Enovis Corporation (ENOV) Earnings Call Transcript & Summary

Thanks everyone for joining us this morning, pleasure to have with us Enovis. Enovis is a very interesting company, perhaps not so familiar with some of the MedTech guys, but investors, certainly an interesting story to tell. From the company, we have CEO, Matt Trerotola; and CFO, Ben Berry. In the audience, we have Kyle Rose, who heads Investor Relations and I'm Vijay Kumar, who heads MedTech and Life Sciences at Evercore. With that, Matt and Ben, thanks for the time this morning.

Great to be here Vijay.

Thanks, Vijay.

Fantastic. So maybe we'll start with a big picture, Matt, just given Enovis still -- I still feel like it's new. Give us some background about the company, how this came about because feels like all of a sudden, a new orthopedic company coming in and it growing about market feels like where does this company come from?

Pretty exciting in that. So we actually, as a company, we were founded by the Rails Brothers, like about 10 years after they founded Danaher, who's been obviously massively successful in their pivot from industrial life sciences over time. And we are a diversified industrial player with powerful business system based on lean and a focus on talent development, talent process and a focus on growth through innovation and acquisitions. I joined the company back in mid-2015. And then over the past 5 years, we've been really reshaping the company into the MedTech growth company that we are today as Enovis. We were a company called Colfax at that time. And a number of divestitures and then a pivotal acquisition back in early 2019 of DJO Global really led us to where we are today. And as we exit this year on a pro forma basis, when we bring in the Lima acquisition, we will be about a $2 billion leading player in the orthopedic space, would demonstrate high single-digit organic growth capabilities in line with our strategic plan with margins that are consistently increasing with the opportunity to get to 20% plus EBITDA margin in the medium term. And I think we've demonstrated a robust capability to do acquisitions and do them well. And that's really pivoting that history -- leveraging that history that I talked about, where we're applying our business system to make these businesses better and we're applying our well-worn acquisition capability in order to do good acquisitions that are strategically very important and to do them well with the right impact for our shareholders.

And just for people perhaps not as similar, so post LimaCorp $2 billion of revenues, what is the medium-term outlook for this business? Is this mid-singles plus, high singles what should be the EPS profile of this company?

Yes. I mean from a growth standpoint, I think we've been consistent in saying that we're building a high single-digit organic grower by next year. And our guide for this year is already in that high single-digit organic growth range. And as Lima comes in, it is helpful in terms of continuing to strengthen our organic growth possibilities. And so going forward, we expect to be able to take our $2 billion company that we now are and grow at high single digits organically with really double-digit growth on the Recon side that we've demonstrated for a long, long time, and we've now got a larger Recon business and more market space to drive that against and low to mid-single-digit growth in the P&R side, which is something that we've used our -- used our business system and capabilities to establish over the past 3, 4 years. And now our P&R business consistently grows in that low to mid-single digits range. And so that combination is how we get that high single-digit organic growth that we expect to be able to generate on a go-forward basis. We also are climbing up the margin curve. We continue to see the opportunity for at least 50 basis points a year of margin expansion. And Lima gives us a step change, an extra over 100 basis points on a step change basis just on the -- based on the margin profile of what comes in there.

Fantastic. And just since you brought up Recon, what do you offer within Recon, which markets do you play in? Post-Lima how big is that segment?

Yes. Yes. I mean, so what's great is that we play in the roughly $20 billion hip, knee and extremities portion of Recon. So it's a huge market that as an overall global market grows in the kind of 3% to 4% normal times, more than that right now in the post-COVID environment. What's great about our business is if you look at that $20 billion Recon market, most of it is hips and knees, that are great market, but the lower growth part of Recon. And then the smaller part of it is extremities, which is the fast-growing part of Recon. Our business, as we bring in Lima, will be about 50-50 between extremities and hip and knee. So a substantially better kind of weighted average market growth profile than the overall recon market. And we'll also be evenly balanced between the U.S. and outside the U.S., and our outside the U.S. presence is in attractive markets outside the U.S. So our Recon portfolio, which will be $1 billion or the $2 billion roughly is something that we see as really a premium Recon profile that has a better market exposure, has got a fantastic range of technologies. And the pieces of that portfolio have a demonstrated capability to grow double digits. We've grown consistently double digits in our U.S. Recon business. We've grown the Mathys business double digits since we acquired it, and the Lima business is growing double digit right now. So we've got a great portfolio on the Recon side with a demonstrated high growth capability and lots of runway.

Yes, a lot to unpack there. It's -- so when we think about these markets Recon big companies, you play with some pretty big entrenched players, right? And a lot of them speak about robotics. So let's start with U.S. hip and knee. You guys have grown north of 20% year-to-date. Why is Enovis growing 2 to 3x above market? I believe you don't have a robot in that market. So without having a robot, what's driving, what's enabling you to grow faster?

Well, look, we've got kind of a small but meaningful share, 1.5, 2 share positions. We're a meaningful player but we've got enormous running room in terms of where we can go in the market. And we've got fantastic technologies that the market appreciates very much. And really great execution, strong channel, well-respected brand, great, great execution. I think those have enabled us to consistently grow way above the market. And definitely, at the core of that technology wise, is the EMPOWR Knee. It's just a better knee, a dual pivot knee that feels more like your -- more like your natural knee that is a great knee for the active patient that's going into the ASC environment, it's growing faster than the rest of the market. So there's a core technology there that definitely is driving our growth and still has a ton of legs both in the U.S. and beyond. But then we've innovated around that. We've bought great technologies on the hip side that let us go and sell into our knee [ docs ] in order to have them have kind of a simpler total supply offering. We've also continued to innovate in knee. We just brought a revision out that we're ramping up right now, and that's 15% to 20% of the knee market that we really haven't been able to serve in any meaningful way. And so that creates additional runway within existing surgeons as well as beyond. So I think we've been able to grow great. Yes, how can we do that in the face of the robot? Well, we certainly are, right? I mean you talked about our growth year-to-date. Our growth this year in knee is I think, stronger than any of the past 10 years. Maybe there's been 1 or 2 that were stronger. But our growth in knee is very, very strong. And so there is -- yes, there's a lot of focus on the robot, and there is a real change going on in the industry related to enabling technologies, but it is not hindering our ability to get our great implant into the market and gain share with that. And then obviously, we brought our ARVIS technology into the marketplace, which is a terrific guidance technology that gives our surgeons an opportunity to have the latest greatest technology for their procedures, gives us a great offering for the ASC environment where something that is smaller, less expensive and really provides the benefits that you get in terms of repeatability, ability to capture the data, et cetera, is something that is making ARVIS very well accepted quickly in the marketplace. So we're well aware of the robot trend, but also very comfortable that with our technologies where we are today and where we can go over time as well as how the market is evolving, we've got plenty of opportunity to continue to be very strong.

Great. Before I dive into some of those, maybe Ben, one for you. When you look at sort of your latest guidance update and it was tweaked up, just from a macro utilization perspective, how are things tracking relative to your outlook for Q4?

Yes, sure. We're very confident in the guidance that we've put out there, a really strong start to the year with double-digit growth on the Recon side over the past 8 plus quarters. If you look at P&R, we've really seen stabilization there, growing kind of in that 3% to 4% range. And year-to-date, through the first 9 months of the year, we've got 100 basis points of margin expansion. So we've seen enough for the year at this point to where we're confident to raise the guidance on our last call and feel very confident in terms of our ability to deliver against that.

How much has backlog helped you guys this year, right, when you look at Matt's comments about the business, the aspiration to be a high single-digit grower? Did backlog help you guys achieve these numbers in fiscal '23?

Yes. I think you have to think about it as kind of pent-up demand versus kind of backlog. In certain cases, maybe in the beginning of the year, there were specific actions in places like Germany, where there was some additional capacity created and budget funding created to clear some of the waiting lists that existed in that part of the market. But overall, if we look back to our performance versus 2019 and the big players and their reported growth versus 2019, you would see there's still a couple of years worth of growth that's kind of missing in terms of pent-up demand. We feel like we saw a little bit of tailwind last year in the underlying market from that. We feel like we're seeing some this year as well. So you're talking about maybe a point of growth to the market. And then we feel like that will continue for the next couple of years as well.

And what gives you the visibility that there is still some pent-up demand that should benefit the business in -- when you look at fiscal '24?

Yes. It's again, the triangulation that I mentioned around kind of looking at performance versus kind of growth of [ '23 ] of all the players versus 2019 is one and a thing that we look at. We also look at registry data, waiting lists. We talk to surgeons. We kind of have our foot on the pulse of just kind of the underlying market, and we try to triangulate it in those multiple ways. So all of that would kind of indicate that there is that demand there and we feel pretty confident that you'll still continue to see a little bit of a tailwind here in the next couple of years.

Yes. And the only thing I'd add to Ben's comments is, unfortunately for us, we get most of our growth beyond the market, right? So in any given year, if there's a point or 2 of extra market tailwind from this kind of extra pent-up demand or backlog or whatever everybody wants to call it, that's a nice plus for us, but it doesn't really make or break our year. And that's how it was playing out this year, right? And so we're getting double-digit growth -- well into double-digit growth in our Recon business for the year. Yes, a point or so of that is coming from this kind of extra tailwind. That's terrific. But most of our growth is coming from share gain and from kind of the base market growth of our attractive market exposure profile. And so we feel really good about the fact that whether there is or is not extra tailwind in the coming years, we've got the opportunity to have very strong growth. And if there is some, which we think there likely will be, we get a chance to have some extra on top of that.

Understood. And since you brought up ARVIS and ASC, but let's start with the ASCs. What is your exposure to ASCs and how are you able to compete in that space? Where I think some of your peers speak about, look, we have an ecosystem we can sell everything, so maybe talk about your differentiation.

I mean there's a couple of things, right? So I'll talk about knee ASC because that's really the area that there's been the most movement there. The best information we have is that somewhere a little over 10% of the market is done in ASC. More is done outpatient, but ASC specifically, somewhere a little over 10% is done there. And we track how much of our business is done there, and we've shared openly that it's in about the 20% or so range. So we do have quite a bit of confidence that we are being more successful in the ASC environment than the market is. And why is that? Well, first, as I said, the EMPOWR Knee is great for an active patient because it is dual pivot, it pivots when you walk, it pivots when you squat. And so it's great for an active patient. And when people are selecting patients to move into the ASC or selecting surgeons who are going to do more of their procedures in the ASC, there's a nice fit there that the patient may likely be a good patient for EMPOWR or even better, the surgeon that moves in the ASC is one who uses EMPOWR for everything they do. And so there's a great fit with our technology. We also have had a focus from the start. We've been a smaller agile player in this space. We're pretty big now, but we've been a smaller agile player in this space. And so we've had a lot of customer focus, a lot of agility. I think as people have opened ASCs, they've appreciated that. And things like having simplified instrument sets. We sort of had them early days from the start and made life easier for that ASC environment. We also -- we have a great app called the OaraScore that we have -- it's used by our surgeons and by surgeons, who aren't our surgeons as a risk scoring tool to kind of select patients that could make sense to go into the ASC environment. And then our ARVIS technology, as we brought it out, people can see it's a great technology for the ASC. And then finally, often, we have P&R presence. The ASC is under the same roof as an orthopedic clinic. People know us, they're aware of us. They're using our technology in other fronts. And so yes, there are some players out there that are succeeding in -- with different kinds of breadth for an ASC environment. We've got our own kind of breadth that is how and why we can succeed. And still, we're a 2 share player in knee roughly, which means that at 20% share in the ASC, we're probably a 4 share player in the ASC. And so we're not the only one who can succeed in the ASC environment, and I think we have an opportunity to drive that 4 share up nicely over time in that fast growth part of the market and have that be a fantastic contributor to our growth. But we don't have to be the only game in town for that to happen.

And since your P&R, when you look at ASCs, is there -- what percentage of that ASC market is your existing P&R customer and do those relationships matter when you think about penetrating hips and knees in that environment?

Yes. I don't know the exact cut there. What I would say is that a lot of the ASCs have adjacent orthopedic clinics, sometimes under the same ownership, sometimes they're connecting other ways. But there is certainly ones that I have been to either visiting customers or as a patient, there tends to be, hey, 1 floor you got the rehab clinic, 1 floor you got the surgery going on. And so that's a pretty normal model. I don't know exactly what percent of them are done that way, but it's a significant amount of the market. Within that environment, people are not -- you don't have the same reps that are selling P&R and another selling surgical, that's kind of not the way the market works. And they don't necessarily have the exact same buying process for P&R surgical, just like you do for [ capital ] equipment and Recon products. But what you do have is a Halo, a brand Halo in term of, hey, we're known there. They know of our company, they know of our products. The contracts the ASC uses, we're on their contracts. The docs that are there are aware of us, maybe some of them might be collaborative. So there are ways that we have access and credibility in ASC environments because of the participation in the P&R side and vice versa. And sometimes, there are much more direct cross-sells. When we made some acquisitions in the foot and ankle space, we immediately got some calls from clinics who use it our Aircast boots day in day out all the time. They're like, "Hey, you just acquired something on the surgical side. What is it? Tell us about it." So there are those direct connects as well, but I think more significantly, there's just the broader brand awareness and comfort that comes with a company they know and trust.

Understood. Helpful comments there, Matt. And you also did bring up ARVIS. Can you explain what is ARVIS? How do you price this product? How meaningful could it be for Enovis?

Yes. So ARVIS is our enabling tech next-generation offering, enabling tech we don't think about robotics, we think about enabling tech, right? Surgeons are trying to do something, right, which is a plan a surgery, do a surgery, have a great recovery on the backside of surgery, have the best possible outcome as efficiently as possible. And I think what's become very clear is that enabling technologies have a big role to play in that whole workflow. And it used to be about the preoperative planning and [ patient ] specific instruments, but now more and more, it's about what happens during the surgery and even sometimes after the surgery. And so what we've been focusing on is making sure that we've got the right next technology for what's happening during the surgical procedure that seamlessly connects to what happens before and that enables the surgeons to have that efficient and repeatable surgical process and to capture the data as they're doing it. And so ARVIS is an augmented reality technology that allows the surgeon to feed their preoperative plan in, to be able to then see in their eyepiece and overlay on to the patient, so that they can line up the critical cuts. In knee, enabling tech is all about the first few critical cuts, right? That's the thing that everybody has been going. How do I make sure that I make the right decisions, even sometimes using AI to generate a preoperative plan that gets converted into exactly the cut that will be recommended for my first couple of critical cuts. And then -- but our enabling tech ARVIS allows the surgeon to then -- their judgment, right? They can get the exact recommendation. They can see exactly where they should cut based on the plan. And then think and look at that in context, to make that exact cut or make a slight tweak to that, and that will be recorded and they'll know what they did, right? That's really -- and there's a few other key things as they work through the process. But those first few critical cuts in knee are really vital and our enabling technology is going to let them do it in a -- we believe, a better way than any of the guidance technologies that are out there or at least most of them, certainly, the third-party ones that are out there and really will enable them to do it as well as you can with a robot in many cases. It's just really a surgeon preference thing of do I really want or need that -- for all the space and cost, et cetera, do I really want or need that automatic positioning to be happening? Or am I comfortable that as long as I got a great visualization technology, I can just then use the instrument to line it up and make the cut. And that's where we are with ARVIS, great feedback. We launched about a year or so ago, limited launch, got a lot of great feedback, used that to do a rev on the product in terms of usability and seamless interaction with our EMPOWR implants -- EMPOWR instrumentation. And now we're in a broader launch and getting great feedback, a lot of interest there. And so we're confident that in our existing surgeons, ARVIS is the next great technology for them and will be something that strengthens what they're doing, strengthens our relationships with them and gets us recurring revenue. We'll also -- we're already using it to convert surgeons that find it as a more attractive way to do guidance than their existing technology and/or want a -- instead of a big robot, they want a smaller footprint like for an ASC or something that more fits what they do. So great opportunity for us with ARVIS. It's just ramping now. We're certainly very excited about it.

Fantastic. And Ben, how does the P&L work for ARVIS? Like are you pricing on a per procedure basis, what is the margins for a customer using ARVIS for a procedure?

Yes. I mean it's a good question, Vijay. I mean we're very much kind of in the flexible model stage right now as we're rolling that out. I mean we just launched it kind of commercially broadly kind of a couple of weeks ago at the society meeting. So we're looking at kind of the various business models to create a solution that allows us to really drive penetration. Because for us, the capital cost to produce the device is relatively low. So we have a lot of optionality as we think about how do we really drive value and returns from this platform. One, through just per procedure fees that Matt talked about. Two, trying to drive volumes through it. Three, trying to open it up to people that aren't using our implant to create a bit of a Trojan horse for us in certain cases and all of those types of things, even considering capital sale in certain circumstances. So overall, we have flexibility with the model because it comes at a relatively low cost to us in terms of being able to put it out into the field, has really good economics and good returns.

And margins would be accretive with Corporate?

Accretive margins, yes, for sure.

Understood. Then maybe pivoting to extremities, Matt, you said that's going to be half the mix, that's a pretty impressive mix, right, and this is post Lima. Is there anything differentiated within your extremities portfolio? I think you mentioned about a shoulder product in the past and...

Yes. I mean the shoulder is the larger part of that extremities portfolio. And we have the best shoulder with the most long-term data, right? The AltiVate shoulder was one of the pioneers in the reverse space from -- back when there was a debate about reverse or anatomic. And today, most procedures -- the majority of procedures are done with reverse in the U.S. and outside the U.S. is lower, but going to head that way. But beyond that, there were multiple reverses, and there was a kind of a debate for a while between the style of the ultimate inferiorizing lateralized style versus the other approach to reverse that, it's called an inverse in Europe. And at this point, I think it's pretty well accepted in the industry that the lateralized and inferiorized is a better way to do it. Certainly, in the U.S., that's kind of fully accepted and the U.S. is going there. And outside the U.S., sort of country by country, increasingly, there are kind of waves moving towards the lateralized and inferiorized. So we've got the best design, and we've got the longest data for that best design. And that's a great place to be in this industry, right? People can catch up on design, but they can't catch up on the data. And so we feel very confident that we've got that very strong position in shoulder, and now we've got a much broader market to drive it across with the acquisitions that we've done outside the U.S. And we continue to innovate there, both within the product. Yes, we have the best reverse, but it's been important to have anatomic. And so we brought out a great stemless anatomic. Lima has been working on a stemless reverse. So we've got great technologies coming through, and we also see opportunity to move enabling tech further beyond the upfront planning that we have today that's terrific. We certainly see the opportunity to move ARVIS into the shoulder space over time and continue to sustain our leadership there. On the foot and ankle side, we've put together a set of great technologies for foot and ankle that is going to be around $100 million global run rate business as we move into next year and that's a high-growth market. Now it's not -- ankle is less homogenous than shoulder. There's a lot of different slices of that market. And we've got a number of great technologies for that market. The biggest and strongest to which is our DynaNail family. These are a family of products that are based on NiTiNOL alloy. We've got a set of proprietary products based on NiTiNOL alloy, where nails are put into the patient and then the stress on it -- basically, there's stress created on a piece of metal that creates constant pressure to heal that. Whereas a screw would give over time, this is constantly creating pressure pushing the bones together and has demonstrated better healing infusing over time. And so that's just a tremendous product line that grows very, very strongly, our DynaNail product line. In our plating system, we've brought out some really great Arsenal branded plating technologies. The Arsenal Ankle came out last year, which is great for the ankle segment, where we also have the STAR. STAR is a great historical technology in ankle that we acquired for very low price from Stryker. We've been doing the work to get it back to being a great ankle product and with the planning technologies that we put out now, the kind of new polymer that we've got just going through the approval process, we'll start to gain share again in STAR. And then finally, bunion, right. Bunion biggest and fastest-growing part of the foot and ankle area. We've got -- we acquired a terrific minimally invasive bunion technology there with Novastep and we've launched Evolve34, which is a Lapidus jig, a great Lapidus jig to get after that very large, fast-growing Lapidus market.

And when you put all these assets together, right? You've made a couple of acquisitions. And historically, M&A in this space has been -- has had mixed results outcomes. Is there anything about how you approach M&A that's different why Mathys has been so successful for you guys?

Yes. Look, we've got a ton of historical capability in M&A. It was one of the fundamental capabilities that we've built into Colfax before we bought -- before we became Enovis. And so we've got a set of process and tools and capabilities. We've got leaders who have a ton of experience doing M&A well in other industries. And then we've got a lot of depth in orthopedics that came with the great leaders that came in with our DJO business. And so as we've looked at these acquisitions in Orthopedics, we've applied all our best capabilities in how to diligence acquisitions and plan them and do the innovation well and really drive them from strategy and have discipline in how we do them. But then we've also complemented that with the depth of experience that our team has in Recon. And some of the experiences people have had in successful and unsuccessful acquisitions in Recon. We put that together and applied it to the acquisitions we've done. I think you've seen, we've done well over a dozen in the space since we've entered. We're having great success there. And certainly, the largest one to date Mathys is a very strong success, right? It's been growing double digits since we acquired the business. We've about doubled the margins of the business. We're running ahead of our plan on the top and bottom line in that business. And so I think we've demonstrated on a number of acquisitions, but including that very visible one, that we've really got strong capabilities here to -- not just do acquisitions, but do the right acquisitions and do them well.

Understood. And how does Lima, your most recent acquisition, fit in, right? It's an international acquisition. Is that more challenging to execute an international M&A?

Yes. I mean that's a great question. Lima is a terrific fit. We globalized our Recon business back -- few years back with the Mathys acquisition. And now we've had the opportunity to complement that with the Lima acquisition. And that gets us to this terrific place where we're a $1 billion Recon business, half of it outside the U.S., half of it and half of it in extremities and a lot of complementarity between the market positions and the technologies from Enovis, Mathys and Lima. There's a lot of complementarity and a limited amount of overlap. And that's been very important. So I would say international or not international is a lot less important than how much overlap is there. And we've got more limited overlap and a lot of complementarity. And I think that gives us tremendous opportunities in terms of being able to efficiently put the channels together with a limited amount of breakage impact and then being able to drive very aggressive growth, both organically and through cross-selling on the back side of it. And so we're extremely excited. Lima has got a great set of technologies, great market positions. They're growing very, very nicely this year. And so we're very excited about the opportunities. Right in the middle of the planning now, right on track for that close early next year that we've talked about.

Right, so the close that there's no change?

Yes, I would say at this point, the majority of the hurdles to get the close have already been cleared, and there's just a limited amount of things that need to happen in order to get to that early next year close, and we're expecting that that's back.

Got you. And what are the complementarities that you mentioned? Is that geographic or product?

Yes. Yes. So it is geographic and product, right? So from a geography standpoint. For example, Mathys is very strong in the attractive Swiss market and Lima is very strong in the attractive Italian market. And then if you go to other, in Germany, each of them had pretty strong positions. But in the case of Mathys, it was more of a hip position. And in the case of Lima, it was more of a shoulder position, and then we're bringing great knee into that market. And so when you go market by market, either in the whole market or when you get down to anatomy, there's this very nice complementarity that exists geographically. And then in terms of technologies, there's nice complementarity as well. In both Lima and Mathys had quite strong hip positions, weak knee positions. We actually have fantastic knee position and a good hip position, good enough, but getting better. And so the complementarity there is very nice. And on shoulder, complementarity is quite good as well. In the Mathys case, they were strong in anatomic, didn't have the right to design in reverse. And in the Lima case, they actually have a strong anatomic and a strong reverse position, but the -- this product, the SMR that they have is, it's a different kind of reverse. It's one that has easy convertibility. And there's a certain set of surgeons that have really loved that product and are going to continue to love that product. And so we see very nice complementarity across the product lines. And then even technologies, right? We've had great heritage in terms of our core implant designs and some of our coatings technology like [indiscernible] and our enabling tech moves that we've now made. Mathys came in brought ceramics. We're the only orthopedic player that has our own captive ceramics design and manufacturing capabilities. And Lima comes in as a leader in 3D printing design and manufacturing, metal 3D printing with their Trabecular Titanium. It's IP-protected capability that they have, have been used in the core designs, but also have been used in custom revision products that are really, I think, a great door opener really being able to bring a surge in something they can't get from everyone else, which is a very complicated custom revision product for their toughest cases, and Lima has been using that very effectively to get attention that get surgeons looking at other products. And our team here in the U.S. is excited about having those 3D printing capabilities, big time.

Understood. And Ben, given all of these complementaries, I think when you announced the deal, you did assume some disruption assuming no growth for Lima. Should there be any disruptions given how well these businesses fit?

Yes. I think it goes back to what Matt was describing around just kind of the muscle we've built around M&A in terms of how do we look at diligence, how do we think about integration planning, how do we make sure that we're setting ourselves up for success in terms of kind of having the teams focused on the right things. We know that there's -- it's a highly complementarity portfolio and geographical presence, but we also know from experience of bringing other acquisitions in where there is some channel conflict or some product overlap that there will be some natural dissynergies that will come about. So as we contemplated what guidance that we put out there, we wanted to be somewhat conservative in our approach to say, let's learn from the past. Let's make sure that we kind of anticipate some dissynergy before we can really turn on some of that synergy where we need to make some calls around product lines. Let's give ourselves the ability to do some of that upfront before it becomes a growth inhibitor down the road. So it was contemplated and what we kind of looked at and gave in terms of our overall guidance. And the other thing I would say is that we're still not getting credit for the value that we're going to get created from Lima. So no need for us to be overly aggressive in terms of kind of setting targets out there when it's going to come in and kind of really drive good progress against the strategic goals that we've laid out there.

Makes sense to me. I'm just curious, when you did the Mathys deal, did you see any integration or dissynergies, if you will?

Well, Mathys wasn't highly disruptive because we didn't have -- I mean, 97% of our business at that time in Recon was U.S.-based, and Mathys had zero U.S. business. So as we thought about kind of bringing Mathys in, it was very much kind of no or very limited, I should say, overlap in terms of kind of product line because we didn't really have much exposure there. And as Matt was saying, it was more of a strong hip player, not much of a shoulder and not much of a knee kind of business. And therefore, we were able to kind of bring that in and not really see a lot of impact.

Yes. The team has executed well because without overlap, you still have to kind of go do the work of hanging on to the customers and all that. I think the team has done a great job on Mathys in terms of we're growing as strong as were on Mathys with really limited cross-selling so far just because it's -- it's been a little bit tighter supply environment, and so we've had to make choices about where we send the supply and the instruments and all that. And so we've gotten after some synergy in Mathys, but it's still early days, a lot of surgeons waiting to be turned on over there. And now we'll have additional options with Lima. I think what's really great is we've created a ton of optionality for how we create that double-digit growth in Recon. I think when we -- since 3 or 4 years back and looking at, okay, how do we make sure we can grow this company high single digits. And to do that, we're growing the Recon part in the double digits range. I think one of the real priorities there was around is exposure to high-growth markets, running room and technology, right? So if you look at what we've done with acquisitions inorganically is we've increased our exposure to high-growth markets. We've created plenty of running room, and we've expanded our technology set to make sure that we can -- have the technology that it needs. And what that does is it creates plenty of optionality to now make choices about how we get to that double-digit growth every year versus to find ourselves limited in how many places we could go to get at the growth. And I think that's a tremendous -- if you look at the value of where we were 3 or 4 years ago from where we are today, it's a huge step change in terms of the possibilities going forward.

Fantastic. And with those comments, Matt, when you think about fiscal '24, what are the pluses and minuses for fiscal '24? And I think when I look at fiscal '23, the business have done phenomenal top line, right? I think you had some below-the-line sort of interest expense, which hit you. Should that be a concern for next year, any below the line items you need to be aware of?

I'll let Ben hit the line items. I'm not going to give guidance on '24, but certainly, we'll answer the question. I mean if you think about '23 again, we're in the kind of mid 7s percent growth based on our latest guide organically. And that -- 2023 has got a little bit of tailwind on the Recon markets in the first half of the year in particular. And a little bit of extra price on the P&R side than what we might expect on a normal basis going forward. And so there are sort of a couple of things that are a little bit of a help in '23. We've been working hard to drive additional innovation through both parts of the company to help over the next year or 2 to be offsetting some of those tailwinds that will be falling off and also the Recon part that grows faster is getting larger, right? So there's some kind of puts and takes there as to how we're working hard to make sure that we can kind of stay in this high single-digit growth range. I think it's likely a year that will have a little different shape in this year, right? There was that kind of extra growth in the first couple of quarters of the year that was in part based on kind of easier comps and a little bit based on some extra demand this year. And so I think the shaping of next year is likely to be a little more of a mirror image of this year in terms of how the growth plays out for us and others. And obviously, at Lima -- I put Lima on the side. So what I just described is how to think about the core business, we've given a clear guide for what we expect Lima to do. Certainly, they're doing right in line with what we expected this year. And so we're very comfortable with that expectation at this point in time. But we'll give an update once we've completed the acquisition there and when we give guidance. And we'll be doing everything we can to outperform. But very importantly, making sure we do the right things in the first year to set ourselves up for the following year. So that's kind of a little bit of a walk-through. And Ben, do you want to add to that?

Yes. No. I mean I think we're not quite 2 full years kind of post separation of spinning out ESAB and becoming Enovis. So as you think about your comment about kind of some of the below-the-line items, heavily separation-related, where we're getting some favorable tax benefit, and we came out basically with no debt. So kind of the interest as you kind of done some acquisitions and some of the market dynamics have changed, have been a bit of a headwind as we came into this year. But if you look at our underlying operational performance, you're seeing our earnings kind of underlying operational growth 2x of what kind of our revenue growth is. So pretty solid performance there. And then what I'd say is as we think about next year is going to be a bit of a transformational year for us in a way with bringing in Lima because you're bringing in $290 million to $300 million of revenue and $70 million to $75 million of EBITDA. And what we have said is we've kind of finalized the funding of that, that we were originally anticipating kind of neutral to slightly positive accretion from an earnings perspective next year. Now we're going to be accretive next year as we kind of bring in Lima with kind of getting all the financing settled. So overall, we're excited about next year. It's going to be a step change for us from a margin standpoint because you bring Lima in, it gets 100-plus basis points before you get after any synergies from an EBITDA perspective, and it's going to be accretive from an earnings perspective. So overall, we're excited about what 2024 brings.

Fantastic. If the macro is stable with base business margin expansion and Lima being accretive, it looks like it should be a double-digit EPS growth, right? Nothing crazy...

No guidance today.

No guidance today for sure.

Fantastic. I think with that, we're at the end of time. Matt and Ben, thank you for the time.

Thank you, Vijay. Bye.