Zimmer Biomet Holdings, Inc. Q2 FY2022 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Second Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded today, August 2nd, 2022. Following today's presentation, there will be a question-and-answer session. At this time, all participants are in a listen-only mode. I would now like to turn the conference over to Keri Mattox, Senior Vice President, Chief Communications and Administration Officer. Please go ahead.

Thank you, Operator, and good morning, everyone. I hope you are all well and safe. Welcome to Zimmer Biomet's second quarter 2022 earnings conference call. Joining me today are Bryan Hanson, our Chairman, President and CEO; Suky Upadhyay, EVP and CFO; and Ivan Tornos, COO. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. Please note we assume no obligation to update these forward-looking statements even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements. Additionally, the discussions on this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within our Q2 earnings release, which can be found on our website, zimmerbiomet.com. With that, I'll turn the call over to Bryan. Bryan?

All right, great. Thanks, Keri, and thanks to all of you for joining us this morning for the call. We've got three sections for the call this morning. The first section, I'll talk briefly about our Q2 performance from an overall perspective, and how a combination of strong execution and COVID recovery have actually enabled us to revise our expectations up again for the full year. That's in the face of some pretty significant macro pressures, especially around FX. I'll also spend a few minutes talking about ZB Innovation, which is a primary contributor to our performance today, and certainly our performance in the future, so we want to make sure we touch upon that. In the second section, I'll switch it to Suky, and he will provide details on Q2 but I think even more importantly and probably more interesting is to talk about 2022 guidance and our updates there. Finally, for our favorite section of the call, we'll close things out by addressing any questions you might have, either on Q2 or any other topic. Let's go ahead and get started with Q2, and I'll start this section by saying that despite some very real and what I would define as universal challenges in our sector, I'm very proud of the fact that the team delivered again another solid quarter above our internal expectations. This speaks to the team's muscle memory associated with effectively managing through challenging times, and it's exactly what we have right now. Despite the supply concerns that are out there, it is a challenging time, and it's great to know that our team has that muscle memory to manage through it effectively, and they continue to show that. The primary reason for the overachievement was stronger than anticipated COVID recovery, for sure, which happened in the quarter, but also just really solid and focused execution from the team across our regions and all of our business segments. From a procedure volume standpoint, the momentum we saw in Q1, particularly at the end of Q1, actually continued through April and May, but we did see a bit of a slowdown in June that carried over into July. The recovery pace was different depending on where you were in the world in Q2. It was strong everywhere, but especially strong outside the U.S., where we saw a strong performance pretty much across the board in all of our areas OUS. Inside of this, we saw solid momentum again in knees and hips. I'm really pleased to see another strong quarter in large joints, and I'm excited that we continue to get traction for our innovations in this area. The momentum in large joints was then offset by some expected pressure in our S.E.T. businesses and other categories, and Suky will provide more detail here in a minute. It's pretty clear to all of us that foreign currency is a challenge, and supply challenges are very real, inflationary pressures are with us right now. And those hurt us in Q2; all of these did, and they're going to continue to pressure us through the back-half of '22 and potentially beyond. Just get on our business momentum this far into the year. Our new product innovation and the traction we're getting there with our customers and COVID recovery, at least the profile today, has actually gotten better overall confidence in 2022, which is why we are raising our full-year guidance for revenue, operating margin, and earnings per share. I think this should be a solid indication that our strategy is working, our team is executing, and really just getting it done. Our underlying business is gaining strength, and a big part of that, a big part of this momentum is our new product innovation and continuing to deliver in delighting our customers. In Q2, we debuted another element of our ZBEdge ecosystem, which is an AI technology within our Omni Suite smart OR system that focuses on optimizing surgical workflow and increasing procedure efficiency. And I'd say that's important right now because of the capacity constraints that our customers have. Separate from that, from a ROSA perspective, ROSA robotics momentum continued in both knee and hip for the quarter, and our placement pipeline remains extremely strong. While it's still in limited launch and very early days, the feedback and interest in Persona iQ is positive, and we're focused on collecting as much early data as quickly as we possibly can, with an eye toward establishing clinical use benefits as we prepare for full launch in 2023. All of these innovations and our broader ZBEdge suite highlight the possibilities around data collection and integration on the patient and customer experience, and that's really our focus. In addition to the strength of our existing product portfolio, our new product pipeline is just as exciting. We have additional product launches planned for the second half of 2022, especially across our knee and S.E.T. portfolios. In knee, our soon-to-be-launched Persona cementless form factor will complement our current form factor and provide additional momentum for cementless conversions, particularly as we get into 2023. In our S.E.T. businesses, I'm very excited about our Identity shoulder system launch. This will provide a much more customizable shoulder for a more personalized feel for the patient, optimizing movement in the shoulder. We're also continuing to reshape our business and accelerate ZB's transformation. We've made significant progress in streamlining and modernizing our operating model. We've also focused on making ZB a best and preferred place to work, as well as a trusted partner, which are two of our strategic pillars for the company. In Q2, Zimmer Biomet was certified by Great Place to Work, a global authority on workplace culture. The U.S. certification was based on direct survey feedback from our team members, making it even more compelling. We also established a new function for refining and driving our environmental, social, and governance strategy, along with the commitments and actions we're taking in this area as well. We've already seen significant improvements across almost every element of ESG, and we're just getting started. We see this as an important responsibility as a company, but also critically important to our team members, customers, and investors. You'll be hearing more from us on the ESG front as we make further progress and enhance our reporting in this area. In summary, even though there are real macro headwinds our team is managing, the recovery shift in COVID continues, and the execution of our strategy is making a difference. We'll need to stay close to the headwinds into the recovery; the last couple years have proven things are fluid. But I feel confident in our team's ability to navigate the path forward, and I'm excited about where ZB is going. With that, I'm going to turn the call over to Suky for a deeper dive into Q2, and our revised expectations for the year. Okay, Suky?

Thanks, and good morning, everyone. Overall, we had a good quarter, driven by strong execution and faster than expected recovery of elective procedures across most markets. While we continue to face heightened headwinds and challenges related to foreign currency, inflation, and supply chain disruptions, our second quarter performance gives us the confidence to raise our full-year revenue and EPS outlook. With that, I'll turn to our second quarter results and how that translates into our updated full-year financial guidance. Unless otherwise noted, my statements will be about the second quarter of 2022 and how it compares to the same period in 2021. My commentary will be on a constant currency or adjusted continuing operations basis. Net sales in the second quarter were $1.782 billion, up 1% on a reported basis and 6% on a constant currency basis. As Bryan mentioned, strong procedure volume recovery extended from the first quarter, especially as we moved into April and May, with moderation of recovery in June. U.S. sales grew 1.3% driven by strong recovery in execution as COVID cases subsided and elective procedures returned, especially in knees and hips. This was partially offset by lower S.E.T. growth and declines in the Other category. International sales grew 12.2% driven by strong procedural volume across most markets in EMEA and APAC. EMEA experienced a rapid uptake in the second quarter across developed and emerging markets, with a generally lighter comp versus 2021. Asia-Pacific overall grew in line with expectations, with China performing largely as projected, and Japan growing better than anticipated. Turning to our business category performance, Global knees grew 11.2%, with U.S. knees up 4.5%, and international knees up 20.1%. These results were driven by easy comparisons OUS, along with strong knee procedure recovery across most regions, continued global traction for our Persona knee system, especially with Persona Revision in the U.S., and ROSA penetration and pull-through. Hips grew 8.9% with U.S. hips up 2.6% and international hips up 14.9%, driven by easier comparisons OUS in tandem with strong international procedure recovery. We also saw continued traction across key hip products including our Arcos and G7 systems for revision and our Avenir complete primary hip focused on the direct anterior surgical approach. Lastly, we continue to see solid ROSA pull-through in the hip category. Sports, extremities, and trauma category increased 0.1% and was impacted by a tough comp in 2021, expected pressure in trauma due to VBP implementation, as well as expected pressure in restorative therapies due to a reimbursement shift for our Gel-One product. Within the category, we continued to deliver strong performance across our key focus areas of CMFT, sports medicine, and upper extremities. Finally, our other category declined 6.1% driven by tough comps and expected lower capital sales related to a higher mix of ROSA placements versus upfront sales in the quarter. Moving to the P&L, we reported GAAP diluted earnings per share of $0.73 compared to our GAAP diluted earnings per share of $0.68 in the second quarter of 2021. Higher revenue and lower IPR&D charges more than offset restructuring and mark-to-market losses on our retained ZimVie stake. On an adjusted basis, diluted earnings per share of $1.82 represented an increase from $1.51 in the second quarter of '21. Higher sales in tandem with lower IPR&D charges in the quarter more than offset lower year-over-year gross margins. Adjusted gross margin was 71.6%, slightly ahead of expectations due primarily to better mix and lower pricing erosion. We expect heightened inflation to temper our observed second quarter favorability as we move through the rest of the year. We continue to project full-year gross margin to be slightly down when compared to full-year 2021 gross margin. As we said, increasing inflationary pressure will pull-through into '23, and we now expect about 50 to 100 basis points of headwind from inflation in 2023 versus our previous estimate of about 50 basis points. Our adjusted operating expenses were $777 million, lower than the prior year primarily due to the 2021 IPR&D charges referenced earlier. Our adjusted operating margin for the quarter was 28%, up from the prior year. As previously noted, full-year margins will be pressured versus the prior year due to inflation, supply chain headwinds, and China VBP, with partial offset by the ongoing realization of our efficiency programs. Despite these ongoing headwinds, we expect those efficiency programs to drive improved second-half operating margins versus the first half of the year. The adjusted tax rate was 16.5% in the quarter and in line with our expectations. Operating cash flows were $346 million, and free cash flow totaled $240 million for the quarter. We paid down about $100 million of debt in the second quarter and ended with cash and cash equivalents of about $390 million. Our improving financial performance in tandem with ongoing reductions in debt continues to strengthen our balance sheet for greater strategic flexibility. Now moving to our updated financial outlook for the full year 2022, we are raising our financial guidance based on the following key assumptions. COVID and customer stocking pressures will continue through 2022, but with a lesser impact than previously anticipated. Supply chain and inflationary pressures stabilized at current levels, and foreign currency will be a 500 basis point headwind in '22 versus our previous projection of 350 basis points. We assume about a 30% flow through of FX-related revenue headwind falls to EPS, and that the FX headwind applies to the full range of EPS guidance. Against this backdrop, I'll walk through our updated financial guidance for the year. Constant currency revenue growth is now expected to be 4% to 6% versus 2021, with an expected foreign currency headwind of 500 basis points. This means that reported revenue growth is expected to be in the range of negative 1% to positive 1% versus 2021. We're raising adjusted operating margin by 25 basis points to the range of 26.75% to 27.75%. Adjusted tax rate guidance remains in the range of 16% to 16.5%. Adjusted diluted earnings per share is now expected to be higher, at $6.70 to $6.90. Free cash flow is now expected to improve to $800 million to $900 million. Lastly, net interest expense and non-operating expense will be modestly higher than the $160 million we anticipated earlier this year due to higher interest rates and foreign currency. We expect to see typical seasonality in the back half of the year, which would suggest stronger revenue dollars in Q4 than in Q3. Additionally, we expect Q4 revenue growth to be higher than Q3 growth, partly due to the easier fourth quarter comp related to China VBP headwinds we observed in Q4 2021. Operating margins are expected to follow a similar trend as revenue. In summary, while there are macro challenges and headwinds, our team is navigating those challenges and executing well. We're raising our '22 financial guidance due to better than expected COVID recovery, the strength of our execution, and our confidence in ZB's underlying business fundamentals. With that, I'll turn the call back over to Keri.

Thanks, Suky. Before we start the Q&A session, just a quick reminder to please limit yourself to a single question and one follow-up so that we can get through as many questions as possible during the call. With that, operator, may we have the first question please?

We will begin with Rick Wise from Stifel.

Good morning, everybody. Hi, Bryan. Hi, Suky. Maybe I'll start off with your commentary about the outlook for the second half from a couple of perspectives. Bryan, you talked about the April-May strengthening, maybe some softening in June, and continuing. Help us understand where you're seeing it? What do you think is happening, and maybe better understand what you've dialed into the second half? We recently did a survey of 50 orthopedic surgeons who were cautious about the second quarter, but the most ebullient, exuberant about their volume expectations for the second half of any doctor we surveyed. I'm confused about how we sort of reconcile those two points of view.

Thank you for your question, Rick. What I can share is that, based on our discussions with many customers, we noticed an increase in procedure cancellations in June and July rather than a decrease in the number of procedures. This was mainly due to staff or patients testing positive for COVID, preventing them from proceeding with the scheduled procedures. We believe this trend might persist, and we’ll assume it continues at least through the third quarter, based on our current observations. However, the positive aspect is that we had a very strong quarter, and the underlying business momentum remains robust, which we expect to carry on. Suky, would you like to add more about our outlook for the second half?

Yes, so, good morning, Rick. Good to be with you today. If you look at our implied guidance in the second half at the midpoint versus what we did in the first half, you would get about 4% operational ex-FX growth for revenue. What underpins that is three key assumptions we've made. One, you've got tougher comps in the second half versus the first half, especially with EMEA if you just think about the second quarter growth we just posted. Two, we have one less selling day in the second half of the year, so we've accounted for that. And three, as Bryan talked about, we're just taking a prudent view on COVID, especially given our index to elective procedures. We did see some softening of procedures due to those cancellations as we exited the second quarter. If we don't see that pressure continue all the way through the third quarter, that would likely take us to the top end of our range. So, those are some of the big building blocks that we've assumed in our second-half growth rate. But as Bryan said, we feel really confident about the execution of the team, where our pipeline is going, and our ability to execute on our recent product launches, so feeling good about the second half.

That's great, thanks for that. And maybe just as a follow-up to some of these thoughts, maybe Suky, and this is always, I know, your favorite question on calls like this at this time of year. Talk about the setup for '23, just hearing some of the factors you're talking about, improved internal execution, major new products being launched, the positive impact of your efficiency programs. It would seem like I'm leaving this feeling more encouraged about that setup for the next year than I might have, appreciating that there are many uncertainties as well.

I am feeling encouraged because we are also optimistic about the outlook. While we won't provide guidance for 2023 yet, as there is still much to unfold in 2022, we anticipate a normalized market and associated dynamics will lead to at least 4% revenue growth. The operational efficiencies implemented by our team, along with our plans for next year, should help us counter the current inflationary pressures. We are confident we can expand margins in 2023. Although the margin expansion will not be as strong due to this year's inflationary challenges, we still believe we can achieve margin growth alongside the expected top-line growth for next year.

Yes, I'd just maybe make an additional comment on that. And I would agree, yes, I think that the execution of the business and the team is very real. The momentum in the business is real. The product pipeline that we have is very strong, and that we haven't even launched yet. For all those things yet, in a normal market, I would be very disappointed if we didn't deliver at least a 4% growth rate. And our cash flexibility opens up options for us from an acquisition standpoint. We're going to be looking to add accretive WAMGR acquisitions, potentially diversifying acquisitions to bolster that growth rate over time.

That's incredibly helpful. Thank you.

Thanks, Rick. Jake, we can go on to the next question.

We will hear from Pito Chickering with Deutsche Bank.

Hey, good morning, guys. Thanks for taking my questions. Looking at your 2022 guidance on the margin side, can you help us understand the increase of inflationary pressures in the FX headwinds, and how that's offset by stronger revenue growth and margin leverage? And then, any views you have around positive price for your mix in your updated guidance for the year?

Yes, hey, Pito, this is Suky. So, I'll start with the operating margin guide. Inside of that, gross margin we do expect to step down in the second half versus the first half. We are experiencing greater headwinds due to inflationary pressures, and that's banked into our operating margin guide. This increased in the second quarter from our first quarter call. We expect about 50 to 100 basis points of headwind from inflation in 2023 versus our previous estimate of about 50 basis points. But again, we've included that in our new operating margin and gross margin expectations for the rest of this year. Our assumption is that inflationary pressures stay relatively stable to where we exited the second quarter as we think about the rest of the year. If you take that operating margin you would expect perhaps a bigger EPS flow-through, but as you're seeing across the sector, FX has been a significant headwind. We now see foreign currency as a 500 basis point headwind, up from our previous projection of 350 basis points. If you think about our EPS guide and our raise, while we're increasing our ex-FX or operational growth by 200 basis points, our reported growth at the midpoint is only going up by 50 basis points, translating to an incremental $35 million in revenue, including Q2 performance. This helps support the $0.05 raise we just put in there.

Yes, I just want a quick follow-up here just around the 2023 commentary, with this sort of 5% FX hit you're seeing, assuming that this sort of comps out next year, can you just refresh us how that would flow through the P&L in 2023?

Yes, right now, we're assuming this flows through to net income at about 30%. This is inclusive of any natural hedges we have plus any FX gains and losses. I would say that 30% can vary over time due to several variables, including mix of regional profit or the timing of foreign currency changes. But right now, our best estimate is 30%. As that changes, we'll keep you updated.

Great, thanks so much.

Thanks, Pito. Jake, can we go to the next question, please?

We will now move to Larry Biegelsen with Wells Fargo.

Good morning. Thanks for taking the question, and congratulations on a really nice quarter here. Bryan or Suky, I just wanted to confirm, international was really strong for hips and knees. I just want to confirm there was nothing one-time, no catch-up there? And then just S.E.T. and other, maybe just some color on what accelerate those two businesses? Is it the new shoulder in S.E.T.? When does that happen? And the outlook for other, given some of your comments, more ROSA rentals or lease agreements, what's the outlook there? Thanks for taking the question.

Sure, and thanks, Larry. There was nothing other than some easy comps we had OUS. There was no one-time event that buoyed the quarter that somehow skewed the quarter. It was just the factors that we referenced already that came together and allowed for a very strong quarter OUS. On S.E.T., I think it's good to just take a step back because we don't talk about the subcategories that often under S.E.T. We have six businesses underneath S.E.T.: CMFT, which is our Craniomaxillofacial and Thoracic business, Sports Med, Upper Extremities, Foot and Ankle, Trauma, and Restorative Therapies. In the quarter, we saw strong performance in our three focus areas: Upper Extremities, CMFT, and Sports, with Upper Extremities and CMFT both growing double digits in the quarter, which we think is sustainable. Sports Medicine grew mid-single digits, even with a tough comp, offset by pressure from Asia-Pacific in Trauma. We expect that pressure to continue through Q3 but then reverse itself in Q4. In the U.S., we saw pressure in Restorative Therapies due to a reimbursement change in Gel-One, and we expect that to continue through about mid-2023 before annualizing out. Net-net, I'd expect S.E.T. to stay pressured in Q3, then improve in Q4, and we're confident we will see continued momentum in our focus areas. Ivan, could you speak to some of the innovation and the confidence about these areas?

Sure. Thanks, Larry. On the new shoulder, our Identity launch is going to be our biggest launch. It's going to be a highly personalized solution. We have also filled the portfolio quickly in Sports Med, integrating our acquisition. We have new products in ankles and multiple innovations in CMFT, which is also seeing double-digit growth. It's not one product, it's a compelling portfolio that's driving growth.

So, had two other questions in there, Larry. One was on the quarter for knee and hip, and anything we saw in there. It was a straightforward quarter on recon in total. Then regarding 'Other', it was down due to the mix of ROSA; the installments continue to be strong, but the mix was different this year with more placements than absolute dollars in sales, plus some moderate pressure in surgical capital related to our Other business.

All right, thanks so much, guys.

Thanks, Larry. Jake, we can go on to the next question in the queue, please?

Yes, we will hear from Josh Jennings with Cowen.

Hi, good morning. Thanks for taking the questions. Bryan, I wanted to ask about competitive lens in joints, and what you think is driving in the marketplace decision-making by your surgeon customers. Robotics provided an edge at one point, now all the big four have the robotic systems commercialized. Do you think that surgeons are shifting back to making decisions in terms of what brand based on implant, or is robotics still driving competitive wins? Additionally, how should we think about the evolution of ROSA from here? What is Zimmer doing to evolve the ROSA system and any software updates that you guys have implemented so far in 2022? Is that one follow-up?

Yes, thanks, Josh, for the question. I would say that it's always been a combination of the implant and the value of the implant to the surgeon, and will always be that way in concert with the technology you bring that surrounds it. When I look at our performance, those two components are now coming together in a cleaner market than we've had in the past. The underlying strength we've had as a business has been masked by some external things. As those clouds begin to move, you'll see the real performance of this come out. Ivan, can you comment on what you're seeing out there?

Yes, absolutely. The decision-making by surgeons is multifaceted. The role of the provider and payer is also crucial. What makes ROSA unique is that it's part of an ecosystem that integrates multiple components. Its value to surgeons is seen in terms of efficiency and technology, helping them achieve better outcomes. We are seeing excellent feedback from customers on the efficiencies gained. Overall, we're very excited about what's happening with ROSA.

Thank you. And Bryan, just wanted to ask if there's any opportunity for product line pruning or working through any obsolescence that could help catalyze stronger growth at your different business units? Thanks for taking the questions.

It's a great question. We have dramatically decreased SKUs over the past four years, and we'll continue to focus on that. There's a lot of inefficiencies in orthopedics if you have multiple product lines. We are indeed trying to focus on the main brands and rationalize categories that are just not as important to us. We've been doing that very quietly but effectively.

Great, thank you.

Thanks, Josh. Jake, if we can go to the next question.

Our next question will come from Jayson Bedford with Raymond James.

Good morning and congrats on the products. Just a couple quick ones, in response to Rick's question earlier, Suky, you mentioned margin expansion in '23. I was just a little unclear—was that in reference to gross margin, operating margin, or both?

Yes, Jayson, great question. It’s really more about operating margin expansion. We expect gross margin to be negatively affected this year by 50 to 100 basis points due to inflationary pressures. But we’re optimistic about operational efficiencies, pricing strategies, and go-to-market improvements that can drive operating margin expansion in '23.

Yes, that's very helpful. Just as a bit of unrelated follow-up. In terms of patient backlog, I thought it was somewhat refreshing that you didn't talk about hospital staffing issues. What do you think is posing the biggest hurdle to unleashing that backlog?

It's a bit of a balance. It's multi-factorial. Certain areas have capacity to see backlog come through, but we're also seeing offsets in other areas that are building backlog due to COVID or staffing pressures. It's hard to predict when this will stop, but we are seeing strong procedure growth alongside cancellations. That's what we're seeing more in June and July.

Thanks for the question, Jayson. Jake, can we go to the next question in the queue please?

Yes, we will hear from Kyle Rose with Canaccord.

Great, thank you for taking the questions, and good morning. Suky, you made some comments on the last question just about pricing updates. So, I wonder if we could just take that one level deeper. Where are you seeing the biggest success in price pressures near term?

Yes, thanks for the question. I will turn it over to Ivan; he's probably closest to the day-to-day.

Yes, absolutely. When I joined this business four years ago, the normal price erosion was 300 to 400 basis points per year. That's not what we are going to see. I would be extremely disappointed if we do not stay below 2% erosion. We've completed tactical actions and are now moving towards strategic and transformative pricing strategies. We have seen success raising prices for non-core products and thinking differently about different customers.

Thanks, that's very helpful. And then just one follow-up on ROSA, maybe just talk a little bit about the utilization you are seeing and some of the positives, and then I will take a stab, but overall installed base in your percent of knees and hips following through would be very helpful.

I think you've always got to try to take a stab at these two things, so we are just not going to provide them. Ivan, can you talk about the momentum? We are seeing really strong momentum in ROSA. It was off from the other category given the mix. We sold less than we did the prior year. The placements were still strong, and the pull-through is also strong.

I’m proud of the team's global work with ROSA in 40 countries. We're seeing a mix of installations in inpatient settings and ASCs, with about 30% of installations in ASCs. That’s a great lead indicator. We track competitive accounts closely, and about 40% to 50% of installations are happening in competitive accounts, with excellent feedback so far.

Thanks, Kyle. Jake, can we go to the next question please?

And we'll hear from Jason Wittes with Loop Capital.

Hi, thanks for taking the questions. Maybe a follow-up on ROSA; are the competitive accounts that you're getting into using multiple robots? Or is it usually just a single robot that's ROSA? Or how would you characterize the competitive inroads?

It really depends. In teaching institutions, it's not uncommon to see two or even three robotic systems. High-volume surgeons who are used to using Persona tend to gravitate towards ROSA because of its integration with Persona, which drives a different level of efficiency. That said, we do have examples globally where you have as many as two or three robots in an account.

And it's not surprising that always occurs. Even if you just look at the implants, even in a strong account, it’s typically not homogenous with just one implant type.

Okay, I appreciate the detail. And then a follow-up on Persona IQ. I know you mentioned collecting data to build the value proposition. Are you ready to fully launch it in 2023? How do we think about the price and value proposition for patients and hospitals?

You are absolutely right. It is going to be a premium priced product. This is an opportunity for sure—just like you would see in robotics disposables. We’re sprinting to gather data to prove the value proposition. But it’s a progressive launch, so not committing to a specific date.

I won't commit to a launch date, but we are on track to gather data and understand what our data looks like in the next few months. We need to validate our value proposition as well, so that's our focus.

That being said, we do see this ecosystem of capabilities as invaluable. The ability to collect data and inform analytics through machine learning will deliver value that we can offer to surgeons and providers. Once we prove it, we believe they will pay for it.

Thank you, Jason. Jake, if we can go to the next question in the queue?

And we'll hear from Chris Pasquale with Nephron.

Thanks. Just following up on the Persona IQ question, can you give us a sense for the scope of what you're collecting? And is this something we should expect at the AAOS meeting, in spring, or is the timing not going to line up with that?

We are collecting data across numerous dimensions. Pre-op, intra-op, post-op—data points include resection data, gap balancing, accuracy on cuts, overall alignment, and range of motion expectations, among many others. You will see more from us on this at the AAOS meeting.

It’s not just IQ, it’s an entire capability ecosystem. It allows us to compile diverse data across all procedure phases, creating an extensive data lake from which we can draw valuable insights.

I see, thank you. And then I just wanted to clarify on the pricing commentary. You guys used to give the impact of price by business, went away from that this year. But if I look back over the past seven or eight years, the average impact was just a little bit over 2%. So, I'm a little confused by the three to four-point comment, and how much of an improvement we should really expect if 2% is the target going forward. May be you could just clarify that? Thanks.

Yes, overall. On a consolidated basis, you're right, it was around that range, but if you deconstruct that and actually looked by category, you would see that knee and hip or recon were higher on price erosion than overall consolidated, and generally lower in S.E.T.

I want to clarify, 300 to 400 basis points of erosion is more typical on large joints in the U.S. When looking at the overall category it can differ. But yes, in these areas, we're expecting much lower erosion compared to historical averages.

Got it, thank you.

Thanks, Chris. Jake, we have time for maybe one or two more questions. Can we go to the queue?

Yes, we'll hear from Steven Lichtman with Oppenheimer.

Thank you, good morning. Follow-up on S.E.T., you talked about the pipeline you have coming in your focus areas. As you think about overall S.E.T. versus WAMGR for those markets, do you see a pathway to improved foot and ankle growth versus that market, either through internal innovation or M&A? Overall thoughts on your foot and ankle from here?

Yes, all six of the categories we have in S.E.T. are attractive, but we bias our investment towards our focus areas due to their cleaner path to leadership. We still see potential in foot and ankle, which will receive R&D investments, and recent acquisitions will help improve our offering in that category.

We have not given up on foot and ankle. The recent acquisition gives us a more complete offering, and we are launching biology solutions as we speak. There's meaningful R&D going into that space.

Got it, okay. And Bryan, you said before that as you guys moved into Phase 3 of your transformation, M&A got crimped, obviously, by COVID. The impact there from a procedure volume basis has ebbed, but there were some other macro headwinds. How do you feel overall about the environment for Zimmer to go out and do some deals here over the next 12 to 18 months?

Well, it's better now than it was before. Our financial flexibility is improving, and we've earned the right to increase our focus in this area. We've been looking at assets, and now we have the flexibility to execute. We're focusing on mission-centric targets that can drive faster growth and EPS.

Yes, and Jake, we probably have to end there. I know we're a little bit above 9:30, but thanks for all the questions from the queue, they were great. Bryan, any closing remarks to round out the call?

Yes, I think what I would say is that it was a strong quarter, but it's just a quarter. The fact is the momentum has been there for a long time. I'm happy that, finally, with the clouds being removed, you can see the performance that the team is delivering. We should expect choppy conditions but the business momentum is real, our team is executing, and our product pipeline is strong.

Okay. Thanks, everyone, for the questions. Of course, if you have others, please don't hesitate to reach out to the team today, and I'm sure we'll talk soon. Thanks for joining.

And this concludes the Zimmer Biomet quarterly earnings call. Thank you for your participation.