Zimmer Biomet Holdings Inc

NYSE:ZBH

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 4, 2020. Following today’s presentation, there will be a question-and-answer session. At this time, all participants are in a listen-only mode. [Operator Instructions]

I would now like to turn the conference over to Cole Lannum, Senior Vice President, Investor Relations and IRO. Please go ahead, sir.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet's fourth quarter 2019 earnings conference call. In the room with me today, we have Bryan Hanson, our President and CEO; our CFO, Suky Upadhyay; and our new Senior Vice President of Investor Relations and Chief Communications Officer, Keri Mattox.

Now before we get started, there are a few things I want to go over with you. I'd like to remind you first that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties.

Please note we assume no obligation to update these forward-looking statements even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties in addition to the inherent limitations of such forward-looking statements.

In addition, the discussion on this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within the earnings release found on our website at zimmerbiomet.com.

With that, I will now turn over the call to Bryan. Bryan?

[Bryan Hanson, President and Chief Executive Officer]

Thanks, Cole. I appreciate it. And before I jump into it, I just wanted to say the congratulations, first of all, to Keri. Obviously, Keri Mattox, it's her first call with us at Zimmer Biomet in her new role. I'd say it's early on, but we're pretty excited about what we think she is going to bring to the table. So I'm looking forward to that.

I also want to make sure that I take just a minute here and say, thanks Cole. It's been harder to leave, but already two years that we've been working together in this capacity. And I would say that we've come a long way and a lot of that has to do with your guidance along the way. So, I certainly appreciate it. I know you're not going anywhere, we're going to have access to you, but this will be the last time you’re on one of these calls, so I wanted to make sure that I call you out for what you've been able to do for us over the last two years and look forward to the next year together.

All right, so getting into the quarter. We are encouraged by our performance in the fourth quarter. We posted solid revenue growth slightly above our weighted average market growth rate expectations and grew earnings per share faster than revenue. This was driven by improved performance versus prior year across all geographic regions as well as most of our businesses. We also made further progress in executing on our short-term priorities; supply, quality remediation, new product introductions, and ZB’s mission and culture. We also continue to invest for growth.

This progress has laid the foundation for further innovation and commercial execution that will drive our accelerated growth over the long term. These are all important steps forward; and while we’re happy with our progress, we're certainly not satisfied. Rest assured that we're still striving to continuously improve our business, our performance, and the value we deliver to patients as well as customers and investors.

Along those lines, let me talk about the team's momentum around the key short-term priorities. Regarding supply, we have consistently met customer demand and improved service levels further enhancing the confidence of our global sales teams and putting them back on offense. With this supply stabilization, we are focusing more on opportunities to decrease the complexity and increase the efficiency of our supply chain. I'm happy with our progress thus far.

On quality, I can confirm that the FDA recently concluded re-inspection of our Warsaw North facility. This inspection was anticipated based on the progress reports we've been providing the FDA on site readiness. We want to thank the agency for a productive and collaborative visit. By way of background, the FDA last inspected this facility in April 2018, and we've been executing a comprehensive remediation plan over the past couple of years.

We believe the latest FDA inspection validates the significant improvement and progress that has been made at the Warsaw North facility. Not surprisingly, the FDA issued observations at the conclusion of the inspection, and we are confident in our ability to address them to FDA satisfaction. Our anticipated path forward with the FDA is fully contemplated in the 2020 guidance that we provided earlier this morning. We look forward to continuing to partner with the FDA as we strive to make Warsaw North a best-in-class medical device manufacturing facility.

Let me take a moment to thank our quality and operations teams for their tireless work and dedication to patient safety. What they have accomplished over the past two years and what I know they will deliver for ZB moving forward is impressive. With improvements made in supply and quality, we also continue to sharpen our focus on innovation. Our enhanced R&D efforts drove significant new innovation in 2019 and give us increased confidence in our new technology pipeline as we move into 2020 and beyond.

And these programs increasingly include enabling technology and solutions around our implants such as robotics, mini robotics, informatics, and operating room efficiency. While the implant is core to what we do, our goal is to provide a complete ecosystem that is both patient and customer centric. At the upcoming AAOS meeting in March, we'll showcase additional innovations inside this ecosystem that connect our implants, data, and robotics, all designed to optimize decision making and improve patient outcomes.

Moving to mission and culture. We continue to communicate and drive the mission of the ZB organization. I can say today with confidence that everyone in the organization considers themselves part of one team. Our strategy is very clear and cascades down to all team members in the organization. It's important that everyone knows where we're going and how we're going to get there.

Now turning to our fourth quarter results, all three of our regions performed well versus prior year with strong performance from Asia Pacific and improving performance in the Americas. Relative to our businesses, we're pleased with the performance of the knee franchise with solid results across all three regions. Our core knee business accelerated, driven by Persona, including the recently launched Revision system.

ROSA Knee also accelerated and drove a little more than 50% of the overall global Knee growth. ROSA placements were strong, accelerating from Q3 and our customer pipeline continued to grow supported by a very positive feedback so far. We project continued growth with ROSA in 2020 as we increase our commercial efforts, including salesforce expansion and enhanced surgeon training support. In summary, we are very pleased with the ROSA Knee launch and the overall robotics uptake.

While S.E.T continues to be an important focus area for us, it is not yet delivering at our goal of durable mid-single-digit growth. We will continue to prioritize innovation and accelerate the expansion and investment in our specialized sales channel in order to drive scale in the high growth S.E.T markets. Our dental team delivered its third consecutive positive growth quarter.

The team’s focus on strategic priorities, execution and culture, along with the targeted investments in key areas continues to drive the business forward. We still have much to prove in this business, but I'm happy with the current momentum and the performance of the dental team.

Relative to our Spine & CMF business, although we did see improvement from Q3, we continued to perform below market in the quarter. The primary focus areas for this business will be working through the final steps of our channel consolidation and leveraging our new product pipeline, including recent and upcoming product launches.

We are making steady progress driving innovation and shaping the future of this organization. We’ve built a strong foundation and are now better positioned to accelerate our innovation and execution strategy. I am encouraged as we reshape Zimmer Biomet for sustained success.

With that, I'll turn the call over to Suky to get further into the financials.

[Suketu Upadhyay]

Thank you, Bryan. We delivered solid financial performance in the fourth quarter with accelerated revenue growth and leverage earnings, while increasing investments for long-term growth. Also through robust cash generation, we continue to make progress in delevering the balance sheet for strategic flexibility. I'll provide some highlights on our fourth quarter financial results and unless otherwise noted, the numbers I will be discussing on a constant currency basis.

Net sales totaled $2.1 billion, a reported increase of 2.6% over the prior year with an increase of 3.2%, excluding the impact of foreign currency changes. During the quarter, all three of our geographies performed well. Our Asia Pacific team delivered 8.6% sales growth driven by continued strength across both developed and emerging markets.

The Americas increased 2.4%. The strength in knees and hips driven by new product introductions, supply stability and improved commercial execution. Our Europe, Middle East and Africa team delivered 1.4% revenue growth led by strength in developed markets.

Turning to our businesses. In Q4, our global Knee business grew 4.9% with improved execution and new product launches. Our Hips business grew roughly in line with market growth at 3.2% and was aided by the recent launch of Avenir, where we are seeing good early market acceptance.

S.E.T grew 3.1%, slightly below our expectations, but we remained focused on growing that business at mid-single digits over time. Dental posted another solid quarter at 5% growth, driven by increased commercial and channel investments throughout 2019. Spine & CMF posted 0.2% revenue growth. While the growth was positive and sequentially better, we still have more work to do to stabilize the business.

Turning to the P&L. We reported GAAP diluted earnings per share for the quarter of $1.54. Adjusted diluted earnings per share were $2.30, 5.5% increase over the prior year. Better adjusted operating margins and lower interest expense drove this leveraged earnings profile.

Adjusted gross margin was 73.1%, a sequential improvement, an increase over prior year due to higher volumes and favorable timing of costs within the quarter. Adjusted operating expenses increased sequentially due to sales commission and investments across commercial and R&D priorities in our Knee and S.E.T. businesses.

Overall, adjusted operating margin was 29% in the quarter. Moving beyond operating margins, interest expense of $52 million was down both sequentially and versus prior year due to debt paid down.

Lastly, we had solid free cash flow generation of $295 million in the quarter and paid down an additional $161 million of debt, further deleveraging the balance sheet. It was a solid quarter.

Looking ahead, our growing confidence in the business is evident in the 2020 guidance that we provided in our press release. Starting with revenue. While quarterly results may fluctuate due to seasonality and timing, we expect our full-year cost and currency growth to be between 2.5% to 3.5%. The first quarter will benefit from about one additional billing day with no material impact expected in the remaining quarters.

We expect our adjusted operating margin for the full-year to be between 27% and 28%. Our adjusted effective tax rate should be between 16% and 17%. And we expect adjusted diluted earnings per share to be between $8.15 and $8.45.

Against the backdrop of these 2020 expectations, I'd like to spend a few minutes on incremental steps we're taking to enhance shareholder value and to move our financial profile closer to top quartile.

We have begun to implement the comprehensive multi-year restructuring plan with the objective of reducing costs and driving a mix shift of investments to higher priority growth opportunities.

We estimate that these activities will generate gross annual adjusted pretax operating expense savings of approximately $200 million to $300 million by the end of 2023. This program gives us additional confidence that we can invest for growth and accelerate adjusted operating margins.

I know the next question will be what does accelerate margins mean? While we expect to deliver operating margins of at least 30% by the end of 2023. To support this restructuring, we estimate approximately $350 million to $400 million in one-time cost over the same period. Consistent with this, during the fourth quarter, we recorded a charge of $31 million.

As part of these restructuring activities, we've also reorganized several businesses to drive enhance strategic alignment across our key growth areas. As a result of this reorganization, you can expect that we will modify elements of our external reporting in the first quarter of 2020 and we'll share that information with you before our next earnings call.

With that, I'll turn the call over to Bryan.

[Bryan Hanson, President and Chief Executive Officer]

Thanks, Suky. And in summary, we're proud of the progress that we are seeing in 2019 that we've clearly stabilized many parts of the business. We've made key investments in priority areas. We drove better topline growth and delivered solid sustainable financial performance. There is clearly more work to do. We entered 2020 with increased confidence in our business and remain optimistic about our future.

Now I'll turn the call over to Cole and Keri to manage the Q&A portion of the call.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks, Bryan. Before we start the Q&A session, I want to again remind you to please limit yourself to a single question with a brief follow-up if and only if needed. [Operator Instructions]

With that, operator, may we please have the first question.

[Operator]

Thank you, sir. Ladies and gentlemen, at this time, we will now begin the question-and-answer session. One moment please for the first question. We'll take our first question from Raj Denhoy with Jefferies.

[Raj Denhoy, Jefferies & Company, Inc.]

Hi, good morning. I wonder maybe I could start with the knee growth in the quarter. It really stood out. So, Bryan maybe a couple of questions there. One, can you maybe offer whether you think you have stabilized that business on an underlying basis? You offered that half of the growth was from ROSA, but on an underlying basis, do you feel your share position is now secure? And then on ROSA, is there anything more you can offer in terms of where you're seeing placements, what the demand has been? Just really anything you can offer in terms of how that system is faring?

[Bryan Hanson, President and Chief Executive Officer]

Yes, absolutely. I would tell you that we're pretty excited actually about the quarter. It’s unmistakable with that across the business, but particularly knees was strong for us. And what I like about it, in addition to us, we saw strength in other parts of the market. So I know it's just one quarter. We don't want to get too excited about that, but the fact that we were able to surge in the market as others did, I think that's a good sign.

And yes, ROSA was clearly a big part of that contribution in knee growth. As we said, it's a little bit more than half of the overall growth. But even when you look at the base business, I would say that we're seeing that business move as one would expect.

It's not where we need it to be. I need the overall market in knee, our business in the market in knee to be able to outperform the overall market. We're not there yet, but the fact is we're definitely seeing traction in base knee as well. It's actually one of our best growth quarters in base knee that we've seen since the merge.

Well, what I would tell you is that ROSA demand is very strong. We have – probably what we do have the largest funnel right now for replacements than we've ever had. We've done over 2,000 procedures already. And again, we’re just a couple of quarters into this launch, so that would tell you that we're really seeing acceleration of focus in this area.

I had an opportunity to be out in the field and see a few cases, one particularly on the West Coast where I had a surgeon continue to look across the operating room and say, “I couldn't do this before without ROSA,” who is making 0.5 millimeter adjustments in tissue balancing and getting real time feedback in the procedure, and he was practically giddy about the response he was getting from the robotic system.

So again, I think people are seeing this. As a result of that, more people are desiring to get trained on the system, and we're going to continue to see that momentum go forward. It was great to see our competition have a really strong quarter as well. That tells you that the uptick in robotics is real and that benefits all of us.

So again, I'm pretty happy with where we are right now with base business as well as momentum with ROSA. I still have a lot to do. I think it's going to take us some time to get above-market growth in knee. Remember, we have a very large base that's going to take time to influence it because it's a significant number.

We still have some of that negative inertia associated with the competitors' placements of robotics. It's going to take a while for us to disrupt that inertia, but I think we will over time. And we still have the major products that are out there that are launching, they're doing well, but they're early. So again, I feel really bullish in the area, but it’s just going to take us some time to be able to get that business growing above market.

[Raj Denhoy, Jefferies & Company, Inc.]

Great. Thank you.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that. Thanks, Raj. Next question please.

[Operator]

Our next question comes from Vijay Kumar with Evercore ISI.

[Vijay Kumar, Evercore ISI]

Hey, guys. Thanks for taking my question. If I could, maybe a two-part question on – one, ROSA expectations for 2020. I know you said a sequential step up in placements for 2019. Is that still the margin assumption for 2020?

And on the margin side, Suky, implicitly we're looking at 60 basis points, 70 basis points of annual margin expansion. When does that kick in, right? Is that kick starting in 2020 or is that more for 2021 nuance, and congrats and thanks guys.

[Bryan Hanson, President and Chief Executive Officer]

Okay. Yes, I'll start off with the ROSA and cast our view certainly, obviously on the margin piece. Yes, as I said before, ROSA funnel is as strong as it's ever been. We're adding commercial infrastructure to be able to support that, and we're adding significant training capabilities so that we can get people trained with a safe and effective use of the product.

So, I absolutely expect 2020 to be better than what we saw in 2019. It's kind of logical just given the fact that we'll have it for the full year. We did not have it for the full year in 2019, but that momentum is real. I would expect it to continue and certainly be a driver for us in 2020.

[Suketu Upadhyay]

Yes. Thanks, Bryan, and thanks Vijay for the question. Regarding margins and the overall restructuring program that we announced just a few minutes ago, you're right, we talked about 30% operating margins by 2023, at least 30% operating margin. So your math is right. If you sort of took a linear glide path, that's about 60 basis points, 70 basis points per year.

However, I would say that, it may not be linear, right. Depending on the overall revenue profile, our investment profile over that three to four-year horizon, that margin expansion could be a bit lumpy and it could fluctuate. So, I wouldn't look at it as sort of in a linear fashion.

Regarding 2020, operating margins completely consistent with how we've characterized this all the way through 2019 including our third quarter call, where we said we see the opportunity for modest operating margin expansion in 2020, and if you look at our guidance that's represented in the top half of that guidance.

But we also said, given the number of attractive opportunities we have across the business, that we may use some of that margin upside to instead invest against the business for topline growth, because we do see topline growth as the best, most durable pathway to long-term, margin expansion, earnings growth, and shareholder value. And so, that's reflected more in the bottom half of that overall margin profile guidance.

I would say we're in early days as part of that restructuring program. However, we do expect to see some benefit into 2020 and that's been fully incorporated into the margin guidance that we've provided today.

[Vijay Kumar, Evercore ISI]

Thanks guys.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks, Vijay. Next question please.

[Operator]

Our next question comes from Matt Miksic with Credit Suisse.

[Matthew Miksic, Credit Suisse]

Hi. Thanks so much for taking the question. Just one on, follow-up on Raj's question on knees, and then I have one follow-up as well, if that's okay. On the knee growth, Bryan, you mentioned, it's going to take a while to get above market growth in knees. If you could talk maybe a little bit about where you are in the U.S. in terms of holding share? And what the timing looks like in the U.S., given the trajectory robot sales and some of the other projects? You mentioned timing to get back to or get above market growth?

[Bryan Hanson, President and Chief Executive Officer]

Yes. So I won't give specific timing on that. But just know, we have our sights on getting above market growth and we also believe that we have the fuel to do it. And I'll just go through a couple of those things that I think will give us that confidence.

But when I think about the U.S., we're still below market. We're still seeding share, but the rate that we're losing market share is much slower. So we're clearly closing that gap. And our confidence level is high. I mean the U.S. momentum is real. I was just at the kickoff meeting for the Americas. Obviously a big part of that is the U.S. commercial organization.

And I can tell you in all my years of doing kickoff meetings around the world, I have never been to an event where the energy was as high as it was in that meeting. So people are ready to go. They're fired up and that momentum is real and that's meaningful.

Beyond products and innovation, supply and everything else, the way people feel and their confidence, absolutely drive traction in the field. And I can say right now it’s there. So that's probably the first thing that we have a pathway to get above market. The real brass tacks is associated with products though.

As I mentioned before, ROSA strength is real. I've also seen as I'm out in the world and I'm seeing ROSA placements. I'm seeing people that we didn't even expect, surgeons, that are competitive surgeons now getting trained rapidly to understand how to use our robotic system. And as a result of that over time, we're going to expect to see that pull through because they have to use our implants when they begin to use the ROSA system.

That will take time because they have to first drop the implants that they're using, really get trained and understand how to use the robotic system that we have, and then we're going to get that uptick. But that will take time because we're early in the launch, but it will happen.

When I look at cementless, we're still seeing traction in Persona, in Persona cementless. I'm not going to get into specifics here. But there's no question, this gives us an opportunity for mix. A little bit of conversion opportunity too particularly tied with robotics, but a big part of it is mixed benefit.

And then Persona Revision, I got to tell you, there's a few different ways, we can drive revenue growth here. But the traction we're getting and the momentum that we're getting is bigger than we expected.

As a matter of fact, we're actually building triple the amount of S.E.Ts. that we expected based on the demand that we're seeing. So there's no question in my mind, people love the Revision system and its being well accepted in the marketplace.

Really three different ways that we can grow business inside of Revision. First one is, I've already got Persona users out there that are not using my Revision system because we're just launching it. There's no reason, if they like the Persona product that they wouldn't convert to the Persona Revision system. So that's the first order of business. Go to our current accounts, where they're using Persona and get to Revision business.

The second one is, I've gotten an opportunity to get out and get those surgeons that wanted to move to Persona, but wouldn't go there until we got the Revision system. And the third one is just competitive conversions.

We have a great Revision system. Revisions are always a little more challenging for surgeons. So when you can make Revision easier as a result of a system like Persona, there's an attraction to that system that opens the door to competitive conversions.

So those are the pieces that I know we have in place to get us to at or above market growth. But the key thing is, it's going to take time. We're early on in the rollout of these things, but I can guarantee it's going to happen. It's just a question of when, and I just can't give a specific time right now.

[Matthew Miksic, Credit Suisse]

I appreciate that color. And so maybe…

[Coleman Lannum, Senior Vice President of Investor Relations]

Matt, sorry. Matt, one question per person, sorry. Next question please.

[Operator]

Our next question comes from David Lewis with Morgan Stanley.

[David Lewis, Morgan Stanley]

Okay. I'll keep it to one question there Cole. Bryan, let's now talk about the 2020 outlook. I think you’ve been adamant around the 2% to 3% growth. This is 50 bps better on the margin and the comps are going to be tougher in 2019. So you're clearly guiding to improve the momentum in the business at 2.5% to 3.5% for 2020.

Can you sort of walk us through and where that confidence is coming from either by segment or sort of across the business broadly? I think that's the kind of the key focus here on the call. Thanks so much.

[Bryan Hanson, President and Chief Executive Officer]

Yes. So David, it would've been funny if you were to come on and say get a three-part question, but you lost it. So I would say, yes, it's a number of things. First and foremost, it's just the momentum we're seeing. I mean if you look at the last couple of quarters, there's no question that there's a difference in the business right now that the momentum is real and we've proven that now for two quarters.

And that's a big confidence booster for all of us. If you think about it, the performance is good, but there hasn't been that many quarters as a company that we've had that type of performance. So it have to in a row does give you some of that confidence.

So certainly, that strength across all regions, that performance that we've had already and the future-looking impact of new products gives us the confidence to be able to take the revenue. I'm not going to follow-up guidance, but our view of what 2020 is going to look like. So that was really the major impact.

I mean, I look at it and say, we're still not delivering what I expect us to deliver in S.E.T. But the investment is there. The new product innovation is there. So that's going to happen. I have confidence it’s going to happen. We're not where we want to be yet, which is given the amount of investment and focus in this area, I know its coming.

I already talked about knee. Hip just continues to hang in there. The Avenir Complete is going well. We have a robotic application that will be coming soon. That maybe the catalyst for us to be able to boost the hip performance as well. We've been hanging in with markets, but I'd like to see that above market. And I believe that the robotic application would give us that momentum. So again, a lot of things moving in the right direction.

I always want to balance that with some of the things that could be challenges for us. The fact is, we do have great momentum in our products. The demand is high, but they're early, so that momentum has got to continue. Suky just talked about a multi-year restructuring program, which is a must-have because it's going to allow us to invest for growth while also driving margin expansion. But there's always a risk of disruption when you put a program like that into place.

So I'm trying to look at the ebbs and flows, the puts and takes for our business and give you guys what we really believe is going to happen in 2020. And there's enough momentum, there's enough positive to offset all those things that could be disruptive. And that's why we took the number up.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that David, and thanks for complying with one question rule. Operator, next question please.

[Operator]

We'll take our next question from Bob Hopkins with Bank of America.

[Robert Hopkins, Bank of America Merrill Lynch]

Great. Thank you and good morning. So I guess my one question I'd love to Bryan, if you don't mind follow-up a little bit more on your comments on S.E.T. And just maybe a little more specifics on kind of what's coming and when we might see better growth? And obviously a lot of people are trying to wonder if some of the merger activity going on around you might lead to some opportunities, so maybe just a little more color on S.E.T.?

[Bryan Hanson, President and Chief Executive Officer]

Yes. So when I just take a step back, when I think about this business over time, obviously we're not suggesting in 2020 being at the overall business ZB being at a mid-single-digit growth because that's where we need to go. When you think about our strategic pillar of being a top quartile top performer in total shareholder return, it requires us to increase our growth rate.

We have to get to that mid-single-digit growth rate. And one of the major contributors to that is going to be a sustained kind of durable growth rate in that market growth range for S.E.T. As a matter of fact, really need to see it on the top end of that range, that mid-single-digit range, and we need to see the outperformance of needs. So those are the two major categories that we're going to be heavily focused on to ensure that we get ZB at mid-single-digit growth. Again, over time, but that's what's got to happen.

When I think about us being able to do that, he was pretty clear to me, we have the formula in place. Number one, we've got to be able to increase the innovation pipeline and we've been doing that, not just the pipeline, but the cadence of those new products.

Things like the Alliance, Glenoid that we're launching, that gives more personalized way to do a total shoulder is going to be exciting to surgeons. We're early on in this. No, but I can tell you right now. The response from surgeons is very strong. The signature one planner, we lagged in this area. When you look at pre-surgical planning, we no longer lag in this area and we have a lot more coming when it comes to informatics and our robotics in the space as well.

So I feel confident that the innovation cycle is real, it's coming and it will have an impact. And the other one that we've been talking about for a long time now and we're really doubling down and is continued investment in a dedicated channel. This takes time, obviously, the hope would be that with some of the disruption out in the marketplace that facilitates quicker expansion of our sales organization and we're certainly going to try to make sure that we take advantage of that.

But the fact is we've got to be able to get that channel in place. We're investing in it now. And then the operating mechanisms around that channel to make sure that we're driving accountability and focus brings all these things together. So I know the formulas there, the variables are all lined up. We just got to solve the equation and it's just a matter of time. So I have high level of confidence it's going to happen. It's just not happening yet and it's not happening durably yet.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Bob. Next question please.

[Operator]

We'll take our next question from Richard Newitter with SVB Leerink.

[Richard Newitter, SVB Leerink LLC]

Thank you. Just to follow-up on the restructuring. Can you maybe just elaborate a bit on the types of projects or initiatives and the timing within that three year, but that three year trajectory, I guess really, if you could also parse it out between you things like sales incentives, structure changes or any kind of incentive structure changes throughout the organization? What's low hanging fruit versus kind of maybe the harder stuff to go after and when in the timeframe, so that's where your timeframe, you're going to go after each? Thank you.

[Bryan Hanson, President and Chief Executive Officer]

Yes. Why don't I just kind of provide just a real general overview of what we were trying to accomplish in the restructuring and again early days. So it's we don't know that we've done these things yet, but we're just the intent of the restructuring and then seeking maybe getting some more detail of the underlying assumptions. First of all, the whole goal of this was to drive better alignment, better accountability and efficiency, right.

So we really do believe the restructuring is a better way to manage the business with efficiency included. And if I just think about it, we've taken all businesses now, we have them under one leader and the whole intent behind that is to have faster and less biased resource deployment decisions, right.

We still have centers of excellence around robotics and informatics and other areas that that you want to have unbiased views of how you're going to deploy those resources across the businesses that now exist by having all businesses going to one person. We also want to have clear accountability.

So if you're going to make these decisions on resource to plan it, you better have accountability for getting it done and accountability for executing against it. And we're streamlining the organization. We're making it less complex and as a result of doing that you can drive margin expansion, right.

So those are the reasons why we've done this. Ultimately it's going to allow us to invest aggressively for growth while expanding margins and managing the business more effectively. So that was the purpose behind it. And then Suky, if you to want to give some additional detail?

[Suketu Upadhyay]

Yes. Sure. So Richard, you're thinking about the right way. There are a number of initiatives and they're going to be cadence of different times. Just based on sort of complexity and time it takes to get some of initiatives up and running. In the early days, I would say it very much is about blocking and tackling and some of the low hanging fruit that you sort of referenced.

One, we took a complete cost taxonomy of the organization and we looked at that cost taxonomy relative to that spending versus external benchmark relative to internal benchmark relative to our growth opportunities in our markets and our businesses. And that's leading to quite frankly a mixed shift and a lot of our spending but also some very clear areas of opportunity to reduce spending in lower value areas.

Blocking and tackling things like T&E procurement, just basic costs down, again, blocking and tackling. The second area, that's more near-term Bryan talked about the reorganization some of our business units that's leading to efficiency. It's leading to efficiency by de-layering the organization. So we're putting our commercial leadership closer to our customer and closer to the patient.

And it's also leading to some reductions and redundancies. So those are we call no regret moves because they lead to margin expansion, but also make the organization more efficient and effective. Longer-term, we're also putting things into place. It's going to take some while for those to mature and bear fruit.

But it's around consolidating a pretty fragmented footprint. When you think about the two companies, Zimmer Biomet coming together and then follow on acquisitions and some of the focus that the company has had to spend over the last few years on supplying quality remediation.

We can now start to turn the corner from stabilization to efficiency and start to think about how do we consolidate some of that footprint and make ourselves more efficient. And then of course there's going to be some opportunity in the longer-term around centralization of back office and G&A type functions.

So those are just a few examples, there are several other initiatives or a number of initiatives as we've talked about going on in manufacturing supply chain, which we think over time after we've stabilized gross margins can lead to some modest improvement in gross margin as well. So hopefully that gives you a little bit more color as to how we're thinking about it and how we're approaching it.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Rich. Next question please, operator.

[Operator]

We'll take our next question from Matthew O'Brien with Piper Sandler.

[Matthew O'Brien, Piper Sandler]

Good morning. Thanks for that question and Cole good luck in the future. Bryan, I was hoping to talk a little bit about ROSA, over the last maybe four or five years here, you've lost about 400 or 500 basis points of Knee share. So I'm curious on the ROSA side, and I know it's early, but you talk about this massive funnel?

Can you talk about what you're seeing in that funnel in terms of is it just more people that have been using Zimmer over the last several years and have been good customers or is it a majority of those people that are in the funnel right now are have you been surprised by the number of folks that you've worked with in the past that have come back into the funnel and could be customers here in the near-term again or even just de novo people that’s you've never worked with in the past? If you could kind of wait, where some of those clinicians would kind of stay within those three buckets? I think that'd be helpful. Thank you.

[Bryan Hanson, President and Chief Executive Officer]

Absolutely. It's kind of a mixture, when we put the strategy in place, it was pretty clear that our first intent was to go after those accounts that are already using us. The folks that know and love our implants, I've always had an interest in moving into robotics, but wouldn't do it if they couldn't use their own implant.

So there's no question that that's a pretty big element of our success. Just pursuing those that love the implant of Zimmer Biomet and now can use that implant in concert with robotics, but what we're finding is that it's never a perfect world in the way you rolled out a plan. And there are situations that are competitive where we know accounts that we would not have pursued in the first place are actually active in looking at robotics.

So naturally, as a result of having a robotics solution, we get involved in that process. And we have found that in those competitive situations, even where we didn't have the primary strength in the account, we're winning some of those decisions. And so as a result we are actually seeing conversions being a part of the placement that we see with ROSA. So it's kind of both.

And then on top of that, we're also finding, which I kind of referenced before, is once we do get a robotic system in place. Even in an account that is one of our platinum accounts, one of our big users, there's always individual surgeons that are using competitive implants and if they want to migrate to robotics, there's obviously a natural gravitational pull to do that. But they have to use our implants. And so that was what I was referencing before.

I was just in an account where five surgeons that were using competitive priority using competitive implants or now getting trained on robotics want to begin using robotics, which is great because that will drive conversions, but it will also drive demand for another robotic system because that's going to get tapped out pretty quick.

So again, it's a combination of those things. Also I make sure that we recognize that there's multiple ways to drive revenue when we do place robotic system. The obvious upfront capital purchase is clearly an opportunity for us.

You get a mixed benefit, kind of a share of wallet benefit because there is an increased price associated with the disposables you need to do a robotic procedure and then you get that natural pull through that I just referenced, where you get competitive conversions to be able to use robotic system.

So again, it's all coming together. I mean, in fact it's early. We're rapidly training and getting these things out there and building the commercial infrastructure to be able to support demand. But it feels good so far.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Matt. Operator, next question please.

[Operator]

Our next question comes from Larry Biegelsen with Wells Fargo.

[Coleman Lannum, Senior Vice President of Investor Relations]

Good morning, Larry.

[Lawrence Biegelsen, Wells Fargo Securities, LLC]

Hey, Cole. Thanks for taking the question. Just on the ROSA pipeline, just a question on that. Bryan, I heard you talk about hip coming soon. So could you give us an update on the hip, knee, and revision knee, are those 2020 approvals and if ROSA wants spine still in early 2020 launch? Thanks for taking the questions.

[Bryan Hanson, President and Chief Executive Officer]

Yes. So I would just take a quick step back and just let you know that there's been a pretty significant shift of focus in the organization. We've done a very good job of rethinking how we deploy resources inside of research and development, and commercial infrastructure by the way.

But we've really taken a hard look at the R&D pipeline, started to get more bias towards robotics and informatics and spend significantly more money, almost the mix shift that has occurred in those areas. It doesn't mean that we're not going to continue to do implants.

But the fact is most of the money now is shifting, a good portion of that money is shifting towards ROSA, towards a mini robotics, towards informatics, towards efficiency in doing the procedure. So that was a pretty significant innovation shift for the organization because we think it could bring real value to the patient and the customer. So that was a big shift that occurred.

As a result of that, we now have more in the pipeline in applications for ROSA in other areas. And so the next things that you're going to see from ROSA that we've been very transparent about this is a partial knee application as well as the hip application. Those will likely come in 2020, but I don't want to give specifics. You'll learn more about these at the AAOS meeting. But those are the next in line.

Revision is something that we're clearly working on. We have an opportunity to be able to do this because we don't need a CT scan to be able to use the robotic system, opens the door for our Revision procedure. But that's a challenging application to provide, would be a big window because it's one of the most challenging procedures to do. So if you could have robotic assistance inside of that, it would be attractive. But I don't want to give a view on timeline for that.

So again, we're shifting dramatically our innovation pipeline to those very important elements of the ecosystem that are around the implant. We don't lose focus on the implant, but we just – we enhanced our capability to bring the implants to the market in a way that helps patients and customers more.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Mr. Biegelsen. Next question please.

[Operator]

Our next question comes from Matt Taylor with UBS.

[Matthew Taylor, UBS]

Hi. Thank you for taking the question. So I just wanted to clarify one thing on this operating margin guidance. When you talk about the 30% in 2023, is that the full-year number? And the reason I asked is because if we use the midpoint of this year that does imply higher than that 50 to 70 bps beyond this year over that timeframe. And I guess I was wondering if that's right, and what has to happen on the topline for you to achieve that?

[Bryan Hanson, President and Chief Executive Officer]

I'd say it's interesting because we're talking about 30% and 30% of our questioners have been – Matt. But I'm sorry.

[Suketu Upadhyay]

Yes. So you're thinking about it correctly, Matt. It is 30% in-year in 2023. Again, as I said earlier in call, it's not going to be – we would not expect the cadence to be linear. It could happen sooner. It could be more in the back end of that period depending on topline growth and our level of investment back into the business. And I'll come back into that.

You're right. Relative to 2020, the midpoint would not suggest any significant margin expansion on an operating margin level. And that's consistent with how we've talked about the year where we could see some modest improvement in overall operating margin.

However, again, coming back to if we see the right opportunities to invest for long-term growth – near-term growth for that matter, we will make that decision and the overall guidance range reflects that optionality if you will around margin expansion or investment.

I will say though, I've got confidence and we're early days, but the team is executing extremely well against these programs that we've launched. And I would say that we're going to see margin expansion as early as 2021. But again, I don't know that you can take a linear footprint from today to 2023 and mark 2021 in that way. But we do expect to see some large expansion into 2021.

[Coleman Lannum, Senior Vice President of Investor Relations]

Matt, it probably is worth it to expand on that. Just to remind everyone again, we don't guide to midpoints. We guide ranges and that's exactly what Suky is talking about there. I think that's an important thing to keep in mind as we think very carefully about what ranges to give. With that, next question please.

[Operator]

Our next question comes from Ricky Wise with Stifel.

[Coleman Lannum, Senior Vice President of Investor Relations]

Hey, Ricky.

[Frederick Wise, Stifel, Nicolaus & Company, Inc.]

Some people won't miss Cole, Bryan. Maybe turning to some of the financial perspectives, maybe I missed. So it could be operating cash flow guidance, but obviously the balance sheets made significant improvement over the last 12-month, a year-ago was almost 4x leverage, now you're roughly 2x leverage. Are you where you want or need to be just where you're aiming towards from here? And does this progress on the balance sheet and driving cash flow open the door in some way, should we imagine the door is a little more open to increased growth enhancing M&A in the year ahead? Thank you very much.

[Suketu Upadhyay]

Yes. Thanks for the question Rick. So first of all, on 2019, we ended the year at about $1.1 billion of free cash flow. As we move into 2020, we expect that number to be somewhere between $1.1 billion to $1.3 billion, again 2020. And that's inclusive of these restructuring charges that I talked about a bit relative to the restructuring programs that we're initiating.

Again, we're saying operating costs or investments for that program will be somewhere between $350 million to $400 million over the time horizon to 2023. We think a little more than half of that will be in 2020. So again, our guidance for cash flow – free cash flow in 2020, $1.1 billion to $1.3 billion. And again that is inclusive of these restructuring charges that we’ll have to take.

You're right. We've made good progress on the balance sheet and delevering. We got ourselves to a point where we're just under three on a net debt basis, ending 2019. And relative to our overall capital allocation priorities, we expect to continue to make progress on delevering the balance sheet into 2020. And again that's strong, durable, sticky cash flow generation is a big component of that.

The second thing I'd say though is beyond the priority to continue to delever the balance sheet. We are in a better position now operationally, financially, I think strategically as well. Where if we see attractive M&A targets that meet our strategic filters or financial filters, but also maintain a strong capital structure and profile and investment grade, we may decide to invest capital into M&A in 2020 and beyond.

So again, organically we expect to continue to delever the balance sheet. But again, we may also decide to deploy some capital towards M&A that meets all of our filters that I talked about.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks, Rick. Thanks. And we all know that's not the worst you've ever said on an earnings call. So next question please, operator.

[Operator]

Our next question comes from Robbie Marcus with JPMorgan.

[Robert Marcus, JPMorgan Chase & Co.]

Thanks for taking the question and nice quarter. Just from the – fine, I was hoping you could give a little more color on the updates with the FDA inspection. What exactly did the new items entail? How should we think about the seriousness of them? And then is this something that can get resolved in 2020? Or do you expect resolution more in 2021 timeframe? Thanks.

[Bryan Hanson, President and Chief Executive Officer]

Yes. So first of all, I just want to say anytime that we're talking about interaction with the FDA, quality, patient safety, any of those things, I just wanted to be very clear that we take quality of our products and patient safety as the most important thing we do as an organization.

The mission of this company is to alleviate the pain of people in the world and make the quality of life better. That absolutely means that our product needs to do, it's intended to do and keep them safe. So that's the first thing that we look at and we feel very confident we're in check there.

The fact is it also shows when we saw the FDA come in that we've made real progress. I mean it's hard to describe because you have not been able to see the factory, but a lot of the same FDA investigators that were there, actually were there from the very beginning. And even for me, when I walk in the factory, it just looks different. It literally looks different, and the culture, the energy in the factory is different and that was recognized by the FDA.

In fact is we’ve got observations though. We have eight observations in the factory. I would tell you that all of the observations we feel are manageable and we feel very confident that we can respond to the FDA in a way that's going to be satisfactory to them.

The way I look at these things is we already have money earmarked to be able to continuously improve that factory. And the fact that the FDA has given us guidance in the way that they have on where we should focus, it's actually a good thing because if we're going to spend money, I'd rather spend it in an area that I know the FDA is concentrating on. So it's basically a roadmap for us to be able to do that.

But I want to reiterate the fact that we feel very confident that we're going to be able to respond in a way that the FDA is going to be satisfied and we're going to be able to continue to move that factory forward.

I think it's important to recognize though that this isn't going to be an issue that gets resolved in 2020. It's just not. I mean, the only way you move down a path to remove a warning letter is to have an audit where you have basically very little to no observations, and obviously that didn't happen this go around.

And from here it's just up to the FDA and when they come back in. We're going to respond to the observations in a very timely manner, in a comprehensive way, keep that dialog moving with the FDA, but ultimately it's their decision when they come back in.

And even when they come back in, if we get a stellar audit and we have very few to no observations, it still takes time to be able to remove a warning letter. So it's just a process that's involved. At the end of the day though, even with the warning letter in place, I just want to reiterate the fact that we can absolutely function effectively out of that factory base. So I appreciate the question that we feel really good about the progress that we're making. Obviously, some work to do still, but we feel confident we can get there.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Rob. Next question please.

[Operator]

Our next question comes from Mike Matson with Needham & Company.

[Michael Matson, Needham & Company, LLC]

Hi. Thanks for taking my question. I guess I just wanted to ask another ROSA question. So I didn't really hear any commentary on the status of the spine and brain version of the robot. So can you maybe talk about the launch plans there and whether or not you sold any in the fourth quarter? Thanks.

[Bryan Hanson, President and Chief Executive Officer]

Yes, I appreciate that. We have folks using the ROSA Spine system, but it's really just those that are developers. So we're not in a really a launch mode yet for that system. But if I just take a step back and I think about the Spine business overall, I think about it in a few different ways. We clearly have not been performing the way I would like and we're not performing right now with predictability in that business. There are key areas that we need to concentrate on.

The number one thing is we have to get the channel that we've decided on to be able to take advantage of the portfolio that we have. The fact is we have the best cervical disc in the market and we need to make sure that now we're taking advantage of the Mobi-C in the way that we should now that we have stability in the channel.

We have the Tether, which is an absolute pivotal change for those with scoliosis. It dramatically changes the care for that patient population, a very exciting technology. But the channel's got to take advantage of that.

And we have now gap fillers like the TrellOss titanium 3D printed interbody. That was a major gap for us. We now have that 3D printed interbody that we need to make sure that we're taking advantage of, and we have to launch ROSA, and that's got to happen in 2020.

It's not just ROSA though, it's got be ROSA in concert with our mini robotics platform in Walter, because that provides a comprehensive solution for the surgeon when we talked about robotics, not just placing screws, but also being that third or fourth arm for the surgeon and the procedure.

All those things need to come together in a predictable way so that we can start turning that business. So ROSA Spine is definitely a part of the equation. It's just not the whole equation and the intent is to launch that in 2020.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Mike. Next question please.

[Operator]

Our next question comes from Ryan Zimmerman with BTIG.

[Ryan Zimmerman, BTIG, LLC]

Great. Thank you. So just want to follow-up, Bryan, I heard you loud and clear on the S.E.T. business. And I just want to dig into the components of that between sports, extremities and trauma. Can you just talk about kind of where you're most focused of those three? If we were to kind of parse it out a little bit more than kind of what we've seen thus far? Thank you.

[Bryan Hanson, President and Chief Executive Officer]

Yes, it's a great observation. I mean, the fact is, the S.E.T. businesses, although in aggregate, they do grow in that mid single-digit growth area. They're not all created equal obviously. And the whole idea in our organization is to make sure we're disciplined and focus. So as a result of that discipline and focus, we need to make sure that we're picking the most attractive sub-markets inside of S.E.T. And I can tell you its kind of obvious when you look at it.

Sports and extremities will be the areas that we focus most on. And so you're going to see a lot of our attention, not just in research and development, but also from a commercial channel standpoint, training and education being focused in those areas. The fact is we already have a significant right to win, and we need to take advantage of that in upper extremities.

I want to see us build more scale on lower extremities and absolutely become a market share leader there and we have a lot of traction and opportunity for us in sports. So those are going to be the areas where you're going to see significant investment, significant focus, our operating mechanisms are being built around that and that will be the area that we concentrate inside of S.E.T.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that. Next question please, operator.

[Operator]

Next question comes from Josh Jennings with Cowen.

[Joshua Jennings, Cowen and Company, LLC]

Hi, good morning. Thanks for taking the questions. I was hoping to just get an update on the salesforce. I know there's different salesforces for different divisions, but just from a high level, can you just share with us the attrition rates you're experiencing entering 2020 or exiting 2019 versus exiting 2018?

And then I think you talked historically about the compensation scheme being in place to drive the salesforce coming on offense. Can you just talk – help us understand the nuances to that compensation scheme, and then that was put into effect? Thanks for taking the question.

[Bryan Hanson, President and Chief Executive Officer]

I would say it's – we've actually had zero regrettable turnover in the commercial organization. And I always look at it to say if you stuck with the organization through all the hell that occurred over the last number of years and you leave the organization now and the momentum comes. I probably don't watch it in the organization anyway because you're not making rational decisions. But that's playing out. I said it kind of tongue and cheek in the past, but the fact is we've had zero regrettable turnover in the commercial organization.

It’s a testament to the fact that people understand momentum is coming, that we have a market leadership position in large joints. We have potential to do the same thing in S.E.T. and we have new products that are coming that get the sales organization excited.

And so I just – again, I see that momentum. I feel it. I was in the Asia Pacific kickoff meetings. I felt significant energy there. Same thing in Americas. I'll be in – actually after this event, we'll be heading to Spain for the European kickoff event. And I can tell you the energy is just there. So we're not seeing that turnover.

When you see momentum like this and you don't have a critical turnover, it gives you the opportunity to decide who stays in the organization and who doesn't. And that gives us an opportunity to upgrade talent as we go. That will be a major focus of this organization always ensuring we have the best talent, developing the best talent and retaining the best talent.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Josh. Next question please.

[Operator]

Our next question comes from Pito Chickering with Deutsche Bank.

[Philip Chickering, Deutsche Bank AG]

Thanks guys for taking my questions. And Cole, thanks for help over the years. While so early in ROSA launch, I was curious what percent of ROSA knees are being done cementless right now? I'm certain that you use that with knees and robots. Are you starting to convert the non-ROSA knees to cementless?

[Bryan Hanson, President and Chief Executive Officer]

Yes. So the cementless opportunity is it's kind of bifurcated. We have an opportunity to be able to convert knees to cementless without ROSA. So we're certainly trying to do that and are doing that.

At the same time, when you look at the robotic application, you get such confidence in cuts that typically what you find is people are more willing to go to cementless as a result of having robotics in. So it is a combination of those two things and you would naturally see in robotic cases a higher mix of cementless versus non-robotic cases.

But either way, we don't have a lot of robotic systems out there today and we're not slowing down in our pushing of the cementless option because we think it's a very good one. So it's both of those things, right. So we're going to go after conversions and get a mixed benefit for those that are already using our implant with cementless and we're absolutely going to take advantage of robotics to be able to address them as well.

[Coleman Lannum, Senior Vice President of Investor Relations]

Thanks for that Pito. Next question please.

[Operator]

Our next question comes from Kristen Stewart with Barclays.

[Kristen Stewart, Barclays Bank PLC]

Hi. Thanks for taking my question. Cole, I guess you won’t be missed. I have a question just about the restructuring program in general. So if I'm looking at the pretax savings that you're expecting to be generated, it looks like that contributes pretty much all of the operating margin expansion over the next several years.

And then the free cash flow I guess as well. I guess that's also eating into the cash flow, I guess that you're expecting as well. The $1.1 billion to $1.3 billion that you're guiding to. How should we just think about the operating cash flow for the next couple of years, too, because $1.1 billion to $1.3 billion seems kind of flattish relative to where you've been out for the last couple of years? So just trying to understand what kind of the base businesses doing absent this restructuring charge or charges and savings. Thanks.

[Suketu Upadhyay]

Yes, sure. So you're right Kristen. If you took the range that we discussed, $200 million to $300 million by 2023, and you dropped all of that margin, you could effectively get to 30%, right. Your math is right on.

But I think it's important to understand that that program is not just about margin expansion and through cost reduction and dropping that. It really is more about creating a mix shift and providing us the ability and the confidence to invest against our highest priority opportunities to drive topline growth, right.

So I would say the program is more about creating and liberating that funding to drop topline versus just a sheer dropdown into operating profit. So we think it's actually going to be a combination of accelerating revenue growth from where we are today, but also improving overall margins as we leverage our infrastructure and grow SG&A at slower rate than topline. Okay, so that's how we think about overall the margin profile between now and 2023 where we're saying at least 30% operating margin.

Relative to free cash flow, again, we ended 2019 at just about $1.1 billion. We do expect to see an improvement into 2020. So our guidance has that profile baked into the $1.1 billion to $1.3 billion. And again, that $1.1 billion to $1.3 billion is burdened by some of these restructuring costs that we said will be $350 million to $400 million over that three to four-year period. Again, more than half of that being in 2020. So the underlying cash flow operationally within the business is in fact improving and improving at a really healthy clip into 2020.

And again, as we think about what are our key metrics and financial priorities, revenue growth, margin expansion, free cash flow conversion, we do expect to see an increase and an improvement in overall free cash flow conversion into 2020. So hopefully that…

[Kristen Stewart, Barclays Bank PLC]

Yes. Is that - $1.1 billion to $1.3 billion, is that an adjusted cash flow or is that like a real cash flow number?

[Suketu Upadhyay]

No, that's straight cash flow. That's operating cash flow less property plant and equipment and instruments.

[Kristen Stewart, Barclays Bank PLC]

Okay. I'll have another question online. Thank you.

[Coleman Lannum, Senior Vice President of Investor Relations]

Yes, let’s do the last offline because we're after the bottom of the hour. So we're going to wrap it right there. Thanks everyone for joining us today. Certainly appreciate it. Keri, Barb and I will be around for the rest of the day to answer any questions you may have. There'll be a replay of this call available on our website posted later on today. Best way to reach us is probably by emails and send us a note if you have any follow-up questions. Have a great day and a great week everyone. Goodbye.

[Operator]

Thank you again for participating in today's conference call. You may now disconnect.