We got the right robotic platform for the ASC. We got a great cementless Knee that is gaining there very quickly. We got a full bag in sports and across set. We got best-in-class technology so the portfolio is great. We got dedicated resources, which you very much need in an ASC environment. We have a dedicated sales force. We got simple contracting, simplified contracting, and look what we don’t have organically, we partner with others. So whether it’s sterilization, booms and lights or other stuff, we got the right partnerships. So very, very confident that we’re going to continue to perform in the ASC environment. Thank you.
Keri Mattox: Thanks so much, Shagun. Katie, can we go to the next question in the queue?
Operator: We’ll go next to Josh Jennings with TD Cowen.
Josh Jennings: Good morning. Thanks, Ivan, Suky, and Keri. Wanted to just follow-up on your ASC comments. Ivan, wanted to ask about the migration of total joint surgeries to ASCs. Any back the envelope assumptions you would have as used just in terms of where the penetration or where the migration for knees and hips has been. What percentage of cases for each categories reported in ASCs currently here at the end of 2023 versus 2022. And then any metrics you can share just with roads of penetration and ASCs, and then any pricing dynamics for total joints as this migration is occurring. Thanks, multi-part question, but I appreciate you taking it.
Ivan Tornos: All right. Let’s see if my memory is as good as I think it is. So starting with ASC macro wise, we believe that roughly between 40% to 60% of cases in the next five years are going to move to the ASC. And I will say that a large portion of cases are already moving to the ASC. What we like about this dynamic is that as cases are moving to the ASC, other cases are going to in-patient and outpatients. So it’s a little bit of a double dip happening their just, but yes, the number is 40% to 60% over the next three to five years. And I would say a good percentage has already moved. We are growing in the upper teens when it comes to the ASC and today around 10% to 15% repeating myself of cases or revenue rather of Zimmer Biomet comes from the ASC.
I will tell you that it’s pretty equal in terms of both hips and knees. So we don’t see one category being above the other. And I like the fact that given the recent CMS changes, you’re going to see sold their cases also accelerating the ASC. We believe that’s a great opportunity for us here at Zimmer Biomet. So that’s the answer on ASC. In terms of ROSA dynamics I think we’ve been very transparent in terms of one-third, roughly one-third of all of our installations are happening in the ASC. That’s a trend that has been happening for a few quarters, and that’s a trend that we continue to see happen in the next quarters. In an ASC environment speed matters, not having to get engaged in complex pre-planning matters. Efficiency does matter and having a knee that you are confident it’s going to be the right knee that matter.
And those dynamics are driving ROSA penetration in the ASC. And then outside of the ASC, ROSA continues to perform. We are selling and placing ROSA’s frankly at a rapid pace. You see in the other category, we saw nice increase that’s driven by ROSA. And we are on track to at least install 300 units at the end of the year 2023 when it comes to ROSA, so really satisfied. And that’s before we launch next generation ROSA across recon and deliver the first shoulder robotic platform. So excited about both ASC and ROSA. Thank you for the question, Josh.
Keri Mattox: Thanks, Josh. Katie, can we go to the next question in the queue?
Operator: We’ll go next to Larry Biegelsen with Wells Fargo.
Larry Biegelsen: Good morning. Thanks for taking the question. And Ivan, I have enjoyed watching your posts on LinkedIn. You looks like you’ve traveled around the world literally since you’ve taken over as CEO. I wanted to ask so if you start on the margins, you’re going to end 2023 with an operating margin about 28.5% which is towards the high end of med-tech. Where – what do you see as peak margins for Zimmer? I mean, 5, 10 years ago the margins were in the low-thirties. Is that still realistic? And I had one follow-up.
Ivan Tornos: Yes. Sure. So good morning, Larry. Thanks for noticing. It’s actually two years in a row where we’ve expanded margins in the backdrop of really challenging environment, by the way, while also accelerating revenue. I think in 2022, we expanded margins, operating margins by about 40 to 50 bps. And this year, you’re right, the implied is about 100 basis points. So again, really proud of what the ZB team has done collectively, again, in the backdrop of still investing for growth, which we’ve been able to demonstrate. As we move into next year, I think I’ve been pretty front footed in our ability to continue to grow margins in 2024. And quite frankly, we’re going to do that in every year after 2024 and continue to deliver a profile where earnings are growing faster than revenue.
I’m not going to go out and put a marker out there as to where we think it can get to, but historical levels we will look for over time to definitely hate and exceed those. So I’ll just leave it there. Again, really happy with where the team’s performed over the last couple of years. Very confident what we’re going to do next year. Quite excited about our outlook in the longer-term.
Larry Biegelsen: That’s helpful. And then the follow-up…
Ivan Tornos: You had a follow-up, Larry?
Larry Biegelsen: Yes. Other – the other category was obviously very strong. We heard you talk about gross of sales in the quarter. What was the change in the quarter that drove that strength and how sustainable is that? Thanks for taking the questions.
Ivan Tornos: Yes. I don’t think there is anything changing really. There’s not a change of strategy is we continue with ROSA. We continue to show strong clinical efficacy. We continue to demonstrate time neutrality after a few cases. We continue to see great adoption in an AC environment. We have three ROSA indications today within recon. So total knee partial and hip, we’ve done a lot of podium presence. If you attended the Dallas meeting this last weekend. There was a lot of noise around posters and whatnot. So I think we just get in the right adoption is moving quickly. And then a driver, I will tell you has been tremendous. A lot of these cases that are done, the ASC do like or do one, a lot of surgeons in an ASC won the combination of robotics and cementless.
In the past, we didn’t have the right cementless construct. We do not with Persona OsseoTi. So I think that’s been a bit of a tailwind, but I wouldn’t say it’s a major change of the strategy is just the fact that it’s been two, three years in market now and you’re starting to see the data. So really excited in terms of what we are.
Larry Biegelsen: Alright, thank you.
Suky Upadhyay: Hey, Larry, just to get back to your original question, just to make sure I’m completely clear. I do see getting back to historic margins are better over time. Absolutely, a definable objective for us, now having greater insight and taking over for option supply chain, I would say, this is an area where we can certainly do better. We’re going to do better going forward. And I can tell you that the company’s focus on not just revenue growth, but operating profit and free cash flow generation has been more acute and stronger than it’s ever been. So I think we’ve got the pathway, we’ve got the culture, we’ve got the levers to get there over time. Thank you.
Larry Biegelsen: And Larry, yes, thank you for being my one follower on LinkedIn, the whole time, I said it was my wife. I’m disappointed. Appreciate it.
