Jason Beach: It’s Jason. I’ll start here and then maybe some follow on. But as we think about the capital environment, we continue to see great strength from a capital environment standpoint. And even as you think about the backlog in our business, I think your question was, was there a bolus. But if you look at our backlog, it continues to be at very high levels, higher than what we came into the year with. So, still strength there on the capital side.
Pito Chickering: Okay. And then one more on gross margin. It sounds like a lot of tailwinds in 2Q were pretty much permanent in nature, and you said that the gross margin should improve in the back half of the year. Can you refresh us on how many months of inventory you guys have on the balance sheet? And when those — these deflation pressures we’re seeing, start transferring to the P&L. Just wondering if that’s sort of the key driver of the gross margin improvement in the third and fourth quarter simply by duration by waiting for that to transfer.
Glenn Boehnlein: Yes. I think the big thing that really sits in inventory and worked its way through sort of in the first quarter and the second quarter was the impact of those spot buys. And generally, inventory turns depending on the product, anywhere from 6 to 9 months. So yes, we will generally see the impact of spot buys reduced for the rest of this year. Keep in mind that we still have this sort of inflationary headwind that we will be working against in Q3 and Q4. But just the mere fact that I feel like we’re getting to the end of the impact of spot buys, gives me confidence that we should see gradual gross margin improvement in the rest of this year.
Operator: We’ll take our next question from Vijay Kumar with Evercore ISI.
Vijay Kumar: Kevin, the guidance is pretty impressive, 10% organic. Are comps something that we should worry about from a fiscal ‘24 perspective? I know you mentioned certain product tailwinds. Just help us contextualize that 10%. And given that some of these procedure trends, it looks like it could sustain into ‘24.
Kevin Lobo: Yes. Thanks, Vijay. Remember, we grew 9.7% organically last year. So, we had a pretty good year last year as well and we’re growing on top of that. Again, this innovation cycle we have is tremendous. The procedure demands are strong. We’re — as you see, we’re growing very fast even though the markets elevated, we’re growing above market in virtually every one of our businesses. So that gives us confidence that we’re going to continue to be able to grow at the high end of Medtech. And for this year, we’ve — already half the year is already in the bag. And yes, the Q4 last year was abnormally fast, growing over 13%. So we — in our guidance, we do reflect a little bit of a slowdown in the growth rate just related to those comps.
But we do expect, based on backlog of surgery demand, aging population, more people playing pick a ball, you name it, right, activity, causing injuries. So this will continue to be a tailwind. And we think through much of next year — that’s our current visibility. I mean obviously, that could change, but that’s how we see it. And we kind of called this, if you recall, Q3 of last year, we sort of called that this is what we were going to see. It’s actually materializing, frankly, a little better than we expected in terms of the flow-through in procedures and hospital staffing. They’re dealing with it much better than we expected. There are still flare-ups here and there, but it’s certainly gotten better, hospitals are better equipped and patients are anxious to get their procedures done.
Vijay Kumar: That’s helpful, Kevin. Glenn, maybe one for you. It looks like we’re on track, actually well north of 50 basis points of margin expansion in fiscal ‘23. Is this something that’s sustainable when you look at the operating model, assuming there’s nothing crazy on the inflation side for next year. I’m curious how we should be thinking about leverage.
Glenn Boehnlein: Yes. We — you’re going to force me to divulge all the things we want to tell you in our investor meeting. But I would say, our old mantra of expanding 30 to 50 basis points every year was absolutely doable, and it’s absolutely something that we are planning on getting back to. We’re working through some of these higher costs through the P&L. There’s this ongoing inflation that we will solve for. But I don’t think that as we look forward over the longer term, the margin expansion is something that I think you’ll continue to see out of us. I don’t want to pinpoint a number just yet. But yes, it’s something we’ll continue to have.
Kevin Lobo: Yes. The one thing I would add, so Glenn wasn’t necessarily referring to ‘24, when you said 30 to 50. We’re on a ramp and on a major focus to get back to that 26.3%. And then thereafter kind of get into a normal rhythm. So, we’ll give you more clarity around that at the Analyst Day in November.
Operator: We’ll take our next question from Matthew O’Brien with Piper Sandler.
Matthew O’Brien: I really don’t want to make too much out of one quarter here. But when I look at the two-year stacked growth rate for you guys versus your biggest competitor in hips in knees, you had been outperforming them massively in the last several quarters. This quarter, it really tightened up the delta between you two, specifically in knees. So I’m just wondering if there’s anything you’re seeing competitively, maybe in cementless or on the robotics side, that you should call out or that we should think about as you go forward, just in terms of being able to significantly outperform the market in hips and knees over the next year or so?
