Ivan Tornos
President and Chief Executive Officer at Zimmer Biomet
Thank you very much, Keri, and good morning and greetings everyone from Warsaw Indiana the orthopedic capital, a warm welcome to our Q3 earnings call. My first call as a CEO of this amazing organization, really grateful that all of you are joining us here this morning. I'd like to begin by saying how truly excited I am to be in the new role, what I deemed to be a very inspiring time not just in musculoskeletal health, which it is, but also in medtech in general.
Simply put, the space is not what it used to be five years ago. When you look at orthopedics, when you look at the entire category it has changed, it has changed a lot. Groundbreaking technologies are shaping how procedures have done. Beyond the backlog and continued favorable demographics. Global demand for treatment is higher than it has historically been. This is driven by better clinically reported outcomes. This is driven by shorter episodes of care. This is driven by better more comfortable ways to do physical therapy. This is driven by greater ways to approach different disease states. And this is driven by certain[phonetic] treatment migrations I think what we're seeing here in the US with a rapid shift of cases more into an ASC while also preserving what are very compelling volume levels in the traditional inpatient and outpatient settings.
So implanting healthy market, great patient dynamics, new technology, disruptive innovation, a lot has changed and I don't see us going back to four or five years ago. So again a very inspiring time to be in musculoskeletal health and orthopedics in general. All of these market accelerating trends are opening new doors for countless patients to benefit from what we do here at ZB, which is to drive life-changing solutions. We do that every single day for countless patients and the best part about it, we're just getting started, so I could not be more excited to be here in my new role. With this encouraging market dynamics, sustainable trends, and building on this solid track record of execution that the ZB team has enabled. It's great to be here today to report what it is another solid quarter of strong performance while is strongly reaffirming or year end guidance for the year 2023.
Even more exciting as I look forward to our future I'm more convinced than ever that Zimmer Biomet will continue to lead the way on customer-centric innovation already at competitive advantage and solid commercial execution, enabling, not just the delivery of our mission, but also improving on our other key value-creation drivers thus regaining and sustaining top-quartile performance. And again, this is something that we treat with a lot of rigor and something that is a mandate for the organization. We must regain and sustain top-quartile performance.
For today's call, I want to first share my thoughts on my first two months as CEO of Zimmer Biomet, while also providing key insights into what I've learned, how my learning has shaped going[phonetic] to be my three key priorities as the new CEO of the enterprise. This would answer the question of what is fundamentally going to change around here in the next chapter for transformation. After that, I'm going to talk about the key drivers behind the solid Q3 performance. Next Suketu will takeover and will discuss the financials for the quarter as well as the expectations for the rest of the year and then our favorite part of the call, Q&A.
Before we move into these updates I do want to take a moment to thank the global Zimmer Biomet team for their unwavering commitment to our purpose, to our plans. I want to thank them for their sense of urgency in driving sound execution. I want to thank him for everything that they do. This is a highly engaged and focused team that has been operating at a very rapid speed and is eagerly deciding to do even more. More for patients, more for customers, more for the team, more for eachother, more for the company, more for the communities where we work and live like right here in Warsaw. And frankly, far more for the shareholders.
This is a team that has gone through a lot, and a lot is a lot. This team has done a lot of heavy-lifting and now with a heavy-lifting behind from a remediation standpoint. It's great to be in a different stage and it's great to be able to show to the world what the Zimmer Biomet team can do and will do. I am proud of the organization and I'm generally inspired by what they do each and everyday. We do this for a while around the world and I can truthfully tell you I've never worked with a better team than what we have here at Zimmer Biomet. And again, I can hardly wait to showcase our results in quarters to come. So, thank you.
Also I want to thank Bryan Hanson, for all that Bryan did to bring Zimmer Biomet to this moment, we are grateful and we are stronger because of his leadership. So thank you, Brian. Now let me share some perspective as a new CEO of Zimmer Biomet. During my first 11 weeks or 77 days in the job I've spent significant time with team members, customers, analysts, investors, our Board, my peers, healthcare executives across medtech and government officials, and other key stakeholders in healthcare. So that I could listen, I could learn and I could get the proper insights. I have been in every Zimmer Biomet region around the globe. I've interacted with every key manufacturing facility. I have visited hundreds of decision-makers across every major continent and I have collected countless pages of feedback and recommendations, most critically I've used this reflection time to ensure that we at Zimmer Biomet are boldly prioritizing what needs to get done and these I can assure you, would be a trademark of my time as CEO of Zimmer Biomet.
And having the courage to say no to several things so that we can become truly great in those things that will drive the most value for the enterprise and our key stakeholders. These key priorities are purpose and people, number one. We have a winning culture. We have the absolute best talent in the industry. It has been a foundational priority for ZB. We continue to be critical under my leadership. People, purpose, talent, culture with a very datacenteric organization. We used the same level of data centricity to track how it is that we're doing with our human capital. To that end, we track level of engagement, development, [indecipherable] across different segments and geographies, high potential ratings and everything in between.
I am really excited to report that most recent engagement survey, which we completed about six-weeks ago delivered the absolute best scores in the history of the Company. Let me say that again. The latest engagement score for organization close to 20,000 employees showcased the absolute best scores in the history of the organization. Frankly going across every single category. This tells me that the team is energized. This tells me the team is ready and this tells me that the team is about to unleash a lot of greatness for the organization. The second priority is to create and sustain a framework of operational excellence, across the board. Simply put it is about being great when it comes to running the business.
This means, simplifying what we do, where we play, and how we play. This means being courageous and bold by the choices that we make. It starts with being intentional about driving sustainable revenue growth. We know this is the number-one driver. I will talk about our performance and we also know that innovation -- customer-centric innovation and commercial execution are the two key drivers of sustainable revenue growth, so we will accelerate that, but at the same time, we're not going to forget that we can and will do better across the entirety of the P&L. We want to drive a culture of ownership by every single employee across the globe with all of us waking up every single day, acting as to investors in the business. I'm thinking of time and money as the key currencies of the organization.
This means continuing to align our incentives with an even greater emphasis on best-in class performance from both top and bottom. While delivering on our operational excellence as a mandate or mindset for the organization we're going to enable, number-one, revenue growth of at least 100 to 200 basis-points of market, while growing earnings faster than revenue and free-cash flow growing faster than the rate of earnings. Number two, operational excellence will enable best in class supply and operational outcomes by simplifying a rather complex operations and manufacturing footprint. And then thirdly, operational excellence as a mandate is going to enable an agile, nimble, and simplify company that can anticipate, can be proactive in successfully navigating market trends.
So again, operational excellence mindset is going to deliver revenue growth of at least 100 to 200 basis points of market, while growing earnings faster than revenue and free-cash flow faster than the rate of earnings, while enabling best in class supply and operational outcomes by making Zimmer Biomet agile, nimble, and a very simplified company that is proactive in what it does. Based on where we are as we close the year 2023 and based on our latest guidance, we're really on track to deliver the metrics that I mentioned above around revenue, earnings, and free-cash flow and the way we run the company, but we expect to do it again with even greater rigor in 2024.
To that end, we look-forward to hosting an Analyst Day. It's something we've not done ever since we merged the two companies and at that Analyst Day, we're going to be sharing more details on these goals that I have highlighted. The specific drivers of these goals. So this becomes truly the DNA of Zimmer Biomet. Third priority is about innovating and diversifying Zimmer Biomet into higher growth markets. Table stakes. We must enter higher growth markets. We do need to diversify our portfolio and we will do that.
We're going to do it through organic and inorganic means. We're going to do it through innovation and M&A. On the innovation front, we're going to innovate by continuing to boldly invest in the right segments of R&D, so that is new product development, so that we always think customer problems and bringing solutions to those problems. We're going to make sure that those problems are in attractive growth areas that are mission centric but also are in the right markets and by bringing those solutions, we're going to become and remain market leaders in these categories where we choose to play, aided by both product and solutions launches that will enable category leadership for Zimmer Biomet.
We're going to be relentless about the [indecipherable] opportunities, namely the ASC opportunity here in the US where we're already growing in the strong double-digit rates. But we know we're far from realizing our true potential. This journey, by the way, innovation journey, has already started. We're on track to launch over 40 new products over the next 36 months and the value, the dollar value of our pipeline today is twice the dollar value that we had back in 2018. So a lot of new exciting technologies are about to get launched here at Zimmer Biomet. In addition, 80% of our products in our pipeline, we study markets that are growing at least 4%, many in areas that are growing more than 4%. Equally vital we're going to ensure that our innovation journey accelerates value creation through making sure that we're monitoring not just the revenue associated with these launches, the vitality index, but also what we call our Innovation Profitability Index or IPI and that's the gross margin dollars coming for new products.
We got to make sure that these new products are driving margin accretion to the overall margin profile of the organization. So again, it's about innovation and it's about value creation at the same time. Mission and margin expansion will co-exist and will co-exist as part of our innovation journey. To materially change our portfolio we're going to also leverage the strength of our balance sheet, which is stronger than ever. We will do M&A. We're going to be thoughtful and disciplined about the spaces we prioritize and we're going to ensure that the spaces are mission-centric and at the same time, these spaces are the areas where Zimmer Biomet has a right to win.
We focus on opportunities that are going to hit strategic thresholds but also hit financial thresholds. We're going to make sure that these acquisitions drive strong returns and create long term shareholder value. It is worth noting that this diversification of our business has started already. Yes, we have to be bolder and we will be bolder, but it has already started. In the last two or three we have shifted our portfolio already into mid single digit or above market environments and our weighted average market growth rates have already increased around 50 basis points and this happened through thoughtful resource allocation and some of the active portfolio management we've done.
Again, we're going to be bolder, but the journey has already started. I'm excited about what we can and will do across these three priorities. It's about, first and foremost, people, human capital, having a best in class culture. Secondly, it's about delivering operational excellence as a company, mindset, or mandate. And thirdly, it's about making sure that we diversify and innovate in a far bolder way through organic and inorganic means. Those are my three priorities.
So now that you got a better sense of all priorities, I want to talk about Q3 and again, I want to reiterate that we're really excited about the performance that was on the quarter. Performance that was driven by continued execution, especially in the key areas where we've been investing. In particular, I want to talk about [indecipherable]. It was a great quarter for [indecipherable] where we delivered a broad market performance in key markets around the world. We also grew in areas that are mission critical with inset, upper Extremities, CMFT, as well as sports medicine. We had solid performance in the ASE environment, and we saw revenue generation coming strongly from our data technology and solutions platform, primarily within ROSA and mymobility.
In knees[phonetic] Persona OsseoTi, our highly differentiated cementless platform continues to perform above our expectations. I was recently in Dallas at the hip and knee society, and the feedback continues to be superb. I can't wait until we continue to bring this technology to other geographies. ROSA had a strong quarter and continue to see great adoption. We've seen a lot of ROSA adoption happening in the ASE setting were steep[phonetic] and we're dealing with higher volumes in that matter. In the ASC, we continue to see growth in the teams, and we're executing contracts daily or portfolio second to none. And we're benefiting from the recent acquisitions we've done, such as Embody and Relign.
Against the backdrop of this strong execution, medtech sector stocks have been facing pressure related to GLP-1 drugs and their impact, or the perceived impact on obesity. At least from a long term perspective. We're a mission-centric, patient[phonetic] devoted organization. So if this drug class truly does accelerate and improves patient health, and if these drugs truly do become the end of the obesity pandemic around the world, that is great news for everyone, as long as truly this is sustainable in the long term.
What I can tell you is that we spent a lot of time researching GLP-1 drugs, engaging third parties, engaging sub[phonetic] partners, and key opinion leaders across every major market. And these GLP-1 drugs today become a tailwind for us. Let's start by framing the root causes of Osteoarthritis, a disease which impacts 528 million people around the world according to the World Health Organization. The top osteoarthritis factors are [indecipherable], age, genetics, and joint injury. Obesity is certainly an accelerator of the disease and certainly is an element of the disease or a driver of the disease but let's not forget that once the cartilage is damaged, there is no recovery.
Once you get osteoarthritis, you will not get rid of osteoarthritis and dropping weight is not going to cure osteoarthritis. Again, this is a degenerative and non-curable disease that we're talking about. If anything, obesity is a blocker today to joint surgery as many surgeons are uncomfortable operating on patients with a BMI greater than 40 in some countries or even above the 30 threshold in some locations. So why could GLP-1 then be a tailwind for Orthopedics? Three compelling reasons.
First, if you can lower the patient's BMI below a certain threshold 40 or 30 in some cases these patients now become eligible for surgery. And all the data points that we're getting in primary markets like the US is that there is a large percentage of patients who today are not going through surgery because their BMI is too high. Secondly, if a patient does lose the weight, and I would say this is pretty logical and they do become more active, there would be a greater risk for additional joint procedures because there will be injury. And third, if a patient loses weight, they are likely to live longer. Again expanding the patient for an Orthopedic procedure.
A good example of this fact is Japan. The second largest market in the world for osteoarthritis with minimal obesity rates but very, very long life expectancy dynamics. We've not seen any near term impact from GLP-1 and we think the long term impact would be a positive one for Orthopedics and Zimmet Biomet. We've engaged independent third parties to perform surgeon surveys and have gathered US-based claims data. While it still is early in the process, we are very excited about the initial findings and we look forward to sharing them.
So in a nutshell or of a tailwind we will be sharing data very soon and we think that the logic will prevail and this will be the end of what has been so far a rather emotional argument that is not being fat[phonetic] based. In closing, I hope you can tell that I'm very confident about the future of this organization. I'm very excited to be here. Our end markets have never been stronger and we believe that this market beyond the backlog is sustainable.
Our execution is strong and is also sustainable. We've been delivering consistently for a while and will continue to do so with even greater focus and speed. We know what we need to do, the strategy is clear and we will execute on the strategy. We have financial flexibility to invest in higher growth markets and we are going to continue to shift our portfolio mix and diversify our business. I generally believe this is the time for Zimmer Biomet, I'm proud of the work we've done and even more proud of the work that we're going to be doing ahead.
This is why I'm excited to be the CEO and even more excited to be a proud Zimmer Biomet shareholder as I believe that now is the time for real value creation. With that, I'll turn the call over to Suky for a run through of our Q3 financials. Suky?
