I mean we still expect gradual improvement. And I think that’s what you’ll see. Keep in mind for Q4, seasonally, it’s a big MS&T quarter. And so we’ll feel that mix impact in Q4 in the gross margin.
Philip Chickering: Okay. And the follow-up question, like you talked about a big backlog in medical. Are you seeing hospital CapEx continue to grow as margins improve from hospitals? Or are you seeing any impact in the rising rate environment and/or additional pressure on physician compensation changing of hospitals to CapEx in the near term?
Jason Beach: Peter, it’s Jason. I’ll take this one. I think just to build on what Kevin said from a capital environment standpoint, it continues to be strong for us. And I think just to remind you, as you think about our capital, right, the large percentage of our capital is this revenue-generating capital that has to be replaced with procedures. And so that continues to be strong. And then, again, to Kevin’s point on Medical, as you think about a double-digit year, the large capital continues to be strong. So really no change of tone for us as it relates to the capital environment.
Operator: The next question comes from the line of Joanne Wuensch from Citibank.
Joanne Wuensch: Number one, can you quantify the impact of the fewer selling days. And number two, you said that the shoulder and spine applications or may go on track. Could you remind us what on track means? And how do you see those products adopting and ramping over time?
Kevin Lobo: Okay. Great. Thanks, Joanne. What we’ve always said about a 1-day impact, it’s roughly 1% total company. It obviously has a higher impact on implants than it does on capital equipment. But approximately a 1% total company impact. And we benefited from a day earlier in the year, I think it was Q1. And then this quarter, we lost today. The full year will be the same number of days. What we said around the timing is we expect Mako spine kind of around the middle of the year next year. That’s on track. We were able to show that to some surgeons at NASS and got very good feedback on that. And that product will obviously be — there will be a Mako application, which I’ve gotten to see, which is terrific. But it will also include an additional product that’s coming out of our insurance division that will be used by spine surgeons as well.
So we’ll have a pretty tremendous ecosystem. And then shoulder will be towards the end of the year. We’ll have an initial launch of shoulder. So those are the time lines we communicated previously, and we are pacing on track on both of those products.
Operator: The next question comes from the line of Vijay Kumar with Evercore ISI.
Vijay Kumar: Kevin, maybe on that last question on the Mako spine and shoulder, can you compare and contrast what a Mako application for spine and shoulder, what the launch curve should look like versus hip and knees. Are there any differences between hip and knee surgeons versus the spine market and shorter market?
Kevin Lobo: Well, I wouldn’t say there’s much of a difference, to be honest with you. In the case of Spine, you have to remember, we were first, right? So Mako was first. And when you’re first, the uptake tends to be a little slower, to be honest. Overcoming people’s objections, having to have to change management. I think if we think about spine, there are already a couple of players in the market, and we already have a very large footprint of robots in the market. So to me, that should be a faster ramp than what we saw with hips and knees. Shoulder will be different. It will be a first-time application with including bone preparation. So I think that one will probably be slower in terms of its uptake, but our shoulder business doesn’t really need it.
It’s growing. It’s been strong double digits for a long time and will continue to have an amazing pipeline. They launched a pyrocarbon product. We have the patient magical anode we have mixed reality. I mean there’s just so many new products in shoulder. It’s not exactly like we needed to drive high growth, but it will be, I think, very impactful. But it will — because it involves change management, that one will probably go a little bit slower, but Spine, and especially the way we’ve designed it. The workflow is very, very seamless. It’s very, very efficient. It’s smooth. And again, it’s not the first one. So I think Spine will probably be a faster uptick.
Vijay Kumar: Fantastic. And maybe, Glenn, one for you. The gross margin performance was pretty impressive in the quarter. When you look at the Q1 to Q3 sequential ramp here, is Q3 the right jump-off point because some of the elements you mentioned looks like they seem to be sustainable. I think free cash conversion related to that I think you had some inventory impact, should that go down for next year and see a more normalized conversion?
Glenn Boehnlein: Yes. No, as I said, you’re right, Q3 was a very strong performance in gross margin for a lot of those reasons that I talked about. I do think you got to look at sort of first of all, seasonality relative to our gross margin, and we talked about that for the amount of MS&T that will flow through. So I do expect Q4 will moderate just a little just because of that mix issue. And then as we get into next year, we’ll talk more about that at the analyst meeting.
Vijay Kumar: Great. Sorry. On free cash, would that normalize for next year?
Glenn Boehnlein: Yes. I mean we’ve always targeted between 70% and 80% for free cash flow. And I don’t expect that we would move away from that target.
Operator: The next question comes from the line of Shagun Singh with RBC.
Shagun Chadha: Kevin, there’s a lot of excitement about your super cycle of innovation and the products that you’ve already launched or you are yet to ramp. Could you help us better quantify the contribution in ’23 and ’24? Is it low hundreds of basis points in ’24? I think this quarter alone, I think you beat our numbers by between 500 and 700 basis points for those segments. So it translates to about 130 basis points if you apply that to a number for ’24. But just trying to do some math there. Any color would be helpful.
Kevin Lobo: Yes. Shagun, thanks for the question. We really haven’t been in the habit of providing breakouts of the impacts of new products. it really is why we drive at the high end of med tech, why we consistently outperform the market by roughly 300 basis points. That’s the formula. Consistent cadence of new products combined with really great sales force execution through our decentralized business units. That’s the Stryker model. What’s interesting about this cycle is, as you point out, it’s probably a little bit of a greater impact coming from organic innovation because so many really impactful products are all launching around the same time. I mean if you look at electronic extremities business, that double-digit growth performance is pretty impressive.
And we don’t really talk about trauma extremities nearly enough. And then we have this Pangea system, which we showed at the OTA conference recently, just in the last 2 weeks, and the feedback was incredibly positive. Now that won’t impact our business until the second quarter of next year, but we are ramping up for the launch. Feedback from surgeons was amazing. It’s the biggest launch they’ve ever had, which is going to fuel even more growth on top of an already high-performing business. So I think the way to think about it is just we can count on Stryker to outperforming the market very consistently because of these new products and breaking out how much of that versus how much is price on new products and mix. And we’re not going to get into parsing those elements.
