Ivan Tornos
President & Chief Executive Officer at Zimmer Biomet
Thank you, Keri, and thanks, everyone, for joining the call here this morning.
I'd like to start the way that I typically do, taking a moment to recognize to show my gratitude to the almost 20,000 Zimmer Biomet team members for their dedication, for their commitment, for their strong resilience and for their super performance in 2023. Simply put, 2023 was just a great year for our company. And I want to say thank you.
In 2023, we impacted the lives of almost 4 million patients. And along the way, we deliver best-in-class financial performance, growing our constant currency revenue by 7.5%, while adjusted EPS, earnings per share, grew almost 9.5% in the year, a 200 basis points of leverage between the 7.5% revenue growth and the 9.5% growth in EPS. In the year, we generated almost $1 billion in free cash flow. And that's with some turbulence around inventory management and whatnot. So again, strong performance, top to bottom, and I'm just very, very proud of the execution in the year.
It's worth noting that this level of execution and performance came in a year in which we still have to deal with fairly complex macro issues, whether it's inflation, FX, geopolitical challenges. I don't think I need to talk much about that and also some macro challenges in the year. We did struggle with some supply challenges throughout some of the periods. I'm happy that's behind, but it was a headwind in many periods in 2023. But again, delivering 7.5% in 2023 against some tough comparables, having grown constant currency revenue in 2022, the year before, by 6.6%. So clearly, a great trend in the making, clearly strong performance, and I'm just so grateful and so proud of all of you, the Zimmer Biomet team.
At the same time, beyond grateful, I'm truly excited as I note that this is just the very beginning when it comes to the level of performance that we can realize here at Zimmer Biomet. And multiple drivers of why I'm confident that this is just the very beginning. But I'll start with highlighting the bold pipeline that we have in place. The size of our pipeline is twice what it used to be in 2018. We got great new product launches that are happening here early in 2024. We have a stable supply. We've created a stable supply environment. And we've got great commercial execution. We're developing flawless commercial execution as evidenced by these growth rates that I just highlighted.
To compound or believe behind this level of excitement ahead is the fact that we have seen and we continue to see a substantial improvement in our end markets. This is not the same market growth profile that we used to have. Patient demand is strong. Procedure volume is very strong given a variety of reasons. And as the market leader in both knees and hips, being in better markets is just very exciting as we enter 2024. Back 5 years ago, when I joined the company, we used to think of WAMGR weighted average market growth rates as being somewhere in the 3% range. And today, we pick our WAMGR has been very near, if not at 4%. And again, that's a meaningful increase we believe, is sustainable. So we're not going back to the 3% days when it comes to market growth rates.
So again, internal and external dynamics gives me, gives us confidence that the best is truly ahead. When you add to all of these variables, the fact that we have the strongest balance sheet in the history of the company, that is no doubt then that we can claim that our future is nothing short of truly right. So again, very pleased, very proud and very confident.
I'd like to thank our investors as well for the support in 2023 and for their confidence in 2024 and beyond. We continue to take biggest strides forward. So we're being a company with a very different growth profile from top to bottom, committing to an expectation to grow at least 100 to 200 basis points above market in revenue with our EPS, with our earnings per share, growing faster than revenue and our free cash flow dollars growing faster than EPS.
The guidance that we are providing today for 2024 already reflect such a commitment to this type of financial discipline. And I'm very much looking forward to our Analyst Day on May 29 in when we will provide additional details in terms of our long-range plan, which will illustrate that this is not a 1-year wonder. This is a multi-year commitment. And you will see then that Zimmer Biomet has truly entered our growth stage here, and we're no longer in turnaround mode.
We're ready to deliver by being laser-focused on the 3 strategic imperatives that I highlighted during my very first earnings call as CEO back in November, 3 strategic imperatives that I continue to repeat over and over at every Zimmer Biomet meeting. And frankly, I will continue to repeat because those are the 3 drivers that we know are going to drive our performance. Those being, number one, people and culture; number two, operational excellence; and number three, innovation and diversification.
So let's talk about our 2024 commitments, how different initiatives across these 3 strategic imperatives will drive our growth forward. First, in the area of people and culture, and again, I've explained this in the past, what it means, it's about having the right people in the right roles within the right culture. We must make sure that we support team members to act as owners and operators of the business. This means decentralizing decision-making, driving agility and empowering team members at every level across every function around the world. We must become leaner, and we got to be closer to the customer.
Equally important, we must truly live an environment of pay for performance. And this is something that has already kicked off in a very meaningful way in the fiscal year -- in this fiscal 2024. An example of that is the fact that we're incentivizing free cash flow dollar generation or growth in a much more disciplined way across the enterprise, knowing that revenue is also the most durable driver of free cash flow performance. Incentives are also set for revenue growth to meaningfully drive compensation across our firm at every level. So again, we changed the way we pay people, in terms of growing revenue above market. And we changed the way that we pay people, giving a larger percentage of compensation in adherence to the fact that we, as a company, need to grow free cash flow dollars at double-digit rates.
In the second area of operational excellence. And again, this is about how we think about growing the business top to bottom. You can see already in today's update in the press release that we mean it. It is tough to restructure a company. It's certainly something that we don't take lightly, and you read the press release, we had to do it. It's a tough choice once again that we needed to make operational changes to simplify our structure to deliver greater efficiency and to ensure that we're enhancing investments in the right areas of the business, again, closer to the customer. So again, not an easy thing to do, but something that we had to do and something that we have done.
Beyond the restructuring, other initiatives in the area of operational excellence that are already in full motion, are the new programs that we got in place kicking out how to drastically reduce inventory levels at Zimmer Biomet. This will drive substantial improvement in our free cash flow dollar growth, while also reducing our days on hand, DOH, by 50 days or more and will reduce our excess and obsolescence exposure, which is something that, frankly, we've not done that well in previous years. Second thing we're doing is the rollout of a global initiative to drive new product launch excellence across the key new product introductions that we have in the year 2024. In simple terms, the 7 or 8 most meaningful product launches, let's make sure we have a cadence of operating mechanisms with proper governance to ensure that we're maximizing these product launches across each key geography.
And then the third thing we're doing in operational excellence beyond the restructuring is the integration of the pricing organization under the financial structure, reporting directly to Suky, our CFO, to ensure maximum governance and accountability across the enterprise. While we are pleased with the reduction in price erosion over the last 2 to 3 years, we believe there is a much greater opportunity to drive even better and more durable pricing dynamics. So again, in the area of operational excellence beyond the restructuring is about drastically reducing inventory levels to generate improved free cash flow dollar growth. It's about governance beyond or behind the new product launches. And then thirdly, is around doing better in the area of pricing dynamics.
In the third strategic imperative of innovation and diversification, we're going to continue to invest in innovative R&D in customer-centric R&D. We're going to continue to fuel our pipeline with meaningful product launches. We're going to continue to drive our vitality index, which has already expanded very meaningfully over the last 3 years. We're going to make sure that as we continue to launch new products, we also see margin expansion coming from these new products. I'm excited about where we are today. Our pipeline -- the dollar value associated with our pipeline is twice what it was at the end of 2018. And as we enter 2024, we have very meaningful product launches, particularly in the hip area, where we lost market share in the last 2 years, given the lack of products in key categories like surgical impactors, triple taper stems or hip navigation. So again, 2024 is the year in where through very meaningful product launches, we will regain the momentum that we lost.
Beyond Hips, I'm excited about where we are in shoulder, Identity continues to generate great excitement. We will enter 2024 in full launch mode when it comes to Identity. We're excited about stemless shoulders entering the market, and yes, very excited about being first to market in the category of shoulder robotics with a very highly differentiated offering in robotics for shoulders that will apply for both anatomic and reverse surgeries.
In the area of knees within the early days of our Cementless Knee launch, in 2024, we seek to increase our penetration rates drastically. Here in the US, our penetration rate in Cementless is not even in the 20% range, and we are committing to drive the penetration rate into the 50% to 60% range at a very rapid pace. Again, more details to those plans at our Analyst Day, but rest assured that our knee penetration rate in the Cementless category is not going to stay in the teens or even the low 20s for long.
Beyond Cementless, we're excited about next-generation robotics in knee. We are excited about partial cementless knees. We're excited about the fact that in 2024, we're going to be entering the full launch for Persona IQ, the only smart knee in the world that fully integrates data technology and best-in-class implants in a way that nobody else is doing.
In the category of SET, which is 6 different businesses, sports, foot and ankle, restorative therapies, trauma, extremities and CMFT, cranio-maxillofacial thoracic, we are seeing great growth already exiting 2023. The second semester of 2023, we grew SET by mid-single digit or above and as we enter 2024 and beyond, the expectation is that SET will continue to grow mid-single digit or above. And this is something that, as a company, we've not realized ever since the merger in 2015 with exclusion of the POSCO year given comps. So really excited about the return on the multiple investments we made in SET, particularly in the areas of innovation and commercial execution. There is a great cadence of product launches in SET.
I already mentioned some of those and more to come when we do our Analyst Day later in the spring. So excited about SET, excited about innovation as a whole. Our new product development pipeline is strong. We're going to be launching over 40 different new products in the next 24 months or so. Most of them are going to enable category leadership, establishing Zimmer Biomet as the leader or the second position in the category. And virtually, all of them are going to be in market spaces that are growing 4% plus or above. So I like the quantity, I like the quality, and I like the market growth profile in terms of where our innovation is going.
I'm also particularly excited about the innovation plans that we have for the ASC here in the US, ASC side of care. We've made meaningful investments in innovation during all stages of the episode of care. What happens before surgery, what happens during surgery and what happens after surgery. And relative to the ASC in the intra-op stage of the ASC, we are best-in-class when it comes to solving problems and delivering efficiency, best-in-class outcomes and safety. So again, truly excited about our ASC strategy where we're going relative to this side of care.
Diversification of Zimmer Biomet's end markets will happen not just by innovation internally, but will happen through smart M&A, which will remain the number 1 category when it comes to capital allocation. With the best-in-class level ratio, and with deep confidence in our free cash flow generating plans over the next few years, our strategy is to make a smart M&A, the top recipient of our capital. But at the same time, I just love the fact that we have the optionality to continue to do share buybacks as we announced this morning and perhaps at a more meaningful level. So the combination of smart M&A and buybacks can coexist, given the strong free cash flow dollar generation that we are seeing [Indecipherable] in this regard.
I'm energized by the very detailed and focused plans that the team has put in place, which I know that upon their execution will position Zimmer Biomet to deliver on the growth profile that we keep recommitting and that is to grow above 100 to 200 basis points. So as a minimum point of entry commitment of 5% in the year 2024, with earnings per share always growing faster than revenue, and free cash flow always growing faster than EPS. This is not a 1-year commitment. This is a multi-year commitment. And again, I know based on the very detailed plans we will get there.
In closing, we are very excited about where we're at the track record over the last 2 years. And most importantly, we're deeply excited in terms of where we're going to go in 2024 and beyond. The team is ready, we are establishing the right trend, and we're going to continue to drive flawless execution, delivering our commitments. Along the way, we're going to help patients, we're going to create shareholder value, and we will leave our mission of alleviating pain and improving the quality of life for people around the world.
With that, I'll turn the call over to Suky.
