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Good morning, ladies and gentlemen, and welcome to the

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

Good morning, everyone, and thank you for joining today's call. Welcome, David, to your very first

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 we have outlined related to our ERP implementation, we are now updating our 2024 full year guidance, which I'll touch on later. I would like to start by discussing the ERP implementation. As Ivan reviewed, we cut over to a new system in the third quarter for North America distribution, which resulted in 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 of the year. Through the excellent work of our team members, we now believe the impact will be 60 to 80 basis points of annual sales, split about evenly between the third and fourth quarter. 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, and my commentary will be 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 hip and 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 knee 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 in 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

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. [Operator Instructions] 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 guide by more than the ERP issue on an organic basis for 2024? And how to think about 2025 and the ERP? Is there a catch-up there? Should we think about 2025 kind of the low end of your 4% to 6% LRP? Thanks a lot.

Thank you, Travis, Ivan here. Good morning. So just on the first part of your question on the guidance for 2024, look, listen, we’re going to be somewhat conservative when it comes to the year and allow us to be conservative given the PTSD, if you will, or the recent ERP channels. In Q4, all kinds of things happen. We want to see where we end up with pricing. Pricing has been positive for the entire year. Let’s see where we end up in Q4 with all the puts and takes that, that happened around rebates, et cetera, et cetera. I want to make sure that we see the commercial execution that we need to see around new product introductions. We’ve got three very meaningful new product introductions as we speak. We’re late to get some of the sets out given the challenges with ERP. So again, I want to get at least a solid more on than I had before I get to positive on Q4. And then look, there are some macro factors early in the quarter. We saw some disruption with the hurricane and whatnot and the IV bags. We believe those are going to come in within the quarter. As a matter of fact, we are seeing those cases coming back already in the quarter. So allow us to be somewhat conservative, and we’ll see what we end up in Q4. Relative to 2025, we’re very positive. The ERP constraint or challenge is well contained within the year. We’ll update you in early 2025 when it comes to what 2025 is going to look like. But I would say today, we’re feeling very positive, given new product introductions, the resolution of the ERP, et cetera, et cetera. Thank you.

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

Thank you.

Our next question 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. While – let me start with the latter part. So why have you not seen more deals? We have said all along that we don’t need to do deals to remain a mid-single-digit revenue grower over the life of the long range plan. 11 quarters now, we've been growing mid-single-digit revenue or above, delivering mostly the time EPS faster than revenue and generating meaningful cash flow. Obviously, we're excited about M&A and the potential to diversify even more beyond the 4% WAMGR. The deals need to make strategic sense and financial sense, valuation are down. Yes, they are. But I will tell you, as we go through the filters that is not a single deal that is jump on as saying, we have to reallocate capital and do this deal immediately. We continue to evaluate deals. Deals in higher growth segments within Recon, opportunities within our set business and things that are in the ASC space. We've done deal that are exciting. OrthoGrid is the fastest navigation company today in the U.S. We've done some tacky in scenariosoffset. And when the right deal comes our way, we will jump 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 and maybe starting with Knees, where I know you had called out some supply chain dynamics last quarter that negatively impacted your U.S. business. That looks to have turned around here. Have you fully recovered from that? And maybe you could take us through a little bit more what's going on outside the U.S. because it also looked to be an area of strength this quarter? And how should we think about the geographic performance across Recon on a go-forward basis here?

Yes. Thank you, David. So let's start with Knees overall. So international grew almost 10% in the quarter. In the U.S., we grew 3% constant currency that is – the challenges that we highlighted in the Q2 call, there were pre-ERP related. It was revision shortage that we had that's been resolved. So I will tell you, as we see here when I exit in the year, there are no supply constraints when it comes to our knee performance. The one thing that did slow down or knee growth in the quarter relative to the U.S. is the ERP challenges. While the impact of ERP was primarily in other, we could have had more Persona, OsseoTi sets going into the market. We could have done a better job in pulling through the multiple ROSAs installed in the U.S. So that has been the challenge. As we enter Q4, we're excited about where we are with Knees, and we really look forward to 2025.

Great. Thank you so much.

Thank you.

We'll move to our next question from Matt Miksic with Barclays. Sir, your line is now open. Matt, we’re unable to hear you, you may be muted.

Operator, we can go to the next question.

We'll move to our next question from Robbie Marcus with JPMorgan.

This is Allen on for Robbie. I wanted to dive a little bit deeper into the guidance question that we kind of opened a Q&A session with. Just because you – despite the ERP challenges that you had in the quarter, you ended up beating your – what kind of where I think expectations were for constant currency and organic guidance for the quarter. So could you just help us a little bit more to kind of quantify some of the headwinds that you're not being a little conservative on, whether that’s destruction from the hurricane or the IV bags because you’re seeing those cases coming back through. Just help us kind of bridge the gap between the beat that you had in this quarter, the fact that ERP challenges are now coming in better than expected, and the 100 basis points lower guide. Thank you.

Thank you, Alan. I’m not sure that I can offer any more color than what I offer. There is a level of conservatism given the multiple variables. Again, we just reactivated shipping volumes. We got through the ERP. We want to make sure that we like what we see. And again, it’s no more complex than that. Don’t read too much into it. We got one month behind in the quarter. We like what we see. And again, let’s see what happens in November and December. But nothing else to add on the guidance question.

Sure. I’ll go over the first part and I’ll let Suketu elaborate on the margin opportunity here with SET. So this is the fourth quarter in a row where we have grown SET at mid-single digit revenue or above. Actually this quarter is low upper single digit. We typically don’t talk about the geographic split, U.S., OUS for SET, but I’m pleased with the U.S. SET performance where we grew 5% in the quarter. Once again, virtually all of the six drivers within SET grew above our expectations. The three growth drivers of SET, sports medicine, shoulder and CMFT continue to perform very strongly. As we’ve been saying for a while, here is where we have invested a lot of innovation over the last three years. And what you see now is the early results of all those launches. And yeah, we do believe that the growth is sustainable as we get into 2025 and 2026, as we highlighted in the Investor – at the Investor Day these are category that has to be growing at this pace, if not above. And there is plenty of new products to get there. Suketu, you want to comment on the margin piece?

Yes. So I won’t give too much detail on 2025, but overall it’s a very attractive segment as Ivan said, from a growth profile perspective, but also from a margin perspective. Margins in those key three businesses that Ivan talked about are above our overall company average. And so that’s a good thing. They are slightly under our recon business. But again from an overall growth and EBITDA perspective, we’re very excited about how that business is performing and where it’s going.

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

Thanks. You announced that you’re going to be rolling out

Thank you, Chris. So first things first, we have launched already

Thanks.

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, hit new [ph] products. Are there pipeline products you'd highlight in the medium term that could be meaningful? You mentioned ROSA indication expansion. Anything else you can talk about on pipeline drivers would be great. Thanks.

Yes, absolutely. And I'll try to keep it short because it can be a 45-minute discussion right here on innovation. My most favorite topic, I'm certainly – something we didn't have three years ago. So you know the usual suspects in the short term. As you think about mid to long-term, Oxford Partial cementless, which is mid-2025 product is going to be the only PMA-approved Partial cementless knee in the U.S. This is a product, Steve, with 60% market share in the European market. It has the longest data on joint survivors according to the UK registry – so in a world of ASC expansion within this product to be extremely meaningful. ROSA Shoulder picks up in 2025. We do believe in late 2025 and 2026 is going to be one of the major growth drivers of the company. Like where we are with the smart implants, it took a while to get there. But with the recent launch of the short stem, what we call Persona IQ [indiscernible], unfortunate name, by the way, we're going to see meaningful adoption in 2025 and 2026. To your point, there are three ROSA indications coming up. They're going to hit mid-2025, 2026 that keep the acceleration going. In hips that will be knees, in hips out of the launch of

Great. Thanks, Ivan.

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

Hi. This is Sophia Knopp on for Vijay. I have one quick one on 2025. I was wondering if you guys could talk about the assumptions around gross margins and operating margins. You had previously called out some gross margin headwinds for next year. Do you have any updated thoughts on those headwinds and if we should expect to see operating margin expansion next year? Thanks.

Yes. Thanks, Sophia. So first of all, yes, we continue to expect to see operating margin expansion into 2025. And really just going back to our LRP that we unveiled at our Investor Day back in May. We expect to generate at least 30 basis points of operating margin expansion per year, if not better than that. Inside of gross margin, I think our comments are still consistent with our thinking into 2025. There are some FX headwinds that occur that are going to peel off into 2025. So that will be a headwind. But operationally, we continue to make really good progress in containing our costs. We’re also seeing a better pricing environment. I’m not saying it’s going to be positive into next year, but overall, it’s been much better than what we had anticipated coming into the year. So there’s a lot of puts and takes on to the gross margin line. We still expect it to be relatively stable opposite [ph] 2024. But in the backdrop of all that, we are still committed to and have a very clear pathway to expanding operating margin next year and beyond.

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. I know it’s early in that relationship. But would love to hear what kind of momentum that might be able to generate for you going forward? And what kind of impact it’s had so far? Thanks.

Thank you, Richard, for the question. It’s another exciting partnership that we have going on that gives the company optionality. So there is a segment of customers that are seeing the footprint is important in robotics, primarily in ASC. So TMINI does give us that optionality. There is a segment of customers that prefer CT scanning capabilities when they do robotic cases and TMINI give us that opportunity. To your point, early in the launch, we have already seen some conversions of customers that have come to

Thank you.

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

Thank you. Good morning, guys. Maybe a two-parter here, if I could. Just one clarifying just on the selling days. Can you just remind us 3Q, 4Q and for 2025 versus 2024, what’s selling days look like? But more importantly, Ivan, maybe I think at your Analyst Day, you had just performed or surgeons at Mayo just performed maybe the first couple of cases using ROSA Shoulder. Any more anecdotal updates from what you’re seeing on ROSA Shoulder from some of your surgeons? How many cases have been performed and what kind of early learnings are? Thank you.

Hey Jeff. Good morning. It's Suky on selling days. In the quarter, it was about a day of a tailwind for the full year. It's not meaningful. And for 2025, we'll provide that update when we give guidance in the first quarter, but we don't see it as being material.

And then Jeff, on ROSA Shoulder, we've done now hundreds of cases continue to validate the value proposition of this product. We said all along that it was going to be a limited market release. Beyond Mayo [ph], we are now in more institutions. And the feedback in terms of the opportunity continues to be strong. This is a product that we believe can change the standard of care in Shoulder Arthroplasty. The robot has offered the optionality of doing anatomic or reversed shoulder cases. It is extremely accurate. You can do surgeries impacting the glenoid, remind [ph] glenoid, you can get into a complex human resections. It is efficient. Some of the early feedback is that you can cut your operating time meaningfully. So one of the claims will be faster surgeries with more accuracy that also equals faster recovery times and its part of the CV shoulder ecosystem. It leverages the data we collect before surgery and during surgery, which enables better post-surgery recovery. So again, first to the world technology, we knew we're going to take our time. But so far, we like what we see and we'll continue to keep you informed in terms of this launch. Thanks.

Thank you.

Our next question comes from Caitlin Cronin with Canaccord.

Hi. Thank you for taking the questions. Yes, I'd like to focus a bit on pricing. I think it was positive again this quarter. Could you provide some more color on what you're seeing in the U.S.? And also the change in the full-year expectations for pricing.

Yes. Hey Caitlin, it's Suky. You know the third quarter marks the third consecutive quarter where we've actually had positive pricing at the consolidated level across the entire company. Inside of that, the U.S. was down modestly, but still well better than the historic average. Asia Pacific was up slightly, and we saw good continued strong performance in EMEA. There's really three factors there. First is around market. We just think structurally the market is in a better spot relative to pricing. One, the value of our products and solutions is being rewarded by the marketplace. And two, we're seeing, I think, relatively rational behavior across the larger Medtech segment. Secondly, structurally, we've made a lot of improvements inside the company around strategy, governance and execution and incentives around pricing. And so we're seeing better performance because of that. And then third, we're seeing some opportunistic price taking in certain areas where we see the opportunity and the advantage. So all of those combined have led us into a really good spot. We do think we'll be at least flat, probably positive for the full year, whether that's sustainable or not. We think a lot of those variables I talked through are sustainable. Others will just have to wait and see. Our planning assumption throughout the LRP is that we'll be at about 100 basis points of pricing erosion. So this year is a good starting point, and hopefully we can beat that long-term look.

Thanks.

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

Yes. Thanks for taking my questions. I guess I just want to ask one on China. Some of your competitors talked about continued pressures over there from the volume-based purchasing. Are you – what sort of impact are you seeing there, I guess? Thanks.

Thanks Mike. So starting with the data point, China is around 2% to 3% of global sales for

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

Great. Thank you so much. I had two quick follow-ups. On M&A, you did note that you don't need to do large deals to maintain that mid-single-digit growth out outlook. And I was wondering how do you think about diversification and pushing that top line beyond the mid-single-digit growth longer term? And then just a follow-up on 2025. Is it possible for you to share anything on sales and margin cadence as we move through the year, first half, second half, could you be at the upper end of that mid-single-digit range, just given easier comps possibility to get some lost sales due to ERP implementation in 2025. And then you also called out ROSA Shoulder that it would be a meaningful contributor. So if you can just help us bridge that, that would be helpful. Thanks you taking the question.

Thanks, Shagun and great to hear from you. Let me make the second question answer very succinct. We're not going to get into any of that. We'll get into it in early 2025. We'll talk about revenue. We'll talk about margins. We'll provide some color on pacing and whatnot. So today, the only thing I'd say – the only thing we'll say about 25% is that we're excited. We're excited about the innovation – we're excited about how we closed the ERP challenge in 2024. And again, we'll talk about; 2025 when you start to talk about 2025. On your first question on M&A, what I said is, we do not need to do it. But certainly, we like to do it. And we got the optionality from a balance sheet standpoint to do it. One of the goals that we highlighted in New York at the Investor Day is to move from the current Vanguard weighted average market growth rate of around 4% today for us to 5%. And clearly, the organic pipeline is going to get us there. Launching all these products instead that I mentioned, but we do need to do something inorganically. And we're going to continue to assess those opportunities when they do make sense strategically and financially, we'll act on those. Thanks, Shagun.

Thank you.

I believe that is the last question. Do you have any more questions, operator?

There are no further questions at this time.

So then I'd like to close the call anchoring my closing remarks on maybe four words, grateful, proud, relief and excited. So on the grateful front, I'll close the call the way I started by thanking the