Enovis Corporation (ENOV) Earnings Call Transcript & Summary

Good morning, everyone. I'm Jamie Perse. Thank you for joining Day 2 of the Goldman Healthcare Conference. Our next panel is with Enovis. We have CEO, Matt Trerotola, CFO, Ben Berry; and in the audience, we've got IR, Derek Leckow. Thank you for joining.

Thank you. Great to be here. Thanks.

Maybe we could start, I mean, I think investors are still getting up to speed on the company, and maybe you could just say a few words about the high-level story and where you guys are at today?

Yes, sure. Thanks. We're a focused med tech innovation-driven growth company, a little over $1.5 billion of revenues. We were created a little over a year ago by a separation from Colfax, which had a rich heritage going back to being founded by the Rales Brothers, who founded the enormously successful Danaher and other companies. And over the last handful of years, we reshaped ourselves into a focused med tech growth company. We've got a strategy focused on growing the company high single digits organically and expanding our margins over time. We have runway to expand the margins from 15% or so where they are to 20%-plus over time. And we also have a powerful proven acquisition capability to compound value through strategic acquisitions that accelerate our strategy and also expand our markets. We've got a continuous improvement business system that's modeled after the Danaher Business System, and we've used it for years at Colfax as well. So we call it Enovis Growth eXcellence, and it's about driving continuous improvement in everything that we do throughout our company. And we also have a really a tremendous focus on talent and have been constantly building and strengthening the talent in our company. So great opportunities ahead as we grow and improve our company. And we're focused on orthopedics today. We'll talk a little bit about that as we go through, but also opportunities to grow into other areas in med tech. Great to be here.

Perfect. Perfect. Well, let's start. I want to get one utilization question out of the way and just get a sense for what you guys are seeing. It was a strong quarter across sort of the industry, easy comps and fairness. But there's been recovered. And what are you seeing now, you're in the inpatient setting, you've got exposure to more ambulatory settings. What are you seeing just in the utilization environment?

Yes, things are solid this year. As you said, there was an easier comp in Q1, also a little bit of overdrive outside the U.S. in some areas in Recon. And as we're here in the second quarter, everything that we're reading here about it, it's in a normal environment. We don't have the easy comp, but still a little bit of overdrive outside the U.S. And so we had a plan for a regular year in Recon. We're glad that Q1 was a good strong start and looking forward to continuing to execute through the year.

Perfect. Let's go to the business. We'll start with the Recon segment. This is a smaller piece of the business today, but if it's the growth driver, it's the margin driver. So let's start there. Maybe we can just start with sizing the key pieces of the business again introducing investors the story a little bit. How big are your hip and knee, your foot, shoulder? How does the portfolio breakdown in terms of size of each of these businesses? And what do you think the growth profile is...

Yes, Recon is a little more than 1/3 of our company. So it's in the kind of $600 million-ish revenue range. And we have -- what's great about our Recon business is that we're about evenly balanced between extremities and hip and knee. And that's a great footprint because the extremities is more of a high single-digit growth market versus the hip and knee market, kind of maybe 3% to 4% growth market. And so that 50-50 starts us out with a nice growth footprint. And then on the extremities side, the largest part there is our leading position in shoulder that's passing through a couple of hundred million in revenues this year. And then the rest of extremities is this great foot and ankle business that we put together over the last few years here that is going to be a great grower over time for us as well. And then the other half of our Recon portfolio is in hip and knee and it's pretty evenly balanced. It's a little bigger than knee, but knee is growing faster. So I think we're kind of headed towards evenly balanced on the hip and knee side of our extremities. And there on the extremities side of our Recon -- on the extremities side, we grow faster than the market based on great innovation on that side. And on the hip and knee, that will grow a lot faster than the market. We've got a smaller share there and are able to grow 3 to 5x the market on the hip and knee side.

Let's go to what you just touched on the share gains. Obviously, these markets don't grow double digits.

Right.

I mean extremities maybe a little bit closer to that. Hip and knee are not double-digit growth market. So what are you doing in terms of strategy at a high level and day-to-day execution, the tactics to drive sustainable share gains especially in the lower growth market hip and knee.

Absolutely. I mean -- so we've had -- we've put data out there showing in the U.S. We've been well into the double digits for about a decade now. And even through COVID, we were about 1,000 basis points better than the market. So the math doesn't quite work as we went through that period. But I think we've shown that sustained outperformance in our Recon business for many, many years and are confident we can continue to outperform the market. And it really comes down to a couple of things. Again, first, as I said, our footprint is better. So our weighted average market growth rate is higher because of that 50-50 mix. And so we probably start around 6% as the weighted average market growth rate versus the other majors would have a mix that's more weighted to hip and knee. So that's a good start. We also are over-indexed to the ASC, which grows faster. So that sort of shapes up our market growth rate. And then we drive share gain. And the share gain is really driven through a couple of different things. We've got some very powerful core products that are just better and people appreciate that and convert to them on the extremities side. Our ultimate shoulder has pioneered the reverse and has also pioneered the lateralized and inferiorized reverse, which is the best way to do reverse. And so we've led the way there, and we gained share of people converting to reverse and converting to the AltiVate, but then also filling in other technologies over time. And then we got a powerful commercial engine and fellows programs, et cetera. On the hip and knee side, it's really been all about our EMPOWR Knee. If you go back 10 years, the satisfaction levels in knee were pretty low, kind of low 80s. They still are for most knees, but in our knee, the satisfaction levels are above 90%. There was a recent paper study in patients that were in the kind of 92%, 93%. And so that gap in satisfaction in knee is something that was just kind of sitting out there, and our EMPOWR Knee has really unlocked a year in, year out set of surgeons that keep converting over to a better knee that gets them more satisfied patients. And then beyond that core EMPOWR technology, we've got other great knee products and great hip products and now enabling tech really that are great for the whole market, but we've also had a great offering for the ASC part of the market. And so yes, we've been able to just, year in, year out, convert surgeons, sell the brand to the surgeons that we've got. And now we got the opportunity to globalize with the Mathys acquisition we did a couple of years back.

You mentioned the surgeons and converting surgeons. Is there a description you can give of the type of surgeons that are converting. These are surgeons, they have training in specific products, they get comfortable, they know the sales rep, all those things that drive stickiness and share in those market. So who are the types of surgeons that you're able to convert?

Yes. Well, on the shoulder side, it's surgeons that want to be with the leading technology in the marketplace, where we've got more data now than any other reverse in terms of the current designs. And so we get more and more surgeons in shoulder, that just want -- they want to move to the best technology and be a part of the group of surgeons that are using the best technology in the market. On the knee side, it's surgeons that want their patients to have better satisfaction. I mean it sounds simple to say, but we have -- when surgeons try our knee and they talk to their patients about the knee, they get invisible knee. Basically the knee that feels like my knee. And that's something that they hadn't had with the technology they were using. And once they realize that, they say, I want to have patients that have a knee that feels like the knee they had. And it's also a knee that sets up very well for an active patient because of its dual pivot motion. It is great for an active patient. Those are the patients that are being selected in the ASC. So surgeons that want more satisfied patients, surgeons that are moving to the ASC environment, those are the ones that are most interested in using our EMPOWR Knee. And that's -- there's a continuous stream of that. I mean it's hard work every year, right? We've -- in our KOLs are publishing and sharing what they do, and our teams are out there doing a lot of med ad, and we just drive a consistent funnel of conversions, and we make the investments that we need to in order to support those conversions.

Is there a particular competitor you think your product stacks up well against on the hip and knee side that it's easier to convert or maybe a more natural transition to your product and anything that comes to mind?

No. I think at different points in time, we've been able to succeed against all the other majors as well as smaller players in the marketplace. And so I wouldn't point out any particular one. For us, it's really about continuing to find the next surgeons that are interested in trying. And as they try, they get a good feel for the knee from their patients, and then they convert. And we only have 1.5%, 2% share of the knee market. And so we've got a lot of running room to grow without taking huge amounts of market share, right? If we grow from here to 3.5% share, we'll be half the [indiscernible] of hip and knee versus where we are today at [ $300-ish ].

Let's talk about just the move in the market towards robotics. You guys don't have a robot, most of the market is going in that direction. Most surgeons, a few years ago, said they didn't need a robot and yet they still adopted robotics. How are you thinking about competing in the context of the market going to robotics? And you've talked about your innovation going to the next leg, which you said is navigation. How are you thinking about that competing with robotics? And I guess, simple question is, why don't you need a robot?

Yes. We actually really think of the trend that's going on, not as robotics, but enabling tech for surgical workflow, right? I mean there's an implant that's being put into the patient, and that's the main event, right, having the best implant that's going to have the best results for the patient. But there's also a process before, during and after surgery that more and more surgeons are realizing that there are technologies that can help them to do that before, during and after surgery in a way that can potentially have better consistency or better outcomes, more efficiency, collect data that can be valuable over time. And that's a real big deal trend in this industry. But it's not about robots, right? It's about enabling technology to enable a surgeon to put the implant in as efficiently as possible. And yes, in knee, there's been a big wave of robots as a way to do that easier. But we're convinced that really the most important part of that is being able to take your preoperative scan. And during the procedure, really see how to align and position the cuts and our ARVIS technology brings surgeons that ability to take their plan, see it during surgery. And in addition, that it gives them the flexibility to use their instincts. As they go through, they can see the plan, they can follow it exactly as they had planned it, or they might see something during the surgery that they deviate from the plan based on their experience and instincts, and we're finding that's terrifically exciting to surgeons. And there's surgeons that are our surgeons that were maybe under some pressure to look at robots by their hospitals that said, "Hey, I've got ARVIS. It's the next great technology." And the hospital said, "Oh, great. That's fantastic. We'll market that we have that." And then there's also a number of surgeons that have already converted to ARVIS -- to our EMPOWR because of the combination of what EMPOWR does and what ARVIS does. So we're confident within the knee and hip that ARVIS is going to help us continue to gain share and also start to create some recurring revenue. And over time, we got more innovations that we'll bring through that will add to that workflow improvement. And on the shoulder side, to date, really, it's been about preoperative planning and patient-specific instruments for a portion of procedures. And we've got a great solution for that in Match Point and that's enabled us to be a leader there in shoulder as it relates to workflow. But over time, as there's opportunities to do more things with enabling tech and workflow in shoulder, we've got innovations that will be coming through that will help with that as well.

Well, let's go to shoulder. You talked about the technique being different and the product being differentiated. Can you go a little bit deeper? Why is the market moving in this direction? Is it applicable to -- I guess, give us a sense how applicable it is to the shoulder surgeries that are being done today, and how far can this go?

Are you asking about a enabling tech in shoulder? Or why reverse is growing in shoulder?

The reverse in your products.

Yes, great. Okay. I mean, first, there's 2 important trends there in the reverse in shoulder, right? The first was years ago a debate about anatomic versus reverse, right? And over time, it became clear that reverse is a better, more durable way to do a shoulder. And so for most of the procedures, the majority of the procedures are now done reverse versus anatomic in the U.S. and that's continuing to climb. Now that's not going to go to 100%. People debate, will it get to 60% or 70% or but is north of 50% and headed towards maybe 60% or 70%, and that just gives the reverse results in a better long-term outcome for the patients. And there's lots of data now, and there's really no longer a debate about that. And outside the U.S., it's a lower percent of reverse, and there's now a clear momentum to drive that up a lot of this big opportunity for us. Now there are a number of ways to do reverse in the early days, and our surgeons developed a lateralized inferiorized reverse, which is a couple of design elements that really address impingement. So reverse is better, but a number of reverse technologies that were out there by 10 years ago had impingement. You get it in and then you couldn't get your arm all the way up or you couldn't move your arm all the way around. And our lateralized and inferiorized design address that in a terrific way. And what's happened in the last 5 years, the debate about our design versus other designs has pretty much ended and the number of companies have brought out designs that are closer to our design as close as they can get, given IP and things like that. And so what's great about that is, in this industry. if you're the one with the best design that has the most data, that's an advantage that you can sustain over time as you keep bringing along the next wave of surgeons as long as you keep innovating. And we continue to keep innovating with other elements of the solution, not just reverse, but great anatomic elements because there are still a number of surgeries that are done anatomically. And so we're doing the innovation needed to stay in the lead there in shoulder, and we've got a great global runway to go after now that we acquired Mathys, and they've got a good position outside the U.S. in anatomic, but had not a good reverse. And so having our reverse to bring around the world is a great additional growth opportunity beyond what we've been doing in the U.S.

Let's go to foot and ankle. There's been a bunch of acquisitions in the space. You've built out a pretty broad portfolio, most recently expanding into bunions. Maybe give us a sense of what the portfolio looks like today? It feels pretty comprehensive, but are there product gaps, and then maybe touch on the bunion side?

Yes. I mean foot and ankle is a great market, right, multibillion-dollar market with high single-digit growth dynamics, highest gross margins of any of the segments in Recon, it's really a terrific market. And we put together a great business there. And that market really has 3 big segments. You've got the kind of ankle and hindfoot area, you got the midfoot, you have got the forefoot, and we've put together a great end-to-end solution now where we've got our MedShape, the DynaNail product that's based on [indiscernible] alloy is just a fantastic product in both the hindfoot and the midfoot and is very strong growth and really drive surgeon conversion in both of those parts of the market. We've got -- in the ankle area, we've been relaunching our STAR product with new patient-specific guides and planning tools. And we also brought out an Arsenal Ankle Plating System last year. So within ankle, we've been kind of strengthening and building momentum there. And then we -- between acquisition and some launches that we're doing, we're establishing a strong foothold there in the forefoot area, which is where the bunion is and where there's some very high growth dynamic as well. So we've got a powerful set of offerings now for surgeon conversion, enough differentiated products to drive that conversion. But then we've also got breadth to really serve the channel very well there and to attract powerful channel. And so really building nice momentum in our foot and ankle business. It's a fragmented industry. It's one of the things we love about it. And so from here forward, there's certainly still indications to go after through innovation. And at times there may be smaller bolt-ons that are better ways to get at some of those indications. But the portfolio we have right now is plenty broad and strong to support strong double-digit growth.

Okay. Let's go to the P&R business. I'm going to get right to the, I think, key question here, which is, this has been a low single-digit growth business, even pre-COVID. You're signaling that you can get this to a sustainable mid-single-digit growth. How do you execute against that?

Yes. So it's really a combination of shaping and innovation and commercial execution. And first of all, at the kind of 3% to 4% growth range, which is what we've been kind of talking about where things are right now, you put that together with double-digit growth in Recon, and we get into kind of bumping up against that high single-digit strategic goal that we've put out there for next year. Getting from where we are another click up to kind of 4% to 5% mid-single-digit growth range, it's really part about more innovation coming through. We've turned the innovation hose back on couple of years back, but really only started to have that benefit in the marketplace. And as we get through the end of this year and into next year, particularly on the bracing side, there's a fair amount more innovation coming through that's going to help to tilt up the growth a little bit. And then we've also been shaping. So we've done some high-growth acquisition of a laser business that we are investing in and growing and expanding. And as that becomes a larger and larger double-digit grower within that portfolio, that helps to shape things up. And we see some other incremental things we can do on the inside and the things that we can deemphasize in terms of shaping that P&R portfolio, the rest of the way to kind of 4% to 5% consistent growth. And certainly, at 4% to 5% growth in P&R and double digits in Recon, and we're a solid high single-digit grower and especially as Recon becomes a bigger and bigger part of the company, then that lets us keep pushing up that organic growth number.

Well, let's tie the 2 businesses together. A lot of these procedures are moving to outpatient settings or ASC specifically. A lot of your P&R products are in the recovery phase. What's the ASC strategy? Is that resonating? Is that driving growth?

Yes, we're doing very well in the ASC for a couple of different reasons. One is, as I said earlier, our implant just sets up very well for the kind of patient that's done in the ASC. And in our surgical business, we've put a lot of focus on making things easy for the ASC, simplified instrument trays, a software app that helps them to score the risk of doing a patient in an ASC environment versus in the hospital environment. So a number of things that we've done to make it easy for companies to use our implants ASC. And then we also have this added benefit they were often there. A lot of these ASCs also have orthopedic clinics, rehab centers, et cetera. And often they know us, we're there in the P&R products that are used before and after the surgery, and that's been helpful as well in terms of that brand awareness, the connections as well. And so yes, we -- our knee business is around 20% in the ASC, which we think is about 2x where the market is and that has a nice growth accelerator, and we expect to be able to continue to outcompete in that ASC environment.

So you're -- going to your guidance and trying to tie some of this together. Your guidance for the year is 6% to 7%. You just grew 9%, which is closer to your target, your long-term target. Is there something holding you back this year in terms of getting to that high single digits, or the sustainability of what you saw in 1Q?

Yes. I think as Matt kind of talked about through some of the answers, we've been very thoughtful on how we're shaping the business, and how we're continuing to build the business to grow sustainably high single digits. So as the mix of our business continues to be more prevalent to the reconstructive side, and as we continue to shape the P&R side, you're going to see us move into that a better weighted average market growth in addressable market that we can continue to show that sustainability. And what we said from the beginning was, by 2024, we would be there. And there are certain quarters where we're already there. A little -- it depends on kind of the market dynamics that are underpinning what's going on out there. But we've got off to a really strong start here this year with 9%, as you mentioned. We feel good about the momentum in the business with some of the innovation that's driving and the shaping moves that we continue to do. We'll see how this year plays out. But right now, we're still very much on track to that strategic goal of high single digit by 2024.

Okay. Let's go to margins. This is a big piece of the story, pretty significant margin expansion you're targeting. So mid-teens or so today, you have 14% in the first quarter, trying to get to 20%. How do you do that? I guess, how much is just the natural mix shift with the Recon business growing faster versus specific things you're doing in terms of efficiency and cost?

Yes. It's really a great opportunity for us as a company to think about driving margin expansion from now into the future because of the moves that we have been making to really shape the business. So there are really 3 primary drivers that you can think about that really get us up the margin curve. One, you mentioned it with regards to the natural mix of the business. So one pillar of the stool is really shaping the business to more Recon. And that Recon comes with higher gross margins and then higher profit margins as well. So that just as a natural component that's going to give us a tailwind to drive margin expansion. And then the other thing is we've also acquired a lot of businesses over the last couple of years and really creating a foundation for this growth as we've established a foundation outside the U.S., as we've established the foundation in the foot and ankle side of the business. So as we've done that, we've brought in a lot of acquisitions, but they came with lower than kind of company fleet average margins and take some time to integrate and get up the curve with regards to driving contribution to our margin expansion goals. So we're still making good progress there. But as we continue to grow and scale those business and fully integrate them, we're going to get a kick on margins as well. And then the third pillar is really around just driving scale and operating leverage. As we continue to grow the business at high single digit and shape the business in the most appropriate way, we're going to get some fixed cost leverage, both on the operations side and in the back office that's going to create some momentum for us as we continue to grow in scale. So those are really the 3 building blocks, the margin expansion. We made a good progress last year. Our guidance this year is another step forward. So we continue to take ground on our strategic goals.

I guess point #2, how much more synergy opportunity is there across all of the acquisitions you've done?

I think there's pretty good synergy because we're still scaling those businesses from a revenue side. If you think about bringing them in, establishing the foundation and then really growing them, we've essentially built the cost structure that we can grow around. So I'd say we've kind of gotten to the point to now we're seeing leverage, but it's taken us a couple of years to get there. But now I think you'll see us take incremental improvements from now into the future.

Okay. And on the third point, is there a way to think about just the annual investment you need in SG&A? I mean, what should that grow relative to revenue? And we can leave kind of inflation aside because it's obviously change dynamics a little bit. I've got a follow-up specific on that. But just in a normalized world, how much do you need to invest in the business to drive the type of growth you're aiming for?

Yes. I mean I think we've established a cost structure that we can really grow into. So I think, from our aspect, it's around what choices are we making, and how do we make sure that we're appropriately allocating resources to drive sustainable growth and kind of also achieve our expansion goals on the margin. So we're very focused on investing in innovation. If you look at our recent financials, you'll see we continue to pull forward gas on the fire with regards to our innovation cadence. And we continue to look for opportunities to drive scale in the back office and look for areas to be productive. Matt talked about our business system. Continuous improvement is a way of life for us, and it's not just on the operations side, it's also in the cost structure and thinking about how do we do things more effectively, more efficiently? And with that, you can get the benefits of either taking cost out or creating more ability to scale as you go forward.

What are you seeing on the inflation front? You've talked about narrowing the cost versus price spread this year. Some of that's just the markets are settling a little bit. But also curious on the price side, if we can touch on that, too, just how is that -- what are you seeing in this narrowing of the spread?

Yes. I'd say 2021 and early part of 2022, we had a lot of inflation come into the system, especially from sourcing from outside the U.S., freight rates, both inbound and outbound were a challenge. Also some specific raw materials continue to be a bit challenging with regards to the overarching supply chain. I think a lot of companies have experienced that. What we saw was a stabilization in the back half of 2022 in terms of our ability to neutralize some of the inflation that was coming into the system. In Q1, I'd say we made a little bit of ground in terms of the price cost recovery. We are the market leader on the P&R side of the business. So if you think about being the market leader, in certain channels, we have the opportunity to be a little bit more aggressive with pricing actions to address the inflation that has come into the system. So we've been doing that over the course of the last year and the half, really building that capability and building that muscle as the market leader to execute price increases. We did that through the course of the year. Last year, we did some at the beginning of the year, this year. So that's helping us to get a little bit ahead of this price cost curve, but we still have a lot of opportunity to recover the entitlement that we have in the system from the inflation that's come in over the last couple of years. So overall, I'd say we're making progress. We're seeing a more stable supply chain than what we have seen. But again, we're still being a little bit cautious in terms of what the environment could be out there given what we've learned over the last couple of years. So that's why we're kind of thinking about. We'll see how things go, but for the most part, we've seen things get a little bit better.

On the pricing side, a large med tech company said yesterday here at the conference that they think the pricing environment is sustainable. Med tech has been a price loser for a decade, 100, 200 basis points, and now maybe flat. What's your view on just the pricing environment for Recon? Do you think you can hold on price?

I think the market will most likely get back into more normalized trends of what we've seen kind of historically. I think what you would see is the underlying markets for Recon are positive just because the underlying macroeconomic trends are going to continue to feed patients into the system. So if you think about some of the pressure that you mentioned, historically, you would still have a pretty good growing market, and especially in terms of some of the markets in which we participate in, with extremities, for example, and others, other parts of the world, you would see maybe even a little bit benefit there in terms of the pricing environment. So overall, I would say we feel like things will get more normalized as we go through the next several years. But this year and maybe last year, we saw maybe a little bit of a better trend there with regards to some of the pricing dynamics. But overall, our game is more around taking share and continuing to shape the business in the way that allows us to outpace our markets in general, and that's going to lead to the sustainable high single-digit growth that we talked about. So overall, I'd say it's an unknown. A lot of people are providing their assessments on it. But our view is that the market is going to become more normalized over the course of the next several years.

You mentioned supply chain and that's stabilized. I think you guys were carrying extra inventory over the last year or so to protect customers. Are we getting to a point where you can be a little bit more aggressive on just inventory management and that's a free cash flow driver from here?

It is. I mean, I'd say we're being thoughtful about making sure that we have the right supply for turning on the growth that we have within the business. So we're not going to be overly aggressive to take inventory out of the system because we want to make sure that we're protecting the growth agenda that we have. But we do see, over the next couple of years, an opportunity to drive more efficiency there to help our free cash flow and then just, over time, continue to strengthen our supply chain in terms of how we plan and execute against these growth goals that we have.

Now let's bring you back in here in the last couple of minutes. M&A has been a part of the story. Is it going to continue to be part of the story? Where do you think the portfolio is ripe for it?

Yes. I mean it's a key part of how we create value. We've got a tremendous capability. We've done lots of deals over time successfully. And you've seen us here in our med tech business here do a lot of deals over the last 3, 4 years that have strategically strengthened the company, the establishing of a strong foot and ankle business in a high-growth segment, the globalization of the -- of our Recon business, nice shaping of the P&R business through our laser acquisition and technology acquisitions like ARVIS, which was a staged technology acquisition there. So it's a key part of how we accelerate strategy and how we create compounding value for our shareholders. We've got plenty of capacity to keep doing acquisitions, probably about $1 billion of capacity within a reasonable leverage range and a healthy pipeline of opportunities. What we've done over the last few years is a good example of what you should expect over the coming years. The strategic bolt-ons of kind of small and medium-sized strategic bolt-ons that accelerate our path, but clearly, over time, there's larger things that we could think about and look at. And in the orthopedic space, another areas of med tech that are adjacent to orthopedic and that will be logical and attractive places to go. But we're going to stay very focused on making sure that we're solidifying that high-single-digit organic growth, and if anything, pushing up from there, and making sure we're coming up that margin curve to 20% plus over time, and making sure we've got enough running room and optionality in attractive markets. We don't want to get trapped into where we need to invest in less attractive markets. We want to keep opening up optionality to be investing in very attractive markets in terms of growth fundamentals and gross margin fundamentals.

Perfect. Well, I think with that, we're out of time. Thank you both for joining.

Great. Thanks. Thanks for having us.

Thanks for joining, everybody.