Great. Thanks, everyone, for joining us this morning. I'm Vijay Kumar, the Life Science Device Analyst at Evercore. A pleasure to have with us, Enovis. We have CFO Ben Berry with us and Kyle Rose from Investor Relations. Ben, thanks for the time this morning.
Yeah, thanks for having us.
So maybe I want to start with a review of third quarter. It was nice to see Recon come back to high single growth. I know that was a debate in the first half. As you looked at, reviewed the third quarter performance, any surprises, any phasing issues? How did that CQ play out versus internal expectations?
Yeah, I mean, it really came in like we expected. I think what was good for us to see was we worked hard through the first part of the year, really integrating the channel of Lima, which had some impacts on the business as we were making choices around sales force alignment and agencies that we were bringing into our network at Enovis, so we knew that there'd be disruption due to putting those channels together as we were integrating Lima, and our anticipation was we'd do the hard work through the first six months and then start to reaccelerate in the back half of the year, so seeing our Recon business, both in the U.S. and OUS, continue to perform well and start to reaccelerate in the third quarter was good for us to see.
We expect that to continue here as we exit the year and get into 2025. Yeah, Q3 was a strong quarter for us and within our expectations.
Gotcha. That's helpful. I know your fourth quarter guidance had some headwinds from hurricane and IV fluid shortage. How have those headwinds played out as per expectations or maybe just level set on what these headwinds were?
Yeah, so I mean, we have a pretty strong business in Florida, especially on the Shoulder side and the Foot & Ankle side. So as the hurricane came in, there was definite case cancellations that we had to deal with over a couple of weeks period. And then on top of that, we started to see more broader on the East Coast, in particular, some cancellations due to hesitation of electives being put through the system due to the IV shortage. So as we started off the quarter in Q4, we saw some near-term impacts from that. As we worked our way through November, we didn't see as many. I mean, November was a strong period for us. And as we think about closing out the year, we wouldn't expect any further impacts from the IVs or in the hurricanes that are behind us at this point.
Overall, I think our view is we saw some of the near-term impacts in the quarter. We contemplated that in the updated guidance that we gave. We saw a strong period in November and would expect a strong close to the year.
Gotcha. When you say strong November, Ben, is that a catch-up of canceled procedures coming back?
I wouldn't say it's a catch-up per se. It would be more of just we saw strong procedural volume throughout the month.
Gotcha. And that sort of segues us into this utilization environment, which seems to be pretty healthy. But I think one of the concepts we've been dealing with is this pandemic-related backlog. And where are we? Did you look at those metrics and how do you assess that? I think one of the metrics we look at is scheduling wait times and whether that's still elongated. How should we think about procedural backlog as still being a tailwind?
Yeah, we look at the same. We look at wait lists. We look at schedules. We look at compare our performance versus competitor performance since 2019 and apply a normal market growth rate to see what's happened over that period of time. And as we've triangulated it, we've worked through a lot of that. But if you look at it just back to 2019 and apply market growth rates, you would say there's still a little bit of a pent-up demand that would be remaining. And then if you look at certain countries outside the U.S., you would see some wait lists that are still a little bit elevated. So our view is that there's still a little bit of a pent-up demand, but we've worked through in terms of, call it backlog clear, in terms of, call it the market tailwinds.
Now we would expect more normal market conditions going forward with that pent-up demand being worked through at a slower pace, but more shifted to the right, I think would be our view. We saw through the beginning part of this year, still pretty strong volumes on the international markets. That slowed a little bit as we exited the year. Same phenomenon happened last year as well. As we think about planning into 2025, both U.S. and international, I think our view would be the market condition would be back to more of normal market growth rates.
Gotcha. And when I look at high singles Recon sort of trends here in the back half, is that a sustainable number for you guys or should we be thinking, hey, maybe that high singles benefit a little bit from backlog and perhaps we should moderate those expectations going forward?
No, I think our view is we're still a small market share player on the Recon side. And one of the things that we've tried to do is actively shape our company's mix and growth towards more attractive verticals within the market. So if you look at what we've done on the Recon side, and we were 50% extremities, 50% large joints, we're 50% U.S., 50% OUS. So we've really diversified, but also mixed ourselves into a higher growth vertical. And we're still a pretty small market share player. Hip and Knee market share, we're in the 2%-3% market share range. And the extremities, I'd say we're combined Foot & Ankle and Shoulder, probably closer to 10%. But that's still a lot of market access capability for us to go after.
So our view on the Recon side is there's still. It's going to be the growth driver for the company. There's nothing that would prevent us from continuing to grow above the market there, given our market share positions and some of the innovations that we've brought into the market. So our view is that we should be able to grow in our weighted average market growth on the Recon side, probably 5%-6%, grow above the market to where we're growing high single to low double consistently on the Recon side. And then on the P&R side, we're the market leader there. The market grows close to 3%. We grow a little bit above that. So we're still 3%-4% grower on the P&R side, actively looking at how we continue to make that better and shape it towards more of a mid-single digit grower over time.
But in the near term, we'd still see that business as more of a 3%-4% grower. And then Recon will get back to normal. We'll have a tailwind on the business next year, given we won't have the dissynergy impacts of Lima. So if you think about the Recon business, what I described around how we've shaped it from a mixed perspective and getting a bit of a tailwind next year, we would expect another strong performance from our Recon business in 2025.
That's helpful, color . And what was the, I know you sort of quantified, I think $25 million-$30 million as dissynergy impact in fiscal 2024. Is all of that coming back next year? Is that how we should think about the tailwinds?
Yeah, yeah, that's how you should think about it. As we worked through it, there would be a little bit of impact in the first quarter, but that would be offset by cross-selling. But if you think about the timing of when we made the decisions around aligning the channel and getting the contracts in line, especially within the U.S. market, most of that happened within the first few months of the year to where we saw the active impact from that. And that's what we've been fighting against over the last several quarters. But overall, that will not repeat next year. So it'll be a pure tailwind for us as we go into 2025.
Gotcha. And just so I understand this, if Recon, let's assume it's about market high singles, is this $25 million-$30 million incremental to their high singles or is that part of the high singles outlook?
Yeah, I mean, we haven't given full guidance for 2025 yet, but as you think about the company's growth rate and that not repeating, it's about a point off the company's, a point of growth for the company that we would not expect to repeat next year. So a tailwind as we go into 2025.
Okay, understood. I guess switching gears here to post-elections, any change in either customer behavior? It shouldn't be, but a lot of changes here at HHS, CMS. What are your customers telling you?
I think it's a little too early to really have a strong point of view on what's going to happen here. I think one of the things that we were a little bit worried about as the election was coming into frame was that it might be delayed in terms of a decision. But the fact that there was a clear winner and that we're able to get back to people not worrying about this being a long drawn-out process, I think was advantageous for people thinking about getting back to just running their businesses, their small businesses as normal here as we close out the year in Q4. In terms of impacts due to the administration and policy and things like that, I think it's a little bit too early to tell.
We haven't seen any behavior from our customers at this point that would warrant anything of note.
Gotcha. Any tariff impact for you guys? Do you manufacture in Mexico, Canada, China?
So we source some materials on the P&R side of our business from China. And then one of our larger P&R manufacturing sites is in Tijuana, Mexico, where there are also some other of our competitors as well. We are multiple-sourced in terms of some of our product lines. So it would be impacted to a small portion of our P&R business. And we've been actively working to de-risk that through dual sourcing and multiple supply chains across the world. And then we also, as we went through the COVID period, we built a muscle of passing through some of the price as well in terms of some of the inflation that we took on into the system.
We would be ready and appropriately working to make sure that we're mitigating any risk that we see from additional tariffs through either sourcing, manufacturing mix, or through passing it through from a price perspective.
Gotcha. It essentially sounds like it's manageable. It shouldn't be a huge headwind for you guys. Is that fair?
We don't think so. I mean, we're still trying to understand what might actually play out here. I mean, we saw some of this over the last several years to where I think we're more prepared now than we were back then. And it only relates to a portion of our business. So on the Recon side, I'd say there's no impact. But on the P&R side, it's something that we'll have to manage through productivity or pricing to try to make sure it doesn't impede the goals that we have from a, call it margin expansion perspective.
Gotcha. Maybe switching gears to some of the product areas. Recon, that's the crown jewel, growing high singles. And a big part of that is knees for you guys, right? You do have a differentiated knee. But maybe talk to us, why is EMPOWR different from what's available in the market? Why are you so confident about this product?
Yeah, it's a great product that 93% of patients that get that implant are satisfied, and it feels more like their normal knee. And it's a product that was designed based on the true kinematic motion of a knee to be designed to operate how a natural knee pivots both medially and laterally depending on if you're walking or squatting. And I think our data and our results with that product have really been really good in a market where 80% of patients are satisfied, 93% of our knee patients are satisfied post-surgery with the EMPOWR. So it's been a growth driver for us. We've been building out that portfolio with offering revisions, now having navigation systems that we can offer with it as well.
But again, like I said, we're still a 2%-3% market share player, so still a lot of room to run with regards to it still being a relatively new implant in the scheme of implants that have been around for a long time. EMPOWR is still a relatively young implant that we're still getting more data and getting people more experience with.
Gotcha. I think one of the questions we had been is on robotics. Most of your larger peers have a robot, and the utilization on robots have gone up. The question we get is, how can Enovis compete without having a robot?
Yeah, I think it's a great question. I also think that it's a market that continues to evolve. I think one of the things that you think about when you think about robots from a cost, from a time of surgery, and from an outcome standpoint, we haven't really seen a lot of information that's proven that they don't create some challenges with regards to cost and time while not seeing a true differentiated advantage from an outcome standpoint. So I think the view there is that the market is still evolving.
I think if you think about clinically and computer-assisted surgery, there is a lot of benefit potentially down the road as you think about robotic application, as you think about precision, repeatability, as you think about wear and tear on surgeons and alleviating some of that, and then just making sure that it's connected and working throughout a workflow of surgery that's thinking about a strong plan that's taken and navigated intraoperatively and then assisted as well. So our view is that the market's going to continue to evolve from a robotic standpoint. I think it's probably all the data that we would say in the U.S. is probably about 30% penetrated right now, which still means there's 70% of the market that's open to us that is less attracted potentially to current state robots.
But at the same time, we definitely see that this is a trend that the market is moving towards. Our focus right now is around developing really good planning and really good navigation. And then as that continues to expand, look at what opportunities that we have to bring robotic application into the workflow, both on the Shoulder side and on the Hip and Knee side. And then what does that look like as we think about the market shifting to ASCs, as we think about operating theaters outside the U.S.? There are different things to take into account as we think about what our offering's going to look like there. We do have a partnership with THINK in terms of those people that need to have a robot and want to have something to market or compete with some of the offerings that are out there.
We use that more as a defense or opportunistic opportunity at this point while we focus on developing the navigation through ARVIS or the standalone navigation that we also offer. So I think our view is it's going to be here to stay, something that we're continuing to innovate around, but focus right now around really strong planning and really strong navigation.
Gotcha. And since you brought up ARVIS, is that enough to provide you with a competitive advantage? What are the benefits of using ARVIS, right? And maybe to add on to that, some of your peers will give us metrics, right? What percentage of knees are being done in robotics, but we haven't seen any metrics from you guys on usage of ARVIS. So talk to us about what is going on with adoption of this technology.
Yeah, you know I'd say it's gone through some iterations, to be honest with you. I mean, I think the early stage product was missing features that were really needed to go after some of the competitive sets with regards to competitive navigation systems. I think we just recently launched the next iteration of ARVIS that improves the feature set. And then we've got another one coming in the early part of 2025 to where we feel like we'd be able to go a little bit more on offense with ARVIS. I think the benefit with it right now is you look at the users that are using it, and it is scaling for us. And we see big opportunities for it as we think about some of the applications, some of the features, taking it into shoulder, taking it in and outside the United States. It's low capital intensity.
It's a pretty portable system that can be assisting a surgeon as they take their plan, put it on a headset, and then they're still in full control of the procedure. So as you think about the portability of it and the low cost to acquire in terms of from us, from a manufacturing standpoint, we think we could be a little bit more aggressive as we think about penetration down the road. So overall, we still feel positive about the system. We think that it's going to continue to improve from a feature set perspective. And we're really excited about how it can then apply also to shoulder surgery as well as we think about crossing over between Hip and Knee and extremities.
Gotcha. And is it Shoulder application? Is it launched or yet to be launched?
It's in early cases now with some of our key opinion leaders as we're working through how to make sure that it's ready for prime time as we start to open it up from a broader market standpoint. But right now, it's an early case development as we're working through all the regulations and through the feature set.
Gotcha. And with this next generation or iteration of ARVIS that you're launching in early 2025, is that finally the version where we might start getting to hear about some metrics around adoption and utilization?
Yeah, I mean, I think, again, we'll continue to look at how it penetrates and how we want to communicate how it's helping us as we achieve our broader goals as a company, like I said, to grow above market and grow in that high single to low double range from a Recon business. This is another tool and toolkit to help with that. So I think our view there is that we'll continue to expand it. One of the things that we like about it, though, is because it is mostly software-based, it's going to continue to evolve and continue to get better over time. So I wouldn't expect it to be one set product in stone.
It's going to be something that continues to evolve as we get more data, as we understand how it's being used, and then how it can then apply, connect to the plan, and connect to these robotic applications as well over time. So it's going to be something that will be an ongoing development for us as a company. But I think our view right now is that it's going to start to open up as we get it into shoulder and as we get some of these new features launched in 2025.
Gotcha. And maybe some of the other topical areas within Recon, cementless comes up a lot, ASC, which has been growing faster. I think you guys have a better representation in ASC. What's allowed you to do in a much better in ASC versus peers? And where are you on cementless?
Yeah, I think from a knee performance standpoint, from talking to the 93% of patients that are satisfied, as you think about a knee that operates more like your normal knee, you think about the patient set that's going outpatient, especially in ASCs, those are great patients for a product like EMPOWR. On top of that, I think we've created an opportunity from streamlining some of the instrumentation sets as we think about identifying and creating tools to identify quality patients for those types of settings, like our OARAScore that we have to help identify those patients. And then on top of that, it's, I'd say, a more open contracting environment as well. So about 20% of our knees go through an ASC.
We think the market's probably 10%-15%, partly because of those things that I described, partly because we think that that's where the market will go and our products are set up well for those types of settings. Then from a cementless standpoint, I'd say about 25%-30% of our knees are cementless today. We have improved our capabilities with regards to coating. As you think about the Lima acquisition that we brought in with their Trabecular Titanium coating process through 3D printing capabilities, we have more opportunities to expand our offerings over time there as well. So overall, we feel like we're competitive in the market with cementless. We feel like we're advantaged in the ASC, and all of that will help us as we think about moving the business forward.
That's helpful. You said cementless is 25%-30%. Does it have a pricing premium? Is that a contributor?
There is, yeah. That's right.
Fantastic. And on Lima, the integration, talk to us on where we are. I know on the cost side, I think we've done well, but more from a revenue perspective, how's integration with Mathys gone and where are we from a cross-selling opportunity standpoint?
It's gone really well. It's the biggest integration that we've had to work through since we've been in Enovis. And from the beginning of identifying the key work streams to identifying the management team to then executing the plan as we got into the beginning of the year, I'd say it's all gone. It's a lot of hard work, but it's all gone really ahead of our expectations, I would say, as we think about the capabilities, the talent, the portfolio breadth, and then just the strength that it brings to our company from a foundational standpoint outside the U.S. We're really excited about what Lima has brought to the organization. We've been focused right now on integrating the channel, getting the cost synergies realized.
Now we're starting to make sure that the training and the inventory is in place to really turn on the cross-selling opportunities, both in the U.S. and outside the U.S. There's inventory builds and regulatory considerations that we have to think about when it comes to opening up cross-selling. But one of the reasons why we talked about the back half dissynergy starting to reduce is because cross-selling is starting to increase and offset some of the losses that we had in the beginning of the year. So we also expect that to continue as we finish out the year, as we get into 2025.
But we're still very excited about now the portfolio that we have, the capabilities that we're able to leverage, and how we can take that and build an offering that's extremely competitive around the world now that we have the capabilities from Lima, the capabilities from Mathys, and then the legacy capabilities from Enovis. It just makes us a stronger player all around.
Understood. For a company of your size and the mid-cap side, I feel like both of your acquisitions, right, Mathys and Lima, it's generally gone above plan. Is execution on M&A a core competency for Enovis?
Absolutely. I think our history and our DNA would say that we are constantly shaping and strengthening the company through bolt-on and strategic acquisitions coming from the original days of Colfax where we were founded by Mitch Rales and Steve Rales, who founded Danaher, and build that as a core muscle within our business system to do M&A, do it well, integrate it well. And it's been something that Colfax has a history of doing that's been brought over as we've become a pure-play med tech player with Enovis. We've done over 20 acquisitions in the last few years. And if you look at our financial performance from, call it 2021 to now, we've gone from a little over $1 billion and 14% EBITDA margins to now over $2 billion and closer to 18% margins in a relatively short period of time.
So while we've been building, acquiring, integrating, we've still been moving the company forward from a financial perspective, strengthening the talent, strengthening the capabilities. So I think that's a track record and demonstration of success, at least over a pretty long period here of our M&A capability and something that we continue to build on as we do more.
That's helpful. I think the other part within Recon is Hips doesn't get a whole lot of attention, but what are your key products within Hips? Are there any gaps that you expect to fill? How do you think about Hips growth relative to knees?
Yeah, hip for us has been an area where Mathys came with strong capabilities on the Hip side product line called Optimys that comes with a really strong ceramic RM cup and capability as well as strong performance. So our market share in hip is actually slightly higher outside the U.S. than it is in the U.S. We think there's some opportunities for us to think about portfolio improvements over time as we leverage some of the capabilities that we've acquired and bring them into broader markets like the U.S. We also have talked about having some gaps in our U.S. portfolio, and particularly around some of the collared stems and the impacting devices. We've got both of those products coming end of year, early part of next year. So we feel we're going to be much more competitive.
And when you think about Hip and Knee, we've been leading with the knee because it's more differentiated for us and more robust. And then there's a lot of knee surgeons that we've acquired that we haven't been able to turn on their hip business because we've had some gaps in the portfolio. So as we get that portfolio rounded out, which we expect to do in the early part of 2025, we can be more aggressive with regards to trying to drive better hip performance in the portfolio as well. But we've been performing pretty strong in hip outside the U.S. with the capabilities that we had from Mathys, and LimaCorporate was a pretty strong player in hip as well.
Understood. It sounds like Hips, perhaps the outlook, 2025 outlook is better than 2024 given a well-rounded or more rounded portfolio.
Absolutely, yeah.
Fantastic. And then switching next to extremities, shoulder, foot, and ankle, that's a substantial part, 40% of Recon. Maybe a similar question on key products. What differentiates you and how are you thinking about growth within those segments?
Yeah, for us, it all started with AltiVate, which really pioneered the lateralized inferiorized reverse technique, which really has become more of the standard in the U.S. We think there's a lot of running room outside the U.S. for that type of product to continue to expand and shift the market, which was really important for us as we thought about the Lima acquisition because they open up a strong shoulder footprint for us outside the U.S. And then with Lima, we get strong capabilities on extremities as well. Their SMR system has been a leader outside the U.S. We see some opportunities for that to be a stronger part of our offering in the U.S. from an anatomic standpoint where we've been weaker in the past. There's a ProMade customized implant capability that we get as well with Lima that we can take advantage of for complex customized cases.
And then you look at a portfolio that's now more robust, not only from a product line standpoint, but geographically. And then you think about how can you continually innovate and strengthen it over time. We've got the ARG launch, which was a gap in our portfolio that just started here as we got into the fourth quarter. We're really excited about what that brings to just the core AltiVate platform. And then we've got some product lines launching, a product called PRIMA that's launching to go with the offerings that legacy Lima had that can really take advantage of some opportunities of the market shift as well as AltiVate expansion from a cross-selling standpoint. So I'm excited about what we're doing in shoulder.
On top of all of those things I just described, we already talked about having ARVIS as well, thinking about ARVIS not only in the U.S., but OUS and how that plays in the shoulder market. We're excited about what we're doing on the Shoulder side.
Fantastic. I guess one on international, that's more than $500 million of revenues for you guys. Now that you've made two acquisitions, you have scale in international markets, right? How does that change your go-to-market strategy? How should we think about international growth over the next few years?
Yeah, I think from our perspective, if you look at what Mathys had historically done before we acquired them, they were about a mid-single-digit grower, mostly on the Hip and Knee side. And then Lima was growing pre-COVID, high singles, and then post-COVID in the low doubles, more of a shoulder player. And one of the things I think what we said about what we really like about these acquisitions that we did was they really were complementary in a lot of ways. Where Lima was strong, Mathys wasn't as strong. Where Mathys was strong, Lima wasn't as strong. And they complemented what we had from an offering standpoint at the legacy Enovis level. So I think our view is they have put them together pre-acquisition, probably a close to high single, mid- to high single-digit grower.
Now bringing them into Enovis, having the full suite of products and the more robust portfolio that we can offer, we think cross-selling adds 200-300 basis points to what those legacy growth rates were. So if you think about our international opportunity, we're still a small share player in aggregate, and I have an opportunity to grow in that high single to low double-digit range from now into the future. The other thing I would say is we're not very big in Asia-Pacific. We have some business in Australia in pretty decent position there. But as you think about other markets that you can unlock, there's some big markets like Japan to where I think there's some opportunities for us to grow over time. And then we'll see how some of those other markets evolve in terms of expansion opportunities.
But that's another thing that I like about what we've done is we can be selective on where we grow. I mean, we don't have much business at all in China, and we don't expect to, given some of the challenges with that market. But we can though pick and choose some of those markets that are more attractive to really, again, align to that strategy of trying to mix the business in a positive way, both from a growth, gross margin, and at the end of the day, returning to the bottom line.
Understood. And then P&R, that's half your revenues. It's a slightly different profile, maybe more mature market growing, low singles. Why does it make sense to have P&R along with Recon? Are there any synergies here?
Yeah, P&R has been a market leader for us and has gotten our foot in the door to help build the Recon business in terms of, one, being a well-known player within orthopedics and being known by surgeons because of our DonJoy and Aircast brands and some of our rehab technologies as well. And then has helped us contracting-wise where we might have been on a contract on the P&R side and wanted to get on a contract on the Recon side and were able to leverage some of those relationships. And then from a P&R standpoint, one of the things we really like about that business is it's a strong cash generator. It's very low capital intensity. It creates a lot of cash that we can reinvest to grow the Recon business, which makes us a bit unique in that mid-cap space.
As you think about having half of our business, it's really spinning off a lot of cash to reinvest in not only building the growth engine of Recon, but also to satisfy some of the opportunities from an M&A perspective. So P&R for us has played a good role, and we see an opportunity to continue to mix and shape that business to higher grower, higher gross margins over time, but still maintaining that good cash generation profile. So it plays a key role for us today in terms of that equation. Will it shrink over time as Recon grows? Most likely yes, but at the same time, there's a lot of benefits that we can capitalize by having P&R in our portfolio.
Understood. Non-GAAP gross margins obviously had a mixed benefit given the acquisition. How should we think about longer-term gross margins, right? Is pricing net neutral, positive, and how does a mix-adjusted gross margin look for you?
On the Recon side, gross margins will, just because that part of our business is growing faster and they come with higher gross margins, our company gross margins are going to benefit from that every year just because we'll be getting that mixed benefit. Within the segments themselves, I'd say starting with Recon, we've mixed ourselves to where we're 50% extremities, 50% large joints. Those extremities gross margins are higher. So even within Recon, our mix is helping us on top of the fact that there'll be continued innovation to help to try to offset some of the price pressure in the market. There's no doubt about it going to be some price pressure on the Recon side from the shift to the ASCs and just from the competitive nature of those businesses. So we have offsets through the mix of the business.
We have synergy opportunity with Lima that we're going to be part of the $40 million + synergies that we've identified. Some of that's going to come through being able to drive operational efficiency and benefit as well. And then there's enabling technology fees that are coming into the equation that help offset price. So all that's helping on the Recon side as we think about gross margin progression over time. On the P&R side, our view is we have opportunities to drive scale leverage and portfolio shaping as well to help mix that business to stronger gross margins over time. It's about in the low 50s gross margin today. We see an opportunity to get that closer to 60% over time through mixing small bolt-on strategic acquisitions, some divestment opportunities as well. So we'll continue to shape P&R towards a higher gross margin base.
And then on the Recon side, we're getting those advantages that I just laid out.
Gotcha. On the Divestiture side, any obvious areas for you guys which doesn't fit in?
Yeah, I mean, I think again, if you think about our mentality and our strategy, it's how do we mix the business towards higher growth, higher gross margin, and then on the P&R side, maintaining that strong cash generation profile. So there are segments of the portfolio that don't generally fit within that strategy. One of them we announced earlier this year with the divestiture of our compression hosiery business. I mean, that was a $15 million business that came with essentially no margins and really low gross margins. So we'll continue to look at opportunities like that that are within the portfolio to potentially divest or discontinue or shape as we think about improving it over time.
Like size-wise, this sounds like more tens of millions versus bigger pieces.
We'll see. Again, it's hard to predict on some of that as well, but we're actively looking at how do we shape parts of that portfolio to, again, stronger support against those strategic goals.
Fantastic. And on the Synergy side, I think your original expectation was $40 million of cost synergies from the Lima transaction. What has been realized so far in fiscal 2024 and how should we think about phasing?
Yeah, I think on the last call, I said that we entered the year with $10-$15 million, and based on what we saw through Q3, we're trending towards the upper end of that range, maybe even have some opportunity as we think about here closing out the year. As we think about the $40 million, very much we've worked through an identification of where all that and more will potentially come from and then actively working to execute as well. It's not a linear step up to $40 million because we executed a lot of it this year in terms of some of the back office reduction and duplication of cost elimination. Next year, there'll be a little bit more that we can do with regards to structure as we get systems integrated.
But then you'll see a step up in synergies in year three as we're able to take advantage of some of the shift of manufacturing to lower cost countries. And that takes a little bit of time as you think about putting capacity, getting registrations in place and things like that. So still very much confident in the $40 million, excited about what we've delivered this year. Would expect a little bit more next year, less than this year though. And then definitely kind of fully realize that $40 million + as we get into year three.
Gotcha. And that sort of gets me to the final question here. Any one-offs we should be aware of for fiscal 2025 from a top-line perspective? It looks like macros is stable. We're past the dissynergies, so that should be accretive to growth next year. Any headwinds I need to be aware of?
Nothing that we've been able to really look around the corner and quantify at this point. I mean, I think you asked the question earlier around the tariffs and some of the uncertainty of policy given the leadership change here in the United States. We'll have to see. I mean, I think again, it's too early for us to really say that there's any big risk there. But in terms of headwinds, I see more tailwind because we won't be focused as much next year on integrations. I mean, there's still integration work to do, but the channel aspect of that and the disruption that it created in our top line is behind us now. So we're excited about that in terms of the tailwind on growth that's coming for us next year.
And then it's going to be about doing the hard work to make sure that as we go out throughout the course of the year that we're offsetting any risks that come into the system that we don't see right now.
That's great. So assuming Recon is high singles and P&R low singles, we're looking at upper end of mid singles for overall corporate rate. We should see some operating leverage along with synergies. Should margins be like above your 50 basis points long-term plan rate given synergy benefit next year?
Yeah, I think what I've said is very much you should be expecting us to deliver 50 basis points of core margin expansion. We'll also get a little bit more from the Lima synergies as well. Again, not as much as this year, but we'll contribute a little bit more to where we should be able to do a little bit better than 50 basis points next year. And then the top line, I think you take where we are this year and you add about a point to that given that we don't have these dissynergies repeating just from a starting point standpoint. But again, we'll give more details around what we're thinking about guidance as we get into 2025.
Fantastic. Then maybe the last quick one here. Analyst day, I think you were planning to host one early 2025. What should be the focus for the analyst day?
Yeah, I think again, we're just trying to give more LRP targets, open up a view of what some of the key innovations are coming as well, and just some more details around some of the growth drivers and benefits of each of the businesses. So we're looking to do that probably back half of next year, Analyst Day, do some things around J.P. Morgan and the AAOS with regards to maybe a meet the management type event as well. So we're working through some of that, but more to come there.
Fantastic. With that, we're out of time, Ben. Thank you so much for the time this morning.
All right, thanks, Vijay. Thanks for having us.