... joining us. Matt O'Brien, I cover MedTech here at Piper. We're very, very fortunate to have the Zimmer management team here with us this morning. From the company, we've got Ivan, who's the CEO, Suky, who's the CFO, and then several members of the IR team as well, that are in the audience. Thanks so much for coming out. Really do appreciate it. Great to be here. So, you know, the question that comes up a lot, which I'm sure you're prepared for and probably tired of answering, is really the backlog that we're seeing. And, you know, I know, Ivan, you're still pretty bullish as far as where we are in that process. How much more, you know, how much longer can the backlog really be a tailwind for the sector? And then what do things look like when we start to kind of cycle out of the backlog? Sure. So first things first. Good morning. Great to be here. On the backlog, we know in a data-centric way that it's sizable. We know that it varies from region to region. I was in Europe last week, and pretty large, especially in places like the U.K. APAC, Asia Pacific, may be lower. In the U.S., you hear of cases being postponed. You hear of volume surgeons in the U.S. being busy for the next 7-8 months. With all those data points, we know that it's going to be here through at least the end of 2024. Who knows what's going to happen in 2025? Now, what I will say is that, we do not count on the backlog as one of the reasons why we're committing to grow mid-single digits in 2024 and beyond. So we're not a backlog-centric company. Certainly helps, but, the growth that you're seeing right now is not backlog-centric or dependent. Okay. That's interesting. So I want to get back to that in a second, but let's just get through this GLP-1 stuff upfront and get it out of the way, if you don't mind. Sure. What are- What's a GLP-1? Yeah, I'm sure this whole audience is sick of talking about this, but you know, we've got some data coming out, I think, from Novo in the next month or two, and maybe in February. Just talk about, you know, what people should be anticipating as far as that data. What data have you guys looked at specifically that makes you comfortable that GLPs are not going to impact your space going forward? Yeah. Thanks, Matt. Well, look, all kidding aside, 3-4 months ago, we're not paying attention to this. Today, we're paying very close attention to this. We engage third-party sources. We're working with the largest societies around the world to track the data. What I can say is that, we're not concerned about it, frankly. On the study coming up, it looks at WOMAC score pain management. You can have less pain, but you're not going to get rid of osteoarthritis. Now, once your cartilage is damaged, you know, we run a company that deals with osteoarthritis. Osteoarthritis is cartilage that is damaged. Pain is a consequence of that, but it's not the root cause. So the study is looking at pain scores associated with osteoarthritis and the impact of weight on that study. Clearly, if you lose weight, you're going to feel less pain. That doesn't mean that the disease is gone. So that's on the study. Relative to GLP-1, we believe it's a tailwind. Too soon to tell whether we've seen higher volume because of GLP-1, but what I will tell you is that the data we're getting shows that a lot of the patients that are going through surgeries are on a GLP-1. We've seen patients that lower their weight, so they're able to go through the surgery. We've seen patients that lower their weight, they're active. Motion injury is the number one reason why Osteoarthritis can happen. It's not weight, it's not genetics, it's not age. So right now, we think it's a tailwind. We're not concerned about it. Got it. And just last piece on this, and I'm tired of talking about it, but do you think we'll see any Zimmer-specific data at Academy next year to talk about? You will. You will. So we're working with, again, some of the largest societies. We're running our own research with a third party. I've been asked not to disclose the name of the societies or the third party yet, but, coming Academy, we're going to have the data. What I will tell you so far is looking very positive. Okay. Okay, appreciate that. So let's move on past that. Please. The knee franchise, that's really been carrying Zimmer, you know, recently, very good performance there. How much of that is really a function of just ROSA uptake? And then how much of it, I don't know if this is for Suky or not, but ROSA versus cementless. So we in Q3 had a great quarter. We delivered 6% growth in the U.S., 9% plus outside the U.S. It's a combination of things. We got what I believe is the best portfolio in the market, with a leading knee in the world, Persona. We are one of the fastest, if not the fastest, growing company in robotics with ROSA. Recently launched our cementless knee, Persona OsseoTi, which is capturing share very quickly. One third of all the cementless knees that we get is from our competitors. We get a 10%-15% uplift, pricing wise, with our product, and we got an ecosystem of solutions. So that's what's driving me. Beyond that, yeah, there is some backlog in there, and we have great commercial execution. Are we a knee-dependent company? No. It is around 40% of our revenue, but, we're doing great things in SET. We're doing great things in the U.S. and hips, so I think it's a very balanced approach. Okay, but do you think knee is going to be your primary growth driver in the next couple of years? I think it's going to be more balanced. You know, we had to early on focus on knees because it is 40% of the revenue. SET, or the Sports, Extremities, and Trauma business, today, is growing mid-single digits in the quarter. As we look into 2024, we're making a commitment to grow mid-single digit or above. We got the portfolio that we need in sports. We got shoulder growing in upper single digit, double digit in some regions. For the short answer is no, we're not going to depend on knees only. Okay. So then, if you're not going to depend only on knees, as I look at the hip performance last couple quarters, two quarters on a 2-year stack basis, it has decelerated a little bit. Sure. You've got some more competition from Stryker with Insignia. I know they're pushing hard there. Is there something, you know, outside of Russia that's going on in, in hips? I don't know if everybody, you know, these reps are focusing on knees because they're going so well and kind of- Yeah. -forgetting hips. Yeah. So let's just break down the answer in two parts. You got the U.S., and you got outside the U.S. In the U.S., in Q3, we don't like to talk about specific quarters, but it's important to note that in the U.S., Zimmer Biomet actually was at market in hips, and actually we performed above Stryker, above Insignia. After the U.S., we did have some comps, some challenges in Russia. I think everybody's having some challenges there, some issues in China. Yeah, there are products in the hip category that were delayed, that we're launching as we speak. So moving forward, I don't think you're going to see the hip performance that you've seen in the last 2 years. But in the U.S., it's been pretty solid. I know Insignia, that is a triple- tapered stem, is not being a, a direct concern. We're launching our own triple- tapered stem, so this is for direct anterior approach, sometime in the early part of 2024. So I, I think we're in a good place when it comes to. Okay, understood. Appreciate that as well. And then on ROSA, it was really interesting in Q3. You guys had a really good quarter with ROSA. Stryker had a really good quarter with Mako. I don't know if there was trialing of VELYS that was going on, or if people were just slower because of that trialing, but why did the market for robots accelerate in Q3? So VELYS, Johnson & Johnson, Mako, Stryker, ROSA, Zimmer Biomet. Look, I think penetration of robotics remains very low. It's somewhere in the 18%-20% range as a whole. So I think as we get more data out, we improve efficiency. It's an all boats rise type of event. So I think the demand for robotics in general, for all of us, is going to continue to grow. Relative to Q3, we saw a demand for purchases. In some cases, it's educational facilities that want to buy the device and run some clinical trials. In some cases, cash that is in the system, it goes up and down. I'm not sure that next quarter we're going to have the same level of purchases. We prefer to do installments, but that's the way it worked out in Q3. Okay, understood. So the demand and the appetite for robots is still extremely strong. No capital- Very high. Very high. And again, we prefer to place them, but if you want to buy it, we'll sell it to you. Got it. Okay. Okay, on the SET side of things, you said things are starting to get better there. It has been an area that's underperformed the last kind of year-ish. Sure. What's going to help really accelerate growth there? Is it new product introductions, et cetera? Sure. So probably it's worth for the audience to break down SET, because the acronym makes no sense whatsoever. There are six businesses under SET. You got sports, you got extremities, you got trauma, you got restorative therapies, you got biologics, and you got foot and ankle. So that's six different businesses and three letters. Out of those six businesses, the areas where we focus, sports medicine, upper extremities, and CMFT, craniomaxillofacial, thoracic, as you mentioned, that one, they're going really well. You know, growing upper single digits, in some instances, double digits. We invested in those businesses, and again, they're gaining share across the key geographies. The other three that didn't perform that well, those being foot and ankle, restorative therapies, and trauma. I believe now we have the portfolio that we need to elevate the growth in those three areas. We had a reimbursement headwind in our restorative therapies business, and that's behind. So complex way to tell you that the commitment is real. We've not done well in the past, but we got the innovation, we got the specialized sales force, we got the contracting capabilities to deliver mid-single-digit growth across the board. Okay. Specifically within SET, how is Embody doing? I know it's early days, but how is that doing, and, and think about that product longer term. Sure. Embody is the acquisition that we made, I want to say probably, I don't know, 6, 8 months ago, something like that. It is above the model, Tapestry for soft tissue repair. It's a procedure that happens, very frequently, especially in the ASC. It's going really well. Today, it still is, not that material, but it's not that material. We think it will be at some point, but today is not, the lion's share of the growth that we're seeing in the category. Okay. And, and are you seeing off-label use? I'm sure you're not promoting for it, but are you starting to see off-label use of that product? I'm not going to comment on that. Okay. All right. So they're just sticking in one indication. Got it. On the pricing side of things, that's been an area that's been a tailwind finally, after 20... I've been covering the space 20 years, and it's never been a tailwind. How long do you think that's going to be, more of a tailwind neutral factor versus a headwind that you're seeing? Out of respect to the fact that Suky is also wearing a suit, I'm going to allow Suky to answer that question. I don't put the suit on often. Look, I think we have performed much better this year than our historical norm of 200-300 basis points of erosion. I think some of those are environmental, some are structural. We believe that this environment will continue at least through 2024. Where it goes from there, tough to predict, but the structural changes will continue. So the way we're thinking about this for next year is, again, another 100-200 basis points, which is significantly below our historical average. I say, Matt, the thing that's really interesting, though, is our pricing year-over-year is on a product level basis, and what it does not take into consideration is when you transition somebody from, let's say, a Vanguard knee into a cementless platform on a ROSA Robotics, right? So you get a mix upshift because of that. And actually, this year, what we're seeing is that mix is effectively offsetting the price decline. So that's showing up in revenue as well as in EBITDA. We expect that, that trend to continue into 2024 and beyond. So again, we're seeing a bit of a favorable pricing environment. We're doing some structural things to change our inflection going forward, and we're also seeing very positive mix benefits. Okay, I think I'm misunderstanding a little bit. Suky, I think you said, like, historically, you've been a couple of hundred basis points headwind. Yep. Now you're more flat, right? On the pricing. We were flat in the third quarter, but for the year, year to date, we're about 100 basis points. Negative or positive? Negative. Okay. So then the mix is offsetting that, but the mix has always been more of a benefit historically, right? So- Not to the extent that it is now with the new innovative pipeline that's- Okay. ... coming out with cementless, with ROSA. So as you get more and more cementless, ROSA continues to build, and that dynamic should be a tailwind for you for a while yet. Yes. Okay. Okay, that's great to hear. Something you've talked a lot about, Ivan, is the R&D engine. Yeah. I think you've said 80% of your new products are going to areas growing north of 4%. What's the WAMGR look like of those areas? Yeah, so it's 4+. So first things first, I don't think that most people understand the changes we made at Zimmer Biomet over the last 4 or 5 years from a WAMGR standpoint. When I joined the company back in 2018, our WAMGR was around 3.3, 3.4... and through diversity tools, through R&D, through innovation, we are today around 3.8, 3.9. 80% of the products are gonna be at least in the four 4+. Okay. A component of those are gonna be in higher categories, especially in SET and whatnot, but you should think of for weighted average market growth rate of +4%. How competitive are those categories, and can you take share aggressively? Yes. We will not be launching these products if they were not innovative, differentiated. So I would say 80% in the past was more reactive. We had to catch up in robotics. We had to launch some endless knees. We had to get our act together on triple- tapered stems. For hip, I would say moving forward, 80% of those products have the pathway to be number one, number two categories. Okay. Okay, you also mentioned something new in robotics. Is that within hips and knees, like ROSA 2.0, or is it new application? There's a lot in robotics. So we made a very bold commitment to the robotic digital space back in 2018, and you've seen the outcomes of those R&D investments. So we got three key applications in the U.S., globally right now, beyond CMFT. You got total knee, you got partial knee, and you got hip on the anterior modality, direct anterior. We will be the first company to launch or sold a robotic platform, and that's gonna happen at some point rather soon. Then we have next generation ROSA for knees, which has a better customer interface, more integration with the rest of the digital ecosystem and driving better efficiency in an operating room. Then we're gonna be launching sometime next year, the posterior application for hip. So again, we got anterior, which is very prevalent in the U.S., but posterior, which is the main technique outside of the U.S. So those are three product launches that are coming rather soon. Okay. How do we think about product launches over the next couple of years versus the, you know, maybe the couple of years, or the past 2 years? It's a totally different story. Again, Zimmer Biomet, we merged in 2015. We got into pretty serious issues from a quality standpoint. We invested our money on quality remediation. The integration wasn't great. The R&D engines were shut down through probably 2018. And as I mentioned earlier, now you're seeing the output of all the investments we made since 2018. 40 new product launches in the next 36 months, our pipeline is twice what it was in 2018. As I mentioned already, Matt, you know, 80% of those products are category leaders, number one, number two. I will say that by 2024 midpoint, there'll be no gaps in our portfolio from a hip, knee, or SET standpoint. So I do believe innovation is a competitive advantage for us. Okay. All right, great to hear. Let's shift over to the inorganic side of things, right? You've been very vocal about let's get aggressive, from an M&A perspective. You know, you've got assets all over the place that are both, you know, in your core markets and then even tangential, that are down 40%-50% on the public side of things. Yeah. Are you gonna get really aggressive now? I love the word aggressive. That's my middle name. I'm not gonna comment on the pipeline. I'm not gonna comment on timelines. What I will tell you is that our capital allocation strategy remains M&A centric, primarily. We do have the list of targets. Some of these targets are down, you know, 40, 50, 60%, but they don't act like they're down 40, 50, 60%. We are in a great position today from a balance sheet perspective. We got a good leverage ratio, good standing with investors. We will flex the balance sheet, and we'll do the things that make sense at the right time and at the right value. Okay, and is it gonna be within, musculoskeletal only, or will you go elsewhere? We're looking at three categories. Not necessarily in order, it depends on the opportunity, but we like to stay within the core. And again, when people think reconstructive orthopedics, they're thinking low-growth market. That applies to some categories, but you have high growth categories within reconstructive: data, technology, robotics, next generation robotics. Certain implants are in high growth categories, and there is a lot of opportunity in that space. Second bucket, again, not in order, is SET. On this area, what I mentioned, you have six different businesses. These markets are growing upper single digits. Craniomaxillofacial thoracic is growing upper single digits. Shoulder is growing upper single digits. Sports is growing up. There's a lot of opportunity in that area. And then the third area would be within the ASC, ambulatory surgical centers. A lot of opportunities. Once you are in there, you can do things in anti-infective, you can look at other plays that are core to our core point. I, I don't envision as we want to be doing something totally out of left field. We didn't-- we don't need to do it. So I, I like to stick to those three areas that I mentioned. Okay. And sorry to push a little bit here, but, you know, you don't want to be a 3%-4% grower. You need something that's adding about $70 million in incremental revenue per year to get you an extra 100 basis points of growth. Doesn't that limit you more to the SET side of things versus other areas, or what am I missing? First of all, thank you for the challenge. First of all, I don't think we need to do M&A to grow at the pace that we are suggesting. You know, $70 million of growth is something we can get through the innovation that I mentioned, commercial execution, and market analytics. So we don't need to do M&A to grow at that pace. I'm not saying we're not gonna do it, but we're not dependent on M&A. If we are to do M&A, do we need to do SET? Again, not necessarily. You got categories within recon that are growing at a fast clip. It would be easier to do things within SET, and again, we're looking at those categories. Okay. Lots of opportunities, you know, foot and ankle. It's a great opportunity as well. Okay, okay, understood. Then, you know, one more question. This one's for Suky. Just on the balance sheet side of things- Yeah. - You're 2x levered. You know, that would give you, I think, comfortably about $5 billion of dry powder. Is that... First of all, is that about the amount that you have to deploy potentially? And, how do you think about bigger deals versus just, you know, tuck-in deals that you've done historically? Yeah. First of all, I said, as Ivan said, the balance sheet's in, in a very strong position. We are, in the low 2s on a net debt to, the EBITDA basis. The way I think about sizing is if you took that low 2s and you took it up by a turn, maybe up to turn turns on an adjusted EBITDA base of $2.5+ billion, you start to get in that ZIP code. That does not include, by the way, the EBITDA of the, of the target that you would bring over, right? So all that to say, we've got a lot of strategic optionality and financial flexibility. And I would say whatever we do, we're gonna do in the backdrop of maintaining investment grade. So that's, that's gonna be one of the guardrails that we, we focus in on. Relative to sizing, what we've talked about is our, our preferences in the tuck-in to mid-size deals. On the mid-size, on the outside, I'd characterize that as probably about $2 ± billion as our outside limit. And then, of course, you know, inside of that, you could a lot of opportunity on the back end. What about taking on dilution? How, how do you feel about that? I know you don't want to take that a ton, but- Yeah, I think overall, for to increase the WAM GR on a long-term basis is a very value accretive, so that's what we're focused on. In the near term, if we have to take on some dilution for up to 24 months, we'd be willing to do that, but we're going to look for break even inside of 2 years. And in ROIC, that's set to high single digits to low double digits by year 5. Has the interest rate environment changed that ROIC much? It has. It started to elevate it, for sure. Okay. Cost of capital has increased our expectation and our bar. Making it a little bit harder to do some of these deals then? We've got... We're gonna remain bold, but disciplined. Okay, so I'm just thinking of what Ivan said about, like, these companies are not acting like they're down 40%-50%- Yeah. ... plus the higher interest rates. I mean, is it just the environment just isn't super ripe, or is it okay, but not great? How do we think about that? Okay, but not great. It's getting better. I think as these valuations continue to season and boards, management teams start to- Yeah. ... you know, look in a rear view mirror, and that, that 52-week high gets further and further away, I think we're gonna start to see things improve. Okay, it makes a ton of sense. Ivan, going to the ASC side of things, you know, lots of growth there, obviously, on the procedural side of things, but, you know, Zimmer doesn't sell, you know, you know, boom lights and all the other stuff that goes into an ASC. So how big of a headwind is that, not having the full complement of products, and how can you really still participate in that growth? Yeah, start with a small correction. We do sell booms and lights. Oh, sorry. We have a business. We need to spend more time talking about it, a platform called Omni Suite, where we do booms and lights. We do have a standing agreement with Legacy Hillrom, or Baxter now, where we can do booms and lights together. Look, I am not aware of any deal that we lost because we don't bundle stuff, right? We think that product leadership is the one driver of gaining share in the ASC. Products do matter. If we need to bundle, we can bundle with other partners. Again, I'm not aware of any deal that we lost because we didn't bundle something. If bundling or putting a bunch of stuff together was the primary source of revenue, Johnson & Johnson likely would be number one in the ASC, they're not. I like what we got in the ASC space. We're growing in the upper teens. Our market share is growing every quarter, our growth is in the teens, double digit every single quarter. We got the portfolio that we need. We got, again, booms and lights, we got the sports medicine portfolio we didn't have before. We remain the number one knee and hip in the ASC space. I like where we're at. Okay. You know, where are we at in terms of penetration on the ASC side and hips and knees, and then where do you think it can go to? Low. I mean, I think I'm not saying anything new. I mean, there is a drastic shift into the ASC. 10%-15% of our sales are in the ASC space. ASCs are opening up very frequently. I don't want to say anything hyperbolic here, but very frequently. Cases are moving to the ASC shoulder so far recently is moving to the ASC with new reimbursement dynamics. That's a great opportunity. Yeah, I like, I like the future. I like the potential. Okay. A lot of the cases from the backlog are moving to the ASC. That's why you're seeing higher volumes. Okay. So, you know, switching gears here a little bit, you have a partnership with Canary Medical. We do. They had a very favorable reimbursement update recently. Yes. Can that be a meaningful contributor in 2024? It depends how you define- 50 basis points to the top line. I won't comment on that. I think it's going to be meaningful. You asked, I mean, so. Yeah, I didn't expect you were going to answer. The, it's new to the world technology, NTAP, New Technology Add-on Payment, kicked in in the U.S., October first, 2023. So now you get $800 per knee that you do with, with this device, which again, is the only device in the world that has a sensor that tracks what happens with the patient moving forward. Technology is best in class. Price is not an issue. Reimbursement is healthy, so, you know, draw your own conclusion to that. Okay, 50 basis points. Got it. All right, and then two more for Suky here, as we finish up. On the guidance side, you know, you talked—you gave some commentary on the puts and takes for earnings next year. There was just a lot going on. Can you kind of sum up the impact to the bottom line? Yeah, absolutely. So obviously, we're not going to give guidance yet, and I think we've given a lot of color. Overall, the key takeaway is, look, on the top line, we've talked about a mid-single-digit growth profile durably. I think that's very true for 2024. And a bottom line that's growing faster than revenue. That, we believe we're gonna deliver that in the backdrop of a couple of new headwinds that have emerged recently. One is around FX, which will be based on today's rates, a headwind. Who knows where they go from here, but as we stand right now. The second is Pillar 2 and the tax impact of that, global minimum tax is at 15%, primarily in Europe, which could add about 150 basis points of headwind to our tax rate. But despite those, we still believe we can grow revenue, sorry, earnings faster than revenue, and the key building blocks there are natural leverage from mid-single-digit level growth. We don't think the impact to gross margin that we previously communicated will be as negative as we once thought. And then, quite frankly, we're doing some structural changes inside of SG&A to simplify the company, make it more efficient, reallocate resources. When you put all those things together, we've got confidence in our ability to grow earnings next year. Okay, I appreciate that. And you've mentioned the top line, and I don't know if it's FX related, but when I look at the street, street models, they're all—we're all modeling 4% growth next year. You've said more mid-single digits. So is the street getting it wrong? Are you more like 5-6? I know you don't want to get into guidance, but is the street just low? Look, I'm not going to get into guidance. We're looking forward to providing a lot more detail as we move into next year, and we feel good about where we're positioned. Okay, and then last one, just real quick. Pillar 2 gets talked about a lot, and you're talking about 150 basis points. Is there a way to mitigate some of that impact, quickly? I would say in the near term, likely not, but longer term, structurally, can you start to move around some of your strategy? Potentially. Got it. Okay. All right, well, we've covered a boatload. We're out of time, so I have to go ahead and wrap it up there. Thank you guys so much. Thank you. Thanks, bye.