing our core segments, driving us back to market-leading positions in key segments and bracing, and we've been able to do that in a number of areas here over the last couple of years. Second, expanding into high-growth categories to gain the full benefit of these fantastic field distribution teams that we have and the coverage that we have. Third, through R&D investment and also accelerated by acquisition, we're really helping to lead that transition to modalities as more and more of the physical therapy environment is moving to an outpatient setting and also supporting the outpatient settings that are feeding it. And fourth, across the key segments that drive P&R, we're developing a line of connected medicine, smart braces that we believe will deliver the transition to digital in ortho over the coming years with the right solutions. On Slide 26, as I mentioned on Slide 24, we've made significant investments in workflow solutions and with MotionMD today really having a leading position in the clinic segment. The MotionMD workflow solution really delivers both for us and for our customers. You can see, for our customers, a 24% reduction in the inventory within their clinics, 8% improvement in collections and 40% reduction in billing lead time, all of which are significant. And then for us, we see 600 basis points of higher gross margin in those settings, a 99% customer retention rate and an impressive share of wallet. And as you can see on the top right there, since 2017, we've had really substantial growth in clinical penetration and product revenue growth with MotionMD. And we believe that these trends will continue to be the key drivers for us as we move forward. On Slide 27, I mentioned connected medicine a few minutes ago. And you can see we talk about connected medicine, but there's this backdrop for us where it's powered by Motion iQ. We're very early with some limited launches there in recon and in sports medicine. We're convinced that this growing outpatient journey for the patient must be connected and that our bracing products with integrated sensors can open really a broad data collection that creates opportunities that can be used to deliver better outcomes today but also reshape protocols and -- for tomorrow not only beyond surgery but even potentially from the data that we gather, put together with the right computer-assisted technologies. When you sew all that together, you have an opportunity to really change protocol throughout the process. Our large coverage in clinics with MotionMD, as you saw in the previous slide, really creates a unique advantage for us across ortho, as Matt described even as he was talking about the market slide. That depth that we have in almost 50% of those clinics with this installed platform sitting on their EMR really gives us a neat place to launch further into this Motion iQ and connected medicine from a stable and secure base. And as I said, we are early. But almost without exception, our clinicians talk to me about how we deliver in this new environment and how we deliver on that together. Next, I'm going to talk about our rapidly expanding Recon platform. It's an area that I'm really excited about. As you've noticed, I don't necessarily read the titles of the slides, but I will read this one: attractive reconstructive segment and market position. And as you can see on the chart, just a couple of quick bullet points here before I deep dive in it. About 50% of our revenue in Recon is in the attractive high-growth extremity segments and -- where we are a global leader in certain aspects. We're the U.S. leader in reverse shoulder, and we're the European leader in stemless anatomic shoulder. So in the shoulder and extremities, we've got a fantastic leadership position. We also recently expanded our extremities business with a rapidly growing foot and ankle growth platform. And our hip and knee segment has really been expanding and gaining share substantially over the last 7 to 8 years, leveraging our unique product offerings. But also, the KOL teams that we have really changed the game for us in bringing those technologies forward and highlighting the meaningful impact behind them. I joined the company in early 2014 to -- actually to lead our U.S. surgical business. And you'll notice there on Slide 30, the business has performed really well over time in both segments. And we thought it would help for you guys to see the 2 segments isolated in this setting. So I'm very proud of our team and what they've accomplished across these, in shoulder powered initially by the AltiVate Reverse and accelerated by expanding into anatomic. We've grown 2x market consistently both before and during the pandemic. And in the large hip knee segment, the EMPOWR Knee has been the key driver behind what has been a sustained 5x plus market growth. Across the segments, our proven playbook of best-in-class medical education, aggressive NPI cadence -- and anyone who knows me in the market knows that I'm about that, and our partnerships with what I would say are unparalleled KOL leadership teams has really underpinned our sustained double-digit growth across -- not only collectively but across these segments over time. And we expect this momentum, this double-digit growth in this segment, to continue for years to come. On Slide 31, I seem to always be asked certain questions when we sit with analysts or investors, and so I thought I would cut one of those questions off at the chase with this. People often ask, how have you grown like the charts on the previous slide illustrate and how do you continue to do so moving forward. Well, I've been in orthopedics for many years and one thing I know and it's something that hasn't changed in my almost 30 years in orthopedics is that patient outcomes drive surgeon preference and they build their practice based on outcomes. It's a unique space that their reputation is based on how well their patients do. And therefore, it always drives their presence. Our surgical business is focused on measurably better demonstrated outcomes, always having a focus to be there. And these 2 technologies that I'm highlighting here are not the only ones in our Recon platform, but I would call these the foundational technologies that have really created our performance over the last few years. The first one, the AltiVate Reverse. Dr. Mark Frankle developed the underlying philosophy of what is now the AltiVate Reverse and brought it to DJO. And with greater than 10 years of fantastic data, it's really changed the landscape in shoulder surgery in the U.S. with the Reverse now being greater than 50% of shoulder arthroplasty. And by the way, Europe is now transitioning in the same direction, which I think will be fun and interesting for us as we go forward. A couple of years ago, Professor Gilles Walch -- he is the leading design surgeon for what was Tornier and then Wright Medical and now Stryker, made the statement that you can see there on the right -- on the top side about what he learned over the years. And that statement -- and I'm not going to read it for now. You can see it. What he is describing in this lateralization, inferiorization as well as 135-degree neck angle, what he's describing is the AltiVate Reverse. Next, the bottom one, in a similar vein, the total knee market has been challenged with only about 80% patient satisfaction across all implant systems for many years. And we believe that kinematics was the biggest driver behind that dissatisfaction. So starting with a dual-pivot strategy and philosophy, we developed the EMPOWR 3D Knee. And what it does is it delivers the natural kinematics of pivoting laterally while walking and immediately while squatting. And as you can see in the quote from Dr. Meneghini, who's one of the most widely respected surgeons in total knee arthroplasty, our 3D Knee is resulting in a 20% improvement in patient satisfaction. And that's why honestly, if I just stopped here, this is why we're growing so fast and why we continue to take a lot of share within the space. Slide 32. Beyond that foundation, we've had an unmatched innovation cadence. We've added breadth in our shoulder franchise. We've extended and continue -- we are continuing to extend the EMPOWR Knee platform. We've made some fantastic advancements in modern hip implant systems. And we've been -- we've made precise computer-assisted enabling technology advancements tailored for the ASC. And you'll hear me talk about that. We have more of that coming. We've been very careful to ensure that what we're doing is focused in the right place. Over time and going forward, we've sustained 30%-plus vitality. And since 2018, we've added another 23% net new surgeons with $100,000 plus in revenue. And though our cadence has been significant, we still have significant room to grow in bag penetration from what is now 75%. So a lot of exciting opportunities but the investments have really paid off in our surgical business. On Slide 33, another title I will read is, winning in high-growth ASC segment. With this audience, you don't likely need me to educate you on the drivers of ASC growth in the U.S. But what I will say though is that the majority of these drivers actually exist in key international markets as well. So stay tuned because the size of this overall outpatient ambulatory pie for total knee as well as across recon in general is going to keep expanding. As you can see, we're doing exactly that we're expanding rapidly within the space. And we believe we're leading in TKA as a percentage of revenue. If I were to be simple about it, our advantages, our unique positioning across the care continuum that Matt talked about, when the surgeon becomes a provider as well across the entire patient journey, we're the one player that has a deep relationship and responsibility with them across that whole platform. And so that's a unique opportunity for us. Second, the EMPOWR Knee profile, when you just look at the chart, that knee is really focused on healthier and more active patients. It works great for all patients. But for surgeons that want to have a really active patient postoperatively, EMPOWR is a great opportunity. And that's also the same type of patient that's predominantly done in an ASC. Third, our deep relationships with sports medicine partners more and more are capturing total knees in their ASCs. And then fourth, some of the technologies that we've dropped in, like the ADAPTABLE arm that really make it more efficient in that setting, just some simple enabling technologies and instrument platforms that we believe, have really positioned us for above-market growth and revenue growth as a percentage. Next, CAS. I commented that there are certain questions that we're often asked and this is one of the areas that usually comes up in Q&A and -- our strategy for computer-assisted surgery over time and now has been driven by the 3 blocks on the left. And one, we strongly believe that the offering for computer-assisted or CAS must be anatomically distinct. And we've got some fantastic leadership teams, KOL leadership teams, as I said. And as we've worked with them over time, we see those nuances and believe that what we're offering now and what we'll offer go forward must do that. Second, they need to span the entire workflow for the total joint patient. Just jumping into the surgical intervention piece is not going to be enough of a solution playing forward. And then based on the massive procedures that's moving to the outpatient ASC environment, the platform for tomorrow really must be shaped differently than the historical models. For the ASC, the capital costs must be low. We can't add time to procedure, and the footprint must be small or micro. We currently have a fantastic system in the shoulder with our Match Point, preoperative plan and patient-specific instrumentation. We'll soon be launching what we believe will be a best-in-class offering in foot and ankle. And as you likely know, we've made investments in other key technologies like the recently 510(k) approved Arvis augmented reality system as well as some other internal and external partnerships to deliver the right solutions for each anatomy and specifically tailored to the ASC. This is an area where we're going to provide details when appropriate but also not play out our hand too far too soon. We believe that our strong reputation in the market as an innovator positions us well with KOLs to adopt new technologies that will drive better patient outcomes but that are formatted for today and tomorrow's environment better maybe than some that are formatted for yesterday. On Slide 35, through really strong positions with some key foundational technologies like I described with AltiVate and EMPOWR, we've assembled a fantastic foot and ankle business. And it's in one of the fastest-growing segments in orthopedics. Based on the 3 areas on the bottom left, a complex anatomy, favorable demographics and reimbursement as well as our ability to leverage some of the existing and next-gen technologies, we're pretty excited about this new growth engine in our Recon segment. In MedShape, we acquired and are investing further in a greater than 20% grower that has a unique shape metal technology that we believe has range not only across the foot but into other of our key Recon segments. In Trilliant, we acquired another strong grower with a broader portfolio that's also underpinned by unique technology. And then in STAR -- and people ask me about this a lot, I couldn't be more excited about STAR, staying consistent with our strong belief and outcomes. We acquired an ankle with the best-in-class survival-ship. And we have a clear pathway to modernize this, both the unique mobile bearing implant as well as how it's delivered and enabling technology to go with it, so a lot of opportunities for us. And you'll see on Slide 36, it's really a quick outline of what are we doing. Whether we assemble these parts, what are we doing? Well, we're well on our way. We're building a very strong dedicated channel to drive cross-selling of what we've acquired as well as we're building a platform internally for the type of innovation cadence that's really part of our Recon offense. We're investing heavily in R&D across that platform as well as we've got an opportunity to continue to acquire differentiated technologies for other high-growth procedures across foot and ankle. We're both modernizing STAR and expanding our ankle portfolio. And then through Mathys, which we'll talk about next, it also creates the opportunity for our foot and ankle play to really be global off of a strong platform. So based on our strategy and early momentum, we're confident in our team and in our 3-year goals of $100 million in revenue, double-digit growth and fantastic gross margins. Next on Slide 37, the third focus for Recon is globalization through Mathys. I honestly cannot be more excited than I am over the opportunity of combining our U.S. Recon business with Mathys to create a great global platform. We thought it was worthwhile to outline our rationale from the start. One, we wanted a strong European ortho player with a trusted brand and a great direct sales channel, and we've got that in Mathys. We also saw highly complementary product technologies, meaning our key technologies in reverse shoulder and in knee would complement their above-market shoulder and hip offerings. And also, there are some key proprietary technologies like ceramics and like the RM monoblock, could power unique competitive advantages for us globally. And stated simply, this acquisition basically doubles the addressable market for the key technologies that we've been driving sustained double-digit growth in the U.S., and it expands our offering of those foundational technologies that I talk about that really bring measurable and sustainable better outcomes over time. And we believe that putting all this together will really add fuel to our innovation engine. On Slide 38, we have a clear pathway really to realize the benefits of the Mathys acquisition. One is cross-selling the best of both, expand the Mathys shoulder with AltiVate Reverse, strengthen the Mathys knee offering with EMPOWR. And then accelerating our U.S. hip breadth and with RM and the optimys stem -- the data on this combination by the way is incredible, greater than 10 years and phenomenal. Second, to really globalize innovation, we talked about innovation cadence. It's such a big part of what we do and what we care about. It's a big part of our playbook. So through the acquisition and combining the teams, we will create a competitive advantage and allergy-free implants with ceramics in many of our segments. We will expand the RM Pressfit beyond the hip, and we'll develop a global outpatient, ASC-tailored CAS offering. And then number three, we're very confident in our ability to drive the $15 million of annual cost synergies that we've talked about within the supply chain and through global scale. So we're off to a good start here and just couldn't be more excited about Mathys. Next on Slide 39. So how does this combination of all these fast-growing parts of our business look together? Well, currently there are 4 segments for us in our Recon platform. The U.S. shoulder market, as you can see there on the left, which is 30% of our platform, is growing about 7% to 8%, and for our track record, we have great confidence in continuing to grow shoulder 2x. The U.S. hip/knee market, also about 30% of our platform, is growing at 3% to 4%, and we're projecting our growth to continue to be well above market, 3x to 5x above that market. Foot and ankle market, 10% of our platform, is growing about 6% to 7% with the combination we've assembled and we project growth of 2 to 3x that going forward. And then finally, the blended international Recon market, 30% of our platform, is growing about 4% to 5%, and we are projecting 2 to 3x that based on the powerful combination of our U.S. business and technologies and Mathys and technology. So rolled out, the WAMGR is 5% to 6% and at 2 to 3x growth. We're projecting 10% to 15% in 2022 and going forward. So really excited about our growth, our strategy, the progress we've made on that. Now I'm going to hand back the baton to Matt so he can walk you through our strategies that we've really worked hard on together just like we have on the growth side but for margin expansion as well as accelerating through M&A. So Matt, back to you.

Thanks a lot, Brady. So I'm going to take the next 2 elements. And I got to say, listening to Brady talk, there's a lot to be excited about there. It's been great partnering with Brady so far, and I look forward to it going forward. Just a whole lot of aggressiveness around growth and a whole lot of great capabilities and how to really drive growth and share gain in technology innovation. So moving from organic growth to margins, I'm going to talk a little bit about our plan for expanding our margins. And when we acquired DJO, we saw a clear opportunity to expand the margins of the business over time, in part looking at benchmarks in the space versus the different elements of the business and seeing plenty of headroom there and in part based on looking at the opportunities. And we have been, from the start, working to get after the margin opportunities. But clearly, with some of the challenges around COVID, it's been a bit of a tough start on this front, but that only increases the runway ahead of us. So this page really shows some of the margin pressure that we've had in the last few years and then the great opportunities that we have going forward to pull back some of the headwinds and to drive the sustained improvement to get to 20% overall company EBITDA margins on our way to even higher. And this is getting pretty close to the 25% segment margins that we talked about at our last Investor Day. We'd have to get to about 22% company margins. And we certainly see in the long term, that opportunity. We're just guiding that for the 3-year plan, we see a path to 20% and we see headroom beyond there. Looking at the sources of pressure in the last few years. First, we made some very important investments in the business. We made investments to fuel growth and we made investments to strengthen the foundation of the business for what we have ahead of us. In more normal operating environment, a decent amount of this might have been offset by operating leverage. But with some of the challenges in the last few years, those have created a little larger pull on our margins. Second, COVID has created price/cost pressure from inflation as well as operational inefficiencies primarily in our P&R businesses. We exited 2021 with over $30 million of total inflation since 2019 and over $20 million of net gross margin pressure from that. And then finally, we made some great acquisitions, as Brady started to talk about. I'll talk about a little more that are accelerating our growth and will accelerate our growth but are initially dilutive to EBITDA margins. And so those 3 factors have us at the 2021 level that we show here as a total company EBITDA margin level. And then we've got really a very clear plan and path for how we're going to grow from there to 20%. First, we have some immediate reductions in our corporate costs, as we've talked about previously, as we step forward as Enovis. In addition, we've got some active initiatives to streamline and simplify and scale our SG&A to create additional improvements in our margins. Second, COVID's created the price/cost pressure I talked about, and we've got an opportunity. We've already been working on pulling that back through price. And as -- certainly as inflation starts to subside and we get to a more normal environment, we should have an opportunity to pull back that margin pressure that we have felt from COVID in the form of price versus cost and in term -- in the form of supply chain efficiencies versus the environment that we've been operating on for the last year or so. Third, as we return to a more normal organic growth environment, we expect to have at least 50 basis points a year of operating leverage and productivity that will more than offset our price pressure and investments that we make in the business. The higher growth of our higher-margin Recon business helps as well with this operating leverage equation. And so you can see a meaningful amount of margin improvement from operating leverage on this waterfall. And then finally, as the acquisitions we've made scale and as we get after the synergies that we've talked about related to the Mathys acquisition, we get growth in our margins from our acquisitions. And so that combination creates a very clear path for how we get from here to 20% margins. Our guidance shows a good healthy step forward here in 2022. And then as you can see in the takeaway box, we're not done when we get to 20%. If you really look at the opportunity, as our gross margins move to 60% and beyond towards the mid-60s, we'll have plenty of headroom to drive our total margins beyond 20% and towards that 25% total company number, which would be substantially beyond the segment margin level that we've talked about. The last piece of our growth strategy is our acquisitions, and we've clearly showed in the past few years how powerful this can be to advance our strategies and accelerate our growth and improve our margins. And we've got plenty of other opportunities going forward. You heard Brady talk about a lot of the great acquisitions. Most of the acquisitions on this page, Brady talked about in terms of moves that we've made that have accelerated our strategy, that have accelerated our growth, expanding Recon, creating a continued path of well above margin market growth in Recon and also shaping P&R. LiteCure is a great example of an acquisition that nicely shapes our P&R business in a positive direction. And so you've heard about these and the great impact that they're having today. What you can see here on the page is that by the time we get to 2024, these acquisitions will be more than $300 million of our revenues, double-digit plus organic growth and nicely accretive to our gross margins. And this means that this 15% to 20% of our portfolio will contribute a few points of organic growth at the total company level that we didn't have a few years ago. Our integration efforts are right on track, and these are all building nice momentum. And if you go to the next page, you could see we're far from done here. We, as we start -- I shared earlier that this industry has a robust tier of smaller innovators and more focused product companies, and that creates great bolt-on opportunities, and we've got a full funnel of strategic bolt-ons. They can help with our path to $2 billion. And we have a great landscape beyond that as well within orthopedics and more broadly in the med tech industry. We will start as Enovis with plenty of balance sheet room to drive acquisitions, to fuel our growth and expand our company in attractive ways. We've got attractive adjacencies within ortho, and you can see some examples on the page that could shape our organic growth upwards and bring high gross margin. And foot and ankle has clearly been a great example. Our P&R business gives us great insights to all those other areas of orthopedic surgery to make very educated calls about where we do and don't go. And then there's also attractive vectors beyond ortho in med tech. There will be logical expansions for us that accelerate our growth and leverage our corporate capabilities. So a rich funnel for how we go forward from here and lots of paths to deploy capital over time as we step forward as Enovis and have this as a key element of our growth strategy for compounding value for investors. Chris will finish up with the financials, and then we'll get to your questions. Chris?

Well, thank you, Matt. And let me add my welcome to the analysts and investors who are participating in today's call. If we start on Slide 46 -- thank you, Derek, that really lays out the recent growth picture of the company and our expectations for rapid expansion in 2022 and beyond. For those of you who have been following the story, you know that we acquired -- Colfax acquired DJO in 2019, and we very quickly partnered with Brady and the team to drive the sort of operating improvements in the business that could earn us healthy and sustainable growth. Earlier in the presentation, Brady walked you through those improvements in the P&R segment and demonstrated how they restore that part of the business to really strong growth in the second half of 2019. Now if you take that 2019 performance, if you take the improvement in P&R and you add to that the strong double-digit growth on the Recon side, put those together, you can see 2019 total sales grew to mid-single-digit plus, and that was -- we were on a really terrific path there before COVID entered the picture. In addition to these operating improvements, we lean into Brady and the team's innovation process, making process improvements and further investments. And you're seeing that really reading through. And I think what you saw earlier is on the P&R side, the vitality number has gone up substantially into a much better place to help to support and drive outperformance in the market. And on the Recon side, we managed to maintain the really high and terrific levels to continue to drive double-digit growth in that business. Along the way, we've also executed our acquisition playbook, adding some really terrific businesses that have resulted in Mathys helping us to globalize our Recon business and then the whole foot and ankle platform, which is a rapidly growing business. So you put all that together, and you can see how it lends itself to achieving high single-digit growth in 2024 and beyond. And the last thing I'd say on this slide is that with the separation, we're creating a business really with a very strong capital structure that will help to support and even accelerate our growth. So if we go to the next slide, 47, it really brings the 2022 growth into sharper relief. We've got this continued strong double-digit growth forecasted for the year in Recon but really for the total business with the benefit of the Mathys acquisition, where the integration, as you heard earlier, is right on track. In addition to double-digit growth for the total business and organic double-digit in Recon, we're expecting that the P&R business will outgrow the market at healthy mid-single-digit growth levels. Now in terms of the pattern for the year, the seasonality, we expect this to be similar to what this business has in a more typical year. That is it follows the sort of sporting and general activity levels in the Northern Hemisphere, which means you get the smallest quarter in Q1 and the largest quarter in Q4. And just to help you along, we're telling you that the first quarter should be roughly 23% of the total, and you'll see obviously a stronger back half than the front half. That's typical seasonality. Now we've also given you a bit of a range for the revenue guidance. We previously communicated that. We're affirming that here with you today. And within that range really assumes a sort of range of COVID recovery, everything from a little bit more restrained to something that is perhaps more rapid and all of that demonstrating largely in the back half of the year. So if we go to Slide 48, what you can see is that we do expect this growth to translate into attractive margin expansion. And the foundation for this margin path is operating leverage, taking those really great operating -- or gross margins we've got, continuing to make improvements in the business and then really gaining cost scale advantages as the business grows. And this growth supports not just margin expansion but the continuing funding of the innovation and the commercial engines that we believe will help to sustain competitive advantage. And just as you saw in the ESAB example that Matt walked you through earlier here, we like to make investments. We like to sustain and increase investment and then just continue to extend our competitive advantage over time. In addition to growth and operating leverage, though, we've got several self-help projects underway that we think will contribute to margin expansion. Matt outlined those broadly. Let me dig in a little bit more. Part of the thesis for Mathys was integrating these global supply chains and making improvements to drive $15 million of savings. Well, let me tell you, we've already begun taking the steps that can secure that and we expect to get those benefits fully secured on a run rate basis by 2024, in line with our original expectations with the acquisition. We've also initiated a program to streamline our back office operations and take out $20 million worth of cost. This program is also already underway, and the costs are starting to come out. We expect to exit 2022 with a run rate of $10 million savings that we think will continue to ramp in 2023. Now it's no surprise that COVID has introduced some supply chain challenges for nearly everybody, including us. We've incurred what we believe is over $20 million of inflation and productivity pressure since the pandemic began, and this is net of the pricing actions that we've been beginning to take in 2021 and certainly in 2022. Now the net impact, we stand ready to recoup as the supply chain conditions stabilize and improve. And we're going to continue to harness the EGX customer price playbook to drive price increases in a very targeted and thoughtful way. You'll see that happening at different pace and timing because of the different market channels that we've got in the company. Now overall, you can see that we have strong conviction that we can continuously improve our margins while supporting the path to consistent high single-digit growth. And if we go to Slide 49, you can see that we're taking really a meaningful step-up in margin improvement in 2022. So we expect to see it pace nicely over the 3 years but really taking that first big step in 2022. So in addition to operating leverage and streamlining of back-office costs, we're reducing our legacy Colfax corporate cost with the first step of eliminating nearly $15 million from 2021 levels, and we expect further improvements to show up in 2023. Overall, we're guiding to $245 million to $265 million of adjusted EBITDA in 2022, which is at least 19% higher than 2021 performance. Now I think you see this demonstrates our ability to take fast top line growth and translate it into even faster profit growth. Now we expect to see the EBITDA ramp throughout the year in line both sequential sales growth and also the operating improvements in cost actions that are being taken. In Q1, we expect $45 million to $48 million of adjusted EBITDA. So all of this translates into $2.20 to $2.40 of full year adjusted earnings per share, which assumes the longer-term balance sheet excluding both the ESAB retained stake and the related debt. Now Matt and Brady both, I think, talked earlier about our acquisition program at various points, which is well supported by our capital structure, as shown on Slide 50. We expect to have less than 1.5 turns of leverage when we separate. And then we expect to go into a net cash position when we monetize the 10% stake in ESAB that we're retaining. Now of course, all of this excludes additional acquisition investments that we might make in 2022. Now we expect that this stake will be exchanged for outstanding debt within 12 months of the separation and -- but going forward, we believe we've got the borrowing capacity and increasing levels of cash flow that will strongly support our M&A program. So let's wrap up the presentation on Slide 51 before opening it up to questions. What you see today is that we're executing an effective growth strategy in the attractive ortho space. We're taking share in both of the segments that we operate in, and we have a clear path for continued outperformance as we drive to consistent high single-digit growth performance. We expect this growth and other actions we're taking will lead to even faster profit growth and attractive margin expansion. I think you get the impression we have a very experienced team here with a track record of delivering outstanding performance and attractive acquisitions to further accelerate our performance. Listen, we're excited for the opportunities that lie ahead and the value that we expect to create for the investors. So with that, I want to thank you again, and I'm going to ask Derek if you could please transition us to Q&A.

Okay. Thank you, Chris. [Operator Instructions] We'll pause just a moment to compile the list of questions, and then I'll pose them to our presenters. We've got a number of questions here on guidance. The question is, has anything changed in the guidance you provided on February 22?

Yes. Perhaps I'll answer that question. The core operating performance that we communicated in our call back in -- on February 22 remains unchanged. At that point, we were talking about segment-level performance. And you can see we're maintaining and affirming both the growth guidance and the amount of EBITDA that we expect to generate there. The only change today is we've now layered in the legacy Colfax corporate costs, which, as we talked about, are coming down $15 million as we transition and pivot into 2022. In addition to that, we're adopting the industry practice of reflecting the share-based compensation as an adjustment to EBITDA. With that, the only changes that we're -- that we've introduced.

Thanks, Chris. There's another sort of follow-up question to the guidance question. Your guidance implies a strong margin improvement year-over-year. What is the visibility and confidence in achieving this given supply chain issues facing the industry?

Sure. Maybe I'll try to start with that one here and others can jump in. So as we look forward, there's no question that the supply chain challenges remain for all companies out there. And our teams have done an excellent job of supporting the customers to make sure that we can deliver the market outperformance and growth that we expect to have. We believe that we've considered that in our guidance going forward, different potential outcomes for that. I would say that we do have a lever, and that's this pricing lever that we talked about in the prepared presentation. We've got a playbook for that, that is pretty well established, that the entire team has taken on in 2021 to help deal with some of this really unprecedented inflation in the industry and pressures. And that remains a lever that we can continue or a tool that we can continue to deploy to deal with these pressures.

Yes. The only thing I'll just add there is, again, in the margin improvement range that Chris talks about, there is an initial improvement that just comes from kind of leaving $15 million of those legacy corporate costs behind and that we're extremely confident of as we already step forward, having made those changes. And then from there, there's the opportunity to start taking progress on that price/cost equation that Chris talked about, which we have gotten quite a bit more price through as we've moved into early this year, late last year, early this year, and that start -- initially will stabilize the equation of price versus cost and, then as we work through the year, will give us the opportunity to start to pull back a little bit of that price versus cost. And then finally, Chris talked about we are taking some specific actions on initiatives around streamlining SG&A beyond that initial corporate adjustment just as a way to make sure that we make some good initial progress this year and create a good path for both improvements and scale.

Okay. We've got a question here on the Recon business. Recon is expected to grow 2 to 3x faster than the market, as shown on Slide 39. What visibility do you have in achieving this goal? And what makes this sales for expansion, new products -- what drives this, sales for expansion, new products, pricing, et cetera?

Matt, am I taking that one?

Yes. I think that'd be good, Brady.

I would love to. So a couple of things. I've talked about there -- number one is that as we think about it, there's -- it's the things that I described to you. First of all, continuing to build out our bag -- and I don't want to be overly simplistic about that. In some ways, the bag build expands us into other segments that we're not covering for existing customers. And in other ways, it actually opens a new competitive pathway by the breakthrough that we bring to the table. So certainly, continuing the aggressive innovation cadence that we've had and delivering with the right outcomes. Two, we -- I saw some of the questions as they came up. I'm not going to answer a future question, but one of the questions that I saw related to a callout that -- about the percentage that some of the technologies would have. And one thing that you heard through my presentation and my voice, I personally, watching the market, believe that a large percentage of total joints will be done in the ambulatory surgery center. I think most that are on the call would believe that. And so there's a second aspect for us, that play that we have across the platform, across that patient journey as well as the mixture and how well fit our implant systems are to deliver for that more active patient is also going to drive growth. And then quite frankly, the Mathys acquisition with some of the unique technologies that it brings to bear, I think, will help take us even a new step with some breakthroughs going forward.

Yes. And the only thing I'd add there, Brady, is that -- we get this question a lot, and I think it's important to remember that in hip and knee, we're still between 1 and 2 share player in the U.S. And so we can grow at very high levels for a long time by taking relatively small bits of share from a number of players out there, and we're confident that our investments in innovation and our commercial efforts as well as the enabling technology, CAS things that Brady talked about will support and enable that -- a long runway of that over time.

Yes. And I'm just going to finish off there and jump with Matt. I would be simple about it. One, it's better outcomes. Two, it's bag breadth. Three, it's the continuum of care. Four, it's breakthrough technologies. And there's a beauty that we have not only being a smaller share player today, not small but smaller, but we also are not encumbered with legacy technology. So when we when we see those opportunities for breakthrough, we're not making that innovator's dilemma. We're not battling with that challenge. So we're in a good environment.

Yes. And well said.

And you guys both answered part of this question already, but I want to ask it anyway. There's a -- you've gained share over the past several years, but it's also against the backdrop of some major competitors struggling. How confident are you that those gains are, one, permanent; and two, sustainable? And do you feel like you're gaining more share from larger players or taking share from smaller players?

So a couple of things on that question. First of all, a fair question. We have sustained, as you saw by the charts, this kind of growth over a very long period, over 8 years. And we have not seen our ability to continue to play at those levels even change in the last couple of years with the pandemic. So I would say that we have a very sustained offense and playbook that has played out well and we expect it to continue to. Some of the transition that we made, honestly when I came with the surgical business, was for us to step away from being a niche player and really move into the broader market with the right KOL leaders and really focused on these larger orthopedic clinics with the bigger players that are transitioning forward because I felt that the technologies we would bring would give us those types of abilities to grow and take larger pieces of share. And so to answer that last part of the question, certainly, it's been a blend, but more of our share has come really from the larger players during this window of time and from the larger orthopedic clinics with bigger play. Certainly, we have a ton of wonderful generalists that use our hip, knee and our shoulder and other things, but predominantly, it's either been really strong players in the shoulder market or strong players -- leaders in hip and knee as well.

All right. You've got a question here about your ASC strategy. Can you expand on why you think you're well positioned to gain share at ASCs?

I really tried to cover that in a slide. I would just say that I talked about those 3 things, and I don't want to restate the slide, but there's 3 things that has to -- have to happen in ASC. Number one, you can't add cost because that environment has to be built on efficiency. Number two, you cannot add time. And number three, there's limited space in an ambulatory surgery center. Everything we've done, we've been very focused there for way more than the last 2 years. We've been very focused there for the entire tenure that I've been with the company, which was I celebrated my eighth anniversary on Friday. And we've been very focused to look at where the future was going, to think about the ASC, the implants that we deliver there, the enabling technologies we put around it and how we can be the partner that's important to that surgeon who's now the caregiver across the whole platform, how we can partner with them in a more wholesome way, and you hear us talk about workflow solutions. And part of the reason that we feel so strongly about all those pieces, all 3 pieces that we talked about in workflows, they're all part of that serving that environment in ASC. So far, it's played out very well for us. We believe that even as we launch some of these newer technologies that I even talked about and some I hinted to maybe on cost that they're so well formatted for the ASC too, it will bring additional advantage for us as we go forward.

Okay. We have a number of questions here on the M&A strategy. What is your strategic process about building up your pipeline?

Yes. So we've got really well-honed process and experience in terms of how we build the pipeline. It really comes from strategy, so 2 different ways. One is as we go through the strategic plan creation and updates of each of the businesses and the groups of businesses, we are constantly trying to think about and understand where acquisitions could accelerate or expand the organic strategies that we have. And so that's one feed to the pipeline. The second is that we're constantly thinking about adjacencies around the businesses that we're in and the groups of businesses that we're in that could be attractive directions to go, that are attractive, that are accessible, that are logical for us in terms of the capabilities that we could bring. And so those are really the kind of 2 strategic lenses that lead to how we think about opportunities. And then we've got a pretty well-honed process not just around that strategy and market work but also around cultivation work ranging from private party cultivation of small owners of businesses, small innovators and also having active discussions with PE firms that own businesses that might be of interest, talking to companies about carve-outs. This is one of our core competencies as a company that we have demonstrated quite significantly over time as Colfax. And now as we become Enovis, we carry that forward. And what's great is we bring forward the core competency, but it's complemented by Brady and others in the business having terrific networks within the industry. And that, I think, is just making it all that successful for us to build these funnels of opportunities. And what's been really terrific is that I think we've already established ourselves as an attractive acquirer within the industry. And I know from my experience, that's important. If private companies want to be acquired by you, that can get you into proprietary deal flow that can help to accelerate your path of acquisitions and have you pay fair prices for great businesses versus have to always be in auctions where you're paying a kind of auction competitive price. And I think we've already had good success attracting private companies who have come to us because they're excited about where we're going and because they're excited about being a part of that. And if you go back to that triangle that I showed, at this point, if you're getting acquired by one of the biggest ones in that triangle, you're quite likely to get just kind of lost in a big engine. But if you get acquired by us -- if you get acquired by our foot and ankle business, you're a part of something special and exciting. If you get acquired by our U.S. surgical business, you're a part of something special and exciting. And the same goes in our leadership businesses on the P&R side. Someone's got a great new bracing technology or rehab technology -- well, LiteCure would be a great example. They were thrilled, the owners there, to get acquired by us and thrilled about the path they could take their technology. That team is still very much with us and excited about the future. So we're excited about our capabilities here as well as the traction we've already got.

So continuing with the M&A theme, are you looking to expand your foot and ankle Recon business with more acquisitions?

Yes. We've already obviously made 3 great acquisitions there. There is plenty of other procedure landscape that will be attractive for us to access, high-growth procedure landscape. And we're going to do a combination of organic paths to get into that broader fragmented procedure landscape as well as acquisitions and technology investments that would get us stepping into a company and helping them to get to revenue enough. I think all 3 of those are there. We have active possibilities on all 3 fronts, and we're going to navigate through that in a way that fuels the growth of the business but also a way that's attractive for our shareholders in terms of what we invest for what we get over time.

All right. Here's a question for Chris on the margin impact of M&A. M&A has been initially margin-dilutive in the period 2018 to 2021. Why do you believe acquisitions will be margin accretive in the period 2021 through '24, let's say?

Yes. A good question. The businesses that we've acquired in the foot and ankle space and Mathys and others come in initially with lower margins than the fleet average. And in some cases, that's because they're earlier stage growth companies that are rapidly growing into their cost structures and then you'll get a terrific operating leverage with the high gross margins. And in other cases, we've got significant synergies and costs that we can take out. And so if you roll the calendar forward from where we've been in the -- within 12 months of acquiring the businesses versus where they're going, you're going to see that rapid growth translating into better and better margins, approaching or exceeding the fleet average. And that has a pretty good slingshot effect on the margins. And again, some of that is due to the growth. Some of that is due to securing the synergies that we talked about in the presentation.

And a question for Brady on new surgeon growth. You highlighted new surgeon growth since 2018. Can you help us understand what that looks like? Are they high volume hip and knee specialists? Are they general orthopedists? How much of their businesses do you have now? How much of their business do you have now? And how much cross-selling opportunities are there within the existing customer base?

Yes. So the simple number that you saw on the page there was 23%, and that's net, the small verbiage underneath it. Basically, we, of course, measure them all. But the ones we really track are those net surgeons that are $100,000 or more in revenue as far as gains, losses. And that 23% represents, since 2018, the number of those that we've brought on. And it's a mix as far as who are they. There are a number of shoulder surgeons in there, as you might imagine. We're measuring that for our U.S. Recon business. That means shoulder and hip and knee, so a mix of shoulder surgeons in there as well as very focused specialists in hip and knee and probably a smaller percentage of the generalists. I would tell you that kind of as we play it forward, just with the other pieces there, the other side of the question, there are certainly cross-selling opportunities. Usually, at least -- historically in the shoulder, we would have the reverse shoulder and not other things. They would use someone else's. Over the last several years, we've really developed that a lot on the primary side for anatomic, including a fantastic anatomic stemless that we launched in 2020 during the pandemic by building that anatomic platform to go along with our reverse. Now when we capture in shoulder, we're going to -- we're largely going to usually capture their primary business. In hip and knee, as you probably know, sometimes you'll capture the knee and sometimes you'll capture the hip, sometimes you'll capture both. For us, it's no different for us, meaning some surgeons will capture their knee and it may take us a long time, 2, 3 years -- I've seen it 5 years before we capture the rest, meaning pick up their hip for a variety of reasons. But for us, there's 2 pieces. There's the -- you pick up the knee or you pick up the hip and how long -- when you pick up the other, there's a cross-selling opportunity there. Certainly, then there's an opportunity as our bag expands. Like in primary, we have a phenomenal offering across our platform. As we expand further on the revision side, we'll pick up those other pieces from multiple ones of those players as we go. So it's really kind of 2 aspects. What's been surprising to me though is we put a tremendous amount of focus on the knee early on with the EMPOWR, rightfully so. And we grew really rapidly in the knee. At the same time, anterior hip surgery was coming along. We had a fantastic offering there. And so we launched less in the hip over the first 5 or 6 years of this than we had on the knee. And now as some of our hip launches are coming, we're starting to see even more of the cross-selling opportunities come up within that hip and knee space, much like we saw with anatomic picking up off of the shoulder strength historically. And then as I described in Mathys, big opportunities there. I spent -- 2 weeks ago, I was in Germany and Switzerland and a number of the countries, meeting with a lot of our great customers and great potential customers. And there, just like here, we'll have this piece but not that piece. And putting those technologies together from both sides, I think, are going to really open doors.

And Brady, we'll continue on with shoulder. You talked a little bit about how the market has now flipped to more procedures and reverse. Where do you see that percentage going in the next 5 years or so? Does it keep expanding? And then you mentioned you have a position on the anatomical side. How is that performing?

So yes, good questions. A couple of things. We do think it's going to keep expanding. We don't certainly think that anatomic is going to go away. But that transition in reverse weekly and monthly when I meet with surgeons more and more, it's still moving that way. I also said this earlier in my presentation that Europe has predominantly been anatomic for a long -- for -- historically. And the reverse is really starting to make a move there though it's years behind the U.S., not necessarily in technology but in transition to reverse, but the data is so good on reverse now, driven by Mark Frankle, that we're starting to see that transition. So we see a big run in an opportunity outside of the U.S. as well. And then Derek, what was the last part of that question again?

Well, the last part of the question was, do you have a position on the anatomical side? And how is that performing?

Yes, yes. So I did want to mention this. The fastest-growing product in our surgical business last year was our stemless shoulder, which is an anatomic stemless shoulder. So -- and we had a lot of -- that's a big competition in that business because we have a lot of products that grow really fast. But that product has done so well, and we're really excited to keep expanding in anatomic. So we're doing quite good there.

A couple of questions here on our business system. You did a great job implementing operational improvements at ESAB under Colfax partnership. What gives you confidence that you can achieve similar results at Enovis?

Yes. So thanks for the question and the comment. We've got supply chains at Enovis that procure products, convert them through different manufacturing processes to turn them into products and then we ship those products. And the elements of how you do that are common across industries. There are differences for sure. We've got regulatory considerations in this industry as an example. But I have been involved applying a leading business system for continuous improvement across a number of different industries not just in the industrial space but even also in the life science space, for example. And the elements of how you do it are the same. And we're confident of that, and we've already made a lot of good strong progress on the fundamentals within these med tech businesses, fundamentals in terms of sell conversions in manufacturing and streamlining value streams, fundamentals in terms of the -- some of the ways that you do order and replenishment and how you kind of manage that delivery versus inventory equation to customers, fundamentals in terms of how you dual source to take cost out of products, things like that. So the fundamentals are the same. We're confident they apply here. We've already been able to make some good healthy progress on the delivery performance. The P&R business was not delivering well at all when we bought the business. And over the course of about 6 to 9 months working together, we quickly made good, strong progress using the EGX tools, getting those businesses delivering well. And while we've had challenges like everybody else during COVID, we have sustained a better delivery performance through COVID, and we're already getting back to better levels again because of the resilience that was built in from the work we did before COVID with the EGX tool set. And so these are tools that we're confident to apply across the industry. We've got people in the company that know how to apply them. We've also had a lot of people that came with the DJO acquisition that have gotten to have a lot of training and benchmarking in order to learn how to apply the tools as well. And so I think we're off to a great start in the journey, and there's certainly every reason to believe that the tools will apply. Now there is one difference that we've talked very openly about. It's that this is an industry where there's a little bit of price pressure in normal years. And so the combination of productivity and operating leverage needs to more than offset that price pressure. And that's why we talk about 50 basis points a year of kind of normal operating improvement in these businesses, whereas in industrial businesses, you might think of something higher than that if you didn't have kind of some of the normal year in, year out price pressure. And we've definitely factored that into our equation, but we've also factored in a commitment to keep innovating in a way that offsets some of that pressure as well.

All right. Next question is on Recon. Are you concerned about the robotic offerings that some of your larger competitors are offering and how that may impact your growth especially when those offerings expand into shoulder?

So a great question, one that I'm asked often. So keep in mind that when you say robotics, many of those robots in particular have been out there for quite a long time, and we've been growing very rapidly during that time. And so I want to say that -- not being snippy about it, but our growth has really been built off the outcomes of the products that we have in place. At the same time, there are certainly opportunities and a place for robots. I'm not anti-robot at all. So we're just careful about what we talk about. But here's what I'd tell you. If you think about the shoulder and me saying our cost offering, we believe that it really should be anatomically distinct. In the shoulder, the key aspect in the shoulder is to find the glenoid vault. That is the challenging thing and the most difficult shoulder procedure. It's finding the glenoid vault. What my experience would say is that there's a guidance component that points to that. And whether you deliver that through current technologies that are there today or technologies that are going forward, that's what it's going to be about. And so we have not seen robots slow down our knee and hip growth at all. As a matter of fact, as we said, we've grown 5x during that time. We are the leader in reverse shoulder. We have some fantastic cost solutions that, as you've seen some of which that we've leaned into, are 510(k) approved now. And so if that comes into the marketplace, then we will be very happy to continue to compete and continue to grow like we have.

Yes. The only thing I'd add there, Brady, is that when I talked about our position in the market where we're scaled enough to be strong but we're not so large that we have this big existing footprint particularly in hip and knee. And I think that gives us the opportunity to be agile and thoughtful about our strategy, and Brady described as much of it as we're comfortable sharing. But I think we don't need to be on the bleeding edge of big investment, robotic products, et cetera. We've had the opportunity to watch some of this unfold and to be thoughtful and agile about our strategy in a landscape where there's lots of great innovators out there that are working on different solutions as well. And I think that's going to prove to be a real asset over time in terms of us being able to have the right strategy for each part of the anatomy, for the right fast-growing area where the surgery is taking place, and to have executed that in a capital-efficient way that enables us to keep up our strong growth but also to have plenty of capital to invest in other things.

I've got a question here about MotionMD. Can you talk more about MotionMD and how it's helped drive large hospital conversions? Also, can you explain why clinics have increased at 57% CAGR but product revenues only by 18%?

Okay. So first of all, the large hospital conversions, really what sits behind that growth is as more and more hospitals are buying clinics and there are some really large systems out there now -- this has happened over a relatively short window of time. Hospitals, as you know, live in the DRG, CPT environment predominantly, and that's how their billing systems are set up. That's how their management systems are set up. When you pick up the -- when they've picked up these clinics, many of them -- they don't have this dedicated DME system, and they don't have a linkage back to the rest of their system. So their systems haven't really been able to speak to each other. What MotionMD has done for us and for them is to allow them to connect those environments really well together. And because it's HITRUST certified because it has the massive scale that it already runs across, it's really opened those pathways for us to go in and partner with the bigger systems based on our size and scale. And quite frankly, the share that we already have often within their systems, creates that opportunity for us to be the trusted partner to help them deliver that side, the clinic side of what they do well. And then to the question on the growth, kind of the, hey, there's 57% here in clinic location growth versus 18% in the revenue that goes across, there's a couple of things at play there. One is we really started with MotionMD early on, which has not been a very long journey, as you know, with some large clinic settings. And those large clinic settings often are hybrid, meaning we manage all of it all the way through on much of the revenue. And then there's a portion that they manage, but with us being in there with them, it sits on the backdrop of MotionMD across the board. And so the second dynamic that you see playing out in that data is that those clinic locations, we may go pick up X hospital system that owns the clinic scenario. Well, they may own 10 clinic locations, and as we pick up those 10 clinic locations, if you divide it out by clinic, it doesn't look as big. But when you put it all together, then it stands at that one revenue number. And so our expectation is that as we go forward, you'll continue to see the revenue rise, but that significant jump in clinic locations will settle in some. And we've actually seen that. If you look at a narrower view of that data, you'd see that the clinics are still moving faster than the revenue because of the multiple locations, but they're not moving nearly as fast as they look in that CAGR environment. So that's a very sharp question and good observation but one that will likely play out a little differently over the next 3 or 4 years than it has historically.

All right. Moving on to a question on Recon. How is product mix expected to evolve over the long term? Foot and ankle obviously would be up as a percentage of total but if -- and if it has the highest growth, what about shoulder, hip, knee and international?

So as we talked about in the presentation and we had that one slide that really laid out what our expectations were there within the presentation and -- so I would ask you to reference back to that. But just to be quick about it, I would say certainly, we expect fantastic growth in our foot and ankle business. Our shoulder business, it's the fastest growing market to start with, and we've been growing 2x that. And so we said we believe that, that will continue. And so -- and then hip and knee, though the market is a 3% to 4% grower, we've been growing -- we're projecting that 3% to 5%. And then -- and so if you kind of look across all of those, that kind of brings them all in that 10% to 15% range and very logically within there. And so I don't think it really changes the shape a lot of what it sits today. We're at about 50% extremities today. And the way that plays out, even with Mathys who is a very strong player in the shoulder that we think will energize and grow faster as that -- as the European market is shifting towards reverse, we think they're going to grow pretty similar. Probably the area that we've been a little more cautious about is we do feel really good about moving Mathys to that high single-digit range in an overtime perspective by plugging in these other technologies into that, into the international market. But when you then take foot and ankle and roll and -- we mean the Mathys historical business, you put foot and ankle on that and play that into the international, then you get to step up that growth, too. So we actually -- though we do expect foot and ankle to grow rapidly, we're getting such good growth and we expect good growth out of the other segments. So we think our mix will stay pretty close to what it is.

All right. Moving on to a question on the shoulder market. You compete directly with 2 major manufacturers in shoulder, which each would describe themselves as leading the market. What is your share position in that market and in reverse in total?

Well, I can't help but be funny first and say, well, we're the ones that led the market to move over to reverse and is continuing to do that. So I have to say that just for Dr. Frankle. Those are 2 fantastic companies, by the way. Zimmer has built a great business over time in the shoulder. I know many of the surgeons that have been part of their design teams. And certainly, what started out as Tornier and was acquired by Wright Medical and then acquired by Stryker. It's a fantastic business anchored in a lot of ways by Gilles Walch, who I mentioned earlier. So both great businesses. We're #3 in the U.S. We've got a fantastic position in the U.S., and we're predominantly or all arthroplasty. And so as you -- some of the bigger players have other parts and pieces that go along in that shoulder platform that are opportunities for us. So as we play out our strategy in the shoulder, we see other opportunities for us to even go deeper into shoulder. And then in Europe, as I said, we're actually the -- we have the largest share in stemless shoulder in Europe. And so we believe that by bringing in what we've done here with this -- with the AltiVate Reverse and putting that into Europe, we'll really start to build our share there as well. So those 2 are great companies. Certainly, Tornier has been a leader for a long time, acquired a couple of times and Zimmer has as well, but our growth has really outpaced the market in those larger players consistently for a long time, and we expect that to continue just off the strength of our technologies as well as enabling technologies you'll see us bring to bear beyond what we have now with Match Point.

Okay. We've got time for maybe 1, maybe 2 more questions here. So there's a question on P&R. How would you describe the competitive risks and opportunities to sustain your leadership in this segment?

So as that market continues to evolve. It's going to evolve around what you see happening in broader orthopedics. So it's not dissimilar to -- it's going to move off of this move to outpatient ambulatory surgery. You heard me mention that earlier. But it also requires a lot of scale to tie all that together. And so one, if you look at our -- and I'll start with recovery sciences, actually, if you look at that business with what's happening in an outpatient recovery, modalities are really climbing in how patients are brought back with less visit to physical therapy, how do you get them recovered and recovered well into full recovery. Well, modalities are driving that. So we've really leaned in there, made strong investments and quite frankly strengthened our R&D team to make sure that we maintain that leadership and help that transition to outpatient thoughtfully to still get that same great level of rehabilitation. So that puts us -- our mix in a really great place from a next several years' perspective and where the market is going. On the bracing side, we talked about the segments earlier. I mean sports medicine continues to be the 6% procedure growth segment, and we're the leader there. And we believe that connecting the patient, using connected medicine as well as just our long-term strength of pioneering developments around that will keep us in a great position because of our mix towards that. But then there are some other areas that as you see us going further in Recon, we get there, some of it off the fuel of P&R, but it also helps on the P&R side. So as we got into foot and ankle, as Matt said earlier, we started getting calls from foot and ankle surgeons saying, "Hey, I use your braces. I'd love to see what you're doing here." But it happens vice versa as well. And as it plays out in ambulatory, as we're the player who were there with them in the clinic, we're there with them in physical with their -- in physical therapy, and we're in the surgical intervention, we believe that as we play across the patient journey with them that it really feeds the growth of both sides of our business. Plus last thing I'd say on P&R, we're the #4 player in a couple of segments that have really grown well. And we've got some neat opportunities there for M&A going forward as well as just continued innovation.

Yes. And I'd add -- maybe just to add one thing on top of Brady, which is that what I've seen across a number of different industries over time, and Brady had the same experience when we started talking about this years ago, is that if you are a leader who's been a historical leader -- like our bracing business, for example. If you are a leader that's got that brand, that 40-plus year old brand, known leadership, has been a historical innovator, have strong channel positions. If you have strong resilient supply chains that serve customers well and you've continued to lead in terms of innovating over time, you can sustain that leadership position and sustain above-market growth, not 2, 3x market because you're the leader but you can sustain above-market growth. And the nice added benefit of this business is the MotionMD clinic position. So on top of the opportunity to just have a good strong supply chain and bring continuous innovation as a leader, we also have this opportunity to be entrenched in the clinics as the software that they run, that gives us a degree of stickiness and access as a leader. That lets us be able to see the next innovation that makes sense over time. And I think that combination really bodes very well. As long as we have a commitment to it and we invest against it, there's really a great opportunity to sustain a very strong leadership position in bracing globally, sustain a very strong leadership position in rehab globally, and to shape those positions step by step towards more and more attractive parts of those markets on a step-by-step incremental basis.

We're coming up to the top of the hour here. I got time for one more question. I'm going to go to technology. One of your competitors recently announced an AI system for predicting recovery post-large joint recon. What are your thoughts and plans for AI and potentially for smart implants as part of the continuum of care? And there's a follow-on to that. On AI, everyone will likely agree that it will have a place in the future of care. Is Enovis better positioned to obtain the domain data needed to teach algorithms so as to be more useful and effective sooner?

Well, Derek, you picked a question that I don't think I can answer in 5 minutes but I'm going to take a shot at it.

I didn't think so, Brady.

So that's a big question, and I hinted at this a little earlier. Think about it this way. When we talk about how do we improve this -- pick a procedure in orthopedics. Pick a disease state in orthopedics. You want to improve that. Then for us to use AI and big data to play across it, that means you've got to capture what's happening with the patient often before injury or OA but certainly at the onset. And then you've got to play through gathering data into the operating theater and postoperatively. And the postoperative piece is actually for a relatively short window of time. And what impacts across that whole play, what impacts it is how well is your conservative care of work and -- meaning what do you apply -- what's the physician applying to it and how compliant is the patient. Number two, what's used in the surgical intervention to solve that problem? Number three, what's the protocol and adherence to that protocol postoperatively? And all of those things play together to say this is how well the patient is doing, this is how good the outcome is. And so I think the question was verbalized really well because I do think it's that capture all the way across that whole care continuum that matters. People ask me about smart implants. I don't want to really say good, bad or indifferent. What I would say is that you do have to capture that data and AI -- the right AI can play a big role in bringing that together. We're convinced that data is about extension, flexion, how well the patient is doing within the protocol, for instance, postoperatively, how many steps they're taking, what type of acceleration they're getting. All of those things, I think, could be done by a smart implant. But we can't bring cost into the system particularly in the ambulatory environment. They could also be done by a wearable device that has the ability to measure all those things that I said in a right cost frame. So you can see where we're leaning based on our connected medicine and what we've shown you there, but I certainly believe that this AI that we're bringing to bear today is really going to reshape orthopedics in an exciting way as we go forward. But it must fit within the cost constraints that are there, particularly as you think about the ambulatory environment. So I like the question. I don't have time to go into all those other things. Maybe if we bump into each other face to face some time, I can tell you more, but good question and good thoughts.

Yes. And Brady, I'd just add here because it's been interesting to watch this journey from the things that you shared during diligence about the vision of the continuum of care and some of the opportunities the business was pursuing through the last few years, watching things play out. And I would say that it's clear. I mean if we just talk around the industry, look at actions being taken by different players around the industry, it seems clear that it's becoming a widely recognized and accepted opportunity to track patients along this continuum of care and use it to drive to better outcomes over time in a powerful way, using technology, data, AI, et cetera. It seems like clearly, that's being more and more broadly recognized and there's probably not only one way to do that. There'll probably be multiple ways to do that. But clearly, we have a terrific position from which to do that with the strength that we have along the continuum of care and with the pioneering work that we're already doing on connected braces and with the MotionMD product that we've got running in almost half of the orthopedic clinics in the U.S. that you can hang something like that off of.

That's right.

All right. Thank you, gentlemen. Thank you all for joining us today. It was a pleasure to have you all on the line. If you have any more questions, obviously, we're here to help you with those. Just contact Investor Relations. Thank you all, and have a nice day.

Yes. Thanks, everybody. We'll talk to you soon. Bye-bye.

Thank you.

Take care.