This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Yeah, so I think we've talked about foot and ankle passing through $100 million this year. There wasn't any Lima foot and ankle business of any consequence that came in, but we did bring NovaStep in last year, which really helped to position us to bust through that $100 million ramp. Look, our foot and ankle business for a number of quarters now has been growing very strongly and comfortably above market levels. um you know based on the the work we did to put that channel together and the hard work of putting the channel together that we did and now having that strong aligned channel and then just a ton of great innovation that we've been pumping into that business i know and then that's in the u.s we're also growing double digits outside the u.s in in that business um you know i i think that uh you know i commented on the the markets uh more broadly uh you know earlier and i think you know i think that would apply to foot and ankle as well that you know we probably have uh not as good a market situation this year as we did last year, but I think our teams are doing a great job of executing share gain in that environment and have done it for a number of quarters now, and we're really pleased with the engine that we built there. Thank you.
spk08: And the next question comes from Young Lee with Jefferies. Please go ahead.
spk03: All right, great. Thanks so much for taking the question. I'll just keep it to one. Maybe just to follow up on the U.S. extremities business a little bit more, you know, appreciate the comments on the foot and ankle side. But on the U.S. shoulder side, I guess I'm curious, when do you expect that to return to, you know, one and a half to two times market growth? And then your thoughts on the sustainability of that in light of some of the new robotic competitors coming to the markets?
spk07: Yeah, sure, Young. I think that the comments I made earlier generally about U.S. surgical would apply to the shoulder business. You know, we'd expect that business to improve in Q3, but then improve a lot more in Q4 as, you know, the augmented glenoids came out earlier. We're just brutally launched in the last month or so here. Q3 is within the controlled launch phase, so it's very important, but it has some impact on our growth, but not a substantial impact on our growth. And then in Q4 and beyond, we can really tilt up the regulator on that. And so that's going to be the arc of that. You know, some of the acquisition impacts will go on that same arc that we just talked to in terms of, yeah, starting to have a little bit of improvement in Q3, then more in Q4, and then in Q1, Q2 we start to anniversary some of the impacts. And so we do expect to exit the year with our shoulder business and a strong, healthy growth path. And then we expect to, you know, also, you know, have the fundamentals underneath that supporting continuation of that growth path. in our shoulder business. Now, as far as enabling technology in shoulder, it's clear that that's going to be important to shoulder surgeons going forward. We're confident that ARVIS is going to be a fantastic solution for that. You know, the shoulder, you know, it's very important to do great planning, use predictive analytics, and then be able to kind of manage your workflow through the procedure and And guidance and the right instrumentation solutions, you know, give surgeons a tremendous opportunity to do that. And the initial reactions we've gotten to Arvis as we've gotten it out there in the market for shoulder have been very positive. And so we're confident that guidance is going to be a tremendous solution for shoulder. You know, when you look at the anatomy, there's some important things about shoulder. One is it's a ball and socket like a hip. versus a knee. And the other is that the average shoulder surgeon does a lot less procedures than the average hip or knee surgeons. And we think those are going to be very important factors as it comes to how the market shakes out on enabling technologies that guidance is a tremendous solution when you have that more constrained space that you have in a shoulder or a hip for that matter. And in addition, a low-cost solution that is time efficient is going to be a great solution for lower version, lower volume shoulders out there. So we feel confident about Arvis and shoulder. We also have, you know, plenty of opportunities to, you know, partner as well as develop a more automated solution to go alongside of that, you know, as the market continues to evolve. So we're confident we can sustain our leadership and shoulder going forward.
spk08: And the next question comes from Brendan Vasquez with William Blair. Please go ahead.
spk02: Hi, everyone. Good morning. Thanks for taking the question. Can you talk a little bit about more specifically what you're seeing as you talk about dis-synergies? Part of the question where I'm trying to get at is I'm trying to understand better, you know, as you look to the back half of the year, is re-accelerating growth simply kind of re-engaging with surgeons to go deeper into their accounts, or do you need to re-engage with surgeons more to frankly even just get them back onto Inova's products altogether. Just trying to understand what exactly from an execution standpoint needs to happen in the second half as you re-engage and kind of move past the dis-synergies.
spk07: Yeah, sure. Well, the dis-synergies come from a combination of, you know, surgeons that we lose based on, you know, kind of choices and or competitive dynamics as we're putting together overlapping programs. you know, channels. And then second, from some products that the channel, you know, needs to move away from us, you know, based on, you know, different commitments that they might have in different places, et cetera. And then also from some of the, just the distraction factor of working on putting together new channel arrangements versus working on adding, new surgeons. And so, um, you know, as we, as we go forward, you know, where we've lost some surgeons, you know, sort of be looking to get them back and like we will get some of them back, but whether we get them back or not, that'll anniversary, and that will kind of leave that drag behind us. Where we have had some products leak away, that's where the cross-selling comes in, and we can replace those products with cross-selling products, and so there's an opportunity to go ahead and get right at that here as we get down the back half of the year. And then the engine of adding surgeons, that's something that's been dialed back up over the past few quarters in a healthy way. We've got a really nice funnel there. And we can see the, you know, the little bit of slowdown in that that happened down the back half of the year really, you know, starting to build nicely. And, you know, that'll, you know, start to benefit us in the back half of the year from the surges we had in the first half of the year. And then it'll benefit even more next year from the ones that we had in the second half.
spk06: Yeah. And Brandon, I would just weigh in there too. I mean, we learned a lot on the foot and ankle acquisitions that we did in terms of how to put the channel together to, you know, make sure we're protecting ourselves with regards to exclusivity, but then also allowing ourselves to, you know, quickly move and then focus, you know, the ability to go on offense once you've gotten that channel solidified. So I think as Matt said exactly, you know, in terms of the drivers, but our ability to now, you know, go on offense, have new products flow coming in the back half of the year and having now a channel that's focused on getting back to our playbook And it just shows from our perspective through, you know, the good results that we're seeing on the foot and ankle side, one of the strategies that we had as we were putting these channels together to move quickly because we knew the faster that we move, the faster we get behind some of these things and are able to really go on offense.
spk02: Okay, great. And then maybe as a follow-up to that on the disenergies topic still, 100% done in the U.S. according to the update today, but 70% done internationally of integration. Does that mean that there's still some potential for dis-synergies if there really are any meaningful ones internationally, or should we think of despite being only at 70%, you're done there, and maybe just talk a little bit about what's left to integrate in the international side of the business? Thanks.
spk07: Yeah, the 70% international, we've actually worked through most of the direct markets and certainly all the large direct markets and have had pretty limited impact there. And we would understand those and be able to see those at this point in time. And we've worked through some of the hybrid or indirect markets already in a very successful way. What's remaining to be done is a handful of kind of hybrid or indirect markets in terms of that they're either two distributors that we're combining or a combination of direct and distributor that we're combining. And I would say that for that 30%, we've got clear line of sight on how things are going to come together, and I think we've been able to kick the tires there. you know, pretty well in terms of what the, you know, what the risk might be as we do that. And we see them as pretty limited. And so, yeah, we do see that in international there could be a little bit of disinterview that develops in the back half of the year consistent with the numbers that we put out there. But we also think we've gone far enough there to have made sure that there's nothing large negative looming.
spk08: And the next question comes from Danielle Antelphi with UBS. Please go ahead.
spk00: Hey, good morning, guys. Thanks so much for taking the question. Just a question on how to think. I appreciate you guys are not going to provide 2025 guidance here. But if we just think about you peaked on the disenergy side of things this quarter, we improved through the back half of the year on an underlying basis. And then presumably as we enter next year, I mean, how should we think about this? You've got a number of new product launches. You've got now this energy is behind us, maybe actually moving towards some sales synergies here. Could 2025 potentially with all that in mind being above, you know, pre Lima trend growth or pre Lima growth trend a year for you guys, any comments directionally you can say, and I'll just leave it at that one question.
spk07: Yeah, I appreciate the question. We're not going to give guidance for next year, but I would say everything we've been doing this year is to put us in a position to step into next year as a $2 billion-plus innovation-driven growth company with over a billion-dollar nicely combined recon portfolio that is a strong growth driver for you know, for our company and a step change in our margin profile that we've executed through and be able to, you know, continue to execute against our long-term strategic goals of high single-digit organic growth and continuously expanding our margins to 20% and beyond. So we've been doing everything possible this year to put us on, you know, to create a step change and to be able to continue on that journey on the other side of this.
spk09: Thank you. And the next question comes from Caitlin Cronin with Canaccord Genuity.
spk08: Please go ahead.
spk04: Hey, thanks for taking the question. Just to start off on cross-selling benefits, where are you starting to see early wins in terms of the product portfolio, and where do you think you'll see the most synergies in the second half?
spk07: Yeah, no, we definitely have seen some early wins. Honestly, one of the most exciting early wins is just energy. Outside the U.S., you can see our tremendous growth outside the U.S. in recon. Part of that is a good, healthy market, but part of it, frankly, is that our teams are absolutely energized. The combined Lima and Mathis teams that have come together there it's been fantastic to see how the talent has come together and, and the positive energy, you know, we've done reviews sort of country by country and hearing the leaders talk about the energy that the acquisition has created in their company, in their, in their country is tremendous. So even before there's a lot of synergy products being sold, I think we've just been, been benefiting from the fact that people feel like a part of a bigger, more powerful company and they're going out and represent that in the market. And it's, It's, you know, helping with our momentum. You know, definitely in terms of early wins, you know, here in the U.S., both in the Lima Cones and the revision knee area, The pro-made in terms of custom implants across anatomies have been some nice early wins. Outside the U.S., we continue to march forward on Empower and Altevate in key countries outside the U.S., not just in the Lima Channel, but we have just scratched the surface in the Mathesis. customer base, you know, as we move through last year. And then there's some really interesting early wins that are just by the Lima and Mathis teams getting together and seeing opportunities to where one portfolio can help the other. You know, Mathis' knee was quite weak, and the Physica and Zoo coming out of Lima that's already got full approvals. has been quite helpful in some countries there. Lima didn't have more ceramic-based product. They had some, but there's some key anatomies. They didn't have products that would address some key customer needs around patient-friendly products. And And Lima's already pulling those into the channel. Mathis is selling Promate. So some great early wins. They're pretty limited in terms of growth impact, just given the nature of how long it takes to get sets out there and get things ramped, et cetera. But they're quite positive in terms of the energy that's being created around the world.
spk04: Great. Thanks for the cover. And then just one more on P&R, you know, 2%, 3% comp growth. When do you think you can start ramping this business to more mid-single digits on a consistent basis?
spk07: Yeah, so we've been consistent to say that P&R is a 3% to 4% grower that we're working on shaping to be a 4-plus grower over time. And, you know, we were well above 4% last year, and we tried to be, you know, clear that it was, you know, there was some extra market strength and some extra pricing last year. And so running at three for the first half of this year in a market that's a little bit more muted, I think is right in line with our strategic plan. But for sure, we are working hard on the innovation content and key parts of that business that will ramp in the balance of this year and into the coming years, as well as some of the shaping like the small divestiture that I mentioned. I talked about today. We've also been doing some skew trimming that shapes that business a little bit as well. And so B&R is still a, you know, healthy 3% to 4% grower that's got nice end-use market diversification that is a very strong cash generator, which, you know, fuels the great growth on the recon side. And we do see the opportunity to shape it over time into more of a you know, maybe more of a 4% grower than a 3% to 4% grower, and then try to work from there to see if we can go further. But we continue to, you know, have 3% to 4% as the strategic growth focus for P&R, and, you know, we're within that range this year.
spk09: Thanks so much.
spk08: The next question comes from Mike Mattson with Needham & Company. Please go ahead.
spk05: Yeah, thanks. I just wanted to follow up on Caitlin's question on P&R. So the growth is a little slower now. You know, there's concerns about a potential recession happening again. You know, does that P&R business have a little more economic sensitivity than maybe the recon side of the business? You know, what have you seen there in prior recessions with P&R?
spk07: Yeah, I mean, you know, I think our industry broadly, if you study prior recessions, has had a little bit of impact, but not a lot of impact. And I think that would apply to both sides of the business. You know, on the PNR side, on the positive side, there's, you know, there's a smaller percentage that is related to elective surgery. And so you might might argue that there is less kind of recession-related impact. But then there's also things like products that we sell in our rehab business that are small capital purchases for rehab clinics and things like that, that obviously you might have a little bit of economic sensitivity in those. And so I don't think there's a meaningful difference between the recon side and the PNR side in terms of economic sensitivity. I think both you know, are very positive and that they have a limited band of economic sensitivity, but both are not fundamentally immune from a little bit of economic sensitivity.
spk05: Okay. Got it. Thanks. And then just on ARVIS 2.0, wondering if you could give us an update on the launch. And I don't know if there's any sort of metrics you can share in terms of how it's doing, but that would be helpful. Thanks.
spk07: Yeah. Yeah. So again, and this is, you know, ARVIS in hip and knee is, You know, there, as we've talked about before, you know, we've got a couple dozen surgeons that are using the product and, you know, ramping the usage there, some using it very heavily, some using it on specific procedures. And we're, you know, working with a surgeon to continue to get feedback and learn so that we can turn around and educate other surgeons the best way to use ARV is how to get the most benefit from it. Last time I looked, that number was creeping up some from that couple of dozens. So I do feel like as we work through this year, that's going to start to ramp and, you know, be an important part of our knee offense there. And so we're excited about that. Now, we also have found that there's some surgeons, that, you know, might prefer in the knee something that's a little more robotic. And we've got a partnership with SYNC there that allows us to bring the T-mini. And we've got, you know, kind of a handful of cases where the T-mini has been the right answer for a surgeon for whatever reason. And so we're super excited about Arvis, but we're also being very thoughtful about how to make sure that in each of the anatomies, we've got all of the enabling technologies that are needed to serve multiple segments out there as the market continues to evolve and develop. Okay, got it. Thank you.
spk08: And the last question comes from George Sellers with Stevens Inc. Please go ahead.
spk01: Hey, good morning. Thanks for taking the question. And I just wanted to follow up on the cross-selling discussion. Could you provide some additional color on the breakdown geographically and those cross-selling opportunities? You gave some great color on what some of those devices are, but just as we think about the magnitude of that tailwind and how significant that cross-selling opportunity could be in terms of offsetting disenergies? What's that breakdown geographically? And then how should we also think about that tailwind in the back half of this year and the tail of that into 2025 and beyond?
spk09: Thanks again for taking the question. Yeah, I'll make some comments on that.
spk07: I think that probably in the short term, there's a little bit more cross-selling opportunity in the U.S. than outside the U.S. as things ramp out there. But over a number of years, the opportunity outside the U.S. is extraordinary. And so I think what you're going to see is that the cross-selling in the U.S. is going to start to offset some of the headwinds this year and And then really going to, you know, start to help particularly the Lima business in the U.S. that had not been as strong a grower to be, you know, a good strong grower up against our legacy and Novus business next year and in the following years. You know, outside the U.S., there's a strong market out there, you know, that is supporting the double-digit growth. You know, and, you know, we're also executing very well. I think what's going to happen outside the U.S. is that, you know, as the synergies ramp year by year by year, as well as we make other improvements and investments, we're going to be able to, you know, support continued very strong growth there in a much more, you know, normal market environment. And that, you know, those will come together nicely in terms of our you know, kind of long-term, you know, double-digit recon growth paths and our high single-digit company growth path.
spk06: Yeah, George, and I'd just weigh in there, too, to say, you know, the depth and strength of our portfolio is just so much more robust now as you think about, you know, leveraging the scale and now the channel that we've put together across the globe. But some of that takes time as you're building inventory, as you're working through, you know, making sure that we're able to, you know, feed those channels, you know, with the products in the right place. So as Matt described, this will develop over time. And then there's also the benefit of now leveraging the capabilities that we have with Legacy Mathis, with Lima, with Legacy Inovus to drive innovation cadence into the future to just continue to support that development of the bags that we have across these anatomies. So I think our view is it's going to help to start moderate some of those net impacts as we've described here in 2024 in the back half of the year. But as we've also said, this is one of the things that we believe that will help us to continue to grow above the market outside the United States longer term as we're putting these things together. And now you're leveraging your sales call with a much more robust portfolio.
spk01: Okay, that's really helpful, Keller. I appreciate all that. And then maybe to follow up on the P&R segment, obviously you've been investing a little bit there and have some new devices and updated devices that you've been rolling out. How should we think about the impact of that with pricing and your ability to take some price with rolling out some new devices there? And how should we think about the growth specifically coming from pricing in that segment going forward?
spk07: Yes. In P&R, you know, there had been a more historical, a little bit negative price environment in a time where we really weren't innovating. And then more recently, there's been a positive price environment that's, you know, been, you know, kind of a lot passing through, you know, the inflation. We're now running at about slattish price in P&R. And I think that's, you know, flat to a little positive is sort of the the right price range for a P&R business where we've got the right amount of innovation coming through the business and we kind of get a price where we can, but then there's, you know, areas where there's going to be some pressure. And we've also been really having an eye towards mix and whether it's, you know, kind of product line by product line mix and growing things like our technology-based rehab products faster than the rest, or whether it's new products and making sure that the new products that we bring out have higher margins than the existing product line. I think those are things that factor into that kind of price and gross margin equation as well. So, you know, I think that we expect, our forward assumption would be that from a growth standpoint, price is neutral in the P&R kind of markets, kind of like this year, but also that our innovation continues to ramp and grow and is helping us to grow the market, but also helping us to have continuous margin expansion.
spk01: Got it. Okay. Really helpful. Thank you all again for the time this morning.
spk08: That concludes our question and answer session. I would like to turn the conference back over to Matt Taratola for any closing remarks.
spk07: Thank you for joining us this morning. I want to end the call by thanking our team members for their commitment to excellence day in and day out. We have a lot of momentum and excitement across the organization and remain committed to delivering value for all of our internal and external stakeholders. Thank you for listening today, and we look forward to sharing our third quarter results with you in October.
spk08: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer