Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet’s Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today November 7. Following today’s presentation, there will be a question-and-answer session. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Keri Mattox, Chief Communications and Administration Officer. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet’s third quarter 2023 earnings conference call. Joining me today are Ivan Tornos, our President and CEO; and EVP and CFO, Suky Upadhyay. 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 Q3 earnings release, which can be found on our website, zimmerbiomet.com. With that, I’ll turn the call over to Ivan. Ivan?

Thank you very much, Keri. And good morning, and greetings, everyone from Warsaw, Indiana, the orthopedic capital of the world, welcome to our Q3 earnings call. My first call as the CEO [indiscernible] organization really grateful that all of you are joining us here this morning. I’d like to begin by sharing how truly excited I am to be in the new role. Team to be a very inspiring time, not just in musculoskeletal health, which it is, but also in med-tech in general. Simply put the space is not what it used to be just so five years ago. When you look at orthopedics, when you look at the entire category, it’s changed, it’s changed a lot. Groundbreaking technologies are shaping how procedures are done beyond the backlog and continuing femoral demographics, global demand for treatment is higher than it has historically been This is driven by better clinically reported outcomes. This is driven by shorter episodes of care. This is driven by better, more comfortable ways to do physical therapy. This is driven by greater ways to approach different disease states. And this is driven by subtle treatment migrations like the one we see here in the U.S. with a rapid shift of cases moving into an ASC while also preserving what are very compelling volume levels in the traditional in-patient and outpatient settings. So in plain English, healthy market, great patient dynamics, new technology, disruptive innovation, a lot has changed. And I don’t see us going back to four or five years ago. So again, a very inspiring time to be in musculoskeletal health and orthopedics in general. All of these market accelerating trends are opening new doors for countless patients to benefit from what we do here at ZB, which is to drive life changing solutions.…

Thanks and good morning. I’d like to start my prepared remarks today by welcoming Ivan to his first earnings call as a Zimmer Biomet’s CEO. Ivan has been a constant force and a driver within the organization for several years. And I’m proud to work with him, and I’m excited by the partnership. As Ivan noted, we had another strong quarter driven by healthy and improving end markets and continued strong execution across the organization. Overall, we remain on track to deliver mid-single digit, constant currency revenue growth, and adjusted operating margin expansion in the back half of the year, just as we committed to on our second quarter call. Moving to results. Unless otherwise noted, my statements will be about the third quarter and how it compares to the same period in 2022. And my commentary will be on a constant currency and adjusted operating basis. Net sales were $1.754 billion, an increase of 5% on a reported basis, and an increase of 4.7% excluding the impact of foreign currency. Additionally, we had a selling day headwind of about 150 basis points that impacted all regions and product categories at about the same level. Excluding the selling day impact, consolidated ex-FX sales would have grown just over 6%. U.S. growth was 6%, and international growth was 2.9%. In the U.S., our strong year-over-year results were driven by recon and a step up in our S.E.T. category in tandem with strong capital sales. Outside of the U.S., we saw more moderated growth across Europe and Asia driven by tough comps and geopolitical headwinds, which I’ll discuss in our product category section. Global knees grew 7.3% with the U.S. growing 6.1% and international growing 9.1%. The strong performance in knees was driven by continued uptake from our Persona product portfolio combined…

Thanks, Suky. Before we start the Q&A session, just a quick reminder to please limit yourself to a single question and one brief 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?

Thank you. We’ll go first to Robbie Marcus with JPMorgan.

Oh, great. Thanks for taking the questions. I’ll ask both upfront as they’re kind of interrelated. Ivan and Suky, I was hoping you could address just the health of the ortho market. You talked to it, but we see your results and we see your peer results, and most of them were in line to slightly below in the quarter. So one, how you’re thinking about the health of the market? And then second, you touched last quarter and then this quarter as well on longer range guidance for 2024. You talked newer guidance this time about 100 basis points to 200 basis points above your end market growth. I think last quarter it was implying something like 4% plus. Is that a change? And how do we think about margins for next year? I think previously it was slightly up. Thanks a lot.

Hey, thank you, Robbie. I’ll start, I’ll talk about the market dynamics and briefly I’ll comment on 2024. I’ll pass it on to Suky to provide more color on 2024 and maybe discuss what he can discuss at this point when it comes to the margin profile. But I’ll start with the market dynamics. We’re the fourth company to report in Q3. So by now everybody sees that the markets are healthy. And quite frankly, I won’t talk much about Q4, but so far so good. So this is not a one quarter type of market dynamic. The reasons behind the market profile, the market growth profile and why I continue to say this market is different than four or five years ago is the things that I alluded to in my prepared remarks. The explosion of ASCs, the movement, the shift to ASC is real. That means new ASCs are opening in the U.S. That means [indiscernible] surgery are happening. Demographics around the world play a factor. We continue to track data in terms of the age for someone to get a hip or a knee. And these are younger patients. In the U.S., we would also see more days of surgery. And I don’t think this is just a backlog dynamic pricing, you see what every single one of us is reporting these days. It’s not the same pricing dynamic that we’ve had in the past. And beyond that, the technology. We are driving disruptive innovation. We got more efficient solutions, surgeries are shorter, and the episode occurred is shorter. So we are dealing with the patients, the fellow patients with more efficiency. Again, this is a durable trend. It’s happening in Q3. As I think about Q4, nothing is really changing. As we look into 2024, every early indicator suggests that things are not going to change. And relative to performance, well, look in the background of these healthy market dynamics in the U.S., we gain share in Q3 in both categories. Really proud of being number one in knees for the quarter. We don’t pay a lot of attention to any given quarter, but that is a fact that we’re the fastest growing company in the quarter. And then globally net of a couple of one-timers both in Russia and China. When it comes to hips, our performance was in line with hips and knees was very strong. And then as we get to 2024, I’ll let Suky comment, but we will be mid-single digit. That’s the point of entry. And nothing has really changed. It’s just getting closer to the end of the year and realizing that these market trends are sustainable. And the innovation pipeline that we have will drive the type of growth. But I’ll pass it on to Suky to comment on all the drivers.

Yes. Hey, Robbie. Good morning. Thanks for the question. First thing I’d say is starting with the back half of this year, we committed to mid-single digit ex-FX growth for the second half of the year with operating margin expansion both sequentially and year-over-year. Q3 was a really another strong validation proof point of that. And we feel confident in that profile. The reason I mention that is I think it gives us a running start as we go into 2024. And so, I do want to talk a little bit about 2024 back to your question. First, we’ve already provided a lot of color, I think, on 2024 more than most of our peers. But we feel that being transparent, giving you guys a robust view of what we’re going to do, not only this year, but into the future is really important. But let me talk a little bit about the headwinds and tailwinds as we see it going into 2024 and some things have modestly changed. First, I’ll start with the headwinds. One, we do see a higher tax rate into next year because of the OECD’s Pillar Two. Secondly, based on where FX rates are today, we’d see some additional pressure from a foreign currency perspective into next year. Again, both of these are more macro versus execution, right? They’re things that are outside of our control, but we’re going to contend with them and we’re going to deal with them. And I’ll tell you a little bit about how. On the tailwind side, I would say, yes, we are more confident in our outlook for revenue next year. Our end markets are stronger than they’ve ever been. Our portfolio and new product launches have been executing extremely well in some areas above our expectation. Our…

Appreciate the color. Thanks a lot.

Thanks, Robbie.

Thank you. We’ll go next to Drew Ranieri…

Thanks, Robbie.

…with Morgan Stanley.

Hi Ivan and Suky. Thanks for taking the questions. Just maybe on 2024 also you haven’t talked about backlog much recent conferences. You kind of pointed out that you think it’s going to carry through 2024, but just maybe help us a bit more of how you’re factoring that into your mid-single digit directional guide for next year? I know it’s not, I know your growth is not all dependent on backlog but just how do you think about that helping to support the orthopedic market growth? And maybe just talk to us about your ability to capture a disproportional amount of share of that backlog? Thank you.

Yes, Drew, thank you very much. And first things first, you should be in your honeymoon considering that you got married recently. So I’m disappointed you here. Look, I’m going to keep this short and sweet. We don’t see backlog as a major driver, growth profile for the next year. So when Suky and I said on mid-single digit, we’re not assuming any real meaningful backlog. So not a key driver. We believe and we spend a lot of time going back and forth on backlog that is going to remain here throughout the end of 2024 at least. But we are not a backlog depending – backlog dependent type of a company. So we don’t have – we don’t focus on that. What we’re tracking is innovation, the pipeline that we have, but we’re tracking is the investments we made in the ASC we’re tracking is commercial execution and in the background, just sustainable pricing dynamics. So no backlog. Thank you.

Thanks. And just a second as a follow-up. Your commentary was very strong that you’re expecting mid-single digit S.E.T. growth into next year. But just remind us about what’s it going to take to really accelerate S.E.T.? And maybe just talk a little bit more about the lift on the organic side and maybe what you’re thinking about in terms of M&A to get that growth rate higher and more sustainable? Thanks for taking the questions.

Yes, absolutely. Great question. First things first. Q3 S.E.T. was in line. As we move into Q4, we’re actually going to be a mid-single digit grower. I’m not going to talk about S.E.T dynamics for 2024. We’ll do that coming guidance, but very excited in terms of where we are. We integrated a couple of companies we have seen SportsMed. Those are performing very well. Our upper extremities, our shoulder business is growing in the mid to upper single digits in most regions. When you look at our CMFT, craniomaxillofacial thoracic, which is part of S.E.T. It has been performing very well. It continues to perform very well. So, again, lots of reasons to believe that as we getting 2024, you should expect a sustainable performance in S.E.T. In terms of M&A, again, we’re coming more on that later, but it remains the number one recipient of capital allocation. We haven’t changed in that regard. And yet, S.E.T. is one category that is very attractive, given the higher market growth dynamics or position in the space. So you should assume that this is one area where we’re going to be focusing from an M&A standpoint. But again, native M&A already delivering mid-single digit growth entering Q4 strongly, and we are excited about 2024. Thank you.

Thanks, Drew. Katie, can we go to the next question in the queue, please?

We’ll go next to Matt Taylor with Jefferies.

Hey, thanks for taking the question. Congrats on a good quarter. I was curious about your outlook comments for 2024. And I was hoping you could specifically address the concern I think investors have about growth, especially in the first half of the year with, I’ll do air quotes on this, but tough comps especially in Q1. So maybe you could address how you think you can grow throughout the year and address investor concerns about those tough comps in the first half?

Yes, I’ll start Matt, and again, Suky maybe want to chime in here. But we confident about 2024 because the market dynamics are sustainable. So there has been a lot of back and forth in terms of what’s going to happen once the backlog is out and all that. First, the backlog. We don’t think it’s going to be out anytime soon. And then pricing is sustainable. And all the things that I mentioned, excuse me, my answer to Robbie, are here. They move to the ASC the shorter episodes of care more days of surgery. So macro wise every data point we get in that is very compelling. And then on the micro, we are seeing a bolus of innovation being launched. We got 40 new products that we’re going to be launching over the next 36 months. Some of these products are very compelling. We launched our Persona OsseoTi, which is the cementless construct earlier in 2023. That is going to be a full – truly full market release in the U.S. in 2024 with the right amount of S.E.T.s and that’s high growth. As we enter the first semester of 2024 to your point, is another two or three very meaningful product launches. Some in robotics, some within recon, some in S.E.T., that’s very compelling. The integration of embodying, the integration of relying continues to generate revenue. I could spend an hour, but I will tell you that is the balance of really sustainable micro dynamics and solid innovation. And then on top of that, you got great commercial execution with a highly engaged sales force. So I’m not – we are not deeply concerned about the about the comps.

Yes. I think just building on that, remember the first half of this year, which was very strong, was more about comps versus 2021, or excuse me, versus 2022. Then it was something about abnormal market growth. So again, just building off what Ivan said, we feel confident in that. Now we’re not of course giving specific guidance, and we’re certainly not giving quarterly guidance into next year. So, as always quarters can be choppy or driven by seasonality mix changes, but overall, we’re confident that the single vision.

And maybe one last comment here, Matt, quickly we can move on. Don’t forget that the first semester of 2023, while it had very solid comps, also had pretty challenging dynamics from a supply standpoint. So as we think about 2024, that we believe it’s going to be a tailwind.

Great. Thanks, guys. We’ll leave it there. Thank you.

Thank you.

Thanks, Matt.

We’ll go next to Shagun Singh with RBC Capital Markets.

Thank you so much. I’m just going to try to ask the Q4 implied in 2024 guide in a different way. Your Q4 implied guidance assumes a deceleration from Q3. And your commentary seems pretty positive. It implies a deceleration even on a stack two-year basis, which are just for comp. So should we just assume that it’s conservatism? And then if you look at growth on an underlying basis, adjusted for China, VBP selling days and all one-time items, I think you did plus 6% in 2022. You’re looking to do 7% to 7.5% in 2023 guidance. Sorry, consensus is looking for about 4.5% growth in 2024. I know Ivan, one of your targets is to drive that revenue growth acceleration. You’ve indicated that you will not be satisfied with 4% to 5% growth for the company. So just what is your reaction to that 4.5%? Does it look conservative to you in the context of the comments that you made?

Sure. Hey Shagun, this is Suky. Thanks for the question. So just first some fourth quarter, I’ll just keep going back to – we don’t give quarterly guidance and obviously with our implied, you can pretty much squeeze into the last quarter of the year. We talked about mid-single digit growth margins expanding in the back half of this year, and we’re going to deliver on that. We have a range around our guidance. Obviously, the – to the downside, geopolitical factors continue to be erosive or supply doesn’t continue to, that very positive trend has been on. Then you’re towards the bottom end. However, if that supply picks up and it remediates even faster than it’s already been improving, then as well as better execution on our new products, we could be at the upper end. So there’s a range around that and so I’ll just leave it at that. But overall, we feel really good about where we’re ending the second half of this year and where our end markets are. As we look into next year, I think you’ve seen a bit of a pivot where our commentary was before anchoring towards 4%, maybe even better to now where we’re saying mid-single digit. And I think that reflects the momentum that we’ve seen to your point in 2022 and 2023.

Got it. And if I could just ask a question on M&A.

Yes, go ahead. Go ahead, Shagun.

Okay. Great. Just on M&A, Ivan, if you could just elaborate a little bit more in your thinking of tuck-ins versus larger deals, high growth adjacencies that may allow you to diversify outside of elective procedures. And then I’m most interested about ASCs, a lot of your businesses moving to ASC that is a growth driver. What do you need to further succeed there? Do you need a broader bag or more depth? Thank you for taking the questions.

Yes, absolutely. So on M&A, as already mentioned, and it was in my prepared remarks as well, it will remain our top strategic priority from a capital allocation standpoint. So that’s not changing. And we’re excited about the opportunities that we have in front of us. We’re going to continue to focus on growth markets or areas that are not only mission-centric, but offer an exciting growth profile. And that is three things. No ranking order. Three key areas, segments within recon that are growing faster than [indiscernible] or collected or collective market growth rates. And there’s a lot in there. You got navigation. You got data, technology, elements of recon that are really attractive. Two is set as we’ve done already. Buying things in sports med, buying things in CMFT, and then looking at other categories that I don’t want to get into for our competitive dynamics. But again, optionality there. And then ASC is also one attractive area, is one area where we have dedicated resources, we growing in the teams. We have currently 10% to 15% of our sales in that space. And there is opportunities there to acquire things. So that’s a bit of the strategic summary of where we go from an M&A perspective. In terms of financials, we’re not changing the story. We like to do things up to $2 billion in acquisition price. And again, that gives you a lot of options. You can do a mid-size deal. You can do some tuck-ins combination of different things. We want these deals to be EPS neutral within two years. And we spoke about high-single digit ROIC within five years. So that’s a bit of a strategic and financial profile. As we look into the next three or five years, we spend a lot of…

Thanks so much, Shagun. Katie, can we go to the next question in the queue?

We’ll go next to Josh Jennings with TD Cowen.

Good morning. Thanks, Ivan, Suky, and Keri. Wanted to just follow-up on your ASC comments. Ivan, wanted to ask about the migration of total joint surgeries to ASCs. Any back the envelope assumptions you would have as used just in terms of where the penetration or where the migration for knees and hips has been. What percentage of cases for each categories reported in ASCs currently here at the end of 2023 versus 2022. And then any metrics you can share just with roads of penetration and ASCs, and then any pricing dynamics for total joints as this migration is occurring. Thanks, multi-part question, but I appreciate you taking it.

All right. Let’s see if my memory is as good as I think it is. So starting with ASC macro wise, we believe that roughly between 40% to 60% of cases in the next five years are going to move to the ASC. And I will say that a large portion of cases are already moving to the ASC. What we like about this dynamic is that as cases are moving to the ASC, other cases are going to in-patient and outpatients. So it’s a little bit of a double dip happening their just, but yes, the number is 40% to 60% over the next three to five years. And I would say a good percentage has already moved. We are growing in the upper teens when it comes to the ASC and today around 10% to 15% repeating myself of cases or revenue rather of Zimmer Biomet comes from the ASC. I will tell you that it’s pretty equal in terms of both hips and knees. So we don’t see one category being above the other. And I like the fact that given the recent CMS changes, you’re going to see sold their cases also accelerating the ASC. We believe that’s a great opportunity for us here at Zimmer Biomet. So that’s the answer on ASC. In terms of ROSA dynamics I think we’ve been very transparent in terms of one-third, roughly one-third of all of our installations are happening in the ASC. That’s a trend that has been happening for a few quarters, and that’s a trend that we continue to see happen in the next quarters. In an ASC environment speed matters, not having to get engaged in complex pre-planning matters. Efficiency does matter and having a knee that you are confident it’s going to be the right knee that matter. And those dynamics are driving ROSA penetration in the ASC. And then outside of the ASC, ROSA continues to perform. We are selling and placing ROSA’s frankly at a rapid pace. You see in the other category, we saw nice increase that’s driven by ROSA. And we are on track to at least install 300 units at the end of the year 2023 when it comes to ROSA, so really satisfied. And that’s before we launch next generation ROSA across recon and deliver the first shoulder robotic platform. So excited about both ASC and ROSA. Thank you for the question, Josh.

Thanks, Josh. Katie, can we go to the next question in the queue?

We’ll go next to Larry Biegelsen with Wells Fargo.

Good morning. Thanks for taking the question. And Ivan, I have enjoyed watching your posts on LinkedIn. You looks like you’ve traveled around the world literally since you’ve taken over as CEO. I wanted to ask so if you start on the margins, you’re going to end 2023 with an operating margin about 28.5% which is towards the high end of med-tech. Where – what do you see as peak margins for Zimmer? I mean, 5, 10 years ago the margins were in the low-thirties. Is that still realistic? And I had one follow-up.

Yes. Sure. So good morning, Larry. Thanks for noticing. It’s actually two years in a row where we’ve expanded margins in the backdrop of really challenging environment, by the way, while also accelerating revenue. I think in 2022, we expanded margins, operating margins by about 40 to 50 bps. And this year, you’re right, the implied is about 100 basis points. So again, really proud of what the ZB team has done collectively, again, in the backdrop of still investing for growth, which we’ve been able to demonstrate. As we move into next year, I think I’ve been pretty front footed in our ability to continue to grow margins in 2024. And quite frankly, we’re going to do that in every year after 2024 and continue to deliver a profile where earnings are growing faster than revenue. I’m not going to go out and put a marker out there as to where we think it can get to, but historical levels we will look for over time to definitely hate and exceed those. So I’ll just leave it there. Again, really happy with where the team’s performed over the last couple of years. Very confident what we’re going to do next year. Quite excited about our outlook in the longer-term.

That’s helpful. And then the follow-up…

You had a follow-up, Larry?

Yes. Other – the other category was obviously very strong. We heard you talk about gross of sales in the quarter. What was the change in the quarter that drove that strength and how sustainable is that? Thanks for taking the questions.

Yes. I don’t think there is anything changing really. There’s not a change of strategy is we continue with ROSA. We continue to show strong clinical efficacy. We continue to demonstrate time neutrality after a few cases. We continue to see great adoption in an AC environment. We have three ROSA indications today within recon. So total knee partial and hip, we’ve done a lot of podium presence. If you attended the Dallas meeting this last weekend. There was a lot of noise around posters and whatnot. So I think we just get in the right adoption is moving quickly. And then a driver, I will tell you has been tremendous. A lot of these cases that are done, the ASC do like or do one, a lot of surgeons in an ASC won the combination of robotics and cementless. In the past, we didn’t have the right cementless construct. We do not with Persona OsseoTi. So I think that’s been a bit of a tailwind, but I wouldn’t say it’s a major change of the strategy is just the fact that it’s been two, three years in market now and you’re starting to see the data. So really excited in terms of what we are.

Alright, thank you.

Hey, Larry, just to get back to your original question, just to make sure I’m completely clear. I do see getting back to historic margins are better over time. Absolutely, a definable objective for us, now having greater insight and taking over for option supply chain, I would say, this is an area where we can certainly do better. We’re going to do better going forward. And I can tell you that the company’s focus on not just revenue growth, but operating profit and free cash flow generation has been more acute and stronger than it’s ever been. So I think we’ve got the pathway, we’ve got the culture, we’ve got the levers to get there over time. Thank you.

And Larry, yes, thank you for being my one follower on LinkedIn, the whole time, I said it was my wife. I’m disappointed. Appreciate it.

Thanks, Larry. Katie, can we go to the next question in the queue?

Thank you. We’ll go next to Chris Pasquale with Nephron.

Thanks. Just want to follow up real quickly on Larry’s ROSA question. Was the mix of sales versus placements different in 3Q than what we saw in the first half of the year? Just trying to figure out whether that played a role or the acceleration in other sales was really driven by system volume.

Yes. Thank you Chris, for the follow-up. We did see more sales. We haven’t changed the strategy, so it’s reflective of the fact that there is capital in the hospital systems across the world. And we saw people wanting to buy them and we sold the units. It’s not a fundamental change, it’s not a change in the strategy. We settled along that we prefer placing, given the annuity factor and whatnot. But yes, capital is strong and we did do some deals in some ASCs and in some of the systems and that’s why you see the other category growing. Thank you, Chris.

Thanks. That’s helpful. And then on SET, is the strategy there to lean into these focus categories that are already growing pretty well and then hope that the overall performance improves as they become a bigger part of the mix? Or do you see an opportunity to reinvigorate areas like lower extremities that maybe aren’t on that list today?

Yes. Let me start with the second part. We really don’t do hope here. So we do have plans to drive better performance in the three areas that so far have not been that compelling, those being restorative therapies for an ankle and trauma. What I will tell you is that the restorative therapies, biologics, the issue, there was a reimbursement change a year ago that’s been resolved. So that’s not a concern moving forward. And then foot and ankle, lower extremities is something that we’re looking at. It may require it some organic inorganic place, but given the space we paying close attention to what is that we need to do. And then trauma for many markets continues to be very attractive. We done some smaller tuck-ins, so I would expect that the declines that we have seen in the past are going to disappear. So again, not really doing hope there. We got plans to remediate and to get back to growth in those three categories. Now that said, the three most compelling priorities within set remain upper extremities shoulder, sports, medicine, and CMFT and those three are performing very nicely.

Great. Thank you.

Thank you.

Thanks, Chris. Katie, can we go to the next question in the queue?

We’ll go next to Travis Steed with Bank of America.

Hey, thanks for taking the question. I guess, a quick follow-up on M&A, any way to frame how much margin or EPS solution you’re willing to take in yours one and two, realize you said neutral by year three. But curious kind of what the framework is on year one and two. And when you think about bid ask spreads, is a deal something you think you could get done this year or is it probably more something for 2024?

Hey, Travis. This is Suky? I’m not sure I completely got that second question. Can you repeat that?

Yes. In terms of like, when you think about like bid ask spreads and the progress on your conversations, is a deal happening in 2023 a possibility or is it probably something that we need to like the 2024 to see M&A?

Yes. So first of all, on your first question around earnings per share dilution, that’s really going to depend on the type of asset that we acquire, the size of the transaction, what market’s in, where it is in its journey and its life cycle is a product that’s just launched or something that’s very mature in marketplace. So I’m not going to sort of give a guidepost on year one or year two, because I think that would be premature because it is going to be very situation dependent. But what we will commit to is that we’re going to look for break even by at least 20, 24 months, if not sooner than that, so that’s the profile that we look for in our M&A. Now relative to bid ask and timing of course for a variety of reasons mostly proprietary. We’re not going to get into the timing of any specific deal as you know, those are often opportunistic situation based. So here’s what I would say is that we’ve got a lot of strategic flexibility to balance sheets in the strongest position, it’s been since the merger of Zimmer Biomet. We feel really good about the optionality we have going forward and we think we can deploy capital to continue to accelerate our growth profile and diversify the company. But I’m not going to get any specific timing. I’m sure you can appreciate that, but thank you for the question.

Yes. That’s fair. Thank you. Thanks for the answer. And a couple housekeeping questions. The OUS, one time stuff in hips this quarter, does that get better in Q4? And when you think about tax rate next year, I heard your comments, but curious if that’d be like on a less than a 100 basis points or more than a 100 basis points on tax rate. And when you think about the interest line, you’ve got I think $850 million in debt coming due. So is interest a headwind or tell in next year?

All right. I’ll briefly comment in on Q4. I’ll keep it simple. It does go away. So this is the one-timer and in Q4 we get back to growth. In terms of the tax and interest, Suky, do you want to comment on that?

Yes. So on the expense line, right now we’re not going to give full guidance on that. So we’ll unveil that. I think the one thing you want to keep in the backdrop is we do believe we can grow earnings, we will grow earnings faster than revenue. On the tax rate, right now our best estimate is that it’ll be about 150 basis point increase off of our full year 2023 tax rate.

Thank you. Thanks a lot.

Thanks, Travis. I think we have time for maybe one last question. Katie, is there one in the queue?

We’ll go next to Vijay Kumar with Evercore ISI.

Hey, guys, thanks for squeezing me in here. Maybe just one question from me. This OUS hips, I think you called up Russia headwinds. Is that done with in fiscal 2023? Should that continue in the fiscal 2024? And I think you did speak about M&A. Can you comment on your hurdle rates you given current interest rate in monument for deals?

Yes. Sure. Hey Vijay, it’s good to hear from you. So on the OUS hip headwind, specifically due to Russia, if you go back the last quarter’s call – second quarter, I talked about Russia being about a 50 basis point headwind in the back half of 2023. That estimate is still largely true and most of that occurred in the third quarter. So we’re going to see a little bit of pressure in the fourth quarter, but it’s largely behind us. We don’t see that as being a headwind at this time into 2024. And I’m sorry, Vijay, could you repeat your question around.

Sorry. On the deal M&A given current interest rate environment, can you talk with your herded rates for you know, deals?

Yes. So look we would still look at debt financing over equity financing all day long. Even though, it’s 2x of where it was a year ago, it’s still versus historical rates still a pretty attractive source of capital. It has become marginally more difficult to make the deal economics work at, at these interest rates. So it just means that we’ve got to be that much more disciplined on our valuation and in our purchase price. And so that’s how we view things right now.

Thanks, Vijay. And thanks everyone for the question. Yes, absolutely. I think now we’re probably nearing the end of the call. I’ll turn it back over to Ivan just for any closing remarks.

Yes, thank you Kerry. And I’ll keep it to two minutes or less here so we can close on time. But a couple of things here. Number one, really, really pleased with the progress here at Zimmer Biomet really proud of the team and the work that they have done they are doing, and most importantly, the work I know that we are going to continue to do excited about the markets, lots of questions on market dynamics. Every data points suggests that their healthy markets, their durable markets no. We’re not concerned about GLP-1s and I’ll say that with the utmost respect and humility, but every data point shows that this is not something we should be concerned about. The performance is strong and it’s going to continue to get there. We saw a great Q3 performance in recon net of the hip issue OUS. It was solid. I like where we are with both hips and knees here in the U.S. in the largest market. I like the fact that we’ve seen set being in line now. I like the profile as we enter Q4 and as we get into 2024. I believe this will be the year for set. And I like the optionality that we got around M&A. So healthy market, solid portfolio, great opportunity to leverage the balance sheet. I do think it’s a different place, a different environment. So really excited to be here. Look forward to leading this great team. I look forward to answering more questions in quarters to come. Thank you for your time today.

Thanks everyone for joining us. The IR team will be in touch of course, and if you have questions or comments, please feel free to reach out. Thank you.

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