Morning, and welcome to Day Three of the Citibank Healthcare Conference. I am Joanne Wuensch, the head of U.S. Medical Technology Research. I am thrilled to have up here on the podium with me from Zimmer Biomet, Ivan Tornos, and Suky. I'm going to screw your last name.
You got it. You got it. You got this.
Upadhyay.
Very good.
How do I do? Okay. You can try Wuensch later. But anyway, so Ivan, we've been talking all year about, quote, the new Zimmer Biomet. And I would love for you to sort of just start the conversation right now and sort of saying what you've accomplished in your first year, plus as the CEO, and a little bit about where you see it going.
Okay. Good morning, everybody. Maybe I'll dig into three key areas that I think we've done a remarkable job, and maybe a couple of watch-outs, things that we got to do better as we enter the next year of the turnaround here at Zimmer Biomet. Early in 2024, late 2023, we highlighted three priorities for the company, those being people and culture, having the right people in the right jobs within the right culture. Priority number two was operational excellence, which is about delivering revenue at mid-single-digit revenue growth with earnings per share leverage of one and a half, that revenue growth, and free cash flow being 100 basis points above the EPS growth. And then the third priority for the company, which is foundational for any MedTech company, was still is innovation and diversification. Those are the three key priorities.
Quickly on those three, I'll tell you, I would say it's pretty solid across the board. In the bucket of people and culture, we have the highest engagement scores in the history of the company. Our attrition rates, people leaving the company are at an all-time low. As a way of background, back from 2015 through 2020, we're losing something like 20% of people every year. It was difficult to keep people engaged, and morale was very low. So again, on the first bucket of people and culture, high engagement, low attrition. In the bucket of operational excellence, we're going to talk about some of the challenges here in a second, but Q3 was the 11th consecutive quarter where we delivered mid-single-digit revenue growth, and that's in the background of having an ERP challenge, which now is part of the past, so 4.1%-4.2% revenue growth, which is mid-single-digit revenue.
Nice EPS leverage and solid free cash flow conversion and growth versus 2023. In the bucket of innovation and diversification, the third priority that we highlighted, we got the strongest pipeline in the history of the company. We doubled, more than doubled the dollar value of the pipeline from 2019. As we see here right now, we are about to launch 50 new products. I'm sure we'll get into that over the next 30- 36 months. Again, in the area, what is that you guys done well? People and culture in the right direction. Operational excellence, some challenges, but revenue, EPS, free cash flow, what it needs to be. Then innovation, diversification. We are moving our WAMGR towards 5% by 2027, and we are launching a ton of new products.
Areas that we can do a better job, areas where I can do a better job. We cannot have operational challenges like this ERP debacle that we announced back in September. Again, that's behind. We are now shipping our volumes out at pre-ERP levels. But that's another reminder that we still have some deficiencies when it comes to how we run the business. So that's definitely an area where we need to do a better job. And then the second thing I will highlight is clearly, although we are delivering consistent mid-single-digit revenue growth, we have had inconsistencies when it comes to some of our commercial operations, primarily here in the U.S., where we see one quarter is good, the next quarter is not so great, and that's been happening for the last five quarters.
So that's something that in 2025 we're going to be addressing, and you are not going to be seeing those inconsistencies when it comes to the U.S. So those are the two key areas, I guess, on the side of things that we can do better: ERPs and U.S. commercial execution.
So let's pause just on ERPs because we've talked about it a lot over the last 90 days. You say it is behind you. Can you quantify the ultimate impact versus the expected impact?
Yeah.
Comment on whether or not that'll be there in 2025.
Yeah, let me make sure that I'm clear here. When I say it's behind, what I mean is that the shipping, the products that are leaving the factories, the warehouses, the speed, the volumes are the same as before the ERP malfunction. It's not 100% behind in the sense that we got to make the changes sustainable. We still have some glitches that we got to resolve, but it's not a headwind by any means as we exit 2024. And to answer the last part of your question, this is not something we're going to be talking about in 2025. So in that regard, it's fully behind.
Back in September, we mentioned that the ERP malfunction challenge, whatever you want to call it, Joanne, was going to cost us around 100 basis points, 1% of annual sales for 2024, which essentially was 200 basis points in the second half of 2024. Given the speed of recovery, given the great leadership, I give a lot of credit here to Suky and operations. Suky runs operations. We now guided in Q3 that the annual impact would be somewhere around 60 to 80 basis points for the entire year. So roughly 30 to 40 basis points per quarter. And we don't try to deliver in accordance with those expectations.
Okay. Is there something that takes it to the lower end of that 30-40 or the higher end?
We provided guidance in Q3. We're not going to get into commentary now in Q4.
Absolutely. All right. Let's step back for a second and talk about the global orthopedics market, which is stronger now than it was five years ago, and I want to think about the different components that's making a stronger market right now and the sustainability of those components.
Sure. Well, again, not being consistent in some key markets, we are delivering mid-single-digit revenue growth. If you look at our peers, they're also delivering healthy growth. Every data point that we track shows that this market is growing between four to four and a half. Some of my peers think the market growth is around 5%. So let's call it 4%-5%. We deem it very sustainable. And the drivers of sustainability of this healthy market start with the basics. Number one is demographics. Here in the U.S., every day, 10,000-12,000 people are turning 65 years of age or above, so the baby boomers. And you follow MedTech, you look at cardio, you look at urology, general surgery, you definitely see the impact of these baby boomers. Every market seems to be healthier than it was just five, seven years ago. So demographics is number one.
Number two is site of care. Here in the U.S., a large percentage of cases are moving to an ASC. In the case of orthopedics, as these cases move to an ASC, we are seeing what we call a double dipping effect. Some younger, healthier patients are going to an ASC. Some more complex older patients are going to an inpatient unit. So the number of cases per day is actually higher, and every data point that we're getting shows that this trend is going to continue over a long period of time, so again, that double dipping effect is another driver. The third key driver is the technology that we're bringing into the marketplace. I want to say we, I'm talking about all of us, frankly. Johnson & Johnson, Stryker, Smith & Nephew, obviously Zimmer Biomet.
We're bringing very disruptive technology that is shortening the episode of care, that is making the time in surgery shorter, that is lowering readmission rates, that is lowering length of stay, so when you see a new standard of care, more patients are willing to enter the episode of treatment, and that's something that is driving a ton of volumes, so I will say those are three key drivers, and obviously, the fourth key driver is pricing. We are going to end the year 2024 likely price positive. We got it flat to 50 basis points, and I like the trends here. This has been three years plus in where price erosion commitments have been beaten. As we look at the contracts over the next year or two years, we continue to foresee that price is moving in the right direction.
In our investor day, we got it to be up to 100 basis points of price erosion for the next three years. I know that Suky and I are not going to be happy losing one full percentage in price per year. So I like where pricing is going, and I think it's a sustainable market dynamic. So again, recapping, ASCs, technology, demographics, and pricing are the four key reasons of why we believe that price or the market is going to be growing 4%-5%.
Why do you think price is positive now? I mean, as a student of MedTech, I've been watching price erosion across all sectors of MedTech for years, and now all sectors are discussing positive price. What's changed?
Let Suky cover that and I'll elaborate.
You know, there are some macro and some micro specific to ZB and our pricing. And you're right, Joanne. If you go back three, four years ago, we were eroding price about 300 basis points per year. Last couple of years, it's been about 100 basis points. And as Ivan said, this year should be flat to maybe slightly positive. So a very good trend. One is just macro in the overall environment. The market continues to reward innovation and value brought to the patient and to the provider. And so if you think about things like our cementless application or robotics application, these are garnering ASP premiums in the marketplace because they bring real value. Two, in the backdrop of that, from a macro perspective, I think we're seeing the larger players be very rational around price.
We're all trying to catch up for the hyperinflation and cost of inputs that we all observed over the last couple of years. You can't continue to give price up when you see inputs and raw materials going up at the levels they've been going. So, one, the market is in a better place. Two, relative to ZB, we've implemented a lot more sophistication from a capabilities, systems, governance perspective. That's going to improve our pricing performance regardless of what the market is. And three, we're just getting a lot more smart about opportunistic areas. You know, I gave an example last night. In some instances in Turkey where we had a significant devaluation of the Turkish lira. And normally, historically, we probably would not have done anything on price. We would just absorb that.
We're looking at it differently now, and we're realizing that there's a lot more elasticity in our pricing environment. We're taking price up in those types of instances. So I do believe this more positive trend that we're seeing is durable. What it means year by year, it's tough to predict. I don't have a crystal ball, but definitely, I don't think in the near term or midterm we're going back to that historical 300 basis points that we used to see.
Okay. Let's go back also to the site of care. ASCs has been a theme over the last couple of years. There was a stage pre-pandemic where it was a worry because it was thought maybe you'd get pricing pressure in the ASC, but that doesn't seem to be happening.
No, it's a good trend. We like it. And you're right. The price dynamics we see in inpatient HOPD, hospital outpatient, and ASC are comparable. In some cases, actually, ASC is even better. And I think it goes back to fundamentals of healthcare economics. When you look at the bundle of care, the orthopedic bundle of care, 15% is we, the bad guys. Pharmaceuticals, medical supplies, medical device companies. It's another 85% that is something else. And it's the things that I was alluding to earlier. You know, surgeries that are taking too long, right? Knee procedures that are taking an hour, an hour and a half that can be done in 30 minutes with the same clinical outcomes. It's labor efficiencies, whether it is inpatient or outpatient. It's the length of the episode of treatment.
It's readmission rates that are very high and very punitive from a reimbursement standpoint in the first 90 days post-discharge. It's physical therapy dynamics, et cetera, et cetera. So all this innovation that we're talking about that is shortening the episode of treatment, driving efficiencies, those are very valuable. A lot of these ASCs are physician-owned. They're run by people that understand how to run a PNL. So in the discussion of, do I want to lower the price of an implant and potentially impact a portion of that 15%, or do I want to do three more surgeries per day because I'm lowering my time in surgery, I'm going to choose B. And again, in our field, orthopedics is the second highest contribution margin procedure in MedTech. So we want to look at that 85% versus the 15%.
So I think that's one of the key reasons for why in an ASC space, you're not seeing price erosion being higher than in an inpatient HOPD.
Sounds right. I want to spend a little bit of time on ROSA, and you have multiple different applications for ROSA, and so this is sort of a three-part question. The first part, how are you viewing robotic uptake and applications? How are you viewing the different opportunities you have with the robot, and then the last one is sort of a bigger question, which is looking forward, how do you think about robotic surgery adoption and the contribution to your revenue, so a lot all wrapped up there.
A lot of questions. If I forget that, Joanne, can you?
It's my multimeter, one question.
Let's start with the macro picture. Very, very excited about robotics in general in orthopedics. Here in the U.S., the penetration, the use of robotics is around 19%. So 81% of orthopedic surgeons in the U.S. are not even using a robot. So this is an all boats rise type of environment. If we use soft tissue robotics, Da Vinci as a proxy, the opportunity is very high. It's a huge blue ocean. And by the way, outside of the U.S., that number is around nine-10%. So again, low penetration in the U.S., low penetration outside the U.S. A lot of new clinical and economic data. We believe adoption of robotics is only going to increase. Micro answer, we like the fact that ROSA has the broadest SET of indications when it comes to orthopedic robots. We got brain applications.
We are the first company to have a shoulder application in market. Already hundreds of cases in shoulder robotics with ROSA. We got a partial knee application. We got a primary knee application. We got a hip application. And we're launching three new ROSAs in the next 18 months. One that is going to be CT scan-based for those surgeons that like to do a CT scan prior to the procedure. We're going to be launching a ROSA posterior application. Here in the U.S., 40% of all hip surgeries are done via the direct anterior route. But outside the U.S., that's a different dynamic. It's mostly posterior. So we're going to be launching that as well. And then we're going to be launching also the third launch in the next 18 months. It's going to be a new and improved, faster customer interface ROSA application.
So in addition to having the broader set of indications already, we're going to be launching three new ROSA indications. We have already installed 1,500 ROSAs over the last four or five years. And we plan to rapidly increase the number of installations over the next three years. On the second, third part of your question, look, we're not married to just robotics. We want to be the broadest navigation company in MedTech. And that means optionality. We want to do robotics and already spoke about all these different applications. But we also want to do mixed reality for that 80% of surgeons here in the U.S. that don't believe in robotics, don't want to have a large footprint of capital equipment. We are the only company in the U.S. that has 510(k) approved mixed reality technology HipInsight. We also want to do light navigation software like OrthoGrid.
And we want to do more basic rudimentary navigation like iASSIST. So it's not just that we believe we have a competitive advantage in robotics. We also have the broadest set of solutions when it comes to navigation.
And where does artificial intelligence fold into this? Is it things that are driving the product, or can you get an SAS type of business model going with that?
It's at the core. It's at the epicenter of our competitive advantage. No other company today in orthopedics, and you can fact-check me on this one, collects more data than Zimmer Biomet. And we do that in a very disciplined way. We collect data prior to surgery through mymobility, the partnership that we have with Apple. That is data that goes right into the case. ROSA collects endless data points throughout the procedure. Persona IQ, which is the only smart implant technology in orthopedics, continues to get the data during surgery and then with the patient for life. And with those countless data points, we're able to engage in prediction. Prediction of potential infection, prediction of gait, prediction of range of motion. So we're already exploring things like research and agreements.
Can we guarantee that a certain patient, Joanne, comes to the surgery, given your various valgus dynamics, given your age, given your mobility, can we predict how your knee is going to perform? And can we actually then engage in some sort of a guarantee with a hospital system that a patient like Joanne is not going to get readmitted? A patient like Joanne, if he has physical therapy in a certain way, won't have to be back in the system. So long-winded way to say that we're collecting a lot of data. We're already doing some prevention, some prediction, and we're even exploring the economic side of the equation from a contracting standpoint.
Excellent. I know you've talked about, I think it's 50 new products in the next three years if my math is remembered correctly.
You got it.
If you had to say five products that you're the most excited about?
I'll say 50.
You can't say 50, no. You could say seven. But what are the products that we should be really tracking over the next period of time?
Yeah. So first of all, very excited, right? So 50 new products, 36 months. So you can do the math. We're going to be busy for a while. I'll break the answer in knees, hips, and maybe set technology. So four categories, and I'll try to keep it to seven. But in knees, we announced three new knee launches in the last three weeks. The most compelling is going to be still Persona OsseoTi, cementless platform for Zimmer Biomet. It's in full launch mode now. The adoption rates are very high. Every time we move a patient from cemented knees to cementless, we gain 10%-15% ASP, closer to 15% than 10%. So mathematically, just doing this, we are the world's largest knee company. We do $2 billion in knee sales in the U.S.
Just moving a fraction of those knees to cementless, mathematically, that's a huge tailwind for the company. The second one is going to be Oxford partial cementless, so this is a knee system that just recently got approved here for the U.S. It is the only FDA-approved partial cementless knee in the U.S. It took 20 years for this technology to come from Europe over to the U.S. It's PMA-based. It's got the highest survival rates in Europe, 33,000 patients in the NJR, the National Joint Registry in the U.K., with the highest survival rates of any knee in the space, so again, that's a transformational product. The third product in knees is going to be Persona Revision going over to Europe. Persona Revision got launched here in the U.S. five years ago. We've done close to $2 billion in gross sales over the last five years.
That's new technology going to Europe, and then the fourth and final product in knees, and then I'll move on to hips and set, is going to be Persona IQ, the shorter stem. Again, I mentioned we have the only smart implant technology in orthopedics. Adoption rate was somewhat low because we had the longer stem. A month and a half ago, we launched what we call Persona Stubby. It's a horrendous name, but it's great technology. It's a shorter stem that collects data on you, the patient, for life. Those are four very meaningful product launches out of many that will rumble through. In hips, three products: triple tapered stem, C1, surgical impactors, and then navigation, which is OrthoGrid. In set, there is a bunch of products.
So I won't go through all of them, but we launched something like 10 different products in sports medicine over the next three years. We got a cadence of product launches in our CMFT business, cranial maxillofacial thoracic, which is one of our highest margin categories. And then wrapping up this answer, in technology, we have a lot of enthusiasm behind ROSA Shoulder. Not only is the first shoulder robot in the U.S., it's also the only robot that is going to be able to do anatomic and reverse surgeries. It's capable of doing resections of the glenoid and the humerus bone. It's going to shorten the time of treatment. It's going to potentially shorten the recovery rates. So we're really, really excited about ROSA Shoulder in addition to the three other robotic applications. I don't know if that's seven, but you get the picture.
There is a lot of innovation here at Zimmer Biomet.
Now these products slowly going out the door. Are we going to be able to track them throughout 2025? How do I think about the contribution of them to revenue?
Yeah, we got to do a better job in really quantifying for all these product launches. What's the market size? What's the market growth? What is the adoption rate? And what does this mean quarterly from a financial standpoint? So IR is going to be doing a more disciplined job in that regard. But to your question, how do these product launches work? You know, it's somewhat gradual, right? It's not that you launch a product and immediately you convert in a ton of surgeons. You got to get the sets out there, the instruments out there. You got to do the medical education. But yeah, when you have so much technology, at some point, you see a bit of a snowball effect. And we believe as we exit 2024, you're going to see already some of that. As we enter 2025, it's going to be meaningful.
We're really excited about the second half of 2025.
Okay. What's been amazing to me when you look back at the period of time of the Zimmer and the Biomet integration, despite a ton of disruption, there wasn't that much market share lost, which means the market's very sticky. But at the same time, when I run numbers, you lost some market share, particularly in hips. How do you think about taking that back?
Yeah. It is a very sticky type of procedure. If you get trained on a certain orthopedic platform, it's rare they're going to be switching. That said, we did lose something like 300-500 basis points in hip market share here in the U.S. over the last, call it, five years because we didn't have the platform. We didn't have the technology. These three products that I mentioned, we didn't have a triple tapered stem that competes on direct anterior. I mentioned earlier. This is 40-50% of all surgeries. We have it now. We didn't have a surgical impactor. We lost some market share to Johnson & Johnson. We do have a surgical impactor now, and we're starting to see already market share gains in Q3 of 2024. The U.S. delivered close to 5% growth in hips, and that's already the impact of new product introduction.
Same with navigation. So as we think about market share trends, we're going to continue to be the number one company in knees and the number one company in hips. We are going to start seeing more of a meaningful share capture, especially when it comes to hips.
Okay. One of the areas that I think is not particularly well understood or even focused on is SET, and there are five categories.
Six.
Six categories. Thank you. Break that up for us, please. And how do we think about which of those products pay attention to this and which of them are like, yeah, we're fine with that? It's more of a harvest mode maybe.
Yeah. We got to do a better job in telling the story, and we got to do a better job in coming up with acronyms that make sense because SET. means absolutely nothing. I don't even know why we call it SET. It's six products. You got shoulder, upper extremities. You got sports medicine. You got CMFT, which is cranial maxillofacial thoracic, so sternal closure and neuro products. And then you got our biologics business, which is restorative therapies. Then you got our foot and ankle business, and then you got our trauma business. All in SET. is growing. Last quarter grew upper single digit. We committed to growing at least in the upper range of mid-single digit revenue. So, can I believe that there is definitely upside to that number over the next three years, and there is a ton of products.
We got three growth drivers: sports, shoulder, upper extremities, and CMFT. Those three categories are growing upper single digit, double digit. And that's where we are seeing the largest amount of innovation. The other three categories, foot and ankle, restorative therapies, and trauma, those are growing most quarters. They're not the three key growth drivers, but we're investing enough to get meaningful free cash flow. And it will take me an hour to go through all the new products that we're going to be launching there. By the way, every product launch in those categories is accretive to our WAMGR. So I mentioned earlier that our pipeline is twice the size that it used to be. 80% of our pipeline is going into set. So you're going to continue to see our WAMGR moving from low forties to 50%.
And a lot of it is going to be the innovation that we got in SET.
Okay. One of the things which the company's been talking about for some time has been tuck-in M&A. You've been extremely clear, nothing transformational. What does tuck-in M&A mean for you? And has your view today changed versus maybe 12 months ago and what that may mean?
No. It has not changed. And I think maybe the perception, look, again, many things that we got to improve upon, but one of them is probably storytelling and when we say things. I think you heard Joanne, Zimmer Biomet, talk about diversification for the last five years, ready to do M&A. We're not ready to do M&A, right? If you look at the last five years, we've been paying down debt. Post the merger of Zimmer and Biomet, our leverage ratio was somewhere around four on a net debt to adjusted EBITDA basis. It's not like we're going to be doing M&A. As we see here today, our net debt to adjusted EBITDA ratio, leverage ratio is two, which is best in class. We got solid investment grade with all the agencies that matter. And we have a very strong balance sheet.
We had the optionality of doing M&A, and we're looking at doing M&A to diversify Zimmer Biomet further. We are going to do responsible M&A. We're not going to do transformational M&A. What is responsible M&A? Responsible M&A is M&A that is EPS neutral on year two. We'll take minimal dilution on year one, call it 2%-3%. We want to be under a $2 billion acquisition price so that we don't need to incur debt at levels that we don't want to. It has to make sense strategically. So it's got to be revenue accretive from day one. It has to go into the areas that move the WAMGR. It has to be in a core point that we understand very well. And again, there is all kinds of optionality there.
What I want to leave you with other than, no, we're not going to do transformational M&A is that we don't need to do M&A for us to deliver mid-single digit revenue growth over the next three years as we guide it in our Investor Day. But we like the optionality of being able to do M&A, excuse me, given the strength of our balance sheet.
Okay, and this leads me straight to thinking about other aspects of capital allocation, share repurchases, and where you may or may not be thinking about a dividend.
Yeah. So it does come down to capital allocation. The good thing for the company is we've pivoted from a focus of capital allocation towards debt pay down to now one that balances return of capital to shareholders and M&A. As Ivan said, we're in a very healthy spot from an investment grade perspective. We're at triple B. We like where we are firmly in that spot, and we expect to stay there. And so any capital allocation decisions we make is going to be with a North Star of maintaining our investment grade rating. So that's point one.
Now, this pivot, as I talked about, to return of capital and M&A, we've committed to returning at least 65% of our free cash flow generation over $1 billion per year in total free cash flow, 65% of that on average over the next three years as part of our LRP. The way to think about that is of that return of capital, we expect to maintain our dividends at the current level, which is about $200 million per year, and the remainder of that 65% going to share buyback, and then the residual of that free cash flow will go towards things like tuck and M&A.
But that still leaves us, even if you exhaust all the free cash flow, when you're talking about a net debt leverage in the two range, adjusted EBITDA of $2.5 billion, you can safely go a turn to turn and a half on that. Very quickly, you've got a lot of capacity there to do M&A if something strategic and financially attractive came along. So I like where we are. We're in a very good space. But again, it's always going to be with that North Star of maintaining that investment grade and very strong balance sheet.
Let's, while we're on this topic, talk about operating leverage and specifically what brings gross margins up, what brings operating margins up.
Yeah. So I think the building blocks are consistent with what actually we've delivered over the last three years, which is you've seen operating margins expand even in the backdrop of hyperinflation that we all observed over 2022 and 2023. Those building blocks are very stable and durable. One is revenue. If we're growing in the mid-single digits, our ability to leverage our fixed cost base both adds gross margin as well as operating margin expansion. So that's building block number one. I'd say it's probably the most important one. Number two is inside of that gross margin stability. We've been a company that post-merger of Zimmer Biomet gave up or eroded gross margins about 100-150 basis points consistently year over year. Except for the last three years, I said, hey, the first step to turning this around is to get stability.
And that's what you've seen in our gross margin line. Doesn't mean it's the same every year. There's some puts and takes, but largely we've seen it stable. Our view is over the planned horizon, if you take out FX and the impacts of FX, that largely operationally gross margins will be stable to improving over the LRP. There's a number of variables that get us there. The next big building block is really around SG&A. We spend about 43% to OPEX. We have one of the best, most attractive operating margins in this sector. However, we also have one of the highest SG&As in the sector. And I think that there's a target-rich environment and things we can continue to do to improve that 43% over time. So the next big building block is in SG&A efficiency.
And then the last thing I think that adds to earnings is that pivot that we can now take from debt pay down to return of capital and our share buyback contribution into earnings per share. You put all of those together, plus just about a 1% dividend yield. I think it becomes a pretty attractive TSR story.
How do you think about certain things which orthopedics has been known for a long time, is high inventory levels, having a salesperson in every operating room, stickiness of products. Those types of things to me have always been sort of the sand in the gears that impacts the leverage. How do you unpack that?
Yeah. So I think from a Salesforce deployment and somebody in the office, I think you're already starting to see efficiencies in that as you're seeing a move into ASCs. The ASCs just don't have, one, the bandwidth, the space, the time to have as many people in the operating room. So they're finding efficiencies, and we're helping them find efficiencies through different solutions. So that is becoming better. Two, they don't have the room also or the bandwidth from a sterilization point to have all this inventory. They just simply don't have the space. So we're finding operational efficiencies in partnership with the ASCs to deliver in a more efficient way. That's just one angle of it. The second is portfolio rationalization. Our objective is to get to a one-knee platform over the next few years.
The ability to do that, rationalizing out older SKUs, older codes, also enables us to rationalize inventory, bring our working capital down, which then also has gross margin improvement. It starts to build on one another. It starts to become a force multiplier. These are the things that get me excited because there's still a lot of runway and opportunity in front of us.
So when the two companies merged, there was this original thought process in my memory of keep it all. Don't touch anything. Let's just keep it. Where do you think you were at this stage of SKU rationalization, product rationalization? I mean, I would just be curious. We're near the end, Joanne. We're good, or we're.
I'll let Yvonne chime in, but my perspective is when you first came through the merger and when I first joined the company, it was always, hey, the sales reps are telling us, hey, we want everything. Keep everything. Keep this entire portfolio. I don't want to disrupt it. We're now hearing from our sales force that has to manage all of these platforms and has to sell and market all these that, hey, we need to focus. So you're seeing actually a pivot at the ground level, which is exactly what's enabling us to go take this on in a more assertive and aggressive way. But I don't know, Yvonne, if you've got.
I'll throw some color bias and data points. After the merger, we had around 800,000 SKUs. And if you were going to our website post the merger, we said we wanted to be, or we were, in 125 countries. We divested dental. We divested spine. We've done a lot of portfolio cleanup, not enough. And today, our SKU number is probably in the 300,000 range. And no, we're not in 125 countries. We are laser-focused on 15 countries, one-five, that account for roughly 90%-95% of the revenue and EBITDA of the company. Even with a focus on 300,000 SKUs, our portfolio strategy, and the geographic focus, we still have around 300,000 SKUs, and we operate with north of 414 days of inventory ahead. That is not best in class.
So again, lots of kudos to Suky in terms of some of the inventory solutions that he's bringing in addition to marketing to bring the numbers somewhere in the 300s. We'll exit 2024 already south of 400. That's not how you run a company with 350 days of inventory. So I think we are midpoint into the journey of the transformation of inventory, SKU reduction, and everything in between.
Between the third quarter call and today, there's been this little election. And I'm curious.
When did it happen?
We're done. But I'm curious what you're thinking might happen in the next, we'll call it, next four years. I'm not even thinking of whatever, 180 days or something. But I'm curious, the topics that we've been talking to people about are things like tariffs, potential changes in the FDA process. Head of CMS, thoughts? Love them from you.
I mean, the short answer is who knows, right? But what I will tell you, I was in Washington, D.C. yesterday. I met with the governor-elect of Indiana, Governor Braun. I met with Senator Young. I met with a subcommittee on healthcare. I met with the orthopedic segment of AdvaMed. I got appointed the chairman of that segment, and I think there are more tailwinds than headwinds, and again, speculation. We believe that from an ease of doing business, we're going to see less regulation. On the tariff front, look, 1%, 2% of our sales come from China. A fraction of our EBITDA comes from China. From a manufacturing standpoint, two-thirds of our manufacturing comes from the U.S., from Warsaw, Indiana. We do have some manufacturing in China, but that's single digit. Recall that we already went through one Trump administration, the 45th administration.
And most of our products were part of the humanitarian exception. Everything that we hear is that likely that's going to be the case, who knows? But today, we're not too concerned about tariffs in the China case. We don't have much volumes coming out of Mexico. What I heard yesterday is that a lot of the prioritization is going to be coming from Mexico versus China when it comes to that. Again, speculating, but this is what I'm hearing. We're not too concerned. And then look, there are tailwinds that nobody's talking about. I mean, who knows what's going to happen with the corporate tax rate? The FTC likely is going to be a better environment from a deal standpoint. In terms of priorities for HHS, medical devices so far has not been one area where you have heard a lot of noise.
So we're going to be monitoring day by day what happens, not too concerned about tariffs. And actually, I'm feeling pretty hopeful in some areas.
Excellent. And on remaining minutes, when you and I are sitting here next year talking, what do you think we're going to be talking about?
No tariffs. Nothing, I believe, controversial. At the end of 2025, I think you will see Zimmer Biomet growing mid-single digit revenue, seeing the true impact of all this great innovation that is taking years to put into the pipeline. You will see Zimmer Biomet again delivering solid earnings per share leverage at the tune of one and a half as we committed, with solid free cash flow growth and conversion. So I think you will see solid, we will see solid financial performance. At the end of 2025, I think you're going to see us thinking about even bolder innovation. A lot of the innovation over the last three years has been catch-up, being candid. We had some disruption, so we had to catch up on cement, there's revision and whatnot. The products, the innovation that we're working on now is more customer-centric.
So I think at the end of 2025, we're going to be sharing some exciting news about our innovation story. But yeah, solid financial performance, solid innovation story, and I think 2025 is going to be an outstanding year. We're closing a really good year 2024 in spite of the challenges, and I think 2025 is going to be outstanding.
Excellent. Yvonne and Suky, thank you so much for joining us this morning.
Thank you, Joanne.
Thank you, Joanne.
Have a great day and holiday.
Thank you.
Thank you.