Zimmer Biomet Holdings, Inc. Q3 FY2024 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Third Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded today, October 30, 2024. 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 David DeMartino, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet's third quarter 2024 earnings conference call. Joining me on today's call are Ivan Tornos, our President and CEO; and Suketu Upadhyay, CFO and EVP of Finance, Operations, and Supply Chain. 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, some of which are forward-looking non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our third quarter earnings release, which can be found on our website, zimmerbiomet.com. With that, I'll turn the call over to Ivan. Ivan?

Good morning, everyone, and thank you for joining today's call. Welcome, David, to your very first Zimmer Biomet earnings call. It's truly lucky to have you. We appreciate what you bring to the team already. I'd like to start today the way that I always do by taking a moment to recognize and show my gratitude to the over 18,000 Zimmer Biomet team members who each and every day across the globe move our business and mission forward. Thank you for your commitment to the organization, your tireless work, your very strong performance and most importantly, thank you for what you do for our customers and patients every single day. As I have said in the past, and as I will continue to say as long as I'm here, the Zimmer Biomet workforce and the culture that we have truly is one of our key competitive advantages. During the call today, I'm going to cover four things. First, I'll give an update on the recent ERP implementation and the challenges associated with it. Secondly, I'll provide some general comments on the quarter and the broader market dynamics. Next, I will talk about a brief innovation overview. And lastly, I'll close with our usual update on our three strategic priorities. After this, Suky will cover our financials in more detail. I will make sure to leave plenty of time for questions at the end of the prepared remarks. To begin, I'm very excited to report that we made great strides in managing the ERP implementation challenges outlined in early September. Through the dedicated work of the Zimmer Biomet team and our external partners, we now expect the impact of this challenge in the second half of 2024 to be lower than the 100 basis points of annual sales that we initially communicated, and we also fully expect to be back to normal shipping levels by the end of 2024. Turning to results, in Q3, we grew sales at a mid-single-digit level, including strong results in knees, hips, and heads. This quarter marks the 11th consecutive quarter of mid-single-digit or better constant currency revenue growth for Zimmer Biomet. In addition to the strong revenue performance, adjusted EPS once again grew faster than revenue. Our combined knee and hip businesses, which we refer to as our reconstructed platform, grew in the mid-single-digit range globally while heads delivered upper single-digit growth, aided by strong performance across our key growth drivers. Suky will cover this later, but I'm very proud of these results and specifically I love the consistency of growth in the key categories. Beyond commercial execution, our performance was fueled by mid-single-digit growth in our end markets, which we anticipate continuing based on all the analytics that we have at hand. The aging and increasingly active population, combined with technological advancements driving procedures to outpatient settings in the U.S., accelerating recovery times, and best-in-class outcomes should continue to provide tailwinds to market growth in the coming years. So again, we see a strong market and we don’t foresee these markets slowing down. From an innovation standpoint, Zimmer Biomet has the most robust product cycle in recent memory with over 50 meaningful product launches over a long-range plan horizon. I am particularly excited about the momentum we are generating in our hips platform as evidenced by the improved results in this business and particularly in the U.S., where we delivered almost 5% growth in the third quarter. With Z1, our new triple-taper hip system for anterior hip implant procedures, and with our surgical impact of HAMMR, as well as comprehensive navigation and robotics through OrthoGrid, we are going to continue to be on the offense when it comes to gaining market share in hips. In knees, our cementless Persona OsseoTi continues to gain rapid traction, while the recently launched Persona IQ study is driving continued uptake of this differentiated technology. Early in the launch, the feedback has been excellent. Within Extremities, ROSA Solar has the potential to change the treatment paradigm in shoulder implants. It’s a platform that allows for reproducible, anatomic, and reverse procedures. Finally, Zimmer Biomet is the only orthopedic company offering both a CT scanless robotic system in ROSA. Through our recent partnership with THINK Surgical, we also offer a smaller footprint, handheld CT scan-based system in TMINI. So, when it comes to navigation and robotics, we have the most comprehensive suite of solutions. Beyond all of this, we’re expecting to launch a catering of new robotic applications in the short to midterm with and without CT scan capabilities as well as other differentiated features. In the ROSA franchise alone, we expect to launch three new indications in the next 18 to 36 months. While the underlying business performance remains strong, the team continues to execute on our three strategic priorities that I have outlined in the past. Those being people and culture, which is foundational to everything we do; operational excellence; innovation; and diversification. People and culture are key competitive advantages for Zimmer Biomet. Recently, we appointed new leadership in our hips, knees, sports, our ASC, and our digital technology and solutions businesses. I’m excited about these leadership changes, and I am confident that the growth under their leadership will accelerate. We have upgraded talent in critical areas like IT, information technology, and operations. Regarding operational excellence, we are maintaining our long-term financial commitments from our Investor Day earlier this year. With the terrific progress we made towards resolving ERP issues, we feel even more confident in delivering mid-single-digit revenue growth, adjusted earnings per share growth of at least 1.5 times revenue, and free cash flow growing at least 100 basis points faster than earnings through 2027. So again, the same commitments towards revenue, EPS, and free cash flow remain. Finally, we continue to make progress in diversifying our business to enhance the company’s growth and profitability profile, which includes a highly disciplined approach toward M&A as well as internal capital allocation dynamics. The value of Zimmer Biomet’s pipeline of new products expected to be launched over our long-range plan is more than twice the value of where it was just five years ago, and 80% of these new product launches are accretive to the Zimmer Biomet Vanguard of 4%. In conclusion, we are very proud of the progress in our organization, and we look forward to continuing to execute above and beyond expectations. I love the fact that we’re impacting the lives of millions of people, and I’m deeply inspired every day knowing that my teammates and I are fulfilling the Zimmer Biomet mission of alleviating pain and improving the quality of life for people around the world. And with that, I'll turn the call over to Suky. Thank you very much.

Thanks, and good morning, everyone. As Ivan mentioned, we closed another solid quarter, showcasing the resilience and winning attitude across our nearly 18,000 team members. Despite ERP-related headwinds, we grew sales over 4%, while maintaining steady operating margins, generating $1.74 in adjusted earnings per share, and $310 million in free cash flow. Given the challenges related to our ERP implementation, we are updating our 2024 full-year guidance, which I'll detail later. I would like to start by discussing the ERP implementation. As Ivan reviewed, we transitioned to a new system in the third quarter for North America distribution, which caused slower shipping levels of products to our customers. We disclosed this disruption in early September and initially noted that the ERP-related headwinds could impact up to 1% of annual sales in the second half. Through the excellent work of our team members, we now believe the impact will be 60 to 80 basis points of annual sales, split evenly between the third and fourth quarters. We continue to expect to be back to normalized service levels exiting 2024. Moving on to results, unless otherwise noted, my statements will be about the third quarter of 2024 and how it compares to the same period in 2023, with commentary on a constant currency and adjusted operating basis. Net sales were $1.824 billion, an increase of 4% on a reported basis and 4.1% excluding the impact of foreign currency. Consolidated pricing was 70 basis points positive in the third quarter, marking the third consecutive quarter of positive pricing. Our U.S. business grew 2% and international grew 7.1%. Growth in the U.S. was driven by strong performance from hips and our sports and extremities technologies (S.E.T.), partially offset by other, which saw the largest impact from the ERP headwinds. Our international business continues to perform well with strength across knees and S.E.T. Global knees grew 5.5% in the quarter, with U.S. growing 2.9% and international 9.2%. Our international business continues to benefit from our Persona portfolio and our ROSA robotics platform. Global hips grew 3.7%, with the U.S. growing 4.9% and international 2.4%. As Ivan mentioned, with the launch of Z1, the accelerating rollout of HAMMR, and the closing of the OrthoGrid acquisition, we now have a complete product portfolio in hips and are on the offensive. Next, our S.E.T. segment grew 7.3%, led by CMFT, sports, and upper extremities, which all grew between mid-single digits and high teens. This marks the fourth consecutive quarter of at least mid-single-digit growth in S.E.T. Finally, our other category declined 9.5%. The decline was a result of difficult comparisons from the previous year and our surgical business being disproportionately impacted by ERP-related challenges. Turning to our P&L, we reported GAAP diluted earnings per share of $1.23 compared to $0.77 in the prior year. The increase in GAAP earnings was driven by higher revenue, combined with a lower tax rate and share count. On an adjusted basis, we delivered diluted earnings per share of $1.74 compared to $1.65 in the prior year, with earnings growing faster than revenue. Adjusted gross margin was 71% and adjusted operating margin was 26.3%. Despite the ERP-related headwinds in the quarter, gross margin and operating margin were largely in line with the prior year. Adjusted non-operating expenses were $51 million in the quarter, up slightly on higher net debt and interest rates. Our adjusted tax rate was 17.7%, higher than 2023 due to the implementation of Pillar 2, and fully diluted shares outstanding were $203 million, down year-over-year due to share buybacks. Turning to cash and liquidity, we generated robust operating cash flow of $396 million, free cash flow of $310 million, bringing year-to-date free cash flow to $652 million, and ended the quarter with $569 million of cash and cash equivalents. Aligned with our capital allocation strategies to return at least 65% of free cash flow to shareholders, we repurchased approximately $600 million in shares during the third quarter. Through the end of October, we have repurchased over $850 million in shares in the open market and maintain flexibility to continue our share repurchase program. Regarding our outlook for the rest of the year, given the ERP-related headwinds, we are updating our full-year financial guidance. We now expect 2024 constant currency revenue growth of 4.25% to 4.75%. With recent exchange rate fluctuations, we now anticipate about a 75 basis point headwind from currency in 2024, resulting in reported revenue growth expectations of 3.5% to 4%. Additionally, we now expect full-year pricing to be flat to 50 basis points positive. For margins, we anticipate full-year gross margin to be down slightly from 2023, while operating margin is still projected to be up year-over-year, marking the fourth consecutive year of operating margin expansion. We are reiterating our expectations for net interest and other non-operating expenses at about $205 million and an effective tax rate of 18%. Fully diluted weighted average shares outstanding for the year are expected to be about 204 million, resulting in adjusted diluted earnings per share of $7.95 to $8.05. We also expect full-year free cash flow to be about $1 billion. In summary, despite the challenges, this was another solid quarter for Zimmer Biomet. With that, I’ll turn the call back over to David.

Thank you, Suketu. Operator, let’s open it up for questions. In order for us to take as many questions as possible, please limit yourself to one question. Operator, please go ahead.

Thank you, sir. Ladies and gentlemen, at this time, we’ll now begin the question-and-answer session. We’ll take our first question from Travis Steed with Bank of America.

Hey guys, thanks for taking the question. I wanted to understand first, why are you cutting the guidance by more than the ERP issue on an organic basis for 2024? And how should we think about 2025 and the ERP? Is there a catch-up there? Should we consider 2025 to be at the low end of your 4% to 6% long-range plan? Thanks a lot.

Thank you, Travis, Ivan here. Good morning. So just on the first part of your question on the guidance for 2024, we're going to be somewhat conservative when it comes to the year and allow us to be conservative given the aftermath of the recent ERP challenges. In Q4, many variables can affect performance. We want to observe where we end up with pricing—it has been positive for the entire year, but let's check how it unfolds in Q4 with the various factors at play, including rebates. We want to see the commercial execution we need around new product introductions. We have three very important new product introductions currently. We've been unable to set some of the products out as quickly due to ERP challenges. So, I want to ensure we see a solid performance in Q4 before becoming bullish. Additionally, we experienced macro factors early in the quarter like the hurricane and issues with IV bags, and we believe those disruptions will resolve within the quarter. We're already seeing those cases return. So, we're adopting a conservative approach for now. Regarding 2025, we’re confident in our outlook. The ERP constraints or challenges should be resolved by then, and I would say that we feel positive given the new product introductions and the resolution of the ERP challenges.

Okay, great. Thanks a lot. I’ll take a follow-on question.

Our next question will come from Larry Biegelsen with Wells Fargo.

Hey, good morning. This is Vik Chopra in for Larry. Ivan, can you provide us with your updated thoughts on M&A and areas of interest? Why haven’t we seen more deals from you given that valuations have come down? Thank you.

Thank you for your question. To address the latter part first—why have you not seen more deals? We have mentioned many times that we don’t need to do deals to maintain a mid-single-digit revenue growth rate over the life of our long-range plan. For 11 quarters, we have consistently achieved or exceeded mid-single-digit revenue growth, typically with EPS growth faster than revenue, and generating significant cash flow. We are enthusiastic about M&A and the potential for further diversification beyond the current Vanguard market growth rate of around 4%. While valuations have indeed decreased, upon our analysis, there hasn’t been a single deal that has emphasized the need for immediate capital reallocation to maximize immediate gain. We continuously evaluate opportunities in higher growth segments within Reconstruction, particularly in our S.E.T. business and areas within the ASC space. We have made strides, like our acquisition of OrthoGrid, the fastest navigation company currently operating in the U.S. When the right deal comes along, we will act on it. Thank you for your question.

We'll move to our next question from David Roman with Goldman Sachs.

Thank you and good morning, everybody. I was hoping you could dive a little bit deeper into the reconstructive businesses, starting with knees, where I know you had mentioned some supply chain dynamics last quarter that negatively impacted your U.S. business. That seems to have turned around here. Have you fully recovered from that? Could you also discuss what's happening outside the U.S. because it also appeared to show strength this quarter? How should we consider the geographic performance across Reconstruction going forward?

Yes. Thank you, David. Let's begin with knees overall. International growth was nearly 10% in the quarter. In the U.S., we saw a 3% constant currency growth. The challenges we underscored in our Q2 call were pre-ERP-related, specifically revisions shortage, which has been resolved. So as we exit the year, we anticipate no supply constraints impacting knee performance. The one contribution to a dip in U.S. knee growth this quarter was ERP issues. While the ERP impact was primarily in other categories, we could have deployed more Persona OsseoTi sets into the market and leveraged the multiple installed ROSA systems more effectively. As we approach Q4, we're excited about the current state of our knees and look forward to 2025.

Great. Thank you very much.

We'll move to our next question from Matt Miksic with Barclays.

This is Allen on for Robbie. I wanted to dive a little bit deeper into the guidance question that we began the Q&A session with. Despite the ERP challenges in the quarter, you exceeded expectations for constant currency and organic guidance during this quarter. Could you help to clarify some of the headwinds that may have influenced your more conservative guidance, including the hurricane impacts or IV bag disruptions, since you are seeing those cases returning? Assist us in bridging the gap between your quarter beat and the updated guidance that is now 100 basis points lower. Thank you.

Thank you, Allen. I’m not sure I can provide any more detail than I already have. We are adopting a conservative approach considering multiple variables. We've just reactivated shipping volumes and are still addressing the ERP issues, so we want to ensure we see solid commercial execution moving forward. We realize how important November and December are, and we like the perspectives we are getting. Just don’t interpret this as a complex discussion on guidance. We experienced a month delay within the quarter, and we are confident in what we see.

We’ll move to our next question from Matthew O’Brien with Piper Sandler.

Good morning. Thanks for taking the question. We’d love to talk a little bit about the S.E.T. performance during the quarter because that was strong, showing two-year stack acceleration. Given the overall growth in this category, I’m curious how this may drive Zimmer Biomet’s trajectory in 2025, as we might see upper-range growth rates of 6% or greater in that segment. What sort of impact might this have on the profitability of the business as well? Thanks.

Of course! I’ll address the first part, and then I’ll allow Suketu to elaborate on the margin opportunities within S.E.T. We've now achieved four consecutive quarters of mid-single-digit or better growth in S.E.T., with this past quarter seeing an uptick into upper single-digit growth. We typically don’t delve into geographic splits, but I am pleased to report a 5% growth in U.S. S.E.T. performance. All drivers were performing above our expectations, and our investment in innovation over the past three years is now yielding results. We firmly believe that this growth is sustainable as we move into 2025 and 2026, as highlighted during our Investor Day discussions, where we expect these categories to maintain or exceed this growth momentum. Suketu, would you like to address the margin aspects?

I won’t expound too much on 2025 specifically, but the S.E.T. segment is indeed looking promising from both growth and margin perspectives. Margins in the key areas mentioned are above our overall average, yielding good results. While they might trail behind our reconstructed business margins, the growth trajectory in S.E.T. contributes substantially to our overall EBITDA profile, so we’re excited about its performance moving forward.

Thank you.

We’ll take our next question from Chris Pasquale with Nephron.

Thanks. You announced that you’ll be rolling out Z1 in a couple of weeks. Our data suggests that triple-taper stems have become a significant portion of the U.S. hip mix for your competitors. So, I’d love to hear your thoughts on how you are viewing that opportunity as you remedy that gap in your portfolio. Additionally, could you discuss what the initial supply situation will look like with Z1 and when it might be broadly available in the U.S.?

Thank you, Chris. To begin, we already launched Z1. We're slated for a full market roll-out next week in Dallas at the Hip and Knee Society Meeting. Our sales force has been trained, and we're continuing to equip our physicians. We believe this category, as you mentioned, is likely to become the standard of care. It isn’t solely about Z1; rather, there's a strategic blend of Z1, the triple taper, along with surgical technologies like HAMMR, and guidance provided by OrthoGrid, all of which will position us well to regain market share in hips. We will be prepared supply-wise to ensure that we have what we need going into 2025 without any shortages. In fact, we will ensure full availability as of January 1, 2025. Thank you for the question, Chris.

We'll move to our next question from Steve Lichtman with Oppenheimer.

Thank you. Good morning, guys. Ivan, you talked about 50 meaningful product launches planned over the long-term plan. Near-term, you've highlighted Persona IQ, ROSA Shoulder, and your new hip products. Are there pipeline products you'd highlight in the medium term that could be impactful? You mentioned ROSA indication expansion; are there any other pipeline drivers worth discussing? Thanks.

Absolutely, and I’ll keep it concise since this could easily turn into a lengthy discussion about innovation, my favorite topic. As you know, we have the planned launches coming up soon. Looking into the mid to long term, the Oxford Partial cementless knee, which is scheduled for mid-2025, will be the first PMA-approved Partial cementless knee in the U.S. This product currently holds a 60% market share in Europe and features the highest joint survival rates according to the UK registry, making it a key asset in the expanding ASC market. The ROSA Shoulder is set to launch prominently in late 2025 and into 2026, which we believe will be a significant growth engine for the company. We are optimistic about smart implants and the recent introduction of the Persona IQ, as we anticipate significant uptake in 2025 and 2026. Beyond ROSA shoulder, we're also preparing for the launch of three ROSA indications set for mid-2025 and into 2026 that will further accelerate our momentum. In hips, with the introduction of Z1, HAMMR, and navigation capabilities via OrthoGrid, we’re on track to establish ourselves as market leaders, especially with our emerging coated implants that address critical infection risks in hip surgery—expected to launch late 2025 to early 2026. The pipeline is robust, and these 50 new products represent strong ongoing innovation over the subsequent three years. Thank you for the question.

We’ll take our next question from Vijay Kumar with Evercore ISI.

Hi. This is Sophia Knopp on for Vijay. I have one question on 2025. Could you provide insights into your assumptions regarding gross margins and operating margins? Previously, you indicated some gross margin headwinds for the upcoming year—do you have updated thoughts on these headwinds, and should we anticipate operating margin expansion next year?

Yes, thanks, Sophia. We still expect operating margin expansion into 2025. Recalling our long-range plan unveiled at our Investor Day this past May, we anticipate at least 30 basis points of operating margin expansion each year henceforth. Within gross margin, our previous commentary still holds true. We will face some FX headwinds in 2025, but operationally, we are making commendable progress in cost control. We are also observing an improved pricing environment compared to our prior forecasts. Although we cannot predict future pricing expectations definitively, we believe many of the factors influencing our margin trajectory are sustainable.

Great. Thank you very much.

Our next question comes from Richard Newitter with Truist Securities.

Hi, thanks for taking the question. I was wondering if you could comment on TMINI and how that collaboration is progressing for you, particularly in the ASC setting, even if anecdotal feedback is available. I understand it’s early in this relationship, but I’d love to know what momentum it could generate moving forward and what sort of impacts it has had so far.

Thank you, Richard, for your inquiry. This partnership showcases potential for the company by offering us additional options. Specifically, TMINI appeals to a segment of customers prioritizing smaller robotic systems, especially suitable for ASC environments. We were able to witness some early conversions of customers who have chosen Zimmer Biomet due to this robotic application alongside our leading knee implant. Data thus far indicates we might have a significant opportunity here; we'll conduct further training next week in Dallas and ensure to keep you updated.

We’ll move to our next question from Jeff Johnson with Baird.

Thank you. Good morning, guys. I have a two-part question here, if I may. Firstly, in terms of the selling days, could you remind us of the selling days for Q3 and Q4, as well as for 2025 compared to 2024? More importantly, Ivan, at your Analyst Day, you had previously mentioned that surgeons at Mayo performed a few initial cases utilizing ROSA Shoulder. Can you provide any additional anecdotal updates from what you are observing with ROSA Shoulder? How many cases have been performed, and what learnings have you gained thus far?

Hey Jeff, good morning. It’s Suky on selling days. During the quarter, we had about a day of tailwind; however, it’s not material for the full year. We will provide the details for 2025 when we're able to offer guidance during the first quarter.

Regarding ROSA Shoulder, we’ve conducted hundreds of cases to date, which have continually validated our product's value proposition. We have maintained a limited market release beyond Mayo, and the feedback regarding its potential has been outstanding. This technology can indeed redefine the standard of care in shoulder arthroplasty. The robot provides flexibility for both anatomic and reverse shoulder operations, delivering exceptional accuracy, which allows for thorough surgical planning and execution—even in complex resections. Early feedback indicates a considerable reduction in operational time, thus suggesting the possibility of quicker recovery times. We’re very optimistic about this groundbreaking technology and will maintain ongoing communication regarding its progress.

Thank you.

Our next question comes from Caitlin Cronin with Canaccord.

Hi. Thank you for taking the questions. I’d like to focus a bit on pricing. I think it was positive again this quarter. Could you provide more detail on what you're observing in the U.S.? Additionally, what led to the change in full-year expectations for pricing?

Yes. Hey Caitlin, it's Suky. The third quarter marks the third consecutive quarter where we’ve experienced positive pricing at the consolidated level across the entire company. Within that, the U.S. experienced a modest decline, but it remained significantly better than historic averages. In Asia Pacific, we saw slight growth, while EMEA continues to show strong performance. Three driving factors are evident: firstly, we believe the market has structurally improved regarding pricing; the value of our products and solutions is increasingly recognized. Secondly, our internal strategies around pricing governance and execution have substantially improved. Lastly, there are some opportunistic pricing opportunities where we take advantage where necessary. Therefore, our stance is favorable—whether pricing remains flat to positives for the year will depend on various factors. Ultimately, our long-range planning assumption is set at facing about 100 basis points of pricing erosion over time, but we hope to exceed this earlier than anticipated.

Thanks.

We’ll take our next question from Mike Matson with Needham & Company.

Yes. Thanks for taking my questions. I wanted to inquire about the situation in China. Some of your competitors have referenced ongoing pressures from volume-based purchasing there. What sort of impact are you observing, if any?

Thanks Mike. To provide a data point, China currently comprises about 2% to 3% of our global sales. We’ve been closely monitoring China’s situation over the past four years and fully understand the implications of volume-based procurement. Our investment strategies are set at the right levels for favorable returns. As of now, we haven’t encountered factors that would affect our revenue expectations from China in the next three to five years. I myself will be in China next week to keep a close eye on developments. Our capital footprint is comparatively minimal, unlike some larger medtech firms, meaning we’re not as reliant on large capital sales there. Our internal expectations are aligned with our external communications regarding China, so we feel stable with our projections. Thank you for your question.

We’ll take our next question from Shagun Singh with RBC Capital Markets.

Great. Thank you so much. I have two quick follow-ups. On M&A, you noted that you don't need to pursue large deals to maintain your mid-single-digit growth outlook. How do you approach diversification and increasing top-line growth beyond mid-single digits in the long term? And for 2025, can you share any insights into sales and margin cadence as we go through next year? Can we reach the upper end of that mid-single-digit range considering the lost sales from ERP implementation? Additionally, you mentioned ROSA Shoulder as a meaningful driver; how do you see that factoring into the overall growth?

Thank you, Shagun, great to hear from you. As for your second question, we won’t delve too deeply into those specifics today. We’ll provide guidance on revenue and margins in early 2025. All I can say at this point is that we’re excited about innovation and how we managed the ERP challenges throughout 2024. We will clearly communicate our expectations for 2025 when the time arrives. Regarding your first question on M&A, while we don't rely on it, we certainly have an interest in it. We have the financial capacity to pursue opportunities. Our goal, as highlighted during our Investor Day, is to move from a Vanguard weighted average market growth rate of 4% to 5%. Our robust organic pipeline should yield significant contributions, especially through multiple product launches as previously discussed. However, we are always evaluating inorganic opportunities and will pursue deals that make strategic and financial sense when they arise. Thank you, Shagun. I believe that is the last question. If there are no further inquiries, I would like to close the call with a few words of gratitude, pride, relief, and excitement. First, I express my gratitude to the Zimmer Biomet team for their commitment and resilience during a complex quarter with ERP challenges. Secondly, I am proud of the progress we've made in mitigating the impact of this ERP issue. It’s indeed a relief to see that this challenge turned out to be short-term rather than an extended issue. Finally, I am genuinely excited about the innovation cycle we are experiencing. The strength of our pipeline inspires confidence, especially as we tackle earlier commercial execution challenges. The combination of innovation and best-in-class execution will drive Zimmer Biomet's growth as we strive for success.

Thank you again for participating in today's conference call. You may now disconnect, and have a great day.