Operator: We’ll go next to Matt Taylor with Jefferies.
Matt Taylor: 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?
Ivan Tornos: 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.
Suky Upadhyay: 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.
Ivan Tornos: 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.
Matt Taylor: Great. Thanks, guys. We’ll leave it there. Thank you.
Suky Upadhyay: Thank you.
Keri Mattox: Thanks, Matt.
Operator: We’ll go next to Shagun Singh with RBC Capital Markets.
Shagun Singh: 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?
Suky Upadhyay: 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.
Shagun Singh: Got it. And if I could just ask a question on M&A.
Ivan Tornos: Yes, go ahead. Go ahead, Shagun.
Shagun Singh: 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.
Ivan Tornos: 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 time, Suky and I have spent a lot of time looking at the strap plan. What is the growth profile? The great news is that we convinced that the free cash flow generation is solid. So we’re going to be able to do M&A and potentially do other stuff when it comes to capital allocation. So that’s the answer to your first question. On ASC, look, I don’t think we need to do much more. We growing in the strong things already here in the U.S. in the ASC. I mentioned 10% to 15% of our sales are there. We got the right portfolio. This is now where we were let’s say three, four years ago.
