Mike Matson: Okay. Thanks. And just to follow up on OsseoTi, so you mentioned it’s gaining share. Does that mean that it’s actually converting competitive surgeons or does that just mean it’s cannibalizing the cemented Persona?
Ivan Tornos: No. We definitely are upgrading, if you will, for cementless — legacy cementless platform over to Persona OsseoTi, but at the same time, a sizable amount of the business coming from converting accounts. So you’ve seen that the U.S. new number in the quarter was strong and a large component of that was the fact, with pretty heavy comps, by the way, comes from the introduction of Persona OsseoTi. And the expectation is that as we continue to move into the acceleration of the product launch, we’re going to continue to gain share. So it’s both existing accounts and new accounts.
Mike Matson: Got it.
Keri Mattox: Thanks for the questions, Mike. Yeah. Absolutely. Katie, can we go to the next question in the queue?
Operator: Thank you. We’ll go next to Vijay Kumar with Evercore ISI.
Keri Mattox: Vijay, are you there?
Suky Upadhyay: Hey.
Unidentified Analyst: This is Sophia [ph].
Keri Mattox: Oh! There we go. Vijay, we can’t hear you if you’re talking.
Unidentified Analyst: Sorry, this is Sophia on for Vijay. One quick one on gross margins and operating margins. Were there any one-offs in the first quarter on gross margins? You guys raised the guide for margins, but EPS was maintained, so is operating margin slightly down and how do we think about margins for the rest of the year?
Suky Upadhyay: Yeah. No real — in any given quarter, there’s going to be puts and calls, both in gross margin and operating margin, but nothing material or out of the ordinary. We did a little bit better on gross margin than we expected to. We saw that flow through into operating margin, so feel really good about the start of the year. As we progress through the year, we do expect operating margins to step up in line with normal seasonality as revenue continues to step up and our savings programs pull-through. So, again, very confident in where we’re headed from an earnings perspective in our guide. And if you recall, I think we said on the last quarterly call that at the midpoint, that implies about an 80-basis-point lift in operating margin and we’re still confident in that.
Unidentified Analyst: Okay. Great. A quick follow-up question?
Keri Mattox: Do you have follow-up question?
Unidentified Analyst: Yeah.
Keri Mattox: Yeah.
Unidentified Analyst: Just one quick one on M&A. I know you guys have made some comments about tuck-ins and kind of what that profile will look like, but anything in the pipeline that is particularly interesting right now that will fit well into the portfolio?
Ivan Tornos: Yeah. We always have a robust pipeline and we’ll talk about the pipeline and the optionality of M&A in more depth once we meet later in the month. But the same three key areas apply. We’re looking for assets that are mission-centric from a strategic standpoint, fit in the higher growth segments of recon. Certainly the high growth segments of Fed as a category, and then in the ASC space, which is a mixture of both one and two. So we later focus on those three key areas, while also keeping an eye on broader diversification. Financially, nothing has changed. We have flexibility to do larger deals, but we like deals where the acquisition price is under $2 billion. We definitely want to be neutral from an EPS standpoint within two years and then high single-digit ROIC to double-digit ROIC in the five-year time horizon.
So very clear on strategic and financial filters, and the optionality is there and the pipeline is there. So more to come once we meet in New York.
Keri Mattox: Thanks, Sophia. Katie, can we go to the next question in the queue?
Operator: We’ll go next to Robbie Marcus with JPMorgan.
Robbie Marcus: Oh! Great. Thanks for taking the question. Congrats on a good quarter. Maybe just one for me. You kind of talked about second quarter and the expectation on the topline and you just answered kind of margin cadence through the year, but I want to put a finer point on it and try and avoid some of the cadence issues that we had last year. So you talked about operating margin expanding. I want to make sure. I think the prior commentary was second quarter would be the highest operating margin and fourth quarter would be the highest for the year with the sequential down in third quarter with normal seasonality. So maybe just kind of say it all a different way. Are you comfortable with where the street is on EPS for second quarter, third quarter, fourth quarter? Are there any cadence changes you think we should be looking at moving from one quarter to another? Thanks a lot.
Suky Upadhyay: Yeah. So, Robbie, just a little bit of a correction. I’m not sure if I caught everything you said or understood, I should say, everything you said. Fourth quarter will be our high water mark relative to operating margin in line with that being our high water mark from a revenue perspective and so our margin does in many ways correlate heavily to our revenue outlook. Relative to the cadence, I’m not going to, in consensus, I’m not going to sort of benchmark relative to that. I think we’ve actually given pretty good color already around the first half, second half revenue cadence. I’ve talked about gross margins, plus 100 in first half, second in the back half, and then operating margins improving in the back half of the year to the restructuring overall. So I think there’s actually pretty good color out there in line with how we’ve traditionally been transparent. So hopefully that gives you enough to go from.
Robbie Marcus: Appreciate it. Thanks.
Suky Upadhyay: Thank you, Robbie.
Ivan Tornos: Thank you.
Keri Mattox: Thanks. Katie, can we go to the next question in the queue?
Operator: We’ll go next to Chris Pasquale with Nephron.
Chris Pasquale: Thanks. Ivan, you talked about 4 points of your revenue growth this year coming from market gains and then 100 basis points to 200 basis points of outperformance to get you to your 5% to 6% goal. When we look at the first quarter, recon growth is actually a little bit better than that and that’s a really hard comp, hardest comp of the year. So that 4% feels pretty conservative at this point. Your own performance across Hips and Knees was a little below market. So while I appreciate you’re excited about the pipeline and what it can mean for share gains in the out years, are you still thinking about the recipe to get you to your 2024 target the same way?
Ivan Tornos: Yeah. Thank you, Chris. First of all, I wouldn’t categorize or performance being below market and we can have a healthy debate on whether it is above or below. But what I will tell you is that, where we stand here right now, it is not below market. I certainly know from a trending standpoint over a period of time and now that everyone is reported in Q1, we’re not below market. So I’ll start with that. In terms of how we get through the 5% to 6%, I think the formula continues to be product introductions, which will ramp up later in the year and even more product introductions as we get into 2025. We’ve never had 5.5% almost six years here with a company. I’ve never seen a full portfolio. I mentioned earlier that we don’t have any gaps in Hips.
With the introductions that we’ve done in Knees, there’s zero gaps. I’m excited about the upcoming product launches in Europe and let’s not forget we don’t have Persona revision in EMEA. That’s an almost $2 billion product here in the U.S., $2 billion over the last four — three years, four years in gross sales. And let’s not forget we also bring in Oxford Partial cementless from Europe here to the U.S. So strength in the Knee portfolio, strength in the Hip portfolio. You’ve seen that S.E.T. We made a commitment that set as a category will grow mid-single-digit or above. It’s the third consecutive quarter we’ve seen that and that’s going to stay around. So I will say strength in innovation, strength in commercial execution and the 5% to 6% to us is an admissible commitment.
Chris Pasquale: Okay. And then following up on OsseoTi, can you remind us where your cementless mix stands today in the U.S. And over what time frame you think you could close the gap between your current penetration and where Stryker is at the moment?
Ivan Tornos: Absolutely. So closing the Q1 quarter approaching 20%. So it’s fairly similar to Robotics. So cementless is approaching 20%. We’ll break down some of these commitments. We keep repeating the same answer at the Investor Day. But our expectation, our ambition is to be where our competitors are, 60%, 6-0. We’ll provide timelines in that regard, but the north star is to have robotic penetration in the 60% range and cementless penetration in the 60%. So the fact that today we’re at 20%, that tells you that there is pretty significant upside and we’re excited about that journey.
Keri Mattox: Chris, thanks for the question.
Chris Pasquale: Thanks.
Keri Mattox: Katie, I think, we have time for maybe one more question in the queue.
Operator: We’ll go next to Shagun Singh with RBC. Great.
Shagun Singh: Great. Thank you so much. It seems like orthopedic robotics update stepped up for the market in Q1 or at least it was better than expected. Has anything changed from a capital appetite standpoint, any reasons you’re seeing more upfront sales versus operating leases? And then just a follow-up on M&A. Ivan, you indicated that you want to be — you want to go bigger and bolder, and we haven’t seen a whole lot of that yet. I appreciate all the commentary on the capacity of up to $2 billion and favoring tuck-ins. But very specifically, how do you plan to raise your weighted average market growth from 4% today mostly with tuck-ins? Thank you for taking the question.
