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Good morning, ladies and gentlemen, and welcome to the

Thank you, operator, and good morning, everyone. Welcome to

Thank you,

Thank you, and good morning, everyone. As Ivan mentioned, Q2 closed a solid first half of the year for

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 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 David Roman with Goldman Sachs.

Thank you, and good morning, everybody. I wanted just to start with the U.S. knee business and appreciate the comments around the month-to-month fluctuations in growth. But maybe you could just take a step back and help us think through the impact of the conversion to cementless and cementless robotic? How is that tracking? And how should we think about the way that shows up in reported numbers?

Thank you, David. Good morning. Maybe quickly here, 20 seconds big picture, and then I'll talk about the U.S. So, big picture. It was a good quarter. We here at

That's -- thank you for all the detail. It's super helpful. Maybe, Suky, just a quick follow-up for you on the P&L. Can you help us think about the kind of interplay here between the benefits you're seeing from the restructuring? And I think you had talked about planning to reinvest some of the savings. Where are you in sort of the progress with respect to the restructuring benefit, and then at the same -- on the -- at the same token, kind of that level of reinvestment that you had contemplated when you introduced the restructuring back in February?

Yes. First of all, good morning, David. Thanks for the question. Just to remind everyone, we talked about or announced our restructuring program at the early part of this year. We talked about $200 million of run rate savings as we exit 2025. I would say where we are right now is we're slightly ahead of that overall trend, at least from a timing perspective, still expect to generate $200 million on a run rate, but it's happening probably a little bit faster than we originally expected. That's definitely contributing to operating margin expansion. You see that in the second quarter, where we're up 100 basis points year-over-year. So, very nice progress there. And that's in the backdrop of continuing to invest in R&D, as well as in certain areas across commercial, whether that's building specialized sales forces across S.E.T., additional complement in our technology, components of Recon and other parts of commercial. So we are, as I would say, just summarizing, going a little bit faster than expected on the savings program, and we're in line and on track with that reinvestment plan.

Thanks, David. Can we go to the next question, please, Katie?

Thank you. We'll go next to Matt Taylor with Jefferies.

Hi, guys. Thanks for taking the question. I guess, I just wanted to ask you more about the hip progress that you're expecting, calling out the opportunity to move back into a share-taking position over the next couple of years and tying that back to the Analyst Day goal. So, I guess, I'll ask the question as to when you expect this to really start and how we should measure your progress against the share gain goals? And are there inflection points along the way that we should be looking out for in your hip business?

Thank you, Matt. The short answer was we have already started. So again, July, so far so good when it comes to hip recovery. We launched our surgical impactor HAMMR midpoint into Q2 and the adoption has been great so far. As you heard from us, we will be launching our triple taper stem, that's

Great. And just one clarification. So, the issues you mentioned in the U.S., you're basically saying those are temporary, related to the surgeons being out, the supply issue, not a change in the market or something else bigger happening?

The market is very strong. By now, all of us have reported. So you see that the market growth rates remain above pre-pandemic levels. So, nothing relative to market. And again, I just want to emphasize that the two, three things that I talked about, the large volume surgeons being out of the territory, we saw in July a recovery. On the revision constraints, those are largely soft, and again, that's one portion of our platform. And again, so far so good. So yes, market is healthy.

Thanks, Matt. Katie, could we have the next question?

We'll go next to Drew Ranieri with Morgan Stanley.

Hi, Ivan and Suky. Thanks for taking the questions. Maybe, Suky, for you to start. Just you've talked more -- you've talked about growth and margin improvement and increasingly so about free cash flow. But when we kind of look at your guide for the year, it still implies a significant step-up in the back half versus the first half. I guess, some of that would be growth in the leverage opportunity that you kind of talked about. But is the environment supportive enough to see kind of a meaningful working capital improvement and, especially, with all these new products coming and I have to imagine you're going to be spending on FX, but just -- or on CapEx. But just how do you kind of get to your free cash flow guide and your plans on using that cash this year?

Yes. First of all, good morning, Drew. Thanks for the question. There are really three building blocks to the growth in free cash flow from where we start here in the second quarter -- or third quarter, I should say. And by the way, the asymmetry between first half and second half of free cash flow is typical in our business. The three building blocks are, really, you have a lot of headwinds in the first half of the year related to rebates from the previous year fourth quarter that you have to pay in the first quarter, bonuses and different levels of incentive payments that happened in the first half. So there are certain headwinds that typically happen in the first half that don't repeat in the second half. In addition, in the second half, you're going to have improved EBITDA through growth as you pointed out. But secondly, a pretty meaningful improvement in working capital, specifically around inventory. We've already seen that inventory improve from second quarter versus first quarter, and we're going to continue to see that sequentially improve in the third quarter, fourth quarter as well. So that's a pretty big driver of the overall free cash flow generation and step-up into the second half of the year. Relative to where we're prioritizing, we continue to prioritize in making sure that we've got the right assets and the right level of investment on our organic business. As Ivan talked about, we're actually stepping up our instrument CapEx around OsseoTi. Demand, quite frankly, has outstripped our original expectations and -- which is a great thing, and we're now catching up on getting those sets out into market. And so, we feel really good about that and we're actually putting more dollars against that. But outside of that, I think what you're seeing also is that we bought some shares back in the second quarter, aligned to our overall capital allocation strategy, which we outlined on our Investor Day. So, overall, feel good about where we're headed for cash for the full year. You will see a second half step-up, typical in every year, and we're going to continue to prioritize our organic investments. And then from there, our capital allocation remains balanced between M&A and return of capital to shareholders.

Got it. Thanks, Suky. And Ivan, maybe just over to you quickly on the OrthoGrid acquisition. Can you just talk a little bit more about how this supports the overall large joint strategy and maybe how you think this platform could evolve over time across the portfolio or care settings and maybe eventually into the S.E.T. business? Thanks for taking the questions.

Thank you, Drew. Very excited. So this one word is optionality. Now,

Thanks, Drew. Can we have the next question, Katie?

Thank you. We'll go next to Joanne Wuensch with Citi.

Good morning, and thank you for taking the questions. You mentioned somewhere in the script several new ROSA robots that you expect over the next three quarters to eight quarters. Could you remind us of how many is several and which those are and how we should think about those launching over essentially the next two years? And I'll throw one more in there for Suky. How do you think about the revenue contribution from those robots ramping? Thank you.

Hi, Joanne, good to talk to you. Good morning. I think I said over the next four quarters to eight quarters, but if it is three, let's keep it to four. We're not going to get into a lot of details, given competitive reasons. But what we are committed to launch is a posterior application for some of the OUS markets, where posterior is more prevalent than interior. As you know, we're going to get into full launch mode for ROSA Shoulder later in the year. And again, so far, the voice of customer has been super. We want to get at some point a different version of ROSA. We're launching two different ROSAs for knees. One is going to be late this year, early 2025. We call it ROSA [B15], which has different levels of workflows, smart positioning, it's got a different auto-balance procedure, and it will be a platform that is going to deliver a kinematic aligned type of knee. In 2025, at some point, we will have a ROSA CT scan base for some of our ROSA users that like that type of device. So those are four or five examples of what's coming here again over the next four quarters to eight quarters. In addition to ROSA, we have the partnership with THINK Surgical. And we got, as I just mentioned, very comprehensive navigation systems. In terms of the revenue contribution, we don't really give details on that. What I will tell you is that we're growing today, end of Q2 double digit in the U.S., when it comes to enabling technologies, we grew double digit in Q1 and we don't expect that to slow down, and that's pull-through for implants.

Perfect. Thank you so much.

Thank you, Joanne.

Thanks, Joanne. Can we have the next question?

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

Good morning. Thanks for taking the question. One for Ivan and one for Suky. I'll try to ask them both upfront. So, Ivan, I'd love to hear an update on the status of Persona IQ, the launch and the short -- have you launched the short stem extension and how that could help and the TPT, we saw you applied for that. Just confident you'll get it and what that could mean for adoption of? Just as my follow-up for Ivan on the gross margin here -- I mean, I'm sorry, for Suky. I -- the gross margin was a little lighter than expected in Q2. What's assumed for the full year? Did you say that gross margin steps down as the year progresses? So, Q3 lower than Q2 and Q4 lower than Q3, and is gross margin still expected to be in line with 2023? I think that was the prior guidance. So, I apologize, Suky, if I heard incorrectly your comments earlier. But thanks for taking the questions.

Hi, thank you, Larry. First part of your question on Persona IQ, we remain excited. The adoption is speeding up. We should see some acceleration in the second half of 2024, part of the new product contribution for 2024 and in a more meaningful way in 2025. We've now crossed 3 billion data points around range of motion, mobility and what not. We launched what we call Recovery Curves, which enables the opportunity for us to cross-reference how certain patients are performing versus others. We're going to be having a data discussion with payers so that we can engage in some risk-sharing type of agreements. So, again, leveraging the data. On the stubby part of your question, we're going to be launching that at the -- full launch at the end of 2024. So we got the approval. The design is ready to go, the sets are ready to go. And again, that's part of the acceleration in the second half of 2024, more meaningfully in 2025. We've now signed agreements, partnerships with some of the major hospitals around the U.S. And then in terms of TPT, we did look at it. We engaged a third-party consultant. We pulled the TPT application, because it didn't make economic sense. It didn't make as much economic sense as we thought. And again, we believe there are different, better ways to monetize the technology. We still have NTAP, but TPT didn't make sense.

Yes. Good morning, Larry. On your questions on gross margin, I think, actually, you largely got it right, but let me just step back and go through it for you. Just year-over-year overall, we expect gross margins to be in line with '23, but potentially slightly down. That's the new element there and that's largely driven by the mix of our business. We're just seeing much stronger international sales, which have a lower gross margin than the U.S. So, it's really mix related. But again, in line to potentially slightly down. In the second quarter, you're right, it was a little bit lighter than our expectation, again, back to that mix component where the U.S. was just much stronger from a growth perspective than the U.S. for all the reasons that Ivan spoke about. Even in the backdrop of that, Larry, we still managed to expand operating margin by 100 basis points and grow earnings quite nicely. On the cadence, you got it right, and it's consistent with everything that we provided earlier this year, which is to say gross margin will step down sequentially in the second half versus the first half. And you should see that also Q2 to Q3, Q3 to Q4 sequentially down. The primary driver of that, again, going back to our earlier comments from this year, are really around the inflationary pressure we saw in third-party manufacturing costs in 2023. That got capitalized and are now feathering into the P&L throughout this year. So that's the driver of the cadence there. But again, I'll just revert you back to the backdrop of all that is we do still expect to see operating -- meaningful operating margin expansion for the full year and we do expect to see operating margin in the second half step up versus the first half, again, driven by the restructuring program despite the sequential lowering of gross margin. So I'm sorry for all the detail there, but I wanted to get it all out in sort of one compact commentary.

Thank you.

Thanks, Larry. Katie, can we have the next question, please?

We'll go next to Ryan

Good morning. Thanks for taking our questions. I want to ask -- I'll ask both questions upfront. The first one I want to ask is around ROSA versus TMINI. And when you announced that transaction or you announced that partnership, I think there was some fear that TMINI could replace ROSA, at least in terms of how the stock reacted. And so, Ivan, if you could kind of talk about kind of how you think about adoption of those two options over time, where TMINI fits in terms of either setting of care or utilization? And does that kind of reflect the proportion of knees and hips that are done in an ASC versus hospital? And should we think of it that way? And then my second question is just a follow-up to Larry's question on margins for Suky. Price was positive this quarter. But you did call higher manufacturing costs. And so, when do you turn the corner on higher manufacturing costs? Is that sometime in 2025 that we see that improve? And how durable is your pricing benefits? Thanks for taking the questions.

Hi, thank you, Ryan. Look, TMINI is not going to replace ROSA just like OrthoGrid is not going to replace ROSA. It's all about having breadth of portfolio. TMINI offers CT scanning, which some surgeons like and TMINI is the only handheld robotic platform in the world, which is something that, in an ASC environment, surgeons seem to like. What I will tell you is that we are deeply committed to ROSA, point in case, all these new platforms and indications we're going to be launching over the next four quarters to eight quarters, point in case, the commitments we made at the Investor Day of doubling our penetration from somewhere in the 20% of all U.S. knees done robotic with ROSA to 40% in the next three years. ROSA continues to be one of the fastest growing platforms here at

Hi, Ryan, Suky. Good morning. Thanks for the question. Let me start with price and then I'll go to your question on manufacturing costs. So price, as I noted in my earlier commentary, we were positive 80 basis points in the second quarter, and that marks overall a positive pricing first half for the company. I think it's probably the first since I've been here. The way that breaks down is, we saw really strong performance in EMEA, APAC was about flat to slightly up in the second quarter, and the U.S. -- the U.S. was down year-over-year on pricing. But overall, a very good quarter. That's a combination of a number of variables. One, a more favorable environment; two, we're getting greater discipline in analytics and governance around pricing and a better culture, I would say, around pricing; and the third is, we saw some onetime benefits, especially in EMEA, that helped drive that positive performance in price for the second quarter. Our outlook for the full year on price, originally, I started out the year saying that we thought we'd be about 100 basis points. I would say now we're going to be somewhere flat for the full year to potentially down 50 basis points. And the reason why that flip is in the second half is because some of those onetime benefits that we saw in EMEA in the second quarter, we don't expect to repeat at the same level or intensity in the second half. So that's a little bit about price. Definitely seeing much better improvement in performance this year. And we think a large part of that is going to run into 2025, because a large part of our business is contracted. So, again, we'll give more color on '25 when we get to that point, but really happy about the trend that we've got going here on pricing in 2024. Relative to manufacturing costs, yes, manufacturing costs are higher this year, again, because of the capitalization for 2023. I'm not going to give specific guidance into '25, but rather, I'll refer back to our LRP in our Investor Day, where we talked about operational stability in gross margin over the LRP. That, in fact, implies that we should start to see operational stability in manufacturing costs through that LRP. But again, as we continue to progress through '24 and into '25, we'll provide more color on that. All right. I feel good about the progress -

Thank you, both.

Yes, I feel good about the progress the team's making on manufacturing costs. And I will say, we're finally starting to see some stabilization in overall inflation, both on raw materials, as well as third-party manufacturing costs. So, glad to see that inflection.

Thank you.

Thanks, Ryan. Katie, could we have the next question?

We'll go next to Robbie Marcus with JPMorgan.

Great. Good morning. Thanks for taking the questions. Two for me. First, the -- outside the U.S., hip and knee came in pretty strong today, even when factoring in the currency headwind versus consensus. So, maybe you could speak to the trends you're seeing there? Is it different Europe versus Asia Pac? And did you see the same headwinds that you saw in the U.S. with vacation days or supply constraints there?

Yes, I'll take that, Robbie. Good talking to you here. So the volumes outside the U.S. remain very strong, in particular in Europe, and within Europe, in the U.K., where we know there is a prominent backlog. So, market dynamics are very healthy, more in EMEA than APAC, but very healthy overall. One of the biggest drivers of growth outside of the U.S. is robotics. I mentioned that earlier in my answer to Ryan, I believe. We continue to see fast adoption of ROSA in key markets outside of the U.S. We are the number one platform in Asia Pacific. We continue to drive adoption in key countries like Japan, as well as Australia and New

Great. Maybe on -

Thanks, Robbie. Katie, can we have the next question? Go ahead, Robbie. Sorry.

Do I get a follow-up?

I'm sorry. Robbie, sorry. As I say, the U.S. dynamics that I mentioned are relative to the U.S. You mentioned surgeons being out of the territory. That is very, very focused in one month, in one quarter within the U.S. So, this is not a dynamic that we saw outside of the U.S. Wanted to answer your second question.

Great.

Go ahead with your follow-up.

Maybe on S.E.T., you talked about all of the segments grew. Maybe could you just give us a little color into each of the segments there, how they grew and sort of the trends you saw? Thanks a lot.

Yes.

Yes. Thanks, Robbie. I won't get into a lot of detail here. What I will tell you is that the growth drivers, those being CMFT, sports, and shoulder, are growing either upper-single digit or double digit. And the other three, foot and ankle, trauma, and restorative therapies, are growing at different levels, but all of them growing. So the challenge we've had with RT reimbursement-wise, that's behind. So, great to see all six businesses within S.E.T. performing.

Thanks, Robbie. Katie, could we have the next question?

Appreciate it. Thanks a lot.

Thank you. We'll go next to Jayson Bedford with Raymond James.

Good morning. Thanks for taking the questions. I guess, first, I appreciate you don't guide by segment, but maybe within your 5% to 6% organic revenue growth guide, has your internal thinking changed with respect to growth in the different segments?

Can you repeat the question?

Yes. So I'm just wondering, relative to the beginning of the year, your 5% to 6% topline growth hasn't changed. But I'm just wondering, has the -- your view on segment growth changed at all? Meaning, is S.E.T. now a bigger contributor than you thought at the beginning of the year, et cetera.

No, no. We continue to S.E.T. and Recon performing the way that we anticipated early in the year. So again, some timing in Q2 with U.S. Recon. But as we get into the second half, the expectation remains the same, is no one bigger than the other.

Okay. Fair enough. And just as a quick follow-up, Ivan, international was strong. You talked earlier about -- you stressed geographic diversification. I was a little unclear, are you entering new markets? Are you allocating more resources to certain geographies? Just if you could expand on the stressing of geographic diversification?

Yes, thank you. I would call it a more focused strategy. 15 countries today account for 93%, 95% of the overall market potential. In the past, we've been candidly all over the place. In the last two years, call it, we refocused the strategy to those key markets that matter the most. And I won't go through every one of those countries, but it is 15 countries. So OpEx and CapEx is being reallocated to those geographies. Our commercial infrastructure has been modified in those countries and the way that we focus in those countries is different. So that's what we're doing outside of the U.S.

Thanks, Jayson. Katie, can we go to the next question, please?

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

Hi, good morning. Thanks for taking the question. A multi-part on the hip franchise and the recovery here. I may have missed some of this in your answers and prepared remarks, but just wanted to focus in on ROSA Hip. Just can you help us think through where robotic assistance penetration is for total hips? Do you think

All right.

Thanks for taking the questions.

Sure. So I'll start with the question on whether ROSA Hip is performing. The penetration is double digit. It continues to meet the expectations that we had. We believe that we need to have a ROSA posterior application to gain market share outside the U.S., and that development is in motion. And we also believe that to a certain segment of customers here in the U.S. that want a less expensive, faster, lighter application, surgical AI by OrthoGrid is going to be a good modality. But so far, our expectations have been met with ROSA Hip and navigation in general.

Thanks a lot.

Thanks, Josh. And thanks, everyone, for the questions this morning. I'll turn it over to Ivan for some closing remarks.

Well, I'd like to close the way that I started with, gratitude. I'm very thankful to all the