Release Date: February 26, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Matt, congratulations on a successful career, you'll definitely be missed. Two questions for me, please. I guess the first one is just wondering about your M&A strategy post Lima. We saw a successful integration in 2024. How should we think about M&A in 2025? A: Yes, Vik, first, thanks for the kind comments and for the support. From an M&A standpoint, we've gotten a lot done in the past handful of years, including the big Lima acquisition, which has had a dramatic impact on our portfolio and momentum. '25 is going to be more of a year of small bolt-ons. We have some attractive technology and channel bolt-ons in the funnel that will be helpful in accelerating the path forward, but we're still focused on completing the Lima acquisition successfully and starting to delever the company.
Q: You guided to high single-digit Recon growth in 2025. I know it's early in the year. But is there a pathway to get to double-digit recon growth this year? A: When we look at our positions in Recon, the technologies we've got, and the historical growth we've demonstrated, we certainly have multiple paths to drive double-digit growth. We've set a strategic goal for high single digits, but we believe there's room for positives and negatives that might come along quarter-to-quarter. We exited the year with healthy momentum, and there's an opportunity to ramp cross-selling into the business.
Q: One, maybe on this Q1 phasing I think the guide implies almost 10% organic. Why is it so strong? What is Day's contribution? A: Yes, Vijay, I'll take that one. We have extra days in the first quarter that will be offset in the fourth quarter. We expect two to three extra days in Q1, which will come back in the second part of the year. Overall, we feel like we'll get off to a strong start, partly due to Days, but also due to the momentum building in the business.
Q: And maybe my follow-up on the margin guidance. Ben, I think when my math looks like maybe we're looking at 25, 30 basis points of margin expansion for fiscal '25. Is that right? A: The margin expansion guidance we've given is 60 to 70 basis points of improvement versus 2024. That's our normal 50 basis points from core operating leverage and mix, plus 20 to 30 basis points from year two synergies on the Lima side. We expect another strong year of margin improvement for the company in 2025.
Q: You touched on this briefly in the last question, but maybe you could just take sort of US, OUS, large joint versus extremities and talk about what you're seeing in the market, how it ended '24 versus started? A: Through the front half of last year, we saw strong market growth outside the US. In Q3, there was some normalization, but Q4 finished strong. We beat Q4 on the Recon side, driven by a strong finish outside the US. In the US, the year started softer, but markets improved, and we executed more share gain versus the market in the second half. We feel good about the arc of the business as we bring new products in.
Q: Maybe just a quick follow-up on free cash flow and debt. It ended up about $65 million, $70 million negative for 2024. I see you're expecting positive free cash flow in 2025. A: We see a clear pathway to 70% to 80% free cash flow conversion over time as we get past heavy investments. We'll make a strong step in the positive direction in 2025, and in 2026, you'll see a big step down in expenses related to integration and EU MDR. We're at about 3.5 times leverage now and expect to be in the low threes by the end of the year.
Q: Just help me out, did you guys mention pricing assumptions for 2025? A: On the Recon side, we expect to get back to some amount of downward price pressure, assuming a point or two of downward price pressure. On the P&R side, we think it's more of a flat price business. We have good muscle to keep us in a flat price zone in a normal environment and work price through the system in an inflationary environment.
Q: First on Lima integration, not to nitpick wording too much here, but it sounds like the wording you guys are using, is that integration is largely complete. What are the last kind of milestones? A: The key channel integration is complete in the US and most large countries outside the US. We've combined product roadmaps, leadership teams, and sales teams. Now, we transition to project execution on back-office projects, operational transfers, and development projects. The risk profile of these is different, and we're confident in executing them.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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