We're going to start off with CEO Ivan Tornos from Zimmer Biomet. We'll do a presentation followed by some Q&A. Ivan.
Thank you.
All right, everybody. Good morning and happy New Year. I guess that I get to say happy New Year all the way through February here. Great to be here again. Hard to believe that we're doing J.P. Morgan again. All right. I think everybody's seen this before. It's been around since 1995. It's the Safe Harbor Statement disclaimer, as well as the non-GAAP measure disclaimer. So those are two of the main disclaimers that I have here today. The third disclaimer is that I have my dear friend, from Johnson & Johnson in the audience, the group president for DePuy. So throughout the presentation, I'll be saying a lot of hurtful things about you and your business. Aldo, God bless you. Happy New Year to you as well, my friend. All right, the three key messages for today's presentation, and actually, there are three key messages for the year 2025.
Those three key messages are, number one, Zimmer Biomet is at the forefront of a very robust innovation cycle. We're going to unpack that innovation story a little bit here today, because we've been talking about innovation for quite some time. Some of you are wondering, when do we see the impact of these new products? First of all, what is the impact of these new products? When do we start to see it? In two slides, we're going to talk briefly about that innovation story. How Zimmer Biomet has come from being a laggard in innovation, given some of the challenges of the past, to now being at the forefront of what we deem the most robust innovation cycle in the history of the company. That's key takeaway, number one.
Key takeaway, number two, is that, yes, this company has gone through a lot of operational challenges. The last one of them, the ERP implementation back in the summer of 2024, that didn't work out. Happy to report that that is fully resolved. It is behind. As a matter of fact, just as we committed, we exited 2024 at pre-ERP shipping levels. As a matter of fact, Q4, which is usually the highest volume quarter from a shipping standpoint, was actually the highest, by far, shipping quarter. One of the highest volume quarters in my six years here at Zimmer Biomet. So when I talk about some of those operational challenges behind, I want to talk about some of the things that we got to do moving forward to make sure that we don't have some of the issues that we have had for quite some time.
We'll talk about operational excellence and what that means moving forward. And then lastly, we're going to talk about the commitments that we made back in New York. So if you may recall, back at our first investor day, we talked about three key commitments: growing revenue, mid-single digit, which is basically at market or above market, as an average for the next three years, so 4%-6%. We spoke about EPS leverage of one and a half revenue. And we spoke about free cash flow growing 100 basis points above EPS. So if EPS is growing as approximately 7%, 8%, we're committing to growing free cash flow at least 8% or 9%. So those are the three key commitments. We're going to validate how we get to those three commitments today throughout the presentation, and hopefully in the Q&A.
In addition to that, in New York, we spoke about how we treat cash, and the commitment remains to return 65% of free cash flow back to you, the investor. And that's in the form of dividends, and that's in the form of buybacks, while leaving ample firepower, given our low debt ratio, to do strategic and responsible M&A, so those are the three key takeaways from today's presentation, and those are going to be the three key things that you're going to hear Suky and I talk about throughout the rest of the year 2025. All right, so unpacking the story, two slides on innovation, two slides on operational excellence, and then one or two on financial commitments. You can read this slide better than I can pronounce it, but let's start from the top.
If you look at those six products right there, I'll tell you, never in the history of Zimmer Biomet, we have launched six meaningful products in one year, in our largest category, that being recon. And again, we have not done our homework at Zimmer Biomet. We lost market share to DePuy when it comes to our hips, with a struggle in knees, staying more or less afloat when it comes to our knee performance here in the U.S. But we're very confident given these six new products, we're going to get back to leading. We remain the number one knee and hip company in the world. And we strongly believe that these six new product introductions are going to accelerate our leadership position.
I'm not going to talk about all of those products in detail, but if you look at the timelines, it's important to notice when these products were launched, and I think this answers the question on how come we're not seeing the impact of these new products. Truth be told, probably we're talking about these products way too early. If you look at Persona OsseoTi, or cementless knee, that got launched sometime in the middle of 2024. We started to see full deployment of sets, medical education activities, and other activities around the summer. The 510(k) got approved much earlier, but the real launch happened summer towards the end of the year. Persona Revision is a product that got approved here in the U.S. in 2019. It is the number one revision knee in the U.S., and we got the European CE Mark in mid-November.
This is some of the first cases in late 2024. We're doing the full launch of Persona Revision in 2025. Very excited about this product in Europe. We've done north of $2 billion in gross sales since we launched in the U.S. And again, we are the number one revision knee company in the U.S. Our expectation is that it's going to be a fairly rapid uptake in Europe. Oxford Cementless Partial may be the most exciting product launch. Hard to pick your favorite child. But this may be the most exciting product launch in the U.S. in 2025. Oxford Partial Cementless, we're going to be doing the first case tomorrow, January the 15th. And this is a product that has been in Europe since 2004, so 20 years. It's a PMA-based product. It has the highest joint survivorship data of any registry in the U.K.
We expect that this is going to be a leading platform here in the U.S., given the rapid migration into cementless knees and given the rapid migration into the ASC. Again, the only FDA-approved platform, approved knee, Partial Cementless Knee. Persona IQ, in late 2024, we got the 510(k) approval for what we used to call the Stubby. That's the worst marketing name in orthopedics. We call it now the 30 mm. That is not much better, but it's better than Stubby. It's the shortest stem Persona IQ. Launch in November, great adoption so far, doing all kinds of medical education activities. It should be a meaningful product in the year 2025. Really excited about Z1, that's our triple tapered stem. 40%-50% of all cases here in the U.S. are done via direct anterior.
40%-50% of hip cases are done via direct anterior technique. This one category in where we're behind, but we like what we see. We see one so far. We started to do fairly aggressive medical education at the end of 2024, and that carries into 2025. Again, a gap that we had in the portfolio, one of the main reasons why we have lost market share to great companies like DePuy. And then lastly, a hammer, or surgical impactor, which is a product that we got approval early in the year, and we started to do the training and get the sets out in the summer towards late 2024, so the key theme of all these six products is that with the launch of these products, we have a full portfolio, which we haven't had in hips and knees.
You're not going to hear me on the stage talking about lacking one product, two products, losing market share because of innovation. We have all these six products, and the portfolio is complete. The other key theme is what I was saying, the timelines. These were products that were approved early, mid-2024, they're getting to full launch mode in 2025. I'm not going to read through the opportunity or key points, because I think, again, you can read that. These are sizable markets that are growing at a healthy clip. The second slide that I have on innovation, and no, I'm not going to go through all of this information, is that we are much more than a knee and hip company. Clearly, we had to remediate the portfolio in hips and knees, because 68% of the revenue of Zimmer Biomet is in hips and knees.
But beyond that, we got countless launches in the other two key categories of Zimmer Biomet. Those being S.E.T. and Tech & D ata. Very excited about the acquisition of OrthoGrid. It's one of the fastest navigation platforms in orthopedics today. We acquired OrthoGrid in late 2024. 2025 is going to be the full deployment. Really excited about ROSA Shoulder. It was the first shoulder robot platform launched in the U.S. It is unique in the sense that it can do reverse and anatomic cases. It can do resection of the glenoid and the humeral bone. It is fairly easy to use. The feedback we're getting from the institutions that are already using it, Cleveland Clinic, Mayo Clinic, HSS, and others, is that the learning curve is quite short.
Again, instead, you can read the slide, but whether it's sternal closure, whether it's shoulders, whether it's the launch of OsteoFit, stemless shoulder, late January 2025, it is a very compelling story. We've been growing set in mid-single digit, if not upper single digit now for five quarters. The expectation is that we're going to continue to see very healthy growth of set. And that's given the innovation story that we have here from a set portfolio standpoint. Moving to operational excellence, so two slides on this. This is not supposed to be a victory lap slide. Nonetheless, it's important to reflect on the turnaround of Zimmer Biomet. Eight things that we want to briefly talk about. At the end of Q3, this company, Zimmer Biomet, had grown 11 consecutive quarters at mid-single digit revenue levels.
The guidance we provided for the year is that the fourth quarter was going to be the 12th quarter. So that makes it three years of consecutive mid-single digit revenue. Not satisfied with mid-single digit revenue, but it's the basic commitment that we made, and we're honoring that commitment. And again, back in 2017, this is a company that was declining 2% every year and some quarters mid-single digit declines. For four years, assuming that we did deliver guidance for the year 2024, this company is seeing operating margin expansion with best-in-class operating margin near 30%. As we look forward, we have committed to continue to increase operating margin by at least 30 basis points. So again, a top story or a great story when it comes to profitability. While we are driving revenue that is in the mid-single digit revenue category, we are seeing EPS leverage.
We are seeing these last four years EPS that is in the high single digit adjusted earnings growth. So again, it's not a revenue story only like it used to be. It's a story of revenue and EPS. We have free cash flow conversion of around 65% with an ambition to get into the 80% range throughout the life of the LRP, long-range plan. We got to do a better job when it comes to inventory management. I've never worked for a company that at one point had 550 days on hand. Already committed to exit in 2024 below 400. We have improved 50 days from 2020. We're going to continue to work on working capital, primarily DOH, because we know we got to do a better job in this regard. This will be one of the key sources of additional free cash flow generation.
Pricing continues to be a robust story. Q3 of 2024, we actually gained price, 70 basis points. We committed to exit in 2024, flat to 50 basis points. This means that for the last five, six years, if not longer, we have improved our pricing profile by 250 basis points, and again, similar to the other commitments, we are not going to be satisfied until we see price improvement, price favorability. Not making that commitment today, but we're going to work towards that, and then innovation. You cannot run a company without having a compelling innovation story, and as we exit 2024, the dollars in the pipeline, excuse me, gross dollars of the pipeline, the value of the new product introductions is larger than 2x, more than 2x the dollar value at the end of 2018, so simply put, innovation today is a competitive advantage for Zimmer Biomet.
All of that said, clearly, we got to do a better job in some areas. Clearly, we got to stop surprising investors with things like the ERP debacle that we had in 2024. And we're committed to doing that. And already, we have implemented some changes in 2024 that we strongly believe are going to create stability when it comes to operational execution. And there are three key buckets here. Number one, we've changed the structures. We added people, and we changed people. We brought in new talent. In the category of putting the right people in the right jobs, we are adding a new Group President that should join the company soon. We do have a new President of Knees that joined the company in late 2024. We got a new President of Hips that got appointed internal leader in late 2024.
We have a new president for S.E.T., internal talent that is going to be running the entire S.E.T. franchise. We have a new president of ASCs, an individual who has 25 years of experience in the ASC environment. And I was going to bring Arnold Schwarzenegger here today, but he's working out. He's our new Chief Movement Officer. So again, new people, new talent that embrace our culture of agility, of focus, of accountability. So really excited about the additions there. Operating mechanisms, again, I'm not going to go through all of them, but whether it's dedicated people in the U.S., addressing inefficiencies in the go-to-market model in the U.S., specializing, we're doing all of the above. The ERP is behind, already mentioned that, and continue to look at pricing as an opportunity.
Then the one thing that is being a stop-go, stop-go here at Zimmer Biomet is incentives. Suky and I get paid on revenue growth, EPS growth, and free cash flow. We're going to make sure that every individual at Zimmer Biomet gets paid on growth and gets paid on profitability. That means sales reps getting paid on pricing, of course, growing, not just achieving a quota that may not be growing versus last year. Then at a higher altitude, every country manager, business leader is going to get paid on revenue, EPS, and free cash flow. I say this is a stop-go story at Zimmer Biomet because we started to do that in 2024, but we had to slow it down given some of the challenges in the year. We're going to truly embrace a culture of pay for performance.
Performance is not just revenue. It's revenue, it's margin improvement, and all the things that I alluded to. So those are some of the changes that we made in late 2024 and some of the changes that we're going to continue to implement as we move into 2025. Last two slides, and then we're getting to Q&A. The way to read the slide, the commitments are in the far right. I already alluded to commitments around revenue, EPS, free cash flow, and return of cash to shareholders. The way to get to these three commitments on revenue, EPS, and free cash flow is what you read in the left. We continue to see strong markets. Some of our peers claim the market is growing 5%. We believe it's around 4%-4.2%. But nonetheless, the markets are healthy. They're steady. We don't see this slowing down.
If anybody here in this room thinks that the market is healthy because of backlog, I got news for you that is not the case. We validated this with claims, primary care claims, referral patterns, working with IQVIA. There's been no backlog effect for at least seven quarters, so markets are strong. That's one driver of our revenue commitment. We launched in no less than 36 new products over the three-year cycle. We are going to continue to see operational efficiency improvement, and that is one of the key sources of margin improvement in addition to the revenue leverage, and again, the DOH improvement that I mentioned earlier, really moving from somewhere in the 300 to a lower number, is going to be one of the key drivers of generating free cash flow at the rate that we're committing.
We generate about $1 billion-$1.1 billion in free cash flow. Again, 65% of that dividends and buybacks goes back to you, the investor, leaving $350 million-$450 million per year to do M&A, strategic M&A, tuck-ins, and whatnot. But given our investment grade and given the free cash flow generation that we have, there is still ample firepower without leveraging the balance sheet too much to do strategic M&A. We're excited about some of the opportunities in that space. This is my last slide. So we've gone from being a company in remediation mode with very compelling challenges with the FDA, with compliance, not going through a healthy integration of two great companies, Zimmer and Biomet, to being a company that had to catch up with competitors, what I call very competitor-centric on innovation.
We had to come up with all those products you saw on slide two, have to remediate some gaps in robotics and whatnot, to sitting here today and once again moving forward, moving forward and being a customer-centric innovation company. We got new-to-the-world product launches in different categories. We're doing things differently around four key problems that we're trying to solve, making sure that there is awareness about the disease. There are 600 million people on earth that suffer from some sort of arthritis. Osteoarthritis is the lion's share of those cases, and 5% of those patients are doing something about it. That means there's 570 million people out there living in pain. I'm not claiming that 570 million people should be getting a hip, knee, or shoulder implant, but I can promise there's a lot of patients out there that would benefit from that.
That's why we're launching the boldest DTP, direct-to-patient, direct-to-consumer campaign in the history of the company, with just Arnold Schwarzenegger and many other sources of DTP. So we're going to work on awareness. We're going to work on infection, making sure that people don't die after a hip and knee procedure, eliminate infection, which continues to be a problematic, complex problem. We're going to drive simplicity and efficiency in the operating room. We're going to continue to be a purpose-centric company delivering the best outcomes, clinical outcomes that a company can achieve. That's the journey from 25 to 30. But as we move forward and think about 2030 and beyond, we believe there's going to be a day where we can restore cartilage versus replacing cartilage with an implant. And we're making early commitments on gene therapy, biologics, and other techniques.
We also believe that the power of data is going to personalize how we think about surgical treatment. And we're going to be able to predict when can you get sick, what kind of osteoarthritis you're going to have, what's the right treatment at the right time. So we're going to truly personalize this episode of care. And then lastly, all these lessons learned that we got in musculoskeletal care are going to be transferable to other areas. So that is the journey from 25 to 30. And that is our bold vision when we think beyond 2030. I want to thank you for your time, and I look forward to a Q&A.
I've been following Zimmer Biomet for a long time, and I would say that's the most robust product pipeline slide I've ever seen from the company. So maybe we could start there.
Is this just a change in messaging, or is this actually the most robust pipeline you've ever had?
It is. It is. And again, as I just mentioned, truth be told, we probably started talking about these new products way too soon. I mean, you and I have been talking about Persona OsseoTi, cementless penetration for a few years. We shouldn't have. But yeah, there has not been a time at Zimmer Biomet when we had six product launches in reconstructive in these billion-dollar markets and then another 2025 products in set. So yes. Maybe just some housekeeping. There was an ERP implementation that didn't go to plan, brought down second-half guidance in 2024. Where do you stand in that, and is that now fully resolved in 2025? It is fully resolved. So yes, it probably cost the company in 2024 between 60 to 80 basis points of growth.
We made a commitment to exit 2024 at pre-ERP shipping volumes. And as I mentioned earlier, Q4, which is pretty typical, was the largest volume quarter from a shipping standpoint. And actually, Q4 was probably one of the highest volume quarters in my six years here. So we don't have a challenge when it comes to shipping. And as we enter 2025, there is absolutely no headwind when it comes to the ERP.
If I'm doing my math right, that reduction in growth is actually a little less than the implied guidances. Is that saying that fourth quarter was better than expected?
I'm not going to talk about the Q4 results. I'm just going to say that the ERP is resolved and the volumes are very, very healthy.
Great.
Maybe we could talk about volumes because it's one of the questions I get a lot from investors where they're saying, when is this excess demand going to roll over, particularly in orthopedics, hip, knee? If you take what should have happened during the pandemic and you see what actually happened, there's still an excess of procedures. But are you actually seeing pent-up demand, or do you think this is just a new normal on a global basis?
There is absolutely no pent-up demand that we see. I'd love to have the conversation with my buddy Aldo here in the room later. We actually, for four or five months, we said we just got to get back to, we got to understand the enigma here, and we looked at insurance claims. We looked at CMS claims. We looked at third-party sources.
We did a robust analysis with the major institutions in the U.S.: UCLA, Campbell Clinic, Cleveland Clinic, HSS, you name it, and it's extremely clear that for the last seven quarters, there's been no pent-up demand, and, Robbie, you follow things outside of orthopedics. You're seeing healthy volumes in cardio. You're seeing healthy volumes in urology, general surgery, so I don't think that these are patients that were waiting to have cardiovascular procedures all the way to 2020, so the markets are healthy. It's not pent-up demand.
We could touch on pricing. That's also, it's awkward to see a positive number in orthopedics after negative two, three for such a long time. How durable do you think it is to have flat pricing or less negative pricing? Is this a durable phenomenon?
Yeah, we don't find it awkward at all. We find it very exciting.
We believe that if you're going to launch innovation, you're going to get paid for it. To answer your question directly, 80% of our book of business is contracted. We have visibility over tenders in Europe and agreements here in the U.S. Those contracts are on average two to three years. We're not seeing those pricing contracts going down. 85% of the bundle of care of orthopedics is non-implant related, non-product related. So say simply, when you go through a procedure and you look at the entire cost with the bad guys, medical supplies, pharmaceutical companies, implants account for 15% of the cost. 85% is something else. It's surgeries that are too long. It's readmission rates. It's length of stay in a hospital. It's going to the hospital in the first place.
So, I think that there is a very commonsensical approach that we're seeing that customers want to talk about that 85%. If we can have shorter surgeries, if we can have more efficient surgeries, if we can lower readmissions, the desire to have a conversation around the 15% is less. And what I like about orthopedics is that all of us are doing really well on pricing. Johnson & Johnson, Smith & Nephew, Stryker, all of us are demanding to have the right price for the innovation we bring into market. So I don't see pricing reverting to 300-400 basis points of erosion.
How much of the equation is just pure price like-for-like and mix? If we look back to the product slide and the whole suite of new products coming, are those coming at higher prices, higher margins than you typically had before?
Or is it actual flat like-for-like price?
Yeah, I'll touch on that and Suky, by all means, elaborate. Pricing in the company reports directly to the CFO. So that's an element of governance that I've not seen in my 30, now 31 years in med tech. Those six new products, we got two key, we got several metrics in R&D, but one key metric that we incorporated three, five years ago is what we call the IPI, Innovation Profitability Index, which is the gross margins of new products and whether they're accretive or dilutive to our average gross margins. And I will tell you that 80% of the new product launches that we're launching actually are accretive from an IPI standpoint. They're bringing accretive gross margin to the company. Certainly, there is a mixed benefit with things like cementless and other categories. So, Suky, you want to elaborate?
Yeah, you bring up a great point. I'm sorry. Great point there, Robbie. When we talk about price, it's like-for-like on a product basis. So if we say 100 basis points of erosion, that's for products already in the market. What it does not take into consideration is when you move a procedure from a cemented application to a cementless application, you get a mixed uptake there on revenue of 10%-15%. So that pricing equation does not include that. So that's a pretty exciting tailwind for the company. But just for clarity, the way that we measure pricing, and not every company does the same thing, is SKU over SKU. So it's gadget A over gadget A year over year. And that we've seen already 70 basis points of favorability in Q3 of 2024 and mixes on top of that.
Maybe we could focus on the new products for 2025. Most of them, like you said, were launched in 2024. You typically do limited launches, so it's phased over a period of time. But it wasn't just hips, it wasn't knees, it was across almost every part of the portfolio. So maybe you could spend a minute on the impact, the most important and the ones you think investors might actually be able to see a tangible impact from 2025.
Hard to do in a minute, but I'll do my best to do it in less than two. So I'm going to answer that question first mathematically and then from a customer impact standpoint. If you think about what are the two or three most compelling products from a mathematical standpoint, financial value, it continues to be Persona OsseoTi or cementless knee in combination with ROSA or robotic platform.
Competitors, peers, friends have cementless penetrations of 60-65%, robotic penetrations of 60-65%, talking about the US. Robotic penetration is around 22% in the US and/or cementless penetrations around 25% in the U.S. Just bringing that penetration from the 20s, as we have committed in the case of cementless, to 50% by the end of 2027 with a 15% ASP uplift, that's a lot of returns. When you combo that with robotics and you have the double dipping, you're getting 30% more revenue from your existing customers. It's a pure share of wallet strategy. Mathematically, those two products continue to be a great driver. Oxford Cementless Partial Knee may be the most groundbreaking product that we're going to be bringing to the US. It's getting launched tomorrow, January the 15th. It will be the only FDA-approved partial cementless knee.
That is a $1 billion market in the U.S. It's one of the fastest growing categories. We have lost over the last three years 700 basis points of market share in partial knees. And we strongly believe that Oxford Cementless Partial Knee is going to get us back to a leading category. From an impact standpoint, in my last 20 seconds here of my two minutes, ROSA Shoulder, transformational, only platform that can do reverse and anatomic procedures. Less than 20% of surgeons in the U.S. are doing shoulders. If you make those cases simpler, we believe that the adoption is going to be higher. More people will jump into doing shoulder cases given the ease of use and given the favorable reimbursement and the ASC dynamic.
Maybe we could touch on ROSA and robotics just simply as you're rolling out all of these cementless products.
Cementless is used at a much higher rate with robotics. So where do you stand in terms of penetration of ROSA? Is it mostly in a hospital? Are you seeing adoption in the ASC? And any kind of metrics you could provide?
Yeah, so I'll start with one headline number that I think is important for all of us. Here in the U.S., 80% of surgeons don't use a robot, period. I'm not talking about Mako. I'm talking about no robot whatsoever. So as we continue to drive awareness and bring clinical data about the value of robotics, this is an all-boats-rise type of event to move the overall penetration of robotics from 20% to something else. Now, specific to ROSA, one-third of our units go into an ASC environment. Our overall penetration of ROSA in the U.S., as I mentioned earlier, is somewhere between 20%-25%.
So that means that of all the knees that Zimmer Biomet do, roughly 20%-25% of them are being done with a robot. So there's a macro opportunity of elevating the standard of care, and there is a micro opportunity of getting ROSA from 20%-25% to 60%, 65%.
Maybe we could touch on some financials for a minute, and maybe we could start with guidance. In 2024, let's say the first half of the year was good. Second half of the year had the issue. But throughout all of that, we didn't necessarily see raises to the guidance range. And I remember at the conference last year, you said, "We're going to put out a great range, and we're going to do what we set out to do." Has this changed at all as we come into 2025 guidance?
I know you're not pre-announcing or guiding here, but how are you approaching the initial guide?
So we are not going to apologize for the guidance we gave in 2024. Prior to the ERP issue, we're growing 5.5%. Now, lesson learned that investors want to get rewarded with consistent beat and raises. So as we enter guidance season, we're going to think about perhaps being more prudent around some of the commitments that we made. But it's worth noting that, again, at midpoint 2024, we're growing 5.5%. And the guidance that we gave post-ERP constant currency was 4.25%-4.75%. Assuming that Q4 was good, we're very close to that original 5%. But again, duly noted that beating and raising may be more important than the absolute growth. So more to come in February, early February.
Investors love a beat and raise.
So do we.
Suky, the long-range plan you put out at the Analyst Day in the summer, I believe it was EPS leverage at least one and a half times top-line growth. Maybe just spend a minute on the drivers to get there. Is it gross margin? Is it operating expense? Is it a mixture of both? How do we get there?
Yeah, so we did commit to one and a half times reported revenue growth on average over the lifetime of our LRP, so the next three years if you take off until 2024. The building blocks have been very consistent. First is really around revenue growth. So at that mid-single-digit revenue range, we're able to leverage a significant portion of our fixed cost and semi-fixed cost base inside the company. And so you get a natural level of operating margin expansion and acceleration of earnings off of that.
Secondly, we've always talked about coming off of 2022, a stabilized gross margin level, and again, we're talking about margins that are probably best in class across orthopedics and med tech overall, and so we have a very strong starting point, and so stability in our gross margins of 71% to 72% over the life of our LRP, and then beyond that, continued efficiency in SG&A. It's really about rationalizing a number of areas where maybe we've had priorities in markets or in products that weren't focus areas for us now, redeploying that spending, mix-shifting that into areas that have higher growth and higher margin and profitability opportunities for us, so the equation has really remained consistent.
And it's an equation that we've been playing out for the last four years, as Ivan talked about, with earnings growing faster than revenue, operating margin expansion over the last four years, significant operating margin expansion, I should say, even in the backdrop of a hyperinflationary period. So we feel really good about what we've accomplished, more work to do, and we feel really good about the outlook.
Currency after the election moved pretty meaningfully. That's not a Zimmer headwind. That's a multinational headwind. That's right. Anyway, investors should be thinking about that as a mark-to-market, if you're willing at this point.
Yeah, you're seeing the euro almost at parity with the U.S. dollar. We looked at it quite recently and based on current spot rates. If you take our foreign currency exposure, about two-thirds of that is made up of four currencies, the biggest being the euro.
Across those four currencies and almost the entire basket of foreign currencies we have, we've seen the dollar strengthen about 4%-5% on average for the full year, 2025 spot rates versus 2024. So it's not insignificant. And of course, we'll provide a lot more color when we give guidance in early February.
I know you do natural and synthetic hedges. Is there any rule of thumb on what drops through at the bottom line typically?
That can change based on the mix of currencies, a lot of different where that currency drops through from a regional perspective, how much is in cogs versus operating expenses. So I don't want to get into a lot of detail here, but we'll provide a lot more color in February.
Ivan, over the past few years, I've heard you talk more and more about the ASC and how important that is.
It's the fastest growing site of care within orthopedics. How do you feel Zimmer's positioning in the ASC is, and how much more room is there for growth in the ASC setting?
So I'll start with part of the other question. So we've done a lot of research on the velocity of cases moving to the ASC. And the latest analytics that we have is that roughly 40%-60% of all cases will move to an ASC over the next three to five years. And as I tell people, it's no loss to me. That's a wide range from 40%-60%. And that in itself tells you that even the best research firms don't really know what's the range or the exact number, but that's a large number. In 2018, 2% of the sales of Zimmer Biomet were coming from ASCs. Today, that number is approaching 20%.
We're growing double digit. We believe that when it comes to knees and hips, we remain the number one company in delivering procedures in ASCs in the U.S. We don't have category gaps. We used to. We used to. We didn't have a cementless knee. We didn't have a robot. We didn't have a portfolio in set. We didn't have sports medicine. As we see here today, there are no gaps in the portfolio. What is struggling in ASCs is anchored on what we call the three P's: products, partnerships, and people. Starting with people, we have a dedicated president, as I mentioned, and we have dedicated people that every day are just doing ASCs. When it comes to products, full portfolio. And when it comes to partnerships and processes, we have all the partnerships that we need.
In those rare instances, when somebody wants to bundle things, we can bundle. We have a legacy partnership with Hill-Rom and Baxter on beds, wheelchairs. We have partnerships in booms and lights. Also, we have our own booms and lights. We do partnerships with STERIS in some regions on sterilization. So we don't have any gaps. That's the punchline when it comes to ASCs.
How do we think about the growth you're seeing in ASCs versus the in-hospital segment?
It's much faster. So we are seeing the volume. I met with USPI yesterday. They were talking about 2025. It's going to accelerate once again. So we believe that the growth rate in ASCs is by far the space to watch. So I don't want to quantify what is 2x, 3x, but it's much faster.
Maybe we could touch on M&A.
I would say after the big Zimmer Biomet acquisition nearly a decade ago, we've seen several small tuck-in deals from Zimmer Biomet. Two parts. How are you thinking about M&A as a part of Zimmer Biomet going forward, and what does the market look like to you right now?
The commitments that we made in our LRP of growing mid-single-digit revenue, EPS leverage of one and a half, free cash flow, 100 basis points above EPS don't contemplate M&A. We don't need to do it to deliver on those commitments. That said, we do want to enter a higher-margin space. We spoke about moving from 4%, 4.2%, 4.3% today to 5%. That's going to take responsible M&A. We got the financial flexibility. We got the strategic intent to do responsible M&A when we need to do responsible M&A. How we're looking at it?
Strategic, financial, strategic, higher margin. Want to be in faster growth categories. We like certain aspects of recon technology, data and whatnot. We love certain components of set that continue to grow upper single digit. Anything that happens in an ASC to the last question is something that we're excited about. So that's the strategic framework. On the financial side of the equation, responsible M&A, we're not going to repeat something like Zimmer Biomet that created 10 years of turmoil. We don't need to do something seismic. We don't need to do something transformational. The company's already been transformed. So we look to do deals up to $2 billion in acquisition price with EPS dilution year one of less than 2%-3%, EPS neutral year two. We want to do deals that we know we can integrate because we have the capabilities.
We want to achieve ROIC, return on invested capital of upper single digit, double digit by year five. So it has to make strategic sense. It has to be financially responsible, but we certainly have the financial flexibility of doing it. Are you looking just product-based, or would you look for geographic expansion opportunities as well? Combination of things, but product is probably more important than geographic. If anything, one of the things that Suky and I and the team have been doing for the last five years is reducing our footprint, which is one of the reasons why we have the DOH that we have and some of the supply challenges that we have. We were in way too many countries. So over the last three to five years, we've been narrowing our geographic footprint. There are 15 countries that account for 95% of the orthopedics market.
We don't need to be in 125 countries.
Well, we're just about out of time here, so maybe that's a good point. We could wrap it up. Thank you very much.