Zimmer Biomet Holdings, Inc. (ZBH) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. This is Amit Hazan, again, the Medical Technology Analyst from Goldman Sachs, and we're continuing with our afternoon sessions. And next presenting is Zimmer Biomet, and we're excited to have both Bryan Hanson, the President and CEO; and Suky Upadhyay, the Executive Vice President and CFO, with us on the line. Especially in this busy time for both of you, I first want to say thanks so much for joining us.

Yes. Thanks for having us.

And Bryan, I thought what we could do is start at least high level. I know we're going to need to get into the recovery update. But given that it's been 2, 3 months now, I thought maybe you can give us a sense of the mid-range plan, the next 2 or 3 years. What, if anything, has kind of changed in your strategy as a result of the current COVID situation?

I would say that the broad strategy is going to be very consistent with what we've had in place. There's really nothing that has happened over the last couple of months in the COVID situation that would dramatically shift my broad strategy. So I feel very confident in what we've already laid out, what we're going to continue to pursue. That said, it would be crazy for us not to be paying attention to things that we've learned during COVID that could potentially augment that strategy. Now if I just think about it from a revenue generation standpoint, we were already very focused on trying to enhance the virtual experience for a customer and a patient and a -- in one of our customers' provider. We have the mymobility app with our partnership with Apple and feel very confident that, that ability to be able to use a virtual presence, if you will, using that technology to do the presurgical planning for a patient, you get them prepped, to be able to do the rehab post and the connection to that patient post was very interesting. But it's become much more interesting now given the pandemic situation and people desiring that ability to stay connected but not actually be in person with somebody. So I would say that even though we were pursuing that as a pathway for revenue generation and really just be able to create a better patient experience, we've dramatically enhanced our focus in this area. And so if you're looking at maybe a small augmenting of our strategy would be to maybe double down even a little faster in that area and potentially others as well. When I think about from a cost standpoint, we had already talked about a pretty big restructuring plan that we had in place with an idea behind that restructuring plan to allow us to continue to invest for growth while at the same time drawing margin expansion over time, and we've committed to a certain amount of margin expansion over the next 3 years. And what I would say is that there are some learnings that we've picked up as a result of COVID-19 and our ability to work from home, our ability to augment pretty dramatically travel and entertainment. There will be a lot of those things that we've picked up that we'll try to incorporate to put that restructuring plan even on steroids. So again, I wouldn't say a dramatic shift in our strategic focus but potentially, an ability to augment the things that we had already put into place.

So maybe, Suky, I'll ask you about manufacturing, in particular, in the supply chain. Obviously, having gone through the tariffs and now the virus, you're not as regionally diverse as other medtech companies, but are there changes that you're considering towards regionalization or event domestication of the supply chain?

Suky, if you're talking, you might be on mute.

I don't know, Bryan, if you want to -- we might have lost him.

Yes. We may have lost him. But what I would tell you is the answer is no. You may be speaking specifically to the China situation and some of the tensions there. And as I think people probably know, we have somewhere in the neighborhood of 40 factories around the globe, 3 of those are in China. Some are dedicated to local for local, but others do supply product around the world. And I would tell you is that our -- we've had no issues during all of this in our ability to get product from China to other parts of the world and have no supply disruption as a result of that. We continue to feel strongly about the positions that we have there from a manufacturing standpoint in China. We do, just a normal course, have a lot of ability to leverage other sites that make the same product. So the idea of being able to leverage, if needed, another site to be able to backfill any issues that we might have in China we would have, that would be normal course for anything. Having that duplicity is important. But we feel committed to our China presence. We've got great factories there, great production, great capability and don't feel any reason, any need to change that.

So Bryan, one of the things we've been asking folks today is just to consider -- obviously, everybody is considering a lot of scenarios that could unfold just given the uncertainties. And just to consider the downside case, whatever it is that you're looking at yourself or whether that's high rates of infections in the fall, a second wave or what have you. And maybe just talk through your preparation for that in that scenario, what incremental actions you would need to take as a management team to work through that.

I actually think -- I kind of think about that idea of a second wave in a couple of different ways. But before I even get to that, just the preparation and the organizational structure that we have right now in dealing with this wave absolutely sets us up to be able to deal with anything that would be coming in the future. We got right out ahead of this and made sure that we have the right work streams in place to manage this extremely effectively across a number of different factors. And that, obviously, infrastructure is still in place. And so we feel more confident now than we ever could have to be able to deal with any second wave that might come. And the way we're thinking about a second wave, it's really 1 or 2 things, right? I mean the first one would be that as social distancing starts to loosen up, you get an immediate recurrence, and we're keeping an eye on that. Probably our best proxy on that right now is China because they've been through the other end of this thing longer than anybody else, and we haven't seen that. But certainly, we're looking at it by stage and by country, in those states or countries that are further along in moving towards more of an opening of their economies to see what happens. But so far, so good. We haven't seen a recurrence in that way. The other one would be around seasonality. Obviously, a lot of people potentially predicting that there would be, as a result of seasonality, a recurrence at some point in the future. And again, I think just given where we are as an organization and the industry is as a whole, when I talk to hospitals and hospital CEOs where their comfort level with being able to respond to a second wave, pretty much everybody says that if there is a second wave, the materiality of it is not going to be anything like what we've experienced in wave 1. That's mainly because now you know. Whenever you don't know something, you're automatically more conservative because you're not sure what's going to happen. Now we've got a pretty good sense of what's going to happen, so you're going to have more of -- less of a conservative approach based on that. We also now have a higher level of comfort with PPE, testing capabilities. So a lot of those things that put us in a situation where it was as dramatic as it was in the first wave just aren't going to be present, from my perspective and certainly our customers' perspective, if there is a wave 2.

Okay. So let's get to the recovery update and just hit it big picture first and see what you'd like to say. So I'm not sure how much you're able to say if we just think about May and early June versus April. And if you could just broadly talk to the U.S. and across the globe what you're seeing in terms of procedure progress.

Yes. Probably best thing to do is maybe take a step back and just get grounded and aligned on what we've already said. And then I can kind of build off of that, and I'm very comfortable giving you more specifics for kind of late May and early June so far. But just to level set, as we said, coming into this year, we were feeling really good about our core business. Things were moving along very well and above our expectations. And it just gave a certain view of this in the past, and I'll do it again. If you just look at the U.S. knee business, and I'm talking about without robotics, so excluding ROSA, we were talking about mid-single-digit growth rates up until the time the pandemic hit. That was disappointing, obviously, because that would have been the best growth rate we've been able to present on our core business in the history of the company, and we were just a few short weeks away from coming to the end of that quarter. So just know that before the pandemic, we're feeling very good about the strength of the core business. We also gave color on Q1. We were down just about 9% versus prior year in the first quarter, and we gave specifics on April where we said we were down about 70% versus prior year in that April number. We also said that April, we thought, would be the worst of it, that May would be similar or a little better. But then every month and every quarter, we'd get better after that. So that's kind of where we left it. Now when we look at what we've seen so far, particularly in the back half of May and really, this first part of June, I would say that the recoveries, particularly in the U.S. but everywhere, is happening faster than we expected. Probably feels more like a V shape than I would have expected and maybe others would have expected. And I would say, again, that's pretty much across the board that we're seeing it. And I'll give you some color by region. In Asia Pacific, obviously the first hit by this thing and now the most experienced as a result of it, China is really looking -- is looking good for us. I mean we're already in a mode in this last part of May, first part of June to not just be at the typical run rate but better than where we were from prior year. So China, again, using that as a proxy, just given the amount of time that it's been dealing with this, that's a good sign. Australia for us now has rebounded pretty quickly. They're close to 80% now of the prior year type of revenue in the last couple of weeks here of May and into June. And then -- and Japan continues to hold its own, again, 80-plus percent of prior year. So overall, Asia Pacific is feeling pretty good, stable and moving in the right direction. And then the Americas, and particularly in the U.S., I mean, I'd tell you it's a lot faster recovery than I expected. Definitely feels more like a V than I would have expected in the U.S. Now not all states are created equal. What I would tell you is that we track this by state and sometimes even sub parts of states. And what I can say now based on our analysis and just looking at our revenue profile, about half the states are already at previous year revenue volumes, if not higher, and then the other half are lagging behind. And I'll just give you an example. If you look at Florida and Colorado, Mississippi, they're already above prior year volumes in the back half of May and early part of June. But then New York, Massachusetts, New Jersey are pretty significantly below. They're improving, but they're pretty significantly below. So what we're trying to do is to look at those states and/or countries that had been through it the longest and are the rebounding, put an algorithm on that and then apply it to those states or countries that are behind. And then in EMEA, just to give you some color there, again, very similar to the U.S., not everything is acting in sync. We've got clear, faster recovery in the north and the central part of Europe. It's a lot slower in the south and the emerging markets, and they're still struggling but improving, but they're still struggling. So that's just -- our overall view right now has gotten more bullish as a result of the actuals we've seen in the back half of May and the early part of June.

Yes. It's a great -- that's an encouraging update, great update. So if we think about it by category, is -- are the comments that you made, relatively speaking, applicable to knees, to hips, to spine? I've been surprised by some of the previous comments on how strong spine's come back actually. But just between some of the bigger categories that you play in, is it -- is that reflective of -- are the comments reflective of all those categories?

Yes. I would tell you that across the board, we are seeing recovery at a pretty rapid pace. If I'm going to put it in order, though, of the things that are coming back fastest -- and again, all of these are coming back and moving in the right direction, but just put it in order. Trauma, as one would expect, is the fastest to recover as people begin to move around again, you're going to see more trauma. And as a result of that, you're going to see patients get care immediately. The next for us has been spine and CMFT. I'm still not 100% sure why spine has rebounded as quickly, but I've heard others say the same thing. CMFT is kind of obvious to me because there's still some trauma inside of CMFT, and that drives some of the business. Then it will be our recon business and inside of recon, hips is definitely leading the way over knee. That comes down to just the pain associated with inability to move if it's a hip problem versus a knee problem. And then dental would be the cleanup for us. But I don't want to diminish it. I mean we're definitely seeing dental move in the right direction. It's just been slower than the other categories.

So with that, I think there's this kind of big question that's going to linger here, which is, is the recovery that we're seeing based on deferred patients coming back? Or are you starting to hear about new patients coming through to the clinics and getting through that referral funnel for procedures again at similar recovery rates to what you're describing? So in other words, it's one thing to say 2Q is going to look better, which I think we're all encouraged by and we've been hearing all day today. It's another if you were to say that you're also encouraged by new patients, and I would suspect that might mean that you have better confidence into the second half of the year as well.

Yes. That makes sense. That's one of the things that we're paying most attention to right now is you clearly have an opportunity to have a false positive because you can get pretty comfortable pretty quickly with the revenue that we're seeing as a result of this bolus of deferred patients coming in. What we really need to know, to your point, is not just that we're getting revenue, but what's the mix of that revenue from a patient standpoint, how much of that is truly deferred patient versus a new patient. And we're tracking it. I'd tell you that the data at this point, it's too early to really give us any information that's going to be valuable. But I would tell you that we're definitely seeing both. We're definitely seeing a mix of deferred patients and new patients entering the funnel. But here's kind of the way that I broadly look at it, and it may be helpful to you as well. And there's just so many variables that I try to make it as simplistic as possible. I'm taking things out of my equation like hospital capacity, access to PPE, testing. I think that a lot of those things are beginning to solve themselves. We're definitely seeing hospital capacity be there in the U.S. We're just trying to remove those from the equation. And I think about it with 3 major variables and how we got to think about the business going forward. The first one is the obvious one. You've got a very large bolus of deferred patients sitting out there right now that need care, right? So that's one variable in the equation. The second variable is just these deferred patients are really new patients that are afraid of the virus and, as a result of that, sitting on the sideline. That could be either deferred or new, by the way. And then the new or deferred patient that is -- that's concerned about the economy right now or doesn't have a job. And so maybe they're sitting on the sideline. So if I just take those 3 variables in the equation, on the right side of that would be some assumption of what's going to happen in the future. I would say almost no matter how many patients that are new or deferred that are afraid because of the virus and how many patients are waiting because they don't have a job, they don't have job security right now, they're just too small. That group is too small to offset the tidal wave of patients that are going to come back in the system that are deferred and ready to go. And what I would tell you is post that time frame, when a patient finally does get to the point where they feel safe from a virus, where they do get their job back, those patients didn't go away as they were waiting. They're just deferred patients. And so I feel like over the next 12 to 18 months, as the -- as this big bolus of deferred patients come through, it's going to overshadow any of the fear of the virus or any of the economic downturn. And then when those 2 things start to go away, those patients will actually come back in the funnel and continue to fuel the growth of the business even into 2022. So that's just the simple way that I'm looking at this equation. And to me, based on what I'm seeing, that bodes pretty well for the market, specifically for ours, for the next couple of years.

Yes. And I like that. So let me try to get you to comment on the nondeferred piece. So this is really getting into the debate that we have a lot with investors, which is the psychology of the high-risk patient. And out of the 10 patients that were going to get a total knee surgery, how many of them are fearful enough, for whatever reason, that they will delay that surgery until a vaccine or a treatment is available? I mean this is, I know, an unanswerable question. It's looking forward for us. So -- but best you can, I mean, what's kind of your rough -- from everything you've learned in the last couple of months, what's your best guess at what that figure looks like?

I think there will definitely be a percentage of patients that are probably going to wait, to your point, until they feel confident there's a vaccine or a treatment, but I think it's a smaller portion of the patients. I think the majority of patients will definitely come in based on the feedback and guidance they get from their carrier or from their surgeon, who they trust. So -- and this depends on where you are in the world too, on how much of that trust actually does dictate what the patient does. But in general, I would say that a smaller percentage of patients are going to wait all the way through to the time that there's a vaccine or there is a treatment. That said, to be honest, I'd be okay if they did. Again, I go back to this idea of this deferred patient group that is huge, that is going to come back in over the next 12 to 18 months because they're not afraid. And we are going to capture those patients. And if somehow this was paced because you have other people that wanted to wait, that's okay because the patient doesn't go away for us. This is a disease that continues. It does not go away. And as a result of that, the majority of the patients that wait do eventually come back in the funnel. And if it was paced that way, that would be okay with me.

And when you say, I mean, the majority come back, which we tend to agree with, are you thinking something along the lines of 10%, 20%, 30%? And I know these are fairly meaningless kind of predictions, but just to get a sense of what's in your mind of the new patients that psychologically may wait for a vaccine or a treatment.

Yes. I don't know that I'd put a percent on it, but I'd say it's a much smaller percent that would wait for the vaccine than it would be that wouldn't. And when I think about patients returning, I always kind of feel that it's north of 80% of patients that defer eventually come back in the system. This is a disease that continues and it's painful. And most people do not want to suffer through the pain, and they'll eventually come back in.

So let's move into CapEx and talk a little bit about hospital CapEx and just get your latest on how you're thinking about just the duration of hospital CapEx pressures generally relative to what you just said. I mean it was very encouraging to hear the procedure commentary, and I think a lot of hospitals will be doing better hearing what you said given the profitability of elective procedures like total knees. But how much does that help color how you're thinking about duration for hospital CapEx pressures generally?

Yes. I mean for us, as you know, we don't have a lot of capital equipment. The biggest focus for us is ROSA, our robotic system for orthopedics, specifically knee. And so what I would tell you is that it's interesting because clearly, there was immediate trepidation with COVID-19. Again, people trying to figure out what's going to happen, how long is this going to occur? And a lot of the things that we had moving forward with ROSA were delayed as a result of that. But what we're finding, which is typical, people snap back pretty quick. At the end of the day, once elective procedures open, everybody wants to get their fair share or more because they are very profitable for hospitals and as a result, hospitals are very interested in being able to get the newest technology because that does attract patients to their facility, which allows them to catch more of their fair share of patients and ultimately drive profitability again in the hospital system. So if anything, during this time frame, we're seeing more interest in the ROSA system, and we're certainly trying to take advantage of that. We've always offered, just so you know, a -- an opportunity for any hospital system to buy in various ways the robotic system. And I'll just give you the bookends. One side of the bookend would be they don't want any long-term relationship. They just want to spend capital and buy a piece of equipment from us, and thank you very much and see you later. To the other end, which says, I don't want to spend any capital, but I'm willing to give you a couple of million dollars of revenue commitment for upside. And if you -- if I give you that, I'd like the capital to come in. And we've offered either one of those solutions and a lot of stuff in between. And so what I would tell you is surprisingly, there are still people that are spending capital right now on ROSA systems. And there are others that are choosing the other pathway that I referenced. And the good news for us is either one of those things is very profitable and it's accretive from a margin standpoint to our overall business regardless of the way we place these. And so I've been very happy even when people thought that there would be significant pullback on the capital side, I'm seeing a lot of energy right now around moving ROSA forward.

Yes. And that's very encouraging. So is it fair to say from a mix perspective that the volume-based placements are higher than what you would have thought they would be at this point pre-COVID?

Don't want to necessarily say that. But I would -- what I would say just plainly, I think they have always been there, and they're getting more interest now from customers than maybe they did before. And -- but you still have customers even when you offer that that just they don't want to move down that path. For me, to be honest, if you look at that right side of the bookend, if someone's going to commit significant implant volume to me, I still get the disposables for every robotic system placed. I still get the service for that robotic system. That's probably the most attractive way to place a system, but you still have a lot of customers that just want to buy it outright. And so it's a mix still. It's definitely a mix, but probably more paying attention to the right side of that than the left side now.

Okay. Suky, are you back on? No. So --

Hey, Amit, can you hear me?

I can. Now I can. I got you.

Okay. Great.

Yes. Welcome back. Sorry, we tried to earlier. So let me ask you, Suky, just some questions around margins and the P&L generally. So we've been talking about this year. But as we start to think about next year and certainly, the way you're describing it and getting closer to normalization of revenues potentially, do you want to help us just walk through the headwinds and the tailwinds we should consider to get margins back to 2019 levels or above.

Sure. Happy to do that. So as you said, as we move into the second quarter at the deepest parts of the trough on the sales line, we've made commentary before that more than half of our cost base is fixed across both cost of goods as well as OpEx. And so as you decline in sales, it's really challenging to maintain your margin profile. And so we said Q2 would be significantly pressured. But then as sales recover, we would expect that margins overall would recover as well. And as we move into 2020, should we see sales get back to 2019 levels or beyond, we would also expect margins to follow. Now there might be a slight lag in that margin progression only because we're going to continue to catch up on some investments that would defer from the second quarter. But structurally, margins should continue to follow our overall sales ramps and should approach 2019 levels as -- if revenue does as well. It may not happen day 1, but it will happen within that year. Some of the -- I think the key headwinds, tailwinds of normalizing or what, just getting back to regular volumes and being able to completely leverage our fixed cost base from a cost of goods perspective, will be a pretty big tailwind. And then, of course, leveraging our fixed cost base and OpEx will obviously be a big tailwind. But beyond that, we came into this year, Amit, I was pretty excited about the restructuring program that we announced where we were quite front-footed and talked about a operating margin commitment of 30% in 2023 while still investing for growth to accelerate the top line. We're still committed to those numbers, by the way. We still are very confident and very bullish that we're going to be able to achieve that. And so we've initiated a number of projects. Many of them have already completed and actually even completed through the pandemic, in the worst parts of the pandemic. So I think that's going to be a pretty big tailwind for us as we move into 2021 and beyond as well. So again, biggest picture here is Q2 will be pressured primarily in gross margin. Our mix of business, you had Asia Pac recovering sooner than the Americas, and that tends to have a lower gross margin, and trauma coming back faster than large joints, which has a lower margin profile. But as we move through the rest of the year into 2021, as sales recover, our margin will recover.

So one of the things that happened after the '08 crisis, what was that change for all of medtech, especially implantables, was pricing. I mean it went basically from being a good guy to being a bad guy. And I'm wondering how you're thinking about that now, Bryan or Suky, just given the environment for hospitals at the moment and whether that is a risk area or a risk factor as these hospitals really try to cut back on supply costs again.

I'd just say that clearly, pricing is a huge focus for us. It's a significant impact to the business and something that we'll always keep a close eye on. But here's the way I'm thinking about it is the pricing pressure out in the marketplace today before the pandemic has been extreme. There's no question. We get pressured every day on price anywhere in the world. And I don't expect that to stop. But even if somehow people try to enhance it, the level of pressure that's already being exerted, it doesn't necessarily matter if it goes from a 5 to a 6. The 5 was enough. And I think you already have people responding to that level of pressure. My sense is you're going to see people respond in the same way they have even through this. And so I'm not necessarily looking at this right now and worried about, "Gosh, is someone going to ask me even harder or 3x instead of 2x for a price reduction?" The way we respond to that and, I would guess, others would respond to that would be the same. If you ask me 3x versus 2, it doesn't mean that all of a sudden, I'm going to fold on the third time. The other thing that I would say is it probably lends itself to companies that have more of a broad portfolio. What I think could happen is where you've got accounts that typically want to silo everything: "I want to buy my knee separate from my hips, separate from my trauma, separate from my sports." They may say, "Well you know? Maybe now I am ready for the things that you've been offering to me, which is cross-category contracting, to drive more savings across all of those categories," which for a company like ours that has those cross categories and the competency to sell that way is a benefit. And so I would say, if anything, you might have an opportunity now to be able to do that more creative contracting that drives more value to the customer, and they might be more open to it right now. But just because somebody asks more strenuously for pricing reductions now, I don't think you're going to see a major change in that ability to get those price reductions.

No. It works pretty well with my kids usually when they take that tactic. But -- so…

You got to lay down the law certainly on those things, man.

Yes. I'm weak in that department. But let's go back to the LRP, just the way you described it pre-crisis, in 2023, kind of getting to about 30% op margin. Just understanding the uncertainties at the moment, I mean is it still realistic for us to think that, that is the right target by '23?

Suky, I'll let you answer that.

Yes. Yes.

My answer is simple. The answer is yes, but you might want to add more color.

Yes. I absolutely think that's the right target for us. That comes on the backdrop of it -- some expectation of normalization of revenue between now and 2023, which I think, based on Bryan's earlier comments, we clearly see a path there, too. And we're very confident in our restructuring program. And if anything, what this pandemic has shown us is that there are potentially other ways that we can operate even more efficiently. Some of those obvious ways are reduction in travel and being able to do meetings and be really effective as a company virtually, to how we potentially deliver medical education and training and how we deploy our field sales force. There are other opportunities that we also think are available to us that could accelerate our overall restructuring program. So I'm bullish on it.

Okay. Let's talk a little bit about the pipeline. And maybe just give us an update, a lot of us are just following, whether it's clinical trials or various aspects of R&D projects that seemed to slow for other companies. And so whether it's getting hit in -- for ROSA or other pipeline projects, just give us a sense of time lines for those projects and whether they've changed.

Yes. I'd tell you, we went through a process in over the last 2 years to reduce pretty dramatically the number of R&D projects that we had. What we found is there are a lot of projects being focused on and money being spent on that really didn't have much of a return and were kind of derivative in nature. And we've shifted pretty dramatically to those areas that are high focus for the organization. Much of that, as one would expect, would be in robotics, data and informatics. And because we are so focused right now and we know that those are high-priority areas, none of those have slipped, not even in the pandemic. And I'm talking about not just internally but externally as well. We haven't seen regulatory approvals change or move out. And we have definitely stayed on track, if not pulled in some of the projects that we've been working on straight through the pandemic. So we -- as part of the benefit of focusing the organization, ensuring you're spending the money in the right areas and ensuring that because of those priority areas are so high in the organization that you don't lose any momentum even in a time like this.

Yes. When you talk about extremities or dental in terms of the recovery, what's the latest there? I mean how you're seeing those markets perform.

So right now, everything that we have from a category perspective is moving in the right direction. I can't remember if I was talking to you or if it was one of the one-on-ones before when I was talking about the timing of things coming back. But clearly, for us, trauma has been kind of first coming back. CMFT, spine is second. Recon is third, and then dental is behind that. But our extremities business would be more in line with the recon. Now some of the sports comes back faster because there are younger patients, but -- and they are a lot of times tied to activity as well. But in general, I feel good about all of the categories and the movement to recovery. They are slightly different but all moving in the right direction.

So let's close it with just capital allocation discussion and M&A in particular. We're thinking about you coming into the year and thinking that some type of tuck-in M&A is more likely than it was in prior years at least. And just given what's happened and where you are now and then the recovery you described today, how long does it take for you before you would get comfortable actually doing a tuck-in M&A deal?

Yes. So I would tell you just broadly before I speak to the speed in which we would do it that the strategy would stay the same. The idea of tuck-ins in areas that we know and have a right to win and would drive our weighted average market growth rate up are absolutely the area that we want to go to first. We got a new team in place that is helping us isolate targets to acquire. We've got a whole new integration process, game plan and team members to be able to make sure that we integrate effectively so we can prove that not just to us but to also our investors that we can acquire and integrate effectively. So that strategy remains the same. But I'll let Suky speak to when we would feel comfortable beginning to flex that muscle. Certainly, we were there before the pandemic and it's frustrating that that's delaying us. But Suky, I'll go ahead and let you speak to the timing of that.

Sure. So first thing I would say is we feel pretty good about where our capital structure is right now in the backdrop of navigating through the challenge and then being ready to deal with the recovery or optimize on the recovery, making sure we have the right investments and supply and distribution and commercialization. And right now, that's where our primary focus is, it's making sure we've got the liquidity and capital to ensure that we optimize that recovery. Relative to timing, as Bryan said, our strategy is the same. We're going to continue to look to delever the balance sheet through debt paydown to maintain that investment-grade rating. And as we see more of the recovery come through and we get confidence that, that recovery is there and that we're moving beyond sort of managing through the challenge, supplying through recovery and actually getting to more of a steady state and normalcy and that our capital structure is, in fact, sound, and we can maintain that investment-grade rating, you'll start to see us get likely more active on that tuck-in acquisition strategy that Bryan referred to.

Right. We're right up at the end of the time frame. So Bryan and Suky, thank you so much, especially in this time. We're grateful you're able to make it to our conference. So thank you for that. And best of luck in the quarter and the year, and we'll talk to you soon, of course, and everybody else. Have a good afternoon. Take care.

All right. Thank you so much. Bye-bye.

Thank you, Amit.