Margin Expansion Q: How will you achieve margin expansion in H2? A: We remain committed to our 200 basis points operating margin expansion—100 basis points this year and another 100 basis points next year, inclusive of M&A. In the second half, we expect more leverage from SG&A than gross margin. We'll control hiring, travel, and meetings, and benefit from natural leverage as we grow off a fixed cost base.

Guidance Raise Confidence Q: Why raise guidance despite an in-line quarter? A: We're pleased with the quarter and have strong reasons to raise our guidance to a potential 10% organic growth at the high end. We have a significant capital backlog, strong demand for Mako installations, and positive feedback on new products like Pangea and LifePak 35. July is off to a strong start, especially in joint replacement.

Sustaining High Growth Q: Can high growth rates continue next year? A: Yes, we've demonstrated sustained high growth—9.7% two years ago, 11.5% last year, and targeting up to 10% this year. Next year, Pangea and LifePak 35 will have a bigger impact, and products like Mako Spine and CoPilot are coming. Our innovation pipeline and M&A strategy support continued high growth.

M&A Activity Q: What's the outlook for M&A in 2024? A: We have a very active deal pipeline, mostly in the tuck-in variety. While most deals aren't large, we'll be very active in both halves of the year. Our strong balance sheet enables us to pursue these opportunities while remaining committed to our margin targets.

Pricing Power Q: How long can you sustain pricing improvements? A: We're seeing positive pricing outcomes, with 0.7% in Q1 and 1.1% in Q2. We expect this trend to continue throughout 2024, driven by innovation in our MedSurg and NeuroTech businesses. In Orthopedics, we're less negative on pricing than before, and our sales force incentives support margin improvements.

Record Mako Growth Q: What's driving record Mako placements each quarter? A: International expansion is a major contributor, with markets like Japan and India picking up pace. In the U.S., demand remains strong as customers prefer our technology. The upcoming addition of spine and shoulder applications to Mako will further drive growth.

New Product Launches Q: How will Pangea and LifePak 35 impact growth? A: Both are significant contributors to future growth. LifePak 35 will ramp up quickly, impacting the second half of this year and having a big year next year. Pangea, though launching more gradually, will provide sustained and consistent growth once fully launched in H2 next year.

Segment Softness Q: Why is the Foot & Ankle market soft? A: The market has softened due to factors like OR time being prioritized for other procedures and patient co-pays leading to delays. We've seen such lulls before, but patients will return as conditions persist. We're confident in our product pipeline, including innovations like Footprint for total ankle replacement.

Ambulatory Surgery Centers Q: What's your outlook on procedures shifting to ASCs? A: The shift to ASCs is a positive trend that's exceeding our expectations. Currently, 10–15% of hips and knees are done in ASCs, and we expect this to surpass 15% next year, potentially reaching 30–40% in five years. We are well-positioned to benefit from this shift due to our broad product offering.

Margin Drivers Q: Where will margin improvements come from? A: In 2024, margin expansion leans more on SG&A leverage. We control expenses like hiring and travel, and benefit from low-cost manufacturing in Poland and Mexico. As we grow, we gain natural leverage from a fixed cost base, contributing to our confident outlook on margins.