Good morning, and welcome to the Enovis Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kyle Rose, VP, Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for our fourth quarter 2023 results conference call. I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call this morning are Matt Trerotola, Chair and Chief Executive Officer; and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investors section of our website in enovis.com. We will be using a slide presentation in today's call, which can also be found on our website. Both the audio and the slide presentation of this call will be archived on the website later today. During the call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the safe harbor language in today's earnings release and in our filings with the SEC. Actual results might differ materially from any forward-looking statements that we make. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law. With respect to any non-GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn it over to Matt, who will begin on Slide 3. Matt?

Thanks, Kyle. Hello, everyone, and thanks for joining us today. 2023 was a year of significant progress toward our long-term strategic goals, and I'm excited about the future of our high-value med tech growth company. We had a terrific year with continued share gains across geographies and business units, strong execution on new product initiatives, solid margin expansion, and truly transformative acquisitions. We completed the year with total revenue growth of 9%, which included 8% organic growth, right in line with our high single-digit strategic goal. Our talented team continues to develop exciting technologies and solutions that improve patient outcomes and satisfaction around the world. In Recon, we made considerable progress expanding this high-growth and high-margin platform and drove full year organic growth of 14%. We delivered double-digit organic growth across all major segments, continued to win in the ASC in the U.S., and had strong execution internationally as we continue to ramp our very successful 2021 Mathys acquisition. We also closed the year with the strategic acquisition of Lima that step-changes our Recon business starting in 2024. In P&R, we've been reshaping the business for sustained mid-single-digit organic growth. In 2023, we once again outgrew our markets with full year organic growth of nearly 5%. We improved innovation vitality in this business from close to 0 in 2018 to double digits as we exit 2023, and have a strong pipeline for 2024 and beyond. We also made good progress on margins in 2023, improving our EBITDA margins by 70 basis points, more than offsetting growth investments and headwinds from M&A currency inflation. Our gross margin improvement is a result of our mix-enriching strategy and the powerful impact of our EGX business system driving operational productivity and pricing improvements. And finally, we continue to accelerate our growth through focused M&A.…

Thanks, Matt. Hello, everyone. And as Matt said, we'll start on Slide 10. We're pleased to report fourth quarter sales of $455 million, up 11% versus the prior year, 8% organic growth. The growth was fueled by strong demand for our products and solid commercial execution in both business segments. Fourth quarter adjusted gross margin was 58.6%, up 150 basis points year-over-year. Growth was driven by leverage from higher sales, favorable product mix, and cost discipline. We continue to leverage our EGX business system to drive productivity in the supply chain, and the results continue to read through in our gross margins. Fourth quarter adjusted EBITDA margin of 18% was down 30 basis points versus 2022. The year-over-year decline was driven by onetime cost benefits in 2022 and some dilution from recent acquisitions. But results came in as expected with a strong sequential step-up to finish the year. The fourth quarter's effective tax rate was 22%. This is compared to 22% last year. Interest expense was $4 million in the quarter, versus $5 million in 2022. Overall, we posted strong adjusted earnings per share of $0.79, 10% earnings growth versus the prior year. For the full year 2023, we delivered high single-digit organic growth of 8%, expanded our adjusted EBITDA margins by 70 basis points, and produced double-digit underlying earnings growth. We continue to strategically shape our business mix to Recon and utilize our EGX capabilities to scale and drive leverage across our business segments. We're delighted with these results and the momentum we've built in 2023. I would like to take a moment to thank and congratulate the entire Enovis team for delivering another strong year. Slide 11 lays out our execution in 2023 relative to our guidance over the course of the year. We were able to deliver…

[Operator Instructions] The first question is from Vijay Kumar with Evercore ISI.

Congrats on the nice print here. Matt, maybe my first one on the Q4, double-digit Recon, it's pretty solid. But then when I look at the market, your peers had a pretty healthy Q4. So while not taking anything away from 11, it just feels like the market accelerated in the relative spread versus market -- historically, you guys have been well of a market perhaps. That spread narrowed. So I'm just curious, was there any timing element or when you look at the 11% Recon growth in Q4, was that in line with expectations?

Yes, Vijay, I think we finished in line with our expectations. I think you really have to look at the multiyear numbers to kind of see the picture a little bit clearly. We've had kind of strong comp, and even if you go back to the 2019 comps, you can see that the pattern from Q3 to Q4 is a quite normal one and that some of the differences in sequential patterns kind of come out the wash when you look at the multiyear views.

Understood. And Ben, one for you. The margin expansion, I think I heard you 50 basis points for core, maybe 75 for Lima. But I thought Lima was supposed to be 150 basis points accretive to gross margins. So I'm curious, are there any OpEx assumptions that are different, why the gross margin accretion should slow down to operating margins, and cadence of that $40 million cost synergies that's assumed in the guidance?

Yes, Vijay, I mean, everything is coming in relatively consistent with what we kind of expected in terms of the overall numbers. There's a little bit of shifting as you think about translation of U.S. GAAP versus IFRS. So that's probably kind of 1 area where maybe our assumptions between gross margin and OpEx kind of flipped a little bit. But overall, still fully in line with kind of the thoughts that we had in terms of the profit that we can generate in year 1, which would assume some cost synergies that we get after right away, but still very much confident in the pathway to $40 million by year 3.

Understood. And Matt, if I may, one quick one on the Lima integration. You had some helpful comments out there. But I think in the past, you had mentioned the guide assumes some disruption from integration. I'm curious what the experience -- the early experience has been. Are those disruptions in line with expectations or perhaps coming in about plan, would be helpful?

Yes. So as we shared, we've added to Lima numbers -- as we shared when we announced the deal, we've added them on top of the core for our guidance for this year. Certainly, we've done a lot of very proactive work on planning for and then starting to execute the integrations in the different markets around the world. And our goal will be to have the minimum amount of leakage in terms of how things come together. We know that it will be a little bit. Our goal would be to have the minimum. We still feel very comfortable with what we've guided as to how much there will be. And it's early days, we're executing our way through that.

Next question is from Xuyang Li with Jefferies.

I guess to start, I wanted to hear a little bit about just the new product cycle that you mentioned earlier, multiyear cycle. It seems like some attention is being paid on enabling technologies and Foot & Ankle. But I wanted to hear a little bit more about specific areas and what are some of the white spaces you're looking to fill or improvements made on existing products?

Yes, for sure. Thanks for the question, Yang. As we mentioned, we're really going through a period now where we've got some flow over into this year from some of the launches of the last year or so as they ramp, and then we've got other exciting launches coming within this year and next year. And so it's a very kind of healthy period in terms of our ability to drive vitality across all of the businesses. And in the Recon side, that's a continued focus on vitality within those businesses, but for sure also now has enabling tech coming through with Arvis in the knee going to the 2.0 launch there late last year in knee end hip, and then opportunities to bring the next enabling tech offerings into other anatomies as we work through this year. And then with -- over on the P&R side, we've gone from very little vitality years ago to now be in a period where things are really inflecting and we've had some really nice bracing launches across the last year or so that are ramping through this year. And then more launches coming through this year and the following year. New knee segments, refreshments and other knee segments, moving deeper into the attractive spine bracing segment, some extremities braces. So a really nice lineup there that we're working from the bracing front. And on the Recovery Sciences front, we've got our largest modality there, electrotherapy, is one that has not a lot of innovation in a long time. We've got some great fresh new products there. And so yes, it's a nice period of time, and a lot of this is going to build as we go through this year. It's contributing nicely right now. But we'll have even stronger contributions as we move through to the back half of the year.

All right. Great. Very helpful. And then I guess a follow-up, just, I guess, more specifically on Arvis 2.0 and AR in general. It's been getting a lot of the attention from surgeon. A lot of times when we ask them just broadly what are you excited about, AR comes up pretty frequently more often than not. I guess from your perspective, how's the receptivity been on the surgeon side? And what do you think is needed to make it more of a mass market product?

Yes. So thanks for the comments, and we're getting some of the same kind of positive feedback that you're getting. I think the reason people are really excited about AR is because it's -- ultimately, surgeons are looking for things that are going to improve the way that they can take a surgical plan and flow it interoperatively in surgery, make the decision they want to make, capture all that data while they're doing that, and have that ability to do efficient repeatable surgery and capture all the data. At the same time -- and they also want to be able to market that they've got the latest and greatest technologies in order to do that. At the same time, they're not looking to add cost and time into the procedures. And so AR seems like it's a perfect solution for that, right? You can get really those benefits of that interoperative guidance while at the same time having really limited cost and time into the procedure. We've gotten great feedback from surgeons, which is a combination right now of surgeons that we've had in the past as well as new surgeons that have come over because of Arvis. Getting great feedback. The improvements that we made last year after the initial launch are -- really have improved the usability. This is a new to the world technology, right, so in this industry. And so it's something that is coming up the learning curve, and we're getting really good feedback on the usage of this 2.0 version, and looking forward to rolling it out broader and broader in the knee and hip space, and then certainly actively working on the next anatomy for Arvis because we think it has every bit of opportunity to bring AI into shoulder that there's been to bring it into knee.

The next question is from Vik Chopra with Wells Fargo.

Sorry, I was on mute. Thanks for taking the questions, I had 2. So maybe the first one is just on the state of the market. How long do you expect above-market growth for Recon? And maybe just talk about your expectations for 2024?

Yes. Thanks for the question there, Vik. Look, I think we've consistently said that if you look at the math back to '19, there's 1.5 years of growth missing for the market, and maybe we worked off a little bit of that last year with some of the above market growth. But I think there's definitely a fact base that suggests that there should be some pent-up demand around the world for surgery because the patients continue to need it but there was a period of time when less surgery could be done. So we still believe that there's more pent-up demand to come. We saw some of it last year. And we really saw last year was that there was periods of the year where capacity utilization was able to go to very high levels. In the U.S. It was early in the year. There was just a very good period there early in the year where I think surgeons were able to really kind of run at the upper end of their capacity utilization. There are certain countries around the world that consciously opened up capacity utilization early in the year. And when that happened, we ran above normal rates. And so I think that certainly last year had at least a point or 2 of extra growth in the elective surgery, orthopedic surgery area, from a market standpoint. And you can see that extra in our very strong 14% growth for the year. And certainly this year, if we hit periods where you have that extra utilization opportunity in the marketplace, there should be an opportunity for that above normal type of demand as well. We planned for a normal Recon growth year. And then you can see we've guided double-digit growth again in light of a normal Recon growth year. There's certainly the opportunity for more. And certainly, the shape of the year is going to mirror last year because there's some very, very tough comps early in the year. And so the growth is going to build through the year just in terms of the market environment, and then for us, we'll also have the ramp of the innovation pipeline.

And just sticking to the same theme maybe, just a follow-up question on GLP-1s. Are you starting to see an impact of patients coming into the funnel?

Yes. I mean certainly, we have heard from the marketplace an expectation that there can be more patients in the funnel due to weight loss that could come from GLP-1. I wouldn't say that it's a meaningful effect at this point. But we continue to have the same view that we've stated that, for our portfolio overall, likely that's over time more of a slight positive than a negative. But I wouldn't say that it's having any meaningful impact at this point in time.

The next question is from Brandon Vazquez with William Blair.

Maybe first, can we focus on Lima for a second? Just wanted to go through, you mentioned a little bit on the revision side, you've already started to cross-sell kind of the cone from Lima. But can you remind us maybe what are the biggest products that you can take maybe from your U.S. organization over into the international markets with Lima, and then vice versa? And maybe what are the milestones for these products through 2024?

Yes. I think there's great cross-selling opportunity with Lima, and even quite a bit left to go with Mathis that we acquired a few years ago. And if we start from the shoulder, our market-leading AltiVate shoulder is the lateralized [indiscernible] design of reverse shoulder, which has become very strong here in the U.S. and is starting to build more and more momentum outside the U.S. And so we see a nice opportunity to sell our AltiVate reverse shoulder in certain markets outside the U.S., while at the same time lima has got a few different shoulder design, one that is a little different design that we reversed, that will set up for surgeons that want to stick with a little bit less lateralized design. But then they also have this SMR, which is convertible platform that really has been something that is very good for some of the more -- the toughest indications, and enabling surgeons to make interoperative choices between an anatomic and reverse, or to go back to an anatomic after the fact and convert to reverse. So really nice complementarity in the shoulder portfolio, taking the AltiVate outside the U.S. and bringing some of those technologies Lima has for some of the toughest revisions in shoulder into the U.S. Kind of a similar picture as we get over into the knee space, our EMPOWR 3D with its dual pivot capability has shown to be a better need that leads to better patient satisfaction. In the U.S. and in the places we've taken it outside the U.S., there's been a lot of excitement about that need. But at the same time, we have not had as much of a focus on revisions. We've been just moving into revisions here in the U.S. Lima has not had the strongest primary need, but has been very strong in revisions around the world, including a little bit of traction here in the U.S. And so again, just a perfect opportunity to cross-sell great products from here to there. Lima is excited to start to bring our enabling technologies with Arvis into the business. And we're very excited about the 3D printing. Promade is a custom 3D printing capability that at this point is used on some of the very toughest revisions and situations, but over time could have some good broader applicability as well. So a whole set of cross-selling opportunities. And yes, we've been able to hit the ground running in terms of having plans in place and, in some cases, already having the market access to start to pursue those cross-selling opportunities and, in other cases, having active initiatives to go ahead and get the additional market access.

Great. And then on the EBITDA margin guidance for the year, I think if I'm backing out some of the Lima benefits, it's implying EBITDA margins for legacy and NovaStep increase by about 80 basis points year-over-year. First, am I kind of right on this math? And if so, what's kind of giving you guys the confidence to deliver another -- what seems to be a good, strong year of legacy margin expansion even with what I'll call maybe some noise from the integration of Lima?

Yes. Thanks, Brandon. I mean I think the way that we're thinking about it is we continue to execute our strategy of driving good mix improvement in the business, continuing to scale acquisitions that we've done, and then generating operating leverage into the plan. So as we think about it, we remain consistent in terms of feeling our confidence around generating at least 50 basis points or more of core margin improvement while we add on Lima and do the work to integrate that at a high level. So overall, we feel confident with the guidance that we've put out there, and we feel that's a good kind of strong step-up year for us in terms of overall margins with the addition of Lima.

The next question is from Caitlin Cronin with Canaccord Genuity.

Congrats on a great quarter. Just starting with 2024 revenue guidance, the 7% core business growth really kind of implies a slight slowdown year-over-year. What are really the expectations that are built into this?

Yes. I think I wouldn't really look at it as a slowdown in terms of our performance versus the market. I think it's sort of broadly accepted that the recon market had at least 1 point or 2, maybe 2 or 3 points, of tailwind on it last year. And then we also, on the P&R side, had some extra price that we know it's going to start to moderate. And so the 7% guide is pretty similar relative growth performance versus the markets, but also it's consistent with our approach of trying to be a little conservative in terms of how we're creating our plans and how we're guiding as we come out of the year, until we see how the market is going to unfold a little bit in the early parts of the year.

Got it. And then you said earlier, similar cadence sequentially throughout the year versus last year, but Q1 was particularly strong in 2023. Do you kind of expect that similar strength in Q1 this year?

Yes, Caitlin, I think in terms of my comments there, as I think about kind of the percentage of the year, in terms of what Q1 was of the full year in terms of revenue and EBITDA. That's kind of what the comments I was trying to convey in my commentary, is we think kind of what we've seen in 2022 and 2023 is kind of a new normal kind of seasonality that we'll see. So if you kind of do the math and look at how 2023 played out and look at kind of the percentage of each of those quarters, that's kind of how we're thinking about providing the guidance of quarterly movement.

Got it. That makes sense. And then just one more quick one. The $40 million of cost synergies for Lima by year 3, what does that really look like in years 1 and 2, and where you really see most of the effect down the P&L?

Yes. I'll start with kind of the first year. So again, as we contemplated our guidance for what we had said when we closed the -- we announced the deal, of the $70 million to $75 million of EBITDA, that would include some of the near-term synergy that we're able to capitalize on. And what you think about kind of there in terms of cost synergy opportunity is areas where there's duplicative nature or overlap. So again, when my -- AAOS is a good example, we both don't need to pay for a booth now that we're one company. There is some overlap in terms of leadership position that we're able to make quick decisions on. So we're able to capitalize on some kind of synergies early on here in the program. And so that would be kind of, I'd say, in that $5 million to $10 million range for year 1, and then building up to the $40 million kind of by year 3.

The next question is from Danielle Antalffy with UBS.

Congrats on a good end to the year. Just one quick question on the competitive landscape this morning. You did have a competitor announced the approval -- 510(k) approval for their robotic solution for shoulder. I'm just curious what's baked into your guidance as far as potential competition ramping -- heating up here on the robotics side? And if you could remind us where you guys are with [indiscernible] solution? And then just one quick follow-up on Lima after that.

Yes, sure. I mean, first, I'll say, our guidance contemplates the full competitive environment that we're in right now. In Shoulder, we're a leader in Shoulder, we've been an innovation leader in Shoulder for many years. We've got the best shoulder implant in AltiVate with the longest data and also we've got continuing innovation that we've done around that. Enabling tech has been a significant force in shoulder for a while. We've had an industry-leading mass point solution for creating preoperative plans being able to then feed them into the surgery, being able to do patient-specific instrumentation to be able to find the glenoid volt in difficult cases. And so we have also been a leader in enabling tech in Shoulder for many years. And that ability to kind of do presurgical planning and use patient-specific instruments is something that's been around for a while in shoulder and is well used and part of what's enabled us to continue to succeed. We definitely see opportunities over time for additional enabling tech in Shoulder. We've made significant investments as a company in augmented reality as well as predictive analytics. And we can see opportunities to take what is already quite valuable to shoulder surgeons in terms of the preoperative planning and some of the patient specific instrumentations. Simplify the workflow of that with augmented reality guidance and predictive analytics and create the next step change in terms of workflow in the shoulder, and do it in a cost-effective and space-efficient way that I think there's quite a bit of excitement about over on the knee side as we're bringing Arvis into that. So we're confident that, as the year plays out, we will remain a technology leader in Shoulder and that we'll have the right offering at the right time. to move that next step in the Shoulder.

Okay. Great. And then on Lima, I know your guidance for Lima sales includes some exits of product lines, et cetera. Have you guys confirmed where you're exiting yet? Or how should we think about that transpiring over the year?

Yes. So that's something that will play out through the year. There are a few things that we've just -- kind of small amounts of revenue that we've stepped away from because they were not as attractive pieces of the revenue. But most of the revenue impact that we've factored in for this year is related to working by country by country and putting the channels together and, in some cases, having to make choices as we do that, that can relate to -- result in some revenue going away from that, and -- from us. And definitely, some of that will start to hit in the first quarter, but really not seeing much. And then in the next few quarters, we'd likely be seeing the rest of whatever impact we're going to have in the year. We're working very hard to minimize that and we're working very hard to try to find more synergies. Certainly, each time that we have a little bit of breakage is an opportunity to have synergy on the flip side of that, typically. And so there's a little bit of a question of how the timing plays out and whether -- how quickly can we cover breakage with synergy. But that's something that we feel very confident with what we've put into our guidance in terms of what the Lima revenue will be. And we're off to a good, strong start so far, and we'll keep you posted as we work through the year.

Yes. Danielle, I would just pile on, on that and say that as we think about kind of how Lima strengthens the overall portfolio and the registration environment around the world, there's not going to be any kind of major product line discontinuation. We're going to make the full portfolio available to our customers. And then over time, we're going to continue to refine that and strengthen it as we drive new innovation, as we get registrations cleared in certain countries, and things like that. So I wouldn't expect any kind of major kind of gaps or discontinuations in product line in the near term. There are some kind of choiceful things, as Matt said, that we'll be doing kind of in the near term. But overall, I think this only strengthens our portfolio in terms of our ability to serve customers.

The next question is from George Sellers with Stephens Inc.

Maybe just switch to the P&R segment. You mentioned a few new launches there. Could you just parse out that low to mid-single-digit growth? What's assumed from the new launches, maybe what's assumed from pricing? And then just from an underlying market growth perspective, what is all baked in?

Yes. I mean, so first, I'd say I think that looking at last year, it was a pretty normal P&R market overall and with maybe a tiny bit of tailwind in the market, but not as significant as on the Recon side, but a healthier price environment in terms of recovering some of the inflationary pressure from the previous years. And so when you look at our growth that was pushing 5% on the full year basis, that's a little bit elevated from what we envisioned being able to do on a go-forward basis in that business. We've got 1% or so of price that we expect to more flatten out and probably a little bit of tailwind there was in the market last year. And so we still have a P&R long-term view in the sort of 3% to 4% range, which would reflect -- kind of get into a more normal price environment. And then as the innovation that we've been talking about continues to ramp its way through the business, that's how we can kind of push towards that 4% realm that we've been showing consistently over the past few years, but with a little extra price into it. We also continue to work on shaping that business to be, let's say, more of a solid mid-single-digit grower versus a low to mid-single-digit grower. And we see opportunities for that, and we've been working on them step by step. And so we're still guiding it in the 3% to 4% range. We're still working on making it something that we can guide in the 4% to 5% range.

Okay. That's helpful. And then maybe on margins. You talked about a little bit about price and then also with the new product launches. How should we think about flow through to margins? I think some of the EXG initiatives, as you've been developing some of these, are maybe driving some more attractive margin profiles with these new devices. But just curious, for this segment specifically, how should we think about margins progressing through this year and beyond?

Yes. So again, George, I think from a PR perspective, I think that's your question, what Matt said is we continue to look at how do we drive shaping moves within that portfolio, which would focus on higher-margin products. So it would be around continuing to try to drive some improvements in the mix of the business within P&R, driving some leverage on the growth that we're getting, the consistent growth that we're getting as we're continuing to just kind of drive good behavior and productivity within the supply chain there. So overall, I think that the contribution of mixing the portfolio shaping moves and then just operating leverage plus productivity is what we would see kind of helping drive incremental increases in the margins of that business over time. And as we kind of think about that business, we see it to consistently increase margins year-over-year.

The next question is from Mike Matson with Needham. Q – Unidentified Analyst: This is Joseph on for Mike. I will start with a question on Arvis. Could you maybe remind us all how you guys expect to sell the product? I guess, will this be a direct source of revenue? Will you use it to drive implant sales indirectly or some combination of both?

Yes, sure. So far, we are primarily placing Arvis as CapEx. It has a relatively low cost. And so in most of the places we put Arvis, we've placed it there, we're getting a recurring revenue stream on that on a per procedure basis, which we've been able to get on contracts at rates consistent with some of the other enabling tech devices out there. And in some cases, where we placed it, it's one of our existing surgeons, and it's a way to strengthen and deepen our relationship with them. And in other cases, we've been able to convert surgeons and get new implant sales with it. So we're tracking both the way that we ramp the recurring revenue there with placements, the way that we ramp the recurring revenue there, but then also the pull-through revenue on implants where we bring it into competitive environments. And we expect it to contribute in all those ways. We have also been able to very successfully sell it as capital, and we'll make thoughtful decisions about when it's better to sell it versus place it. But one of the real advantages that we have with Arvis is that it is a primarily software based solution. And so there is not a very large cost related to placing it or selling it. And that gives us a lot of business model flexibility. And I think in a health care environment where there's a lot of pressure on the system around health care economics, I think that over the next couple of years you're going to see a lot of excitement, as was mentioned earlier in the call, around augmented reality, even mixed reality, as a way to really bring some of the real marketing benefits as well as the procedural benefits of enabling tech in knee and then other anatomies, while at the same time being much more cost base and time efficient. Q – Unidentified Analyst: Okay. Yes. And then maybe just one on Lima. In the quarter, could you maybe give us some color or tell us what the Lima's gross margin or operating margins were in the quarter? And just given that the ongoing integration of Lima, could you maybe talk about your outlook for M&A? Can we assume that some deals may be on hold as you guys continue to integrate the Lima?

Yes. So let me comment. First of all, Lima is coming into our financial picture exactly as we expected it to. They had a good, healthy finish to the year in terms of their growth as well as their margin profile. And as we've created our plan for 2024, we've been able to take our base plan that we're already working on and then put a Lima -- put on top of that the Lima revenue and profit and margin impact, right in line with what we had expected in the acquisition process. And we have good, strong confidence in that from everything that we've learned and from everything that we've got in flight. So feeling very good about the start on Lima and the growth in margin picture that's going to emerge from that as we execute through it. As far as acquisitions, look, there's no question that we've got a significant amount of work to do this year, making sure that Lima is a tremendous success. And we've even still been coming up the curve of taking full advantage of all the great Foot & Ankle acquisitions that we made, and even the laser acquisition we made 3 or 4 years back now, we're still kind of ramping up further and further in terms of where we take that product line. So we've got a lot that we're doing in terms of taking advantage of the things that we've acquired over the past handful of years. At the same time, we got a little bit of space financially for attractive strategic bolt-on acquisitions. Certainly, it's a healthy environment out there for bolt-on acquisitions. So we've got a healthy funnel of opportunities, but we'll be very judicious here in 2024 about the acquisitions that we do. And we'll focus really only on the most strategic and on ones that have -- that are more in that kind of bolt-on range in terms of their -- how they affect our balance sheet picture and how they affect our execution bandwidth. At the same time, we can continue to do the work on medium or larger things that we could think about in '25 and beyond once we get through a fantastic integration of Lima and as we start to delever and have more space on the balance sheet. Q – Unidentified Analyst: Great. Congrats on the quarter.

The next question is from Dane Reinhardt with Baird.

Maybe just 2 kind of follow-ups at this point in the call. The first one, though, kind of on the revenue guidance. If we just take out Lima, can you just kind of help us level set kind of what other what other factors you're kind of expecting in there as it relates to FX? I think you still have some contributions from NovaStep and SEAL in there. And then it looks like you also pointed out some selling day impacts in the slide deck. So just help us kind of frame all those things together.

Yes, Dane, thanks. So again, the guidance range that we've put together contemplates the factors that you mentioned, which again, I think from an underlying core business growth, we're kind of seeing around 7%. Right now, if you look at kind of where currencies are, we would say that's kind of relatively flat in terms of the impact outlook for the year. You've got kind of within the guidance there, the full contribution of both NovaStep and Lima as well. So overall, kind of feel like all the components are there and kind of fit within the guidance that we gave.

Okay. Sounds good. And then the second one, just kind of a follow-up on Vijay's point with the Hip & Knee growth, I think 11% this quarter, relative to 18% last quarter. And I think your prior year comp from last year actually eased a little bit. So I mean, just anything else that we can kind of point to regarding that comp-adjusted slowdown even either from a competitive standpoint or potentially end markets?

Yes. I mean our Knee growth is still driving that Hip & Knee growth number. We've got nice growth of Hip, but the Knee growth is still is very strong. And certainly, within the Knee, we lapped some of the strong contributions from the Revision launch ramping. And so that had some impact and a little bit of deceleration in Knee from Q3 to Q4. But yes, I mean, the market environment from the front half of last year to the back half of last year was certainly a slower -- an elevated market environment in the first half and then more normal in the back half. But at any given quarter, sometimes the things are going to bounce around a little bit, and we try to focus on making sure that each year we're driving that full double-digit growth and the growth in relation to markets in each of our anatomies that we've committed and talked about.

The next question is from Jason Wittes with Loop Capital.

ROTH MKM, but that's okay. So just some follow-ups at this point as well. First off, in terms of just the margin expansion this year, can we assume most of that's in gross margin? And there's some offsets in SG&A? Or how do we think about how to model that for the 2024?

Yes. I mean I think I would say that, yes, you're thinking about it right in terms of how the composition happens here. Again, we'll work through that as we go as we kind of get the full integration of Lima into the organization. But again, in terms of the kind of the macro level picture, again, we see really strong EBITDA margin improvement lift by adding Lima plus getting the core expansions that we've also talked about. So overall, we would say a lot of that comes from gross margin, but then we'll kind of see how it all plays in as we start to integrate Lima.

Okay. That's helpful. And then in terms of just modeling as well, I know you weren't specific about '24 until now. You did mention Lima would be accretive, which it is. But if I look at my -- the way at least we model, even consensus, EBITDA is much better, which is great. EPS is a little bit lower, I guess, from a guidance standpoint. I assume much of that has to do with interest rates? Or are there other give and takes to know that I'm not aware of?

Yes. I think you're right on, Jason. So think about it this way, underlying core business EPS growth of double digit, slightly accretive lima. You got about 1 point tax headwind, so that's about $0.03. And then with interest rates and the paydown that we were able to do in Q4 with the financing that we did for Lima, so we paid down the revolver, we got about a $0.05 benefit as well. So if you kind of take all those components and you look at the underlying growth, you would say kind of you see nice strong core EPS improvement as well as contribution from Lima.

Okay. That's helpful. And then a comment you made earlier about having sort of tailwinds in 2023, largely catch-up from COVID and et cetera. But it sounds like you don't feel that initially that will repeat for 2024. Just curious in terms of what you're basing that off of. Is that just looking at physician backlogs? Or just kind of what indicators are out there from a macro standpoint?

Yes. I mean, it's really a conservative planning assumption, right? I think, as I said earlier in the call, last year demonstrated that, if you get periods of time when the utilization of surgery can be high for whatever reason, if you get periods of time when there's extra ability to drive surgery, last year showed that both in the U.S. and outside the U.S., there is pent-up demand, and we can have elevated growth rates as that pent-up demand gets worked through. I think the math suggests that there's still quite a bit of pent-up demand that really wasn't satisfied through the COVID period. And so we would expect that this year and in the coming years, if you hit parts of the year where things are really clean, right, you have not at a COVID or flu or storms or whatever, if we hit parts of the year that are very clean, like the early part of last year, the system is going to run at a higher utilization rate in the U.S. and you're going to get extra growth. And we saw that early last year, as well as an easy comp early last year. And outside the U.S., there was decisions early in the year by a couple of countries to put extra capacity into the system and pay for more surgery in a period of time so that some of that backlog can get cleared. And that led to things running at a higher rate for some of the early part of last year. And so we think a reasonable planning assumption for this year is a normal Recon growth rate, which would mean that a little bit of that tailwind from last year gets recreated, but we don't get an extra growth. But at the same time, there's certainly the opportunity for more of that pent-up demand to be worked off and to have another oversized market growth rate. We just think it's more prudent not to plan for that.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Trerotola for any closing remarks.

Thank you for joining us this morning. I want to end the call by thanking our team members around the world for the success of 2023. We're stepping into 2024 with 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 first quarter results with you in May.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.