Enovis CORP Q3 FY2021 Earnings Call

Welcome to the Colfax Third Quarter 2021 Earnings Call. My name is Annette, and I will be your operator for today’s call. At this time, all participants’ lines are in a listen-only mode. Later we will conduct a question-and-answer session. I will now turn the call over to Mike Macek. Mr. Macek, you may begin.

Thanks, Annette. Good morning, everyone, and thank you for joining us. I am Mike Macek, Vice President of Finance. Joining me on the call today are Matt Trerotola, President and CEO; Shyam Kambeyanda, Executive Vice President and CEO of ESAB; and Chris Hix, Executive Vice President and CFO. Our earnings release was issued earlier this morning and is available in the Investors section of our website colfaxcorp.com. We will be using a slide presentation to walk through 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 and will be available until the next quarterly earnings call. During this call, we will be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the Safe Harbor language 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 today. 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 made during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today’s slide presentation. With that, let me turn it over to Matt, we will start on slide three.

Thanks, Mike. Welcome everyone and thanks for joining our call today. I am pleased to report that our business has performed well in the quarter and we made strong progress on key strategic priorities. We met our third quarter commitments by growing organic revenue 15% and achieving adjusted EPS growth of 32%, despite the challenging environment. We also outperformed our markets as a result of our amazing teams around the world. I want to take a moment to thank our teams for their continued dedication to our customers and patients and the success of our businesses. ESAB exceeded our expectations this quarter with better than expected growth and strong margin expansion. We continue to see strong execution here, and as a result, we are increasing our full-year organic growth and margin expectations outlook for ESAB. I have asked Shyam Kambeyanda, the CEO of ESAB, to join the call this morning to talk further about this great performance and progress. MedTech performed well given the challenges faced by the industry. We outperformed the market in both P&R and recon again, but we are impacted by COVID-driven slowing of elective procedures, which I will touch on more in a few minutes. We are making strong progress integrating the recent acquisitions and I will share some highlights later in the call. Finally, we are fully on track for the expected tax-free spin-off of our ESAB business to Colfax shareholders. We have made substantial progress toward creating two independent Boards with relevant skills, experience, and diversity and with limited overlap. Also, we have filled all the key corporate leadership positions for ESOP with tremendous talent readying them to become an independent public company. And as you will see in a few moments, we have also selected our new corporate name which symbolizes our exciting future. We continue to target separation for the first quarter of 2022 and we are confident that we will position both companies for maximum long-term growth and value creation. Slide four gives an update of our MedTech business. Sales for the quarter increased 40% or 1% on an organic sales per day basis. This includes the 2-point headwind from one-time TT sales in Q3 last year. While this is below the expectations that we had entering the quarter, we believe that it’s very strong top-line performance given the temporary pressure on elective surgeries in the quarter. The key thing to note is that both businesses, recon and P&R, continue to outperform their markets. We have grown well ahead of peers for a number of periods over the past several years. The year-to-date organic growth figures versus 2019 on the slide tell the story. Our recon business is up 7% year-to-date versus 2019, and our P&R business is approximately flat. These are organic numbers, both significantly better than market rates. In recon, our shoulder implants grew double digits year-to-date versus 2019, continuing to take share through innovation and commercial execution. As we move past COVID and return to normalized market growth, both of our MedTech businesses are well positioned to show strong growth in 2022 and consistent market outperformance over time. In the quarter, we had some unexpected impact from COVID, primarily in recon. After a strong June and July, we saw a slowing of elective procedures in certain regions of the U.S. However, we did see improvement in October, giving us confidence in our expectation of gradual improvement in Q4. This points to a more normal market environment in 2022 and an opportunity to recapture some of the missed demand from 2020 and 2021 as pressure on hospital space and staffing subsides. Additionally, during the quarter we continued to see MedTech supply chain inflation and inefficiencies. Our teams are doing what it takes to serve our customers, which is driving costs higher and temporarily impacting our profitability. We still made sequential progress in the quarter as organic EBITDA margins improved on lower organic volumes. We also were able to implement some price increases to offset part of the inflation that we are seeing. These took effect late this quarter and along with expected volume improvement, support our guidance of sequential margin improvement in Q4. We have other CBS initiatives driving price cost, productivity and SG&A simplification to accelerate margin improvement in 2022, and we remain confident in our ability to substantially expand MedTech segment margins over time and achieve the longer-term targets outlined earlier this year of 25%. Slide five highlights two recent product introductions. We continue to innovate, bringing clinically differentiated products to the market to broaden and strengthen our portfolio. Having robust vitality is a key part of our strategy to drive above market organic growth. And these two launches are good examples of us filling out our offerings for surgeons, increasing our clinical relevance and expanding our market reach. The EMPOWR Dual Mobility Hip System is the latest addition to the EMPOWR Hip portfolio that provides surgeons a solution to treat a large patient group meaning better joint stability. Joint mobility is a sizable and important segment of the hip market and this launch will help us to secure additional business with existing surgeons and also attract new surgeons. Next, we continue to expand our robust suite of foot and ankle products with the DynaNail hybrid fusion system, a member of the proprietary DynaNail family of products. The DynaNail hybrid features a unique design with ease of insert dynamic compression. Our early results on this launch have been very positive. We are exceeding our sales plans and have received excellent feedback from customers and our channel. Slide six highlights the great progress we made on the integration of the highly strategic recon acquisitions that we completed over the past year. Along with our very successful U.S. surgical business, these lay the foundation for sustained double-digit organic growth in a much larger addressable market. During our July earnings call, we announced the acquisition of Mathys, a highly complementary global expansion of our fast-growing reconstructive platform. Since then, we have been rapidly integrating the business and there is a great cultural fit between the two companies. We expect to accelerate Mathys growth by introducing several of our market-leading products into their channel. Together, we have already established a clear product roadmap and an aligned forecast for revenue synergies. In the first half of 2022, Mathys will launch our AltiVate Reverse Shoulder and EMPOWR 3D knee, which already have the required regulatory approvals. We are also working on a pipeline of other growth synergies. Beyond growth, our teams are collaborating to secure a three-year path to $15 million of annual savings from increased scale and operating synergies. Our early focus is on in-sourcing projects that will generate savings next year. We continue to expect this business to generate approximately $150 million of revenue in 2022 and build over time to double-digit growth and accretive EBITDA margins. Also, we continue to build strong momentum in our foot and ankle platform, which was formed through three different acquisitions over the past year. These additions established a differentiated product portfolio in the high-growth, high-gross margin foot and ankle market segment. We combined our new foot and ankle businesses into a cohesive growth platform, led by a very strong team with deep foot and ankle experience. This allows us to create a powerful channel focused on the 10,000 foot and ankle surgeons in the U.S. that will extend our reach and scale as we grow. We also aligned on a combined innovation pipeline and acquisition priorities to expand our bag of clinically differentiated products to address the full foot and ankle market opportunity. We continue to expect this business to grow rapidly and reach $100 million of revenue with accretive margins and strong double-digit growth over the next three years. And finally, I am really excited to introduce our new company name on slide seven, Enovis. Enovis symbolizes the powerful combination of innovation and vision fueled by our passion for continuous improvement and reinforced by our drive to deliver superior clinical outcomes. As we strategically pivot to a specialty MedTech company focused on creating solutions that improve lives, the Enovis brand emphasizes the differentiated value and accretive foresight we will bring to healthcare professionals and their patients around the world. And in recognition of our successful history of growth and innovation, the distinctive O in the new Enovis logo was deliberately carried over from the Colfax logo as it represents continuous improvement, the cornerstone of compounding value creation that we will continue as Enovis. With that, I will turn it over to Shyam, who will start on slide eight.

Good morning, everyone. Thank you, Matt. We had a strong quarter at ESAB and I am proud of the progress and effort by the team. I want to share a few things before we get into slide eight. Recently we celebrated our 117th year as a company. Our passionate and committed associates are looking forward to shaping the future of fabrication technology for many years to come. We are outpacing our end markets and further expanding our margins, reflecting strong execution by our global teams and I am thrilled with the progress that our engineering teams are making to deliver exciting new products for our customers and I will share more on this later. To give you a bit more color on our end markets, we continue to experience a broad recovery across most segments and especially strong underlying demand in infrastructure, construction and renewable energy. We are also beginning to see modest improvement in energy end markets. And lastly, the one segment that continues to show some weakness is automotive as a result of their supply constraints. Along with innovation and a broad recovery, our next advantage is our strong global footprint. Our footprint provides great diversification and resiliency, which has been on display during and after the pandemic. Last, and most importantly, we continue our journey with CBS. Recently I had the chance to visit several of our manufacturing facilities and was especially impressed with our Maceo plant and its adoption of lean principles. This facility has been and continues to be a major factor in our margin expansion and customer satisfaction journey. Getting into the numbers, in the third quarter, total sales increased 24% versus last year, reflecting high single-digit volume growth and 15 points of price. Our volume growth is fueled by our innovative products and a strong local ground game focused on customers. Drilling down another layer, third quarter volumes in the Americas rose 11%, reflecting strong underlying demand and continued share gain. A price increase of 24% was substantially influenced by South America. South America did a fantastic job of balancing price and costs while providing best-in-class service to our customers. EMEA and APAC increased 6% versus the same period a year ago. These are strong results considering some of the regions began to rebound earlier from COVID restrictions. That said, we believe our Europe business has yet to fully rebound due to weakness in the auto sector. On the flip side, the auto sector recovery in Europe could provide upside for growth as we head into 2022. Our GCE business continued its strong multiyear growth. We acquired this business a few years ago and it continues to set the bar on growth and margin expansion, and we expect another strong performance from them in 2022. Turning now to slide nine, we are accelerating our innovation strategy. Our relentless focus on innovation delivered 80 new products last year and we are on pace to deliver over 100 new products in 2021. In particular, I am pleased with the performance of our new Rogue product range. This product has been very well received by our customers globally and positions ESAB to increase our market share in the light industrial equipment category. We recently had a grand opening of our newly redesigned innovation facility in Gothenburg. I am very proud of the detail, passion and thought that went into the design. One could feel the energy and excitement, even though most attended the opening virtually. To complement Gothenburg, we continue to invest in our R&D center in Chennai. As a result, we have a strong funnel of new products to come. With the recent acquisition of Octopuz, we added capability for offline programming of robots, strengthening our digital offering. Recently, we were able to win a key customer by providing a full workflow robotic solution that included our equipment, filler metal and digital solutions. This is a great example of a software acquisition that furthers our strategic goals and increases our ability to gain more of our customers’ wallet. In summary, we are confident in our ability to achieve our long-term strategic goals of $3 billion plus in revenue, 20% plus in EBITDA segment margins and strong free cash flow.

Thank you, Shyam. I will start on slide 10. We entered the third quarter with decreasing COVID pressures. This reversed in early August when increasing Delta variant cases disrupted elective surgeries, temporarily reducing expected revenues in our MedTech business. Despite this, our total company achieved percent sales growth with a small FX tailwind and 6 points from acquisitions. The COVID forces placed a further strain on an already stressed global supply chain network. Our operating teams executed effectively to supply customers, but this came at a higher cost, especially in freight and logistics that slowed our sequential margin expansion. Our FabTech business continued to successfully pass through its raw material cost inflation to customers, protecting profit but affecting gross margins. Total company EBITDA margins grew 20 basis points, which was 90 basis points better before the effect from acquisitions. Overall, we achieved adjusted EPS of $0.54 in the quarter, toward the upper end of our guidance range, but a little lower than our trajectory before the COVID resurgence. This included a higher tax rate that we are expecting for the second half of the year due to profit mix changes in FX. We had another strong quarter of free cash flow generating $68 million. Year-to-date, we are approaching $200 million and are well on our way to approximately $275 million for the year excluding separation costs. This includes higher inventory levels related to supply chain and logistics challenges. Turning to slide 11, our ESAB business posted strong results this quarter. Shyam already covered the market commentary, so I will highlight that our 23% total growth included volume growth this quarter over both 2020 and 2019 levels. We are using dynamic customer pricing to stay on top of raw material inflation pressures and we expect to see a small amount of additional price reading through in the fourth quarter based on actions already taken in the third quarter. EBITDA margins were again at healthy levels, up 180 basis points to 16.5%. Volume leverage and benefits from restructuring programs underpinned this terrific performance and we had favorable timing on the resolution of some previously reserved matters that contributed about half of the improvement and won’t recur in Q4. On slide 12, our MedTech business grew by 14% over 2020 Q3 results, including organic sales per day growth of 3% excluding PPE. The acquisitions are contributing as expected and are on solid paths for strong growth and healthy margin expansion. This quarter’s performance reflects at least 500 basis points of reduced organic growth from the Delta variant impact on elective surgeries and related clinical and patient services. Because of our high gross margins in this business, the revenue drag also impacted margins in the quarter. As growth strengthens, we expect strong volume leverage that will contribute to healthy margin expansion. Our operating teams are pointed in the right direction to serve customers, first and foremost. They are working hard to overcome COVID-driven global supply chain constraints, which added approximately $3 million of cost this quarter versus last year’s Q3. This friction is likely to persist into at least the first half of 2022. Included on this page is a chart that fuels a part of the EBITDA performance progression this year to separate our organic performance versus acquisitions. Our Q3 organic margin stepped up from Q2 levels, despite having approximately $20 million of sequentially lower revenues. We expect even higher organic margins in Q4 as the Delta variant pressures moderate and as we benefit from seasonally higher revenues. We expect our fast-growing high gross margin acquisitions to become EBITDA accretive over the next three years, including the benefit from cost synergies. Our outlook for the year is included on slide 13. We started the year with an EPS forecast of $2 to $2.15. As our performance strengthened throughout the first half of the year, we improved our outlook a few times and landed in July at $2.10 to $2.20. Entering the fourth quarter, we expect the transitional impacts of COVID and our tax rate to keep us in this range shaping toward the lower end. Our current forecast includes the continual gradual recovery of elective surgeries than we experienced in October, as well as the current level of COVID-driven friction in our supply chain. We also expect the typical sequential seasonal revenue improvements in both of our businesses. As noted earlier, our free cash flow performance remains on track for approximately $275 million this year the forecast related to the separation. I will conclude our prepared remarks on slide 14. Our teams are performing very well this year in a difficult environment. We are outperforming market growth levels and driving continuous operational improvements. We have completed acquisitions to shape the MedTech business for faster growth and margin expansion in the coming years and the integrations are right on track. Our two businesses continue to gather momentum as we approach the first quarter 2022 separation and our teams are excited and ready for their new futures. And with that, Annette, let’s go ahead and open up the call for questions.

All right. Thank you. And our first question is from Mr. Scott Davis of Melius Research. You may go ahead.

Thanks, Operator. Good morning, guys.

Hello, Scott. Good morning.

I am curious about what steps remain to reach the finish line on the split.

Thanks, Scott. As you can imagine, this has been a well-coordinated effort by our team, and we are well into the process. We have discussed building out Shyam’s team for the corporate support capabilities he requires. He already has the operating team and momentum in place, and we are close to fully assembling our Boards as well. We've addressed capital structure alignment, and at this stage, we are simply following the typical steps, such as preparing filings. So, we are right on track and do not anticipate any significant challenges as we approach the separation.

Okay. And then on the same line of questioning, how many of those positions were you able to fill internally at each of the or senior positions or however you guys want to define it at least in certain levels?

Firstly, as we've already mentioned, Shyam and the ESAB leadership team consist mainly of longstanding members, including Kevin Johnson, our CFO, who many of you know from his previous role as our Investor Relations leader. He has been with the company for many years. This leadership team was largely established at the time of our announcement regarding the separation, though there have been a few specific additions since then. Regarding the corporate leadership support team, a number of roles have been filled with candidates from our Colfax team, along with several new hires. Overall, it has been fantastic, and the talent we've attracted truly reflects the enthusiasm surrounding ESAB's future as an independent company.

Okay. And just real quickly, there were price offset costs in MedTech in 4Q?

For MedTech, my answer regarding price versus cost is no. When we experience price increases in that sector, there are parts of the business where we can pass those price increases on, but there are also areas where we cannot do so immediately. We have mechanisms like changes to reimbursement rates and GPO contract adjustments over time. We made a significant price adjustment in the areas where we could to start addressing some of the inflation that has impacted the business, and we intend to continue addressing the price versus cost challenge as we move into next year. Over the coming quarters, we will assess how much we can recover through pricing compared to what will remain as inflation.

Okay. Thank you guys. I will pass it on. Good luck this quarter.

Thanks, Scott.

All right. The next question is from Andrew Obin of Bank of America. Go ahead please.

Hi. Good morning.

Good morning, Andrew.

Good morning, Andrew.

Chris, Mike, how are you, Shyam. Yeah. Just a question, I know it’s sort of a tough one to answer. But as we think about sort of MedTech recovery and elective procedures coming back, basing the conversation, what’s your best guess how just this progresses over the next six months to nine months, because I think this is a fairly unprecedented pause and growth for the industry you guys are doing, as well as anybody. But just what are you hearing from the channel in terms of how this recovery will progress into for first half of next year? Thank you.

Thank you for your question. We believe we are performing well, and we've shared some year-to-date organic data for your review. We feel confident that we are achieving strong results in this environment and will continue to do so moving forward. In the quarter, we experienced significant momentum during June and July, but we began to face some pressure towards the end of July. Throughout August and September, data indicated that elective surgeries declined by at least 5%, with some estimates suggesting up to a 10% decrease. This marks a shift from the trends we observed leading into the end of the quarter. However, as we transitioned into October, we noted a slight uptick in activity, with surgeons showing intentions to recover some lost ground in the fourth quarter. There are challenges to this recovery, largely due to COVID spikes in areas with lower vaccination rates, which have resulted in more significant slowdowns. Additionally, constraints such as hospital and operating room capacity, along with staffing shortages, are impacting progress. We do anticipate an improvement in elective surgeries as we advance through the fourth quarter, paving the way for a return to more normal levels next year. There’s a backlog of surgeries that were postponed in 2020 and 2021, creating additional opportunities for the industry. It is widely believed that recuperating this backlog will take a couple of years due to the necessary resources and time required. This presents potential for market growth in the industry over the upcoming years, which we expect to capitalize on as we continue to excel.

Thank you. and just a follow-up question, given the number of the deals you guys are doing and given pervasive supply chain bottlenecks, specifically on the MedTech business, can you just tell us how are you taking advantage of CBS or I guess it’s now called EBS, is it still CBS, I hope so?

We will continue to refer to it as CBS for now. Yeah. So the team had started a really nice CBS journey already as we went through 2019 and we were starting to see real benefits in terms of the service levels to customers and then progress on productivity initiatives that we were fully confident we are going to start to turn into some nice margin expansion as we move forward. That work continues, but for sure a lot of our CBS efforts have been redirected in the last few years here to focusing on customer service and things like I know our plant that produces our bracing products uses the CBS tools really every week to look forward at the production forecast, understand what they are going to be able to produce and where the limitations are in terms of different elements of the product supply. And Pareto that and then problem solve to be able to either find a way to expedite the supply, to be able to produce or redirect some of the resource in the facility in order to make other products, so that once we have product available, they can access that. So it’s daily management, it’s weekly management, it’s root cause Pareto. And it’s certainly helping us a lot in terms of being able to serve customers, we think better than our competition through this period. But we are looking forward to the time when we will get those CBS tools, driving productivity and margin expansion in the business versus helping the teams to scramble for supply.

Thanks so much.

Thanks, Andrew.

Okay. And our next question is from Joe Giordano with Cowen and Company. Go ahead please.

Hey. Good morning. This is Robert in for Joe. Just on ESAB, I wondering if you could talk about the implications of lower steel prices and how fast you all might have to get back some of the price increases that you have made recently?

Yeah. Thanks for that question, Robert. What we are seeing in the marketplace is that it feels like it’s been relatively stable and so we will see where the price will go. I think we have spoken about this before, our intention is we do expect when steel prices go down, they will give some price back. But then we have other tools in our toolkit with CBS where we talk about value, different strategies around product line, streamlining, et cetera, that will help us continue to hold some amount of that price as we go through the year. So what I do expect is that we will have some innovations and new pricing, as well as some give backs related to steel prices declining.

Okay. That’s helpful. Thank you. And then just on the MedTech business, just wondered, how of procedure rates in the ambulatory procedures trended versus like the hospital-based procedures? Is there any difference there, I mean, do you feel like you picked up some share gains?

As we progressed through COVID, hospitals quickened their transition to ambulatory care, resulting in a temporary increase in the percentage of procedures performed in that setting. We anticipate some rebalancing, but the ambulatory surgical centers are projected to continue growing at a faster pace. We have monitored our presence in the ambulatory segment, and we believe it exceeds the industry average and is expanding more rapidly. This success in the ambulatory space has played a role in our market share gains. Our strategies are focused on ensuring we provide not just our implants, which are well-suited for ambulatory settings, but also comprehensive solutions and workflows that enable surgeons to efficiently conduct procedures in limited spaces, further aiding in our share growth in the market.

That’s great. Thanks so much for taking my questions.

Yeah. Thanks, Robert.

And the next question is from Chris Snyder with UBS. Go ahead please.

Thank you. So the company has talked to kind of high single-digit normalized organic growth from MedTech. But I was hoping for some more color or any maybe targets the company has on expected total growth. As commentary and actions here suggest, you guys will continue to be active on M&A? And then I guess maybe a different way to ask the same question is, is there any kind of timeframe for the expected kind of $3 billion MedTech revenue target, which the company has spoken to?

Yeah. Thanks, Chris. Well, I think, first, what I’d say is, we have talked about being able to drive to $2 billion pretty quickly and a lot of that’s going to come from organic growth. Starting from our pro forma coming out of this year and then a couple of years of good, strong organic growth will get us a good ways toward that $2 billion number. And we certainly see ample bolt-ons and adjacencies that would be opportunities to fill in the gap there and to grow double digits through the coming years and get to that $2 billion pretty quickly. In terms of how we get from $2 billion to $3 billion, we certainly have the opportunity to grow nicely organically with the portfolio that we have been shaping and the strategies that we have been driving. We have an opportunity to continue to do bolt-ons and adjacencies like the ones that we have been doing. And then there are some larger possibilities to think about within the orthopedic space, some large attractive areas that we are still not in and also adjacent to the orthopedic space that it could be a part of how we make that journey from $2 billion to $3 billion. Always with a focus on making sure that we are getting great businesses that we are shaping our organic growth upwards to solidify that high single-digit consistent organic growth and we are shaping our gross margins upward, because if we got the organic growth and we have got the gross margins, we are very confident that we can drive the EBITDA margins up over time.

Appreciate that. That kind of leads into my follow-up on MedTech margins. I mean, I certainly understand that COVID was a pretty material drag in the quarter and M&A has been a margin headwind all year as expected. But the legacy DJO business is running down year-on-year despite similar topline and down pretty materially from 2019 despite higher topline at least by my math. I know you guys called out supply chain as a headwind, but is there something else going on there that we should take note of that’s driving that compression?

Yes, in addition to the acquisitions mentioned, we can observe the temporary effects of these acquisitions, and we have discussed how they will scale over time, particularly regarding synergies from the Mathys side. If we exclude the impact of acquisitions, there are three main factors at play. First, we made significant investments back in 2019, which we have previously mentioned, to position our business for future growth and align it with industry trends. Second, operating leverage is crucial for our business. When we achieve growth above mid-single digits and into the high-single digits organically, we can see a positive effect on margins due to operating leverage. However, during the past few years, our growth has been limited, which has constrained our operating leverage. Recently, when we expected to be at a certain growth level but ended up lower, it created challenges. Third, COVID-related inefficiencies are present, specifically with inflation and additional costs from expediting processes. This includes costs not just for products but also for freight, especially with outbound shipping to customers, influenced by our pricing strategies and rising global freight rates due to supply chain pressures. While these issues are expected to ease over time, they are currently contributing to higher costs. Our production has also faced inefficiencies, with unpredictability regarding supply deliveries impacting plant performance. We've prioritized customer service despite the costs associated with it. These are the three primary factors affecting our margins as we target a 25% margin moving forward. Although our starting point is lower than anticipated earlier this year, we see pathways to recover from COVID impacts by improving manufacturing efficiency and addressing expediting costs, as well as managing inflation through pricing or time. Additionally, we can enhance operating leverage and productivity through CBS as we expand. We also have opportunities to optimize and streamline our SG&A efforts, with ongoing projects aimed at improving efficiency. We remain confident in our journey toward achieving that 25% margin, backed by increasing gross margins and growth over time, ensuring that our bottom line improves as well.

I appreciate all that color. Thank you.

All right. And next we have Jeff Hammond with KeyBanc, I am sorry, KeyBanc Capital Markets. Please go ahead.

Yeah. Good morning. Yes, Shyam.

Hi.

Good to have you on the call. Maybe I will ask you a question and go the other way on price. Can you just talk about if steel kind of stabilizes here, what you think the wrap-around pricing is for ESAB into 2022?

What I want to convey is that we cannot predict what will happen with steel prices. However, we have established processes to respond effectively to fluctuations in steel costs. From my perspective, steel prices have stabilized, although they are still increasing in some regions, and we have strong measures in place to address this. Looking ahead, I anticipate that these price costs will remain neutral as we progress.

Okay. And then maybe just on, if we assume that there’s kind of no re-spikes in COVID into 2022, like, what do you think is a reasonable kind of growth rate to think about for P&R and recon individually as you move into 2022?

Our recon business was experiencing strong double-digit growth before COVID, and we anticipate that it will emerge from this period maintaining that healthy growth rate. Additionally, our foot and ankle segment is also expected to achieve double-digit growth. We have mentioned that the Mathys business will progress from its previous mid-single-digit growth to double digits. Overall, we expect our recon portfolio to continue growing in the double digits as we recover and over time. On the P&R side, those markets typically grow around 3%. We are actively refining our portfolio positively through acquisitions and will explore additional opportunities for growth. The P&R business has been positioned to grow better than the market during COVID, and we expect that we can at least match market growth rates post-COVID and possibly exceed them. When we combine these segments, we anticipate mid-single-digit growth plus, and potentially high-single digits growth as we move forward beyond COVID.

Okay. Great. Thanks a lot.

And that concludes our Q&A session. I will now turn the call back to Mike Macek for closing remarks. Go ahead please.

Thanks everybody for joining our call today. We look forward to catching up with you guys individually and have a good afternoon and day. Thanks everyone.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.