The paragraph is an introduction to the Zimmer Biomet First Quarter 2025 Earnings Conference Call, which took place on May 5, 2025. The operator begins by welcoming participants and stating that the conference is being recorded. David DeMartino, Senior Vice President of Investor Relations, takes over to introduce the call, mentioning that the speakers include Ivan Tornos, the President and CEO, and Suketu Upadhyay, the CFO and EVP of Finance, Operations, and Supply Chain. David reminds participants that the call will contain forward-looking statements and directs them to the company's SEC filings for details on the risks and uncertainties related to these statements. He also notes the use of non-GAAP financial measures and refers to the company’s website for further details. Finally, David hands the call over to Ivan Tornos.

The speaker expresses gratitude to the 17,000 Zimmer Biomet team members for their hard work and commitment, emphasizing the company's strong workforce and culture as a competitive advantage. The speaker outlines four main topics to cover: first quarter 2025 results, future performance drivers, an update on three strategic priorities, and the recent acquisition of Paragon 28. Sales grew by 2.3% in the first quarter, with notable increases in U.S. Hip sales due to the "magnificent seven" product cycle, despite having one less selling day. The U.S. Hip performance was driven by products like the Z1 Hip Stem, HAMMR, and OrthoGrid, with half of Z1 users converting from competitors, a trend expected to continue.

The paragraph discusses the company's strategies and expectations for growth in the knee implant market through 2025. The U.S. penetration of Cementless Knees has surpassed 25%, and the trend is expected to continue due to increased training and supply. The European launch of Persona Revision is anticipated to gain traction. The company maintains a revenue growth expectation of 3% to 5% for the year, excluding the Paragon 28 acquisition's contributions, which are expected to add 270 basis points to sales growth. The adjusted EPS guidance for 2025 has been updated to $7.90 to $8.10, considering tariffs, currency fluctuations, and operational strategies. They acknowledge a less than 3% dilution from the Paragon 28 acquisition. The company's priorities remain focused on people, culture, operational excellence, innovation, and diversification, with new leadership hires in strategy, business development, communications, and Asia-Pacific commercial sectors.

The paragraph outlines Zimmer Biomet's strategic plans to enhance its performance in the U.S. market. These plans include strengthening management in key geographies, optimizing the U.S. sales channel, and focusing the S.E.T field team on high-growth opportunities. The company aims to bolster its leadership in ambulatory surgery centers (ASC) with expanded product offerings and innovation, particularly in robotic platforms. All changes are aligned with existing revenue and EPS guidance, with a focus on sales growth and margin improvement. Furthermore, the company plans to reduce inventory and days on hand (DOH) to increase free cash flow, moving from 370 days towards a lower target. With no core portfolio gaps after introducing new products, Zimmer Biomet will refocus innovation on unmet needs in musculoskeletal health, aiming to address four key issues, starting with raising awareness about osteoarthritis care.

The paragraph outlines a multi-faceted strategy to enhance patient treatment and safety in joint replacement. It details a direct-to-patient campaign, "You'll Be Back," launched with Arnold Schwarzenegger to educate patients on joint replacements. The company is addressing safety by tackling periprosthetic joint infections (PJIs) through technologies like iodine-treated implants, which are being introduced in Japan with plans for U.S. expansion. Additionally, the company is investing in faster surgical technology to minimize infection risk, as demonstrated by a recent acquisition in late 2024. Lastly, the company aims to improve efficiency by using smart implants, robotic technology, and AI to reduce surgical times and enhance patient outcomes.

The paragraph discusses Zimmer Biomet's focus on innovation and improving patient outcomes, particularly through the recent PMA approval of the Oxford Partial Cementless Knee, which has shown improved durability compared to cemented implants. The company anticipates strong adoption of this product by 2025 and aims for a 5% Weighted Average Market Growth Rate by 2027. Additionally, Zimmer Biomet emphasizes its capabilities in integrating acquisitions, highlighting the successful acquisition and integration of Paragon 28 as a key priority, with its leadership team joining Zimmer Biomet to maintain its dynamic and entrepreneurial culture.

The paragraph discusses the successful integration of Paragon 28 into Zimmer Biomet (ZB), highlighting minimal disruption and positive contributions from Paragon 28's senior leadership and sales channel. The speaker expresses pride in the organization's progress and its mission to improve people's lives. Suketu Upadhyay then reports on a solid quarter, noting sales growth despite challenges, with adjusted earnings per share of $1.81 and $279 million in free cash flow. The U.S. business saw a 1.3% increase, with significant growth in Hips and S.E.T. The commentary focuses on the first quarter of 2025 performance and excludes the impact of the Paragon 28 acquisition.

The paragraph outlines the company's growth strategies and performance across different segments. The company saw international growth of 3.7%, led by strong performance in their S.E.T. business, which has now surpassed their Hips business following the Paragon 28 transaction. This is part of a strategy to diversify into faster-growing markets. Although global Hips grew modestly, the U.S. outperformed expectations due to the Z1 launch. Global Knees also grew, with future U.S. growth anticipated thanks to new product launches. The S.E.T. segment showed consistent growth, while Technology & Data, Bone Cement, and Surgical declined due to difficult comparisons and a shift in sales strategy. Financially, the company reported an increase in GAAP diluted earnings per share, driven by higher sales and reduced restructuring costs, despite a slight decrease in adjusted earnings per share from the previous year.

The paragraph discusses the company's financial performance and outlook. Earnings were impacted by higher costs, investments, and interest expenses. Gross and operating margins decreased but met expectations. Interest and non-operating expenses increased due to higher debt and interest rates. The tax rate was 18.2%, and shares outstanding decreased because of share repurchases. The company generated strong cash flow, with significant improvements in inventory management. Cash and cash equivalents totaled $1.4 billion, aided by debt issuance for acquiring Paragon 28. Looking ahead to 2025, foreign exchange rates are seen as advantageous, and global tariffs and the Paragon 28 acquisition are factored into guidance. The company expects sales growth of 5.7% to 8.2%, EPS between $7.90 and $8.10, and free cash flow of $750 to $850 million, maintaining an organic revenue growth target of 3% to 5%.

The paragraph outlines financial projections and anticipated impacts on growth and revenue for the company through 2025. It forecasts flat average selling prices for the year, with currency exchange rates possibly providing a slight tailwind. The acquisition of Paragon 28 is expected to contribute significantly to revenue growth, leading to a consolidated growth expectation of 5.7% to 8.2%. Second half organic growth is anticipated to be stronger than the first half due to favorable comparisons and new product uptake. Additionally, tariffs are expected to pose a $60 million to $80 million headwind to 2025's operating profit, primarily in the second half, though this estimate is subject to change based on evolving macro conditions. It is also mentioned that this impact may not be indicative of 2026 outcomes.

The paragraph provides a financial outlook for the company following the Paragon 28 acquisition and tariffs. It anticipates a decrease in full-year adjusted operating margins by 100 to 150 basis points compared to 2024, with a slight improvement in the second half and the highest margin in the fourth quarter. Adjusted net interest and non-operating expenses are expected to be around $305 million, influenced by acquisition borrowings and higher refinance interest rates. The adjusted tax rate remains at 18%, with fully diluted shares at approximately $200 million. The 2025 tariff headwinds are expected to be offset by a weaker U.S. dollar, reduced discretionary spending, and operational strategies. Despite dilution from the acquisition, adjusted earnings per share are projected at $7.90 to $8.10. Free cash flow for 2025 is revised down to $750 million to $850 million, from an initial $1.1 billion to $1.2 billion, due to tariff and acquisition-related costs. The impact from the acquisition is noted as one-time. The paragraph closes with appreciation for the team’s efforts and a focus on long-term growth amid uncertainties, before inviting questions from participants.

During an earnings call, Robbie Marcus from JPMorgan asks Suketu Upadhyay about how Zimmer Biomet is managing the impact of tariffs, which appeared smaller than expected on their EPS. Suketu explains that since most of their production is based in the US, their exposure to tariffs is somewhat limited. They have implemented several strategies to mitigate the impact, including optimizing the country of origin, adjusting transfer pricing, dual and redundant sourcing, and moderating discretionary spending. These efforts are expected to keep the annual tariff impact between $60 million to $80 million, with the most significant effects occurring in the fourth quarter.

The paragraph discusses the company's outlook on how tariffs will impact their financial metrics such as gross margin, operating margins, and overall profit. The speaker expresses uncertainty about the exact future of tariffs by 2026 due to various factors, like the annualization of tariffs and the expiration of a 90-day staying period. These factors pose challenges ("headwinds"), but the company is implementing strategies to counteract them, like sourcing changes and discretionary spending savings ("tailwinds"). Despite the challenges, the company remains optimistic about managing the impact of tariffs, as their guidance remains aligned with expectations, excluding the impact of Paragon 28. They emphasize being prepared for these changes thanks to preemptive planning.

The paragraph addresses a question about the company's growth expectations and the impact of various factors on achieving their growth targets. Ivan Tornos responds by explaining that despite a slight dip in growth due to an ERP disruption and challenging comparisons to previous quarters, the company expects to achieve mid-single-digit growth by the second half of 2025. Contributing factors include the positive impact of new product launches and commercial leadership changes. Tornos highlights specific product introductions, such as Oxford Partial Cementless, Persona Revision, and Persona OsseoTi, as key drivers of anticipated growth in various regions, particularly in the U.S. and Europe.

The paragraph discusses the company's tracking efforts related to product launches and supply chain dynamics, expressing confidence in achieving a 0.5% growth guidance. The conversation highlights strong performance in U.S. Hip products and clarifies that half of the users for a new product, Z1, are from competitive accounts. It anticipates seeing growth from new products, especially in Knees, starting in Q2 in the U.S., with a more significant impact expected in the second half of the year.

The paragraph discusses the growth and pricing trends at Zimmer Biomet, particularly regarding their Hips product. It mentions that 50% of the U.S. growth in Hips comes from new customer conversions, with an expected continuation through Q4 2025. The dialogue then shifts to pricing, noting a downward trend in price increases over the last four quarters, ending with a 10 basis point increase. Suketu Upadhyay, addressing the question, states that while the Q1 pricing was better than expected, leading to an improved flat pricing outlook for the year, the company had anticipated a decrease from the previous year. Additionally, he mentions the influence of one-time items outside of the U.S. in 2024.

The paragraph discusses the company's pricing outlook and strategies in response to current and potential future market conditions. It highlights that most of its business is contracted, providing good pricing visibility and stability for the remainder of the year. The company anticipates the pricing environment will remain stable due to strong pricing on new products, improved competitive responses, and better internal capabilities and governance. While closely monitoring input and manufacturing costs, the company sees potential for opportunistic price increases but doesn't expect them to offset tariff impacts significantly. It mentions surpassing the original guide for 2025, despite a projected $60 million to $80 million tariff-related headwind.

In the paragraph, Suketu Upadhyay discusses strategies to mitigate the impact of tariffs on the company. The primary focus is on optimizing the production portfolio considering country of origin and transfer pricing, which are central to determining tariffs. The company has been proactive by importing inventory into China before tariffs took effect and is considering sourcing from Europe instead of the United States when beneficial. China represents the largest exposure for tariffs, affecting both imports and exports. Changes in political policies or tariffs involving China could significantly influence the company's tariff strategy. Overall, while progress has been made in mitigation efforts, further work is needed.

The paragraph discusses the relative performance of Stryker's U.S. Knee growth compared to its competitors, attributing its success to the Mako system. Ivan Tornos acknowledges the company's underwhelming 0.2% growth in the quarter but remains optimistic about future performance improvements. He highlights Stryker's ROSA surgical system, which has been used in 350,000 surgeries, as the second most popular in the U.S., and notes its accelerating market penetration. Tornos mentions a new iteration, ROSA Knee V15, which has been submitted for regulatory approval and aims to enhance surgical accuracy and simplicity, suggesting an anticipated improvement over the current version.

The paragraph discusses the future plans and challenges faced by a company regarding its knee performance in the U.S. and forthcoming product submissions for the CT scan ROSA platform and a new Partial Knee platform. The company emphasizes the need for better commercial execution to improve its U.S. Knee performance. While improvements are expected in Q2 and further acceleration in the second half of 2025, the discussion shifts to the impact of tariffs from 2025 to 2026. The speaker indicates that the tariff impacts will be more significant in 2026 due to full-year effects and the influence on cost of goods. However, the company cannot precisely estimate the impact due to various uncertainties.

The paragraph discusses the end of a 90-day pause period for retaliatory tariffs set to end in July, which could pose a potential challenge if extended into 2026. To mitigate tariff impacts, the company plans to optimize sourcing, focus on portfolio changes like emphasizing certain low-tariff products, and manage discretionary spending. Although no company is currently prepared to provide a forecast for 2026, they aim to outline upcoming headwinds and tailwinds. Additionally, it's noted that roughly 20% of their U.S. sales now come from Ambulatory Surgery Centers (ASCs), compared to 2-4% before COVID-19, indicating a significant market shift.

The paragraph discusses the growth and strategic positioning of a company in the ASC (Ambulatory Surgery Center) space, particularly in Knee and Hip reconstruction. The company has historically been strong in this area and is experiencing accelerated growth in their S.E.T. (Surgical, Endoscopy, and Therapeutics) business, reporting a 5% global growth for six consecutive quarters. They faced some challenges due to one-time events in the Sports Medicine business in the US but are optimistic about continued growth, especially with recent acquisitions such as Paragon 28. The discussion transitions to a Q&A session where Suketu Upadhyay addresses questions about Q2 performance, clarifying that growth would be slightly above the 2.3% constant currency figure from Q1, but no specific quarterly guidance or impact from order shifts is provided.

The paragraph discusses Zimmer Biomet's decision to rename their "Other" category to "Technology & Data, Bone Cement, and Surgical." Ivan Tornos explains that the name change was made because the new title more accurately represents the components of the category, particularly highlighting the rapid growth of enabling technologies. He also notes that the previous categorization was inadequate. Despite a decline in the category over the quarter, this was attributed to heavy comparisons with the previous year's first quarter, which saw a 10-12% growth. Tornos mentions robust robotic adoption and more installations than sales in the recent quarter as reasons for the decline. He also responds to a question about the Paragon acquisition, saying the integration is progressing better than expected, with a primary goal of retaining the leadership team.

The paragraph discusses the integration of Paragon 28’s leadership and sales team into Zimmer Biomet. Albert Acosta, Matt Jarboe, and the entire commercial leadership have joined Zimmer Biomet to ensure minimal disruption near customers and maintain strong sales growth. They have successfully transferred about 250 sales reps, achieving their goals of smooth integration and preserving innovation. The integration was completed on April 21, and the operations, including new product launches, remain unchanged. Richard Newitter from Truist Securities asks about a sales force reorganization, but Ivan Tornos clarifies that there will be no changes to their guidance.

The paragraph discusses a company's strategic changes to improve growth in the U.S. They are accelerating adjustments to leadership, territory quantity, and incentive plans due to slow new business growth. Specialization is emphasized, with plans to deploy more resources in areas like SET and robotics, and to strengthen teams in ASCs. The aim is to have the right leaders and incentive structures to facilitate faster growth. A subsequent question from Shagun Singh of RBC inquires about the company's plans for mergers and acquisitions, specifically post-Paragon 28 acquisition, and strategies to boost ASC positions and explore new market opportunities to enhance growth beyond mid-single digits.

In the paragraph, Ivan Tornos discusses Zimmer Biomet's financial strategy and priorities following the acquisition of Paragon 28. He states that the company maintains a strong balance sheet and expects its leverage ratio to decrease due to strong cash flow. Zimmer Biomet plans to focus on strategic mergers and acquisitions (M&A) that make financial sense, particularly those that minimize earnings per share (EPS) dilution. The company has improved integration capabilities and governance under a new Head of Business Development. Tornos highlights interest areas such as Ambulatory Surgical Centers (ASC), S.E.T., and growth categories in orthopedics and data technology. He emphasizes the goal of achieving a 5% weighted average market growth rate (WAMGR) by 2027, with continued growth by the end of the decade. The paragraph concludes with a segue to Rick Wise from Stifel, who asks Tornos for more details on the progress with the Oxford Partial Cementless Knee.

The paragraph discusses the progress and expectations for training on the Oxford Cementless system, a PMA-approved partial cementless product in the U.S. Ivan Tornos mentions that they plan to train over 1,000 customers by the end of 2025, having already trained nearly 400 individuals and conducted training events in locations such as Dallas and Chicago. The training process is described as relatively brief, with users ready to go after a few cases. Additionally, contract penetration for the product is expected to rise from 50-55% to 70-80% by the second half of 2025, marking it as an exciting launch for Zimmer Biomet. The operator then transitions to Jeff Johnson from Baird, who asks about opportunistic price increases, seeking clarification on whether it pertains more to the capital or implant side, and refers to inventory turns related to 2026 tariffs in a broader discussion.

The paragraph involves a discussion about financial modeling and strategic pricing in response to tariffs, emphasizing that $40 million as a tariff impact per quarter might be a starting point for financial models, though it should not be used as a run rate for the next year. Suketu Upadhyay notes that their business, particularly in recon, is heavily contracted, limiting near-term pricing opportunities to non-contracted areas like CapEx surgical. Inventory levels will delay the impact of tariffs on run rates. Mike Matson inquires about Zimmer Biomet's antimicrobial technologies and iodine coatings, highlighting potential differentiation. Ivan Tornos mentions that the iodine-treated hip is launching in Japan this year, with eventual plans for a U.S. launch, and shows openness to external technologies through acquisition or partnership.

The paragraph discusses a company's strategy and developments related to a new medical implant platform aimed at preventing biofilm formation, which they claim is the only one of its kind with prolonged efficacy. They emphasize a broader strategic focus beyond just coded devices, highlighting investments in technology that expedites surgeries and addresses infection, marking transformation in the field. They plan to launch a product called Iodine in Japan by the end of 2025 and are working on introducing it in the U.S. Furthermore, Ivan Tornos from Zimmer Biomet recaps the quarter with five points: strong markets, long waiting lists for procedures especially in the U.S., and reaffirmation of the company's confidence in achieving their revenue guidance target of 3% to 5%.

The paragraph discusses a company's financial outlook and strategic updates, highlighting several key points. First, they anticipate an additional 270 basis points of revenue growth for the year, owing to the acquisition of Paragon 28. They assert confidence in maintaining their financial guidance, despite expected EPS dilution from tariffs and the acquisition, which they aim to fully offset within two years. The company also sees positive momentum in new product introductions in the orthopedic sector, especially with Hips and Knees, expecting further growth in the second half of 2025. Moreover, the integration with Paragon 28 is going well, with anticipated continued growth in line with historical performance. Overall, the core measures indicate strong management amidst market challenges.

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