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Zimmer Biomet Holdings (ZBH): Company Profile, Stock Price, News, Rankings

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Zimmer Biomet Holdings

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Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet First Quarter twenty twenty five Earnings Conference Call. As a reminder, this conference is being recorded today, 05/05/2025. Following today's presentation, there will be a question and answer session. I would now like to turn the conference over to David DeMartino, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to ZimmerLive's first quarter twenty twenty five earnings conference call. Joining me on today's call are Ivan Tornos, our President and CEO and Sukio Padier, our CFO and EVP, Finance, Operations and Supply Chain. Before we get started, I'd like to remind you 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.

For a detailed discussion of all these risks and uncertainties in addition to the inherent limitations of such forward looking statements, please refer to our SEC filings. Please note, we assume no obligation to update these forward looking statements even if actual results or future expectations change materially. Additionally, the discussions on this call will include certain non GAAP financial measures, some of which are forward looking non GAAP financial measures. Reconciliation on these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our first quarter earnings release, which can be found on our website, ZimmerBiomed.com. With that, I'll turn the call over to Ivan.

Good morning, everyone, and thank you for joining today's call. I would like to start today the way that I always do, by taking a moment to recognize and to show my gratitude to the over 17,000 Zimmer Biomed team members who move our business and mission forward every day. Thank you for your tireless work, your strong performance, and most importantly, you for your commitment to serving our customers and our patients. As I always say, the Zimmer Biomet workforce and the culture that we have truly is one of our key competitive advantages. During my prepared remarks this morning, I'm going to cover four things.

First, the first quarter results of 2025. Secondly, our drivers of performance for 'twenty five and beyond. Thirdly, the usual update on our three strategic priorities and then I'll close with an update on the recently completed Paragon twenty eight acquisition. After this, Suki is going to cover our financials in more detail. I will make sure to leave plenty of time for questions at the end of the prepared remarks.

To begin, we grew first quarter sales 2.3% constant currency, with standout results in U. S. Hips, which were up nearly 4%, a mid single digit growth in set. This performance was against the backdrop of one less selling day in the quarter, which as we mentioned in the past, represented a meaningful headwind. The U.

S. Hip performance highlights the opportunity with our magnificent seven product cycle and the impact that these products will have in accelerating our position as the global leader in hips and knees. Specifically in The U. S, the combination of Z1, or triple tapered hip stem for direct anterior procedures, HEMR, or surgical impactor, and Orthogrip, or AI driven surgical guidance system, for total hip replacements has put us on the offensive once again. Notably, roughly half of Z1 users in The U.

S. Are conversions from competitive accounts, a trend that we expect to continue. In U. Knees, we expect Persona Oceutide or cementless knee and the Oxford partial cementless knee to drive accelerating growth throughout 2025. We have now passed 25% penetration with cementless knees in The U.

S. And expect that trend to accelerate now that we have performed widespread customer and sales rep training and have ample supply to drive increased penetration. Similarly, the European launch of Persona Revision, the leading revision knee implant in The U. S, should continue to gain traction throughout the year. Looking at 2025, we are maintaining our full year organic constant currency revenue growth expectations of 3% to 5%, which excludes contribution from the Paragon twenty eight acquisition.

We anticipate Paragon twenty eight to contribute two seventy basis points to sales growth in 2025. We are updating our 2025 adjusted EPS guidance to $7.9 to $8.1 from the previous $8.15 to $8.35 which contemplates, first, the impact from tariffs being fully offset primarily by the weakening of the U. S. Dollar, shifts in discretionary spending and other operational strategies that our team has undertaken. And then secondly, modest dilution of less than 3% from the Paragon twenty eight acquisition, as was previously mentioned.

Suk is going to provide more detail on guidance in his prepared remarks. As we progress throughout 2025, our priorities have not changed. We're going to continue to over index on people and culture, operational excellence and innovation and diversification. Firstly, in the priority of people and culture, we're going to continue to ensure that we have the right people in the right jobs. To that end, at the senior leadership level of the organization, we recently added two new leaders to take over the key functions of strategy, innovation and business development, as well as communications.

In addition to that, we have also hired new commercial leaders in key countries in Asia Pacific, have made changes in U. S. General management in key geographies and have hired strong capabilities in pricing. As we move towards the end of the year, we plan to make additional changes in The U. S, knowing that we got to do better, ensuring that every territory is led by a strong player who's solely focused on driving Zimbabwe's performance in the assigned geography.

Secondly, in alignment with our strategic priority of operational excellence, we remain committed to elevating our performance in the very critical U. S. Market, and to that end, are making changes to optimize our U. S. Sales channel.

We're going to continue to specialize our SET SET field team to ensure that we're capitalizing on the high growth opportunity that this market represents, while bolstering our leadership position in the ASC through expanded product offerings and capabilities, and are also meaningfully expanding all robotic platforms through innovation and committing additional commercial resources. As a reminder, all of these changes are contemplated within the given guidance range for the year from both a revenue and EPS standpoint. In addition to driving sales growth, we continue to prioritize margin improvement while also reducing inventory needs. That way, we can increase our free cash flow generation. We like what we are seeing when it comes to DOH, Taste on Hemp, and the reduction that we've seen in DOH, and expect to move from around three seventy days today to a much lower number in the quarter years to come.

As a reminder, our DOH number was north of 400 early in 2024. In our third priority of innovation and diversification, now that we have no gaps left in our core portfolio after the introduction of the magnificent seven products, we are now refocusing our innovation efforts in addressing unmet needs within musculoskeletal health and adjacent areas. Four key problems that we're going to solve for. Number one is awareness. Less than five percent of patients address their osteoarthritis.

To empower patients to seek treatment, we're executing a bold direct to patient program in partnership with our Chief Movement Officer, Arnaud Schwarzenegger. During the first quarter of twenty twenty five, we launched our new You'll Be Back campaign, and we continue to partner with key societies to educate patients around the world about joint replacement, while also expanding our digital marketing program in key geographies and territories. The second problem we're trying to solve is safety. Periprosthetic joint infections, or PJIs, occur in roughly one percent to two percent of primary cases and around four percent to five percent are revision joint replacement procedures and can be devastating. As a matter of fact, mortality rates, once you do get these PJIs, can be higher than some cancers.

We're committed to addressing this unmet need through technology, such as iodine surface treated implants, to prevent bacterial colonization and biofilm formation. Excited to be launching the first iodine surface treated hip stem in Japan later this year. And at some point, it'll come to The U. S, where the opportunity is pretty large. Beyond iodine surface devices, we're investing in technology that aims to drive faster surgeries to reduce exposure to infection while in the operating room.

Our OneTEAM acquisition, executed late twenty twenty four is an example of this strategy. The third key area where we're gonna focus our innovation efforts is around efficiency. One aim of our innovation engine is to lessen the burden of care for all key stakeholders by capturing patient data with smart implants, making a CT scan an option for robotic implants with our platform, ROSA. And by reducing surgical times through utilizing AI technologies such as OrthoGrid, we target to improve the quality of life for patients, reduce the cost of care for payers, and providing doctors more time to perform other surgeries. We believe we can be faster and smarter when it comes to the episodic treatment for the multiple patients that can benefit from our devices.

The fourth key area where we are focusing our innovation efforts is around outcomes. We strive to continually improve patient satisfaction. With the recent PMA approval of the Oxford Partial Seam Endless Knee, patients in The United States now have access to a partial knee backed by robust clinical data. Data on nearly 15,000 patients from the National Joint Registry for the UK demonstrated ninety three percent survivorship at ten years. This is a statistically significant improvement over the ninety percent with cemented partial implants.

We have now trained several hundred customers on Oxford partial cementless and expect robust adoption as we exit 2025. In addition to internally developed solutions, we will also look to address these needs through inorganic opportunities that feed our strategic, financial and risk return metrics. And we do remain committed to our aspiration of achieving a 5% Vanguard weighted average market growth rate environment by the end of twenty twenty seven. As a reminder, today's Vanguard here at Biomet is around four to 4.25. We have built best in class integration capabilities at Zimmer Biomet and are ready to take on the right opportunities at the right time.

Speaking of successful integrations, I want to end today discussing the closing and integration of the Paragon twenty eight acquisition. As of April 21, Paragon '20 '8 is now part of the Zimmer Biomed family, And we're very proud of this achievement. This successful integration of the acquisition has been and will continue to be a top priority. And I'm very happy to report that Paragon twenty eight's Chairman and CEO, Alberto Acosta, as well as his entire Xenia commercial leadership team, have now joined the Zimmer Biomet family. Albert and the team have created a highly energetic, entrepreneurial, and committed culture, which we intend to preserve here at Zimmer Biomet.

I could not be more excited to have the PARAGON twenty eight team on board, along with the bring to CB, and I look forward to the ongoing journey. In addition to adding the senior leadership of PARAGON twenty eight, the entire U. S. Sales channel of Paragon twenty eight has now signed up for the Zimmer Biomet journey, creating minimal disruption to the success that they have achieved over so many years. In conclusion, we are very proud of the progress in our organization, and we look forward to continuing to execute and build momentum as we move throughout the year.

I love the fact that we're impacting the lives of millions of people, and I'm deeply inspired every day in knowing that my teammates and I are living the Zimmer Biomet mission of alleviating pain and improving the quality of life for people around the world. And with that, I'll now turn the call over to Suki. Thank you very much.

Thanks, and good morning, everyone. As Ivan mentioned, we closed a solid quarter that demonstrated the early impact of our new product cycle. Despite the selling day headwind, we grew sales 2.3% on a constant currency basis, delivered adjusted earnings per share of $1.81 and generated $279,000,000 in free cash flow. Looking at this quarter's results, unless otherwise noted, my statements will be about the first quarter of twenty twenty five and how it compares to the same period in 2024, and my commentary will be on a constant currency and adjusted operating basis. 2025 organic constant currency guidance commentary will exclude any projected impact of the recently closed Paragon twenty eight acquisition.

Net sales were $1,909,000,000 an increase of 1.1% on a reported basis and 2.3% excluding the impact of foreign currency. Consolidated pricing was 10 basis points positive, marking the fifth consecutive quarter of positive pricing. Our U. S. Business grew 1.3%, driven by nearly 4% growth in both hips and S.

E. T. As Ivan mentioned, we continue to make changes to bolster our U. S. Performance.

This includes new leadership in key geographies, sales rep specialization, expanding our ASC offerings and committing additional commercial resources in robotics. Internationally, we grew 3.7%, driven by mid single digit growth in knees and high single digit growth in S. E. T. Our S.

E. T. Business continues to outpace knees and hips, and with the closing of Paragon twenty eight transaction, it will now be larger than our hip business. This aligns with our strategy of diversifying into faster growth markets. Global hips grew 2.4%, with The U.

S. Growing 3.7 and international growing 1%. We are particularly pleased with The U. S. Results given the selling day headwind.

As Yvonne mentioned, our U. S. Performance was driven by the combination of Z1, HAMMER and Orthogrid. The Z1 launch has exceeded our expectations and we have seen rapid uptake from both existing customers and competitive accounts. Global knees grew 1.9% in the quarter with U.

S. Growing 0.2% and international growing 4.2%. We continue to anticipate an acceleration in U. S. Knees throughout 2025, driven by increased penetration of our Persona Osteo Tie Cementless Knee and the full launch of our Oxford Partial Cementless Knee.

Next, our S. T. Segment grew by 4.9% led by CMFT and Sports growing in the low teens and high single digits respectively. This marks the sixth consecutive quarter of at least mid single digit growth in S. E.

T, a trend we expect to continue. Finally, Technology and Data, Bone Cement and Surgical declined 3.5% due to tough comps from the prior year and a mix shift towards ROSA volume based placements versus outright sales. Turning to our P and L. We reported GAAP diluted earnings per share of $0.91 compared to GAAP diluted earnings per share of $0.84 in the prior year. This increase was driven by higher sales and lower restructuring charges.

On an adjusted basis, we delivered diluted earnings per share of 1.81 compared to $1.94 in the prior year. As previously guided, earnings were down due to higher COGS capitalization from 2024, higher upfront investments for new product introductions, higher interest expense and an FX headwind of about $03 Adjusted gross margin was 71.5% and adjusted operating margin was 26.2%, both lower than the prior year, but in line with expectation. Adjusted net interest and non operating expenses were $59,000,000 above the prior year, driven by higher debt and higher interest rates on refinance debt that matured in 2024. Our adjusted tax rate was 18.2% and fully diluted shares outstanding were 199,700,000.0, down year over year due to the share repurchases, of which we executed another $230,000,000 during the quarter. Turning to cash and liquidity.

We had another strong quarter of cash generation with operating cash flows of $383,000,000 and free cash flow of $279,000,000 representing robust growth versus the prior year. Our working capital initiatives targeted towards inventory reduction continue to pay off as we reduced days on hand by almost forty seven days compared to Q1 twenty twenty four, ending at approximately three seventy days of inventory on hand. We ended the quarter with approximately $1,400,000,000 of cash and cash equivalents, which includes the proceeds from debt issuance to support the acquisition of Paragon twenty eight. Regarding our outlook for 2025, there are a number of moving parts that impact our guidance. First, at recent rates, FX is now expected to be a tailwind to our full year outlook.

Additionally, we incorporate our initial estimate on the negative impact of global tariffs as well as the closing of the Paragon twenty eight transaction into our guidance. When accounting for these changes, we now expect 2025 reported sales growth of 5.7 to 8.2%, EPS of $7.9 to $8.1 and free cash flow of $750,000,000 to $850,000,000 On revenue, we are reiterating our 2025 organic constant currency revenue growth of 3% to 5%. Inside of this, we expect average selling prices to be roughly flat for the full year and selling day differences to be a modest headwind to growth. With the recent weakening of the dollar at current rates, we anticipate FX to be flat to a 50 basis point tailwind in 2025, an improvement from our prior guide. On Paragon twenty eight, we anticipate the acquisition to contribute about two seventy basis points to growth in 2025, resulting in consolidated reported revenue growth expectations of 5.7% to 8.2%.

Regarding the cadence of expected revenue results, we continue to anticipate that second half organic constant currency growth will be higher than the first half due to more favorable comps related to the 2024 ERP challenges, new product uptake and no selling day impact. We expect second quarter organic constant currency growth to be slightly higher than the first quarter constant currency growth, which incorporates tougher year over year comps, a shift of orders from the second quarter into the second half in certain emerging markets inside of EMEA and continued optimization of The U. S. Channel. Now addressing tariffs.

Let's just say that the situation remains fluid. Based on current administration proposals, we anticipate a 60,000,000 to $80,000,000 headwind to operating profit in 2025, with the majority of the impact in the second half of the year. This estimate contemplates our latest view of mitigation efforts currently underway and that the announced European reciprocal tariffs will go into effect after the ninety day stay period. I will note that our 2025 impact should not be used as a run rate for 2026 due to a variety of factors and that our estimate around the impact of tariffs in 2025 could change as the macro environment continues to unfold. Given tariffs and the Paragon twenty eight acquisition, we now anticipate full year adjusted operating margins to be down approximately 100 to 150 basis points versus 2024.

The second half adjusted operating margins up slightly from the first half and the fourth quarter still having the highest adjusted operating margin. Adjusted net interest and other non operating expenses are expected to be approximately $3.00 5,000,000 reflecting borrowings for the Paragon twenty eight acquisition and higher interest rates on refinance debt. We continue to expect our adjusted tax rate to be approximately 18% for the full year and fully diluted shares outstanding to be approximately $200,000,000 We project the 2025 tariff headwind to be offset primarily by a combination of the weakening U. S. Dollar and corresponding FX tailwind, a decrease in discretionary spending and other operational strategies.

Given these dynamics and factoring in the dilution from the Paragon twenty eight acquisition, which is in line with our original expectations, our fully diluted adjusted earnings per share is expected to be $7.9 to $8.1 We now anticipate 2025 free cash flow of $750,000,000 to $850,000,000 down from $1,100,000,000 to $1,200,000,000 due to tariff related headwinds and one time costs associated with the recently closed Paragon twenty eight acquisition. This reduction in free cash flow is projected to be roughly fifty-fifty between tariffs and the closing of the Paragon twenty eight deal. And again, the Paragon twenty eight impact should be one time in nature. I would like to close by thanking the entire ZB team for their continued hard work and dedication. We continue to make meaningful positive changes across the business and continue to invest to accelerate long term growth while navigating an uncertain environment.

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

Thank you, Sookie. Operator, let's open up for questions. In order for us to take as many questions as possible, please limit yourself to one question. Operator, please go ahead.

Thank you. We'll take our first question from Robbie Marcus with JPMorgan.

Great. Good morning and congrats on the good quarter. I want to start on the topic du jour of tariffs. I would say that's a much smaller impact than most were expecting on EPS. So maybe, Sokie, if you don't mind walking through what the mitigation efforts are, how you're offsetting the tariff headwind?

And you made the comment about the 2025 run rate is not a good exit trajectory to calculate 2026 tariffs. Maybe you could just expand on that and help us understand what the right run rate is. Thanks a lot.

Yeah. Good morning, Robbie. Thanks for the question. Yes, it is the topic du jour, isn't it, this season? I would say that we first of all, going back to some of our earlier comments from the beginning of the year, recall that you know, the majority of our production and manufacturing is actually done in The United States, and that's been the case for quite some time for Zimmer Biomet.

So that overall lowers our exposure some bit. But we have already taken some early steps to mitigate the impact of tariffs. A couple of the big ones are optimizing our view of country of origin as well as transfer pricing. Secondly, we've made adjustments to our sourcing, through our dual sourcing and redundant sourcing, where it makes sense. And then thirdly, you know, we've moderated some of our discretionary spend in areas that don't really impact near term or long term revenue growth.

So those are some of the levers that we're pulling to overall lower our impact. As we said in our scripted remarks, we expect that to be the impact of tariffs this year to be somewhere between 60,000,000 to $80,000,000 The impact in Q2 is going to be quite small, less than $5,000,000 Over a little over half of the impact will be in Q4. So, I think that gives you a good view into the cadence of how the tariffs are expected to impact gross margin and operating margins and overall profit for this year. As we move into 2026, I'd say, you know, it's difficult to predict exactly where tariffs will end up. There are a lot of moving parts.

As you know, the impact on our COGS gets capitalized and will roll into future periods through inventory. So that's potential headwind. Other headwinds could be, you obviously have the annualization next year, full year of tariffs versus a partial year this year. And then we're also assuming that the ninety day stay period expires in early July, which would be a headwind into next year because it wouldn't have that ninety day pause. There are some tailwinds, however, as we think about 2026.

The first being is, you know, we're going to continue to look at potential sourcing changes to continue to lower that overall number, potentially some portfolio optimization, exchanging portfolio opportunities across knee, hip, and set where it makes sense. And then, of course, we're going to always, as we've done, look at potential discretionary savings discretionary spending savings, I should say, to help offset tariffs. So while '26 is still a moving target, overall, you could expect it to be higher because of those tailwinds than what we're seeing in '25. But I will say I'm very, very happy with how the team has reacted, even before the tariffs were put in place to start the plan to get us in position to optimize things. So overall, we do see it as a manageable headwind to this year.

And as you'll see from our guidance, excluding the impact of Paragon twenty eight, which is right in line with expectation, we are fully offsetting the tariff impact.

Thank you. We'll take our next question from David Roman with Goldman Sachs.

Good morning and thank you for taking the question. I'm struggling a little bit to put some of the moving parts together in the quarter and the outlook. Certainly appreciate that Q1 matched your expectation, was very consistent with what you presented in February. But the absolute level of growth is still below what we saw last year, pretty much in most of the quarters before ERP disruption. At the same time, you're highlighting the positive impact of new products powered by what appears to be performance related commercial leadership changes.

But how long should it take to digest all these variables? And what are you seeing specifically today that

can exit the year above 5% growth to get to the midpoint of the guidance you're issuing for organic revenue?

David, thanks for the question and good morning. So let's maybe unpack this part by part or piece by piece. I'll start and Suki, by all means, feel free to add. So starting with Q1, if you add to Q1, the 2.3% constant currency, if you add the impact of the one day less in Q1 of twenty five versus '24, that number is between 3.5% to 4%. So, close to that midline or that mid single digit growth commitment.

Q2, we do have some timing events in EMEA, Euro, Middle East and Africa, that some orders that are getting that later in the year. We do have the most difficult comp versus Q2 of twenty twenty four. So recall that Q2 of twenty twenty four, we grew 5.6% XFX, so near 6%. And we do have still some new products that are not in full launch mode. The second half of twenty twenty five is mid single digit growth based on comps, to your point on the ERP debacle that we had in 2024, and just a lot of new products happening in the second half.

We're going to see Oxford Partial Cementless here in The US at full speed. We've got Persona Revision in Europe at full speed. We've got many launches happening in the set category in the second half. And we do have Persona Oceo Tie at that point, probably close to 30% penetration here in The US. So, there's a lot happening in the second half of twenty twenty five when it comes to new products.

And we feel extremely confident that those new product introductions are going to materialize. We're tracking the number of product trainings that we do. We are weekly tracking supply chain dynamics, making sure we have the right amount of sets in the market. We're tracking our contracting capabilities, making sure that these new product introductions are going to happen. So, net net, we are extremely confident that new product execution, new product launch execution is going

at that, and again, in the backdrop of easier comps, we feel very confident that our current guidance of zero to 5% is going to get executed upon. Hopefully, quarter from now, we're talking about a higher commitment in terms of where we fall within that guidance. Suky, anything to add?

We'll take our next question from Chris Pasquale with Nephron.

Thanks. Yvonne, you highlighted a nice performance in U. S. Hips, which was certainly encouraging. Just wanted to clarify, when you say that 50% of Z1 users today have been competitive accounts, are those true new to Zimmer surgeons or does that include surgeons who were maybe already customers on the knee side?

And then just to put a finer point on that second half growth driver list you just ran through, should we expect to see the impact from new products on the knee side start to come through as soon as third quarter? Or is it going be later than that? Thanks.

Thanks, Chris. I'll start with the second question. I do believe we're going to see some of the uptick of new products in knees within Q2 here in The U. S. So I don't think we need to wait to see Q3, or I don't think we need to wait until Q3.

However, obviously, the quantity of new products in the second half is going to be higher in the second half, but you should expect to see some knee growth momentum in The US within Q2. Early in the quarter, we're already seeing that. Relative to your first question on hips, these are true new customers. There might have been some customers that we lost years ago, but yes, 50% of the growth in The US in hips, that's 3.7%, is true new conversions, customers that are not users of hips for Zimmer Biomet. And we expect that the numbers will continue to grow as we get into Q2 all the way through Q4 of twenty twenty five.

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

Good morning. Thanks for taking the question. I wanted to ask a little bit about pricing. So last four quarters of pricing have been up 80 basis points, seventy, sixty and now up 10 basis points. And I'm just wondering if and that plus 10 is off of flat Q1 of twenty twenty four.

So are we to the point now where the tailwinds we're seeing on the pricing side are largely behind us? Are we going to start to see that rollover and get negative like we've seen historically? And I guess with all these new products coming out that are higher priced in this ASP tailwind you should be getting, is it going to make it more difficult to really sell those products in an environment where pricing starts to

Yes. So, Matthew, thank you for the question. This is Suki.

First, I'd start with we entered the year with a guidance assumption that pricing would be flat to down 50 basis points. So delivering on the first quarter at positive 10 is a little bit better than what we originally expected. And therefore, we're improving our outlook on overall pricing to be flat for this year. I would say, as compared to 2024, you're right, the number has stepped down, but that's something we anticipated, as I said, with our initial guide. And remember, we talked extensively about in 2024 a number of sort of one time items outside of The U.

S. That were creating a much more favorable pricing environment, which we did not expect to repeat in 'twenty five and beyond. And so you're seeing that play out. As we move forward, again, we the majority of our business is contracted, so we have good visibility into how we expect pricing to operate or perform for the rest of this year, and that gives us confidence in that outlook of being about flat. And then as we move forward, we continue to see the pricing environment be relatively stable compared to our historical norms.

That's really, one, you're seeing really good pricing out of our new products and that pricing hold. Two, I think you're seeing much better competitive sort of response to overall pricing. And third, just internally from a capabilities and governance standpoint, we're a much better company when it comes to price than we have been, in fact, incenting to ensure that the field force operates with a strong sense of margin in addition to revenue growth. So those are all the factors that give us confidence that that pricing is stable, at least in the near term. Relative to tariffs, I think it's too early to call at this point.

We're closely monitoring input costs. We're closely monitoring third party contract manufacturing costs. I have not seen anything out of the ordinary on either one of those fronts. We are looking ourselves at potential opportunistic price increases across our portfolio. I would not count on that as a major offset to overall tariffs, but we're going to be opportunistic we see a light there.

So really, that's our view on pricing just to bring it back. We're doing a little bit better than our original guide for 2025.

Thank you. We'll go next to Matt Taylor with Jefferies.

Hi, thank you for taking the question. I did

want to just follow-up on the tariffs and clarify when you said the 60,000,000 to $80,000,000 headwind for 2025 includes some mitigation. I guess I just wanted to ask if you could give us about what the headwind would have been without mitigation and maybe just talk through some of the main sources of this headwind so we can understand assuming things continue to change, how your exposure may continue to change with the policies around different geographies?

Yeah, Matt. Thanks for the question. So again, the mitigations have really been around, again, optimizing across our portfolio for country of origin, which is the key driver that determines tariffs in addition to transfer pricing. So actually where you produce is directly indicative of overall tariffs, but it does come down to country of origin and transfer pricing. So our internal teams have done a really nice job of driving optimization there.

And secondly, we've made changes in how we source product. China remains our largest exposure when it comes to tariffs. So we've put a good bit of inventory into the country before the tariffs were enacted. And secondly, we're evaluating continuing a source for China from Europe as opposed to The United States where it makes sense. So those are some of the levers that we're pulling.

So again, we're just looking for any opportunity we can to offset that. Relative to, again, where is the impact, I'd say China is the largest impact. That's both products shipping into China as well as product coming out of China into The United States. So as we see movements in policy there or tariffs, that could be a large driver of future changes on overall tariff profile for the company. But yes, so overall, I think we're pleased with where we started.

I think there's more work to be done relative to our ability to mitigate future tariffs.

Thank you. We'll take our next question from Larry Biegelsen with Wells Fargo.

Thank you for taking the question. Just Suky, one clarification. Your commentary on 2026 wasn't clear on the net impact of the tariffs and the tailwinds you mentioned. And just for my question, Ivan, it's Stryker's recon growth, particularly it's U. S.

Knee growth continues to be a lot higher than the other three competitors. And we can all see that obviously. We did a lot of channel checks around AAOS and we continue to hear that the difference is really just still Mako. So, how much do you think that's the case and what are you doing to make ROSA more competitive? Talk about the three new modalities coming and the implications.

Sure, Larry. I'll start with that. And I don't know if Suki, you want to provide more clarity on 2026. Although I think we said plenty around 2026 tariffs. Hey, we got to do better when it comes to our knee performance in The U.

S. Nobody here is pleased with 0.2% growth in the quarter. That said, none of us are surprised about the knee performance or the number in the quarter. We knew that there was gonna be a phasing with knees performance in The U. S.

And we're very confident the second half is gonna be better. Relative to ROSA, we've done 350,000 surgeries with ROSA since we launched. We are the number two player in The US. We continue to see acceleration of penetration quarter by quarter. A couple of weeks ago, we submitted our five ten submission, that's a ninety day approval submission, for what we call ROSA Knee V15.

We believe that's going to be a dramatic transformation of ROSA in itself. The value proposition of ROSA Knee one point is going to enhance surgical accuracy and reproducibility by improving soft tissue laxity, a different user experience. The platform has the ability of doing a kinematic knee. It has a new auto balance procedure. It's faster, it's simpler, it's streamlined.

So, we believe there's going to be an improvement on the current version of ROSA. On top of that, right after that, we're going to be submitting at some point for the CT scan ROSA platform, as well as down the road a different Part CMD platform. As we continue to evolve ROSA, we also have partnerships with ThinkSurgical for those surgeons, and some of our competitors do like CT scanning. So, we have that optionality as well through our partnership with ThinkSurgical. So, look, I don't think the robot is the main reason or why we are behind when it comes to knee performance in The US.

It has to do with the fact that we have the largest share. And the fact that we've to do better when it comes to commercial execution, I want to improve upon that. And as I mentioned in my earlier answer, I do think already within Q2, you're going to start to see some improvement in U. S. Needs.

And as we get into the second half of twenty twenty five, I think you're to see acceleration when it comes to U. S. Needs.

Yeah. Larry, thanks for the question. I'll go back to some my earlier comments and maybe try and rephrase them. So, I did say that 2025 should not be used as a run rate for 2026, and that you should expect 2026 tariff impact to be higher than 2025. And we're not ready to size that at this time because there are a number of puts and calls and uncertainties that would prevent us from sizing that with precision at this point.

But there are some headwinds and tailwinds to help shape that discussion. From a headwind perspective, first, you're going to have annualization, right? So you only had tariffs for part of the year this year. So assuming you have for a full twelve months next year, that would be a headwind. Secondly, like most companies, the tariffs impact cost of goods.

Zimmer Biomet Holdings Q1 2025 Earnings Call Transcript | Fortune

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Zimmer Biomet Holdings (ZBH) Q1 2025 Earnings Call Transcript

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