The operator welcomes participants to the Zimmer Biomet First Quarter 2024 Earnings Conference Call and introduces the speakers, Keri Mattox, Ivan Tornos, and Suky Upadhyay. Keri reminds listeners that their comments may include forward-looking statements and non-GAAP financial measures. Ivan thanks everyone for joining the call.

The speaker begins by expressing gratitude to the 18,000 Zimmer Biomet team members for their dedication and commitment. They then mention the upcoming Investor Day and briefly touch on three key areas: the results in the quarter, the drivers of the performance, and progress against strategic priorities. The overall Q1 performance was ahead of expectations, with 4.4% constant currency revenue growth and a strong execution globally. Despite facing challenges, the company saw growth of over 6% on a day rate adjusted basis, with multiple areas and geographies contributing to the positive results.

Zimmer Biomet had a strong revenue performance in the first quarter of 2024, with adjusted margin expansion and growth in earnings. They are confident in their ability to achieve 5-6% revenue growth for the year and mid-to-high single-digit adjusted earnings growth. The company is also seeing a sustainable growth trajectory, with new product introductions expected to ramp up later in the year. This growth is driven by both macro and micro factors, such as a healthy end market, increased demand for surgeries, and improved pricing dynamics. The adoption of ROSA technology and Persona Knee also contributed to their Q1 results.

The company is seeing success in growth drivers, particularly in shoulders, sports medicine, and their cementless platform. They are also preparing for the launch of new products, such as the triple taper hip stem, to drive revenue growth in the second half of 2024. The CEO reiterates the three strategic priorities of people and culture, operational excellence, and innovation and diversification, which will lead to long-term success for the company. More updates on these priorities will be provided at an upcoming Investor Day.

The company has been recognized for its strong people and culture initiatives, with low employee turnover and positive engagement metrics. The restructuring program has been successfully implemented with minimal disruptions and has resulted in cost savings and increased operational agility. The company is also focused on improving inventory management and implementing best-in-class product launches. They plan to release over 40 new products in the next 24-36 months. Additionally, the company has made structural changes to enhance their pricing strategy and is making progress in innovation and diversification.

The company has seen strong growth in key brands and products, such as Persona OsseoTi, ROSA, Signature ONE Planning Guides, Embody soft-tissue franchise, and CMFT. They have a focused pipeline with twice the value of four years ago, with the majority of products in growing markets and with potential for increased profitability. The company is also diversifying their portfolio into faster-growing markets to increase their weighted average market growth rate. They have the financial flexibility to pursue both small and midsize acquisitions that meet their strategic and financial goals.

In the first quarter of 2024, the company expects to achieve its goal of delivering 5-6% revenue growth, outpacing the market, and increasing earnings and free cash flow. Keri Mattox, a key member of the team, will be leaving the company at the end of May and a search for her replacement is underway. The company is committed to continuing to deliver on its promises and is confident in its future success.

Zimmer Biomet had a successful quarter with strong sales and execution. They are on track to meet their 2024 financial goals and are confident in their future growth. In the first quarter of 2024, net sales increased by 3.2% on a reported basis and 4.4% on a constant currency basis. The U.S. and international markets both saw growth, with EMEA and the Knee category performing particularly well. The growth in the Knee business was driven by the Persona product portfolio and ROSA Robotic Platform.

The Knee segment is expected to experience growth due to new product launches. The Hips segment grew 1.5% in the quarter, with focus on accelerating performance through product launches. The S.E.T. category grew 5.3%, led by CMFT, upper extremities, and sports. The Other category grew 12.2%, driven by strong ROSA sales. GAAP diluted earnings per share were $0.84 compared to $1.11 in the prior year, with adjusted earnings per share at $1.94. The increase in adjusted earnings is due to revenue growth, accelerated savings from the restructuring program, and a lower share count. Foreign currency was a headwind of $0.04. Adjusted gross margin was 72.9%, and adjusted operating margin was 28.6%, slightly ahead of the prior year.

The company had a slightly higher net interest and other adjusted non-operating expenses in the quarter. The adjusted tax rate was 18.5% and the company expects it to stay the same for the full year. They generated operating cash flows of $228 million and ended the quarter with $393 million in cash. The company is reiterating their full year guidance, with constant currency growth of 5-6% and earnings between $8-$8.15. They expect gross margin to be in line with 2023 and a modest sequential step down throughout the year. The adjusted operating margin is ahead of schedule due to restructuring efforts.

The paragraph discusses the expected operating margins for the second half of the year and the overall performance of the company in the first quarter. The company is confident in its 2024 outlook and has a growth algorithm of 5-6% revenue growth and margin expansion. There is skepticism from investors about this algorithm, and the company is expected to have a slight decrease in sales in the second quarter.

The speaker addresses the question about the algorithm for revenue, EPS, and free cash flow, stating that they will provide more information at the investor day. They explain that the focus is on long-term growth and share gain through new product introductions, with a pipeline of 40 new products in the next 24-36 months. They also mention changes in margin, inventory management, and portfolio management as drivers for EPS and free cash flow growth. They decline to discuss quarter-over-quarter performance, but mention a strong Q1 with 4.4% growth in constant currency and over 6% in day rate.

The company is confident in their guidance for 5-6% growth at the beginning of the year and after the first quarter. They are proud of their Q1 results and believe they have a durable path to operating margin expansion and improvements in free cash flow. They reiterate their 6-8% earnings outlook for the year, but believe the underlying growth is better. They see a pathway to low double-digit earnings growth, but it is not their base case and they will provide more information at their Investor Day.

During an earnings call, Oppenheimer & Company analyst Steve Lichtman asks about the positive surprise in pricing for the quarter. CEO Ivan Tornos attributes the improvement to a new pricing strategy and governance structure, with Europe performing slightly better than expected. CFO Suky Upadhyay adds that the company is also benefiting from a more favorable market environment and internal changes.

The speaker is impressed by the cultural change within Zimmer Biomet and the desire of distributors and field-level reps to get value for their products. In the first quarter, there was minimal erosion in sales, but the speaker expects some pressure later in the year due to price increases and new contracts. They anticipate pricing to be under 100 basis points for the full year. The ROSA Shoulder product launch has been successful, with positive feedback from the first cases at the Mayo Clinic. It is accurate, efficient, and interconnected with the CVX ecosystem, leading to time efficiencies and a short learning curve. Overall, the speaker is optimistic about the company's performance.

The speaker discusses the impact of a recent product launch and mentions an upcoming Investor Day where they will cover financial goals and strategies. They also mention beating EPS expectations but not raising guidance due to good performance and company discipline.

The speaker is responding to a question about the company's new product launches and their impact on margins. They mention several new products, including OsseoTi, HAMMR, and the Robotics Shoulder, but focus specifically on the Z1 launch. They explain that while the Z1 is an important addition to their hip portfolio, it is not the only factor that will contribute to their success in the market. The speaker also addresses concerns about margins and mentions that they have not performed well in the hip category in recent years, but the new products and pricing strategies should help improve this.

Zimmer Biomet has received 510(k) approval for their direct anterior hip replacement, allowing them to compete with other orthopedic companies. They also have a surgical impactor and two modalities of navigation, including a mixed reality technology. The company believes that this portfolio will help them regain their position as the number one hip company in the world and accelerate their growth. In terms of margins, Zimmer Biomet has been able to expand their operating margins significantly in the past and expects to do so again in 2024 through revenue growth, cost reductions, and improvements in COGS.

The speaker discusses the efficiency and cost-saving measures being implemented in the company's research and development department. They also mention the positive impact of the new CEO's mindset on the company's culture. The speaker expresses optimism about the company's future and its strong performance in the first quarter. A question is asked about the placement trends for the company's orthopedic robots, and the speaker responds by stating that ROSA is becoming the preferred option globally and has a 20% penetration rate in the US.

The company had strong ROSA sales in the quarter, which is a positive sign for future demand. About one-third of US installs go to ASC environments, which is not surprising since ROSA simplifies preplanning and is surgeon-centered. The company is seeing increasing preference for ROSA in high-volume accounts. The mix of shoulder recon cases is currently around 60-65% ASC and 35-40% inpatient, but this is changing rapidly due to CMS reimbursement changes. The company has a strong position in both settings. The next question asked about expectations for growth in the Other line, and the response was not clearly stated.

Suky Upadhyay, a representative from the company, mentioned that the Other category had a strong quarter due to ROSA capital. However, they expect lower growth in this segment throughout the year. They also mentioned that they saw new placements and ASCs, which is positive for the company. Keri Mattox, another representative, asked for a follow-up on Persona IQ and Ivan Tornos provided updates, stating that things are accelerating in terms of innovation and commercial execution. They recently received 510(k) approval for a shorter stem version of Persona IQ and are also launching a platform called recovery curves, which is exclusive to Persona IQ.

The paragraph discusses two updates that are moving in the right direction for the company. One is the interconnection of data with a dashboard to quantify patient progress, and the other is the successful execution and commercial journey. The company is excited about Persona IQ and is committed to the journey. The guidance for the second quarter implies a 2% underlying growth, but there may be choppiness in the quarter due to timing and contracts. The company expects to maintain its initial guidance for the first half and believes OsseoTi is gaining market share.

The company is seeing strong growth in its new Persona OsseoTi product, with both existing and new accounts contributing to the increase in sales. There were no major one-time events affecting gross or operating margins in the first quarter, and the company expects margins to continue to improve as revenue increases and cost-saving measures are implemented.

The speaker expresses confidence in the company's earnings and operating margin. They mention a potential 80-basis-point lift and discuss their focus on strategic and financially sound M&A deals. They plan to provide more information at a later meeting. The next question is from an analyst at JPMorgan.

The speaker is answering a question about the company's financial performance in the second quarter and the rest of the year. They clarify that the fourth quarter will be the highest in terms of operating margin and revenue. They also mention the company's transparency in providing information about revenue and operating margins. The speaker does not want to comment on the consensus of the company's performance, but assures that there is enough information available for investors.

Ivan Tornos, speaking about the company's revenue growth, mentioned four factors contributing to the 5% to 6% goal for 2024. The first quarter showed better than expected recon growth, and while performance in Hips and Knees was debated, overall it is not below market. The formula for achieving the goal includes product introductions, with upcoming launches in Europe and the addition of Persona revision and Oxford Partial cementless in the U.S. Tornos is confident in the strength of the Knee and Hip portfolios, and the company has committed to mid-single-digit growth for S.E.T.

In the third quarter, there has been a consistent trend in strength in innovation and commercial execution. The company is committed to achieving a 5-6% growth and has seen a 20% penetration in the US for cementless mix. The goal is to reach 60% penetration in both robotics and cementless. There has been an increase in orthopedic robotics sales and the company plans to make bigger and bolder acquisitions to raise their weighted average market growth.

The speaker discusses the prevalence of ASCs acquiring robotics and the strong capital dynamics in key markets. They also mention their desire for strategic and financially sound M&A, and their plans for the WinGuard. The call concludes with a celebration of the company's Founders Day and a reaffirmation of their purpose.

The speaker expresses excitement about the current state of their company, Zimmer Biomet, and their strong commercial execution. They are confident in their guidance for 2024 and look forward to discussing their long-range plan for 2025 and 2026. The speaker thanks Keri for her contributions and announces her departure from the company. The call ends with a reminder to reach out to the IR team for any questions.

This summary was generated with AI and may contain some inaccuracies.