Participants

Kyle Rose; Vice President of Investor Relations; Enovis Corp

Matthew L. Trerotola; Chairman, Chief Executive Officer; Enovis Corp

Phillip Berry; Chief Financial Officer; Enovis Corp

Vik Chopra; Analyst; Wells Fargo Securities, LLC

Vijay Kumar; Analyst; Evercore ISI

Robert Marcus; Analyst; J P Morgan

Young Li; Analyst; Jefferies

Jeffrey Johnson; Analyst; Robert W. Baird & Co., Inc.

Keathley Canyon; Analyst; Canaccord Genuity

Danielle Antalffy; Analyst; UBS

Mike Matson; Analyst; Needham & Co

Presentation

Operator

Yes, good day, and welcome to the Enovis Third Quarter 2024 earnings conference call.
(Operator Instructions)
I would now like to turn the conference over to Kyle Rose, Vice President of Investor Relations. Please go ahead.

Kyle Rose

Good morning, everyone, and thanks for joining us today for Q3 2024 Results Conference Call. I am Kyle Rose, Vice President of Investor Relations. Joining me the call today are Mr. 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 investor section of our website, enovis.com. We will also be using a slide presentation in today's call, which can be found on our website. Both the audio and slide presentation on this call will be archived on the website later today. During the call will be making some forward-looking statements about our beliefs and us statements 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. Further details regarding any non-GAAP financial measures referenced during the call today. The accompanying financial 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?

Matthew L. Trerotola

Hello, everyone. Thanks for joining us this morning. Let's start on Slide 3. The first nine months of 2024 are in line with our expectations and reflect the commercial trajectory we expected to see. We have made tremendous progress on the integration of Lima and delivered on our plans for sustainable profitable growth. In the third quarter, we delivered reported growth of 21% year over year and 6% on a comparable basis. with a little bit of FX tailwind.
We expanded our adjusted EBITDA margins by 220 basis points, reflecting the mix impact of recon, the step change impact from Lima and overall productivity improvements. Overall, we are pleased with our accomplishments through the first nine months of the year and are confident we have the new product pipeline and commercial teams in place to close the year strong and set us up for an exciting 2025.
Onto Slide 4. In recon, we delivered 57% reported global revenue growth. Recon grew 9% on a comparable basis in the quarter or about 10% when adjusted for our estimated impacts from planned integration related to synergies. In the quarter, U.S. recon grew 9%, including 11% growth in US Extremities and 8% in hips and knees. Our U.S. business rebounded in the quarter in line with our expectations as our combined commercial organization shifted back to offense, benefiting from the very early stages of our new cross selling opportunities and key new product launches.
In the international market, we grew 8% in the more normalized market environment. While we continue to execute our integration plans, as we previously communicated, we have been intently focused over the first nine months on getting our commercial channels online and putting the teams and processes in place to execute on our proven strategy of driving sustainable long-term growth. Our integration plans are progressing nicely. We believe we executed beyond the most material revenue related integration milestones. And with the progress we've made, we expect to be comfortably within our initial guidance range of $20million to $30 million of negative revenue impact.
From a pipeline perspective, we're approaching very exciting period of new product introductions across our Recon business as we lean into the cross-selling opportunities of our combined product portfolio and move into broader commercial launches of our [reserve revision cones] and knees, [augmented glenoid] systems in shoulders and fill key [portfolio] gaps in hips. In the third quarter, we also anniversary our 2023 acquisition of Novastep.
I am incredibly proud of our foot and ankle team. Over the last four years, we have successfully integrated five lower extremity assets into a comprehensive business unit and global commercial channel. That is on track to eclipse $100 million in revenues with consistent growth well above market and an innovation pipeline capable of driving double-digit growth for many years to come. Overall, we are excited about our commercial momentum, our product development pipeline. And while the third quarter was a strong step forward, we still have significant acceleration and opportunities in the coming quarters.
Turning to Slide 5 in P& R., 3% Comparable growth reflects a stable market environment and disciplined execution. We continue to work on improving this portfolio and strengthening our market leading positions. We are doing this by launching new innovations in bracing & Recovery Sciences and shifting our investments across both portfolios towards higher growth, higher margin, higher value segments. We look to continue to leverage TGX tools to drive consistent productivity gains, sustainability, and improved portfolio mix.
Overall, I am pleased with our performance through the first nine months of the year. I am confident we are positioned for a strong finish to 2020 for that sets us up well for 2025 with a renewed focus on growth, fuelled by a robust lineup of important new product introductions across the business. Now let Ben take you through the P&L details then.

Phillip Berry

Thanks, Matt, and hello, everyone, and I will begin on slide 6. We are pleased to report second quarter sales of $505 million, up 21% versus the prior year and up 6% on a comparable basis, which includes approximately 50 basis points of positive currency impacts. We are encouraged with the growth acceleration in our Recon business across anatomies, especially in the US market, as we have seen positive results from our channel integration efforts executed earlier in the year. Overall, our Recon business grew 9% with approximately 150 basis points of growth headwinds from integration as we anticipated.
Our underlying growth and P&R remained stable, growing at 3%. We continue to realize the benefit from the improving global mix of our business in our margins. Third quarter adjusted gross margin of 58.9%, up 70 basis points year over year. This growth was driven by favour both segment mix that includes the addition of Lima. Lima cost synergies continue to read positively in our operating expenses as well. As a result of these benefits, our third quarter adjusted EBITDA grew 38%, delivering a margin of 17.9%, up 220 basis points versus the same quarter last year. Our third quarter effective tax rate was 21% compared to 24% last year. Interest expense was $11 million for the quarter versus $6 million in 2023.
Overall, we posted adjusted earnings per share of $0.73, an increase of 30% versus prior year. Turning to Slide 7. We are narrowing our prior guidance to reflect the results through the first nine months of the year. We expect revenues of approximately 2.1 billion, this tightening our guidance range. We expect comparable revenue growth of 5% to 5.5%, which is contemplates impacts from the recent hurricanes in IV shortages that we have seen in our results thus far in the fourth quarter. As a reminder, the comparable growth rate includes approximately 100 basis points of integration headwinds that we outlined earlier in the year.
We remain excited about the ongoing on this, and we are seeing across the business and continue to expect acceleration in 2025 with the integration headwinds behind us. We are narrowing our expected adjusted EBITDA range to $373 million to $378 million. This will result and 200 basis points or more of margin expansion versus prior year. We expect interest expense and depreciation to come in at the lower end of the prior range which is approximately $60 million and $115million, respectively. Guidance for tax rate and share count remains unchanged from the prior guidance. Taking all of this into consideration, we are raising our adjusted earnings per share range to $2.75 to $2.80. This will result in strong double-digit earnings growth versus last year.
To summarize on slide 8, the third quarter marked a modest acceleration in our growth of our Recon commercial channel stabilize, and we began to see some early benefits from cross selling. We continue to be pleased with our improving business mix and are excited about the new product innovations ramping in Q4 and early 2025. Overall, our 2024 performance continues to track within or slightly ahead of the guidance that we set at the beginning of the year, and we are looking forward to taking another solid step forward as we finalize our plans for 2025. Now hand it over to Kyle to start the Q&A. Kyle?

Kyle Rose

Thanks Ben. In an effort to accommodate everyone in the Q&A session and keep things to a reasonable time, we are going to ask the analysts, keep the questions to one question and one follow-up. We will welcome to rejoin the queue, and we will put you in if we have time. With that, operator, can you please open it up for questions?

Question and Answer Session

Operator

We will now begin the question-and-answer session. To ask a question. You may press star then one on your telephone keypad. If you are using a speakerphone, please pickup your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press time until our first question comes from Vik Chopra from Wells Fargo. Please go ahead.

Vik Chopra

Hey, good morning and thank you for taking the questions and congrats on the quarter. Two questions from me. So first was on the synergies. It was nice to see the synergy step down in Q3 compared to Q2. Maybe just talk about what we should expect for Q4. And if you expect in these synergies in 2025?

Matthew L. Trerotola

Yes. Thanks for the question, Vik. I think what I said in the past looked continues to be true that we continue to see a stabilization of the peak of Q2 now being offset by some of the cross selling that is coming into play. So what we expect to be another step down in terms of input, in fact, in Q4, but still a little bit of impact. And then clearly it in 2025 to start off the year clean as we go into 2025.

Vik Chopra

Got it. Thank you. And then my follow-up question, if you normalize, we look at our model for next year for 2025. Maybe just talk about how you are thinking about Recon growth next year and any other potential headwinds or tailwinds to call out in 2025. Thank you.

Matthew L. Trerotola

Coming together from an overall standpoint, again, we have consistently talked about this year having that that point or so of negative drag from the integration Ben had just said that clears as we as we step into next year. And then we have put together our guidance for next year, we will consider the rest of the considerations around market growth rate assumptions and execution, new products, etc. to assets that are planned in the guidance range around those around those plans. But we remain consistent on the fact that this year has some headwind on it. That is going to clear as we step into next year.

Operator

Our next question comes from Vijay Kumar from Evercore ISI. Please go ahead.

Vijay Kumar

Hi, guys. Good morning and thanks for taking my question. Matt or Ben, maybe on the Q4 guidance here. Group grew a little bit granular on that would be assuming for the segments. I think you had some extra days in our math should be at least a couple of hundred basis points of tailwind. Is that all being offset by IV fluids shortages and hurricane, have you already seen impact from fluid shortage? Or is this more of a modelling assumption for Q4?

Matthew L. Trerotola

Yes, sure. So as we mentioned in the comments there, as we as we stepped into Q4, certainly a lot of things going well. But on the market front, in the U.S., they are definitely worse and disruptions in the early part of September from both the storms impacting as well as some systems that the slow down a bit because the IV shortage. So, we have tried to get to reflect that in our in our quarter and be conservative about that impact, not coming back as we work through the quarter. And then certainly as we came through that at the end of October into November, we are seeing a much more normal and healthy market environment, and we are optimistic about where things go from here through the end of the year. We expect a good healthy run to the finish in the US market here. And we have consistently said we want to be pretty conservative about the extra date that comment a bit of a unique time in the year where we will know what the time, how much we get from those days. But there is a decent amount of uncertainty around how much comes from those. And so again, we have tried to make sure that we step into Q4 with a guide that is conservative and sets us up to build great momentum into next year.

Vijay Kumar

Understood, I guess I'm wondering that margins here maybe been half year, or we have we are running above plan. The operating margin execution was pretty impressive despite the tightening of revenues here. Is some of the $40 million, is that 40 million still relevant? Is it down range now perhaps a higher? And how much of that was I recognize you are not fiscal '24 as you think about fiscal '25. I am thinking how much upside is there are from synergies? Thank you.

Matthew L. Trerotola

Thanks, Vijay. I think what we are seeing a really good, consistent execution against our integration plans, which sort of have identified a lot of great opportunities for us and ability to really execute against those. So we're definitely seeing that play out in terms of helping on margin picture, especially in the quarter, from some of the actions we took there, as we said on earlier in the year, we expect the $10 million to $15 million of benefit and this year synergy, I'd say we're going to say at least that maybe a little bit more of the year, how much of that plays out into next year, we'll see and we'll give you updated information on that as we get into 2025. But as I think about the $40 million, very, very confident that we have identified all of our, if anything, we are working to make that better off. We go along here.

Vijay Kumar

Thanks for this.

Operator

So next question comes from Robbie Marcus from JPMorgan. Please go ahead.

Robert Marcus

Okay. Good morning and thank you for taking the questions, maybe to ask this a different way, kind of tie off that some of the questions asked already. I guess, how are you thinking about the integration and your process and your success there so far versus the health of the end markets? And I ask because this is now the second quarter in a row where you have had a good quarter but lowered the fourth quarter guide and fourth quarters coming in below the consensus on fourth on a top and bottom line for fourth quarter. So is there something kind of changing in underlying growth? Is there any sort of reset? And what gives you the confidence that you will accelerate into next year? one, we have seen kind of the fourth quarter, some of down a touch. Thanks,

Matthew L. Trerotola

Thanks for the question, Robbie. Yes, so with first for sure, the integration efforts are very much on track on very well. And we have very importantly gotten all the channel integration, the U. S behind us, which we set out to do quickly and put it behind us. And we have gotten above 9%, one of the generation outside the U.S. done. And so it is that kind of larger risk of channel integration is something that we have worked most of the way through and done it within the range of impacts that we had signalled from the start. But we will also always talk about those impacts the net impact of them being more in the earlier part of the year and up less than in the later part of the year.
And so for sure, as we turned the corner into next year, there is an acceleration opportunity from now. what is going on the market? I would say outside the U.S. recon markets have normalized through Q3 into Q4. They were very strong in the first two quarters of the of the year. Then there has been more of a normalization that took place in us continuing here, and we expect that to that to be what turns into next year. And so that's part of what is affected our trajectory through the year for sure. I think the US markets this year there have been fine, but they certainly have not been great. And so some of the sequential progress through this year from a market standpoint, you know, has been a little bit of an issue as well.
Not anything that has changed in our ability to execute and deliver within our guidance for the year end. Very strong profit performance up against that. But we just tried to be as transparent as possible as we step through the year about what our plans are and how we are executing them. And we feel very good about our Execute to the year.

Phillip Berry

Yes, I would add to that Robbie, while we will have a that we have seen from some slowness in the start of the quarter, just given I know the hurricane impacts and the cancellations of elective due to IV shortages. So we do not expect that to be recovered in the quarter and our latest guide. If it does not, then I would say there is some upside there. But overall, I mean, there is some near-term market conditions that we are facing, which we have to contemplate.

Robert Marcus

Great. Maybe just a follow up given extremities growth is so important to the forward progress of the Company. I was wondering if you could give us a little more detail on what you are seeing there broken out by a shoulder and ankle on especially within the ASA. Thanks a lot.

Matthew L. Trerotola

Yes, sure. So really strong extremities growth. As you can see, the Foot and Ankle performance there is extremely strong. We have been we have been driving very strong above market growth for quite a quite a number of quarters here, and we expect that to be able to continue. The shoulder growth has been improving towards market growth when you adjust for the some of the integration headwinds to that are particularly hitting on the shoulder front.
And we have got our ARG, reverse product just starting to ramp. We had a little bit impact in Q3 from that, and it will really start to ramp in Q4 and into next year and product marketplace, getting beyond the integration headwinds and some nice synergy from some other shoulder product cross selling. We have got great opportunity to get shoulder quickly back above market growth rates and hold it there. And we do see very healthy shoulder growth in the ASC. We see a meaningful part of our shoulder starting to come into the BASC environments. We are definitely participating in that trend.

Operator

Next question comes from Young Li from Jefferies. Please go ahead. Great.

Young Li

Thanks for taking up my question, I guess maybe just to follow on foot and ankle a little bit. 100 plus million [barrels] are in double digits. I think last year on that business is growing around double digits or data or you recently launched some new product (inaudible) So wanted to hear about in under foot and ankle portfolio. Where do you think it has for the competition in our house, limit us finishing going in that business? Any thoughts on timelines that you had at the mid-20s range?

Matthew L. Trerotola

I did not hear the very end of that question. Young.

Young Li

Yeah, certainly on the EBITDA expansion for foot and ankle timeline.

Matthew L. Trerotola

Thank you, we’re definitely very pleased with where our teams have been able to do in the foot and ankle space, and we're doing very well there for a couple of reasons. First is we have between the things that we have acquired and the innovation that team has done. We have got a tremendous product line there, it has got a number of real, very strong flagship products like our [dine-in]. Now, for example, in like the minimally invasive products, we got with no notice staff for [bunion]. So I guess you had a good number of flagship products that are real game changers to our customers there. And then also have a nice high quality, a broad range of products and things like plates and screws.
They're very important in terms of serving, certainly having the channel, be able to serve the surgeons they are completely. So first, tremendous product line and a product line that we have a constant pace of innovation, great team there driving constant break the pace of innovation. Second strong aligned to that channel. We've done the hard work in the first couple of years to that integration to create a strong alliance channel that we haven't had assembled that the majority of the channel now is fully dedicated to our products for the offerings that we have and that creates a degree of teamwork and alignment and focus because that is enabling us to succeed significantly in the marketplace.
And we've got certain got some great KOL partners there. They are helping us win the designs. And so just really pleased with the passing there. And as we go forward, we have really nice pipeline of innovations, but we also see most of our innovations there has made by opportunities. In some cases, there are acquisition opportunities to consider versus developing things ourselves. We do not need to buy anything else to succeed in foot and ankle, but I am sure we will find nice bolt-on opportunity that accelerate the path of filling in some of the other opportunities that we've that we have got there. And then finally, the margins in that business have been improving. The gross margins are very strong at the upper end of our portfolio in the EBITDA margins have started to climb over the past couple years as we had talked about and still some nice room to go there in terms of scaling that business.

Young Li

Great. Very helpful. The answer in trigger growth next year. I mean, there will be fuelled by our cross selling the channel integration, but you also highlighted the robust lineup of new products in pretty much all the segments, which are the new price products. Could you highlight the more meaningful for next year for and how the [arbiter than their March score] And what should we expect [farmer] in 2025?

Matthew L. Trerotola

Yes. Thanks. Yes. So first for shoulder, the ARG is extremely important already have an impact that we can see kind of meaningful impact in Q4 and big impact in the first half of next year. So, the ARG is big in shoulder. We have gotten great feedback on it. And so we are very excited about that roll it out to their second. There are some really nice cross-selling opportunities in shoulder that will be pursuing like the customer promenade product. That is attracted for specific cases and then RVs in shoulder is something that people are excited about. The surgeons that have gotten our hands on. It is giving us great feedback on it. And I think it is certainly something that is going to give us peace of next year as we continue to have on that product and start to have it ramped up some in shoulder. And that alongside of our great planning is going to continue to sustain our strong innovation leadership there in the shoulder segment.
Second, in need a revision is still contributing nicely and still has nice, nice opportunity. And the harvest in the we have got as a next version that coming out of the early part of next year, that will enable us to get to a broader market with that. We have been expanding the amount of people using it through this year. And so we think that our now platform there in knee is going to become an important piece of the puzzle as we go through next year as well. And then there are some nice cross-selling opportunity in knee as well on a global basis. And then finally enhanced. That is where we really have not had the full portfolio that we have needed to have in hip in the US. And as we roll into next year, we will fill out some key parts of that portfolio.
And that is going to create some nice running room in hip. Only about half our new doctors use our hip right now, which is still tremendous opportunity for us to get after that as we fill out the rest of that hit portfolio with a couple of great offerings. And so, we are definitely excited about the lineup of products. And then on our P&R side, we have got some nice additional knee braces and additional spine braces coming through continuing. We have got some next generations in things like at lasers and chocolate therapy, electrotherapy between this year and next year.
We've also done some nice a nice clinical and regulatory work in some of our Recovery Sciences products that are going to give us an opportunity to expand indications and market space there. So very excited about the product lineup that is part of what is going to help us accelerate from this year into next year and through next year on top of clearing through the cross-selling synergies and maybe kind of a little bit more normal market environment.

Operator

The next question comes from Jeff Johnson from Baird. Please go ahead.

Jeffrey Johnson

Thank you. Good morning, guys. Then maybe if I could start with two just model clarification questions and I have maybe bigger picture question I wanted to ask as well. But just on model clarification this synergies this quarter, I think around $3 million by put them in absolute dollar numbers. Is that about, right? And I have you had about $18 million year to date and did you say about 100 basis points in the fourth quarter, so that would be another like maybe three to form, but in kind of a lower end of that 20 to 30 just or my numbers close to accurate there on the synergy side. Thanks.

Matthew L. Trerotola

Yes, Jeff, you are thinking about it right.

Jeffrey Johnson

Okay. And did you do at all quantify the headwind you are expecting in 4Q from the storms and the IV fluid? That is the other clarification question. But then from a higher level, I guess for Matt, historic, not historically, I guess just conceptually, you guys can kind of guided longer term to upper single to low double digit on recon 3% to 4% in P&R. We are talking about all these new products for next year, but markets maybe weren't quite as strong as you were hoping for this year. You do not like put kind of all the puts and pulls together whether the pushes and pulls together you should next year, just kind of be conceptually within that kind of LRP. kind of longer-term range you talked about before. Thanks.

Phillip Berry

Yes, Jeff, we are not quantifying at this point the absolute dollars of impact, but we have seen limited in our guidance and updated guidance that we have given here. So overall, I would say we do not expect it to return like that in the quarter. We do not expect any additional impact for future storms or future problems. What we have updated our guidance to include is primarily to what we have seen tangibly in terms of cases that have been cancelled or volume that has been impacted because of the start of the quarter.

Matthew L. Trerotola

And then jumping to your questions about our growth. I think the way you described our LRP, it is very consistent, right with the with how we continue to think about things as the combination that gives us that high single digit organic growth. And so we do expect to mitigate the something consistent with what we have been saying over time, which and with all that we talked about in terms of some of the headwinds, this year certainly expecting to accelerate forward from this year. But last year was a year that had some pretty healthy market tailwind on it. And so it is going to take a little bit of time for us to keep shaping the portfolio to where we can get to deliver the kind of growth that we had in a year like last year.

Operator

Next question comes from Brandon [first-class] from William Blair. Please go ahead.

Good morning, everyone. Thanks for taking the question. Maybe first one to follow up on a short-term trend that we have got a couple of questions about already. As you look into Q4, it sounds like you are baking in these kind of IV shortage and hurricane impacts. Maybe that is the delta on them a little bit of the Recon growth expectations coming down slightly. Just the just to put so on and make sure we are understanding you correctly. Typically, we see in impacts like this. Typically, we see ortho cases get rescheduled pretty quickly. I think if you look back historically within the ortho space, so one, just kind of curious to my understanding this correctly that you are not assuming they are back, they are coming back in the quarter. Is there any reason there would not or is this simply just some conservatism as you wait to see when they come back?

Matthew L. Trerotola

Yes. So first, it is important to imagine that many of our businesses were impacted not just our ortho businesses. And so when you have things like bracing clinics that are down because of the storm, that piece of the impact is something that would take a lot longer to come back to the patients aren't we scheduled for surgery at another time, they might get us to defer for a while versus if you have a surgery, this cancelled maybe get fit into the scheduled later or not. And so we've seen in situations like this, that when surgeries are pushback, but when there's some kind of disruption like this, somebody comes back quickly, some of it takes more time to come back and maybe a little bit doesn't come back.
And so we'll remain to see how that plays out. It is also the end of the year, which is a very full time at the end of the year in a year when I think people took some healthy vacation through December and they are looking to run like crazy through the end of the year. So I think schedules were pretty packed in terms of what people are planning to do through the end of the year. And so we think some surges will be able to move those cases later in the year. Something just may not have the room, and they need to roll them over into the early part of next year. So we still feel very good about how we are going to finish the year there and the nice acceleration in the back half of the year. That gives us some momentum into the into next year. There are some unique effects early in the quarter. We are trying to be transparent about those as we as we kind of discuss how the quarter is going to go. But still very confident on how we finish this year, and the kind of momentum will build the next year and beyond.

Okay, thanks. And maybe bigger picture as the businesses is becoming integrated now and it seems like things are rebounding a little bit. You are moving past the trough of synergies where you guys’ kind of seeing the most strength in terms of new surgeon signing on versus just going deeper into currency surgeon installed base? And how should that trend as we go through 2025, fix?

Matthew L. Trerotola

Yes. So, we see in a great opportunity, both in in adding new surgeons around the world as well as still nice specific opportunities to sell into the install base, like the hip opportunity that I have talked about earlier and some of the cross-selling opportunities. So we see our growth is going to come from both new surgeons and installed base penetration as well as market growth as well. And we could see a clear path for how our recon growth in the US are can continue to accelerate as we as we step into next year as well as how we can grow above markets outside the US on a consistent basis.

Operator

The next question comes from Keathley Canyon from Canaccord Genuity. Please go ahead.

Keathley Canyon

I have got an important question (inaudible)

Matthew L. Trerotola

Yes. I think the question was about foot and ankle and market dynamics. But we really like the fact that for ankle is it is a high single digit growth and market and also an end market where there is still plenty of unsold things in terms of better solutions indication. They are more fragmented, and there is plenty of unsold from their partially sold of problems to work on work on solving. And so that creates a nice market growth dynamic as well as a nice innovation cadence opportunity.
And that's really what we like about the segment. I think there seems to me there is a practical reality that on a month-to-month or quarter-to-quarter basis, there is a little more variability in foot and ankle than may in some of the traditional large joint’s segments that that is noticeable. But for us, we like the growth fundamentals of the business. We like the innovation opportunity and we got a diversified portfolio and a strong footprint to where we're able to drive strong growth rate through some of those dynamics.

Keathley Canyon

Given the launching of an improved hip portfolio of products this quarter and into 2025, how long do you expect covering in that segment?

Matthew L. Trerotola

Yes, in hip outside the US does very well just to be clear and it goes we got some strong, some great products that have come from the acquisitions out there in the U.S. as we we've got some key products that will be launching again, right around the end of the year and into the first quarter. And so we had expected by the time we get into the second quarter, we start to see a meaningful impact from those in the back half of the year that they are having a more substantial impact. So some of the knee acceleration and the shoulder acceleration that's going to come with ARG will be what gives us some acceleration through Q1, Q2.
And then I would say that hip will be an additive contributor as we as we get into the back half of the year with the constant ramp of the cross selling.

Operator

The next question comes from Danielle Antalffy from UBS. Please go ahead.

Danielle Antalffy

Hi, good morning, guys. Thanks so much for taking the question and congrats on a good quarter here. I guess, you know, my initial question was going to be about underlying market growth and all that. But I guess maybe a better way to ask a question is, since I feel like that question's been asked a different time is, you know, you're now getting through the integration of Lima and Novastep that was one of the biggest acquisition or the biggest we've seen you guys have ever done as a company, feels like 2025 of the year of accelerating growth. But I guess just at a higher level, as we look at where the Company goes, where cue from here, once the I appreciate this is more long-term question. But and when you think about capital deployment priorities and where you have envisioned the Company going from a product portfolio perspective, pretty high-level question. But again, thank you.

Matthew L. Trerotola

Thank you for the question. And yes, it is an exciting work that we have been on. You know, from a MedTech business that was a little over $1 billion back in 2018, 2019 time period and had a very strong small Recon growth business. But at the in our business that that really was not strong at that point in time in terms of the performance and then here of about five years later, we've almost doubled the size of the business into a dedicated company and Novas $2 billion plus in revenue.
We're now more than 50% comfortably more than 50% of Recon into that higher growth on recon side, we're accelerating that Recon business now through the back side of the IT integration back to well above market, well above market growth rates. And we built a very strong P&R business that consistently grows low single digits, high end of the very strong cash generator. And we have stepped change the margins of the whole company in that period with plenty more to go in terms of improving margins over time.
So, a lot of tremendous progress over time as we look to the future, we know from a core execution standpoint, I think the fundamentals really haven't changed. We now get to a much bigger Recon segment that we are focused on growing well above market through innovation and having that be a driver of our growth, but also something that systematically expand our gross margin because as higher gross margins. But if it if it grows faster than P&R, we get that expansion, we're focused on also continuing to improve and shape our P&R business into a stronger and stronger, low single digit business and looking for ways that that could turn it over into something that's more of a mid-single digit business through portfolio work on that to that side.
And having that business continue to be a very strong cash generator. We expect to continue to do thoughtful bolt ons within the ortho space. There are things that can accelerate our growth, access new markets to bring key technologies and talent into the business. And over time, we will certainly look at other segments that we could access, other segments in the ortho space that are attractive in terms of growth and margin fundamentals or other adjacent segments that would be logical for us given the capability set that we have. That might be a little bit outside of Ortho in MedTech, but still somewhere that we are confident we can step and in add, a lot of value. For the past and $1 billion to $2 billion has been an exciting one. We see the path from $2 billion to $3 billion being another exciting one that is going to generate a lot of value for our shareholders as we drive compounding value from organic growth, inorganic growth, margin expansion and climate up to the cash flow curve over time.

Danielle Antalffy

Awesome, and thanks for that response. That was helpful.

Operator

The next question comes from Mike Matson from Needham & Co., please go ahead.

Mike Matson

Yes, thanks. I just wanted to ask on the international side. So you know, the Lima integration there or is that sort of lagging where you are in the US a little bit and you see any risk of dis-synergies and they are carrying into next year?

Matthew L. Trerotola

Yes. No, it is not lagging the US the differences there. So we did all the direct channels quickly and really got them behind us by that by the middle of the year, started them really planning for them to latter part of last year, even before the close of the different out there is that there are some hybrid markets where we were direct in one business and indirect and the other. And we have had to step by step through market by market in terms of what is the best solution there and what is the right timing to move from hydro market solution to either fully director of fully indirect solution. And we have been through most of those as well. I said we are through about 90% of revenue outside the US. We have already been through the channel integrations, but there are a few hybrid markets that the right thing to do is to take a little bit more time to find the right time to take to get through the integration.
We do not see that carrying any meaningful amount of breakage risk into next year. We are just trying to be transparent about the fact there are a few more markets that will still be worked through.

Mike Matson

Okay. Got it. Then just on the knee side of your bigger competitors has seen a pretty big mix benefit from cementless knees. So do you have any plans to enter that segment of the market?

Matthew L. Trerotola

We have we have a cementless knee offerings and I have had I have also had very good healthy growth in our cementless knee offerings.

Mike Matson

Okay, got it. Thanks.

Operator

As a reminder, if you have a question, please press star one. There is a follow-up question from Vijay Kumar. Please go ahead.

Vijay Kumar

Hey, guys, thanks for squeezing me back in. Ben, maybe one on our free cash flow here from the year to date, is that just due to deal timing? When you look at free cash performance, what is the real underlying free cash performance if you ex out the noise? And what is the right way to think about free cash conversion should still be the 80% and free cash run rate business?

Phillip Berry

Yes. Thanks, Vijay. Right. Like I have said, I think we are focused heavily that share on making sure that we are doing the right investments to set ourselves up to integrate Lima, well set ourselves up to lean into the growth opportunities as we bring this transformative acquisition in the company. And you have seen us progress, I say, throughout the course of this year to where we are getting better or get even better in Q4 on ahead as we start to get a lot of these heavy investments. But behind us, we feel very good to see a pathway to 70% to 80% plus free cash flow conversion over time. Again, next year will still be spending on integration-related items and investing for some of the growth as well. But I'd say, as we think about seeing that progress, you're going to see us take a step forward next year and another step forward for the year after that as we work towards that 70% to 80% more steady-state cash flow conversion.

Vijay Kumar

Understood. So it is that is a free cash will be positive in fiscal '25. Is that a fair statement?

Phillip Berry

Yes, a fair statement.

Vijay Kumar

Fantastic. Thanks, guys.

Operator

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

Matthew L. Trerotola

I want to end the call, this is Matt here, 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 for participating. And we look forward to sharing our fourth quarter results with you in the new year.

Operator

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