Q1 2024 Zimmer Biomet Holdings Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet first quarter 2024 earnings conference call. If anyone needs assistance at any time during the conference, please press the star followed by zero. As a reminder, this conference is being recorded today, May 2, 2024. Following today's presentation, there will be a question and answer session. At this time, all participants are in a listen-only mode. If you have a question, please press the star followed by the number on your push-button phone. I would now like to turn the conference over to Keri Mattox, Chief Communications and Administration Officer. Please go ahead.

Speaker Change: Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet first quarter 'twenty 'twenty four earnings conference call if anyone needs assistance at any time during the conference. Please press the star followed by the zero as a reminder, this conference is being recorded today may 2nd 2020.

Four following today's presentation, there will be a question and answer session. At this time all participants are in a listen only mode. If you have a question. Please press the star followed by the one on your push button. So I would now like to turn the conference over to Kerry Maddox Chief Communications and Administration Officer. Please go ahead.

Keri P. Mattox: Thank you, Operator, and good morning, everyone. Welcome to Zimmer Biomet's first quarter 2024 earnings conference call. Joining me today are Ivan Tornos, our President and CEO, and CFO and EVP of Finance, Operations, and Supply Chain, Suketu Upadhyay.

Keri P. Mattox: Thank you operator, and good morning, everyone welcome to Zimmer Biomet first quarter 'twenty 'twenty four earnings conference call. Joining me today are von Torno, our president and CEO, and CFO and EVP finance operations and supply chain suite, he would probably be I.

Keri P. Mattox: Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. However, actual results may differ materially from those indicated by such forward-looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward-looking statements, even if the actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements.

Keri P. Mattox: 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. Please note we assume no obligation to update these forward looking statements, even if the actual results or future expectations change materially.

Keri P. Mattox: Please refer to our SEC filings for a detailed discussion of these risks and uncertainties. In addition to the inherent limitations of such forward looking statements. Additionally.

Keri P. Mattox: Additionally, the discussions on this call will include certain non-GAAP financial measures, some of which are forward-looking non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our Q1 earnings release, which can be found on our website, Zimmerbiomet.com.

Keri P. Mattox: Additionally, the discussions on this call will include certain non-GAAP financial measures some of which are forward looking non-GAAP financial measures reconciliation of these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating. These measures is included within our Q1 earnings release, which can be found on our website.

Keri P. Mattox: Biomet dot com with that I'll turn the call over to Ivan Ivan.

Keri P. Mattox: With that, I'll turn the call over to Ivan. Okay, Ivan?

Ivan Tornos: Thank you, Keri, and thank you, everyone, for joining the call here this morning. I'd like to start today the way that I typically do, by taking a moment to recognize and to show my gratitude to the 18,000 Zimmer Biomet team members across the globe who, each and every day, work relentlessly to drive our mission forward. Simply put, I'm very proud of each and every one of you.

Ivan Tornos: Thank you Carrie and thank you everyone for joining the call here this morning.

Ivan: I'd like to start today, the way that that I typically do by taking a moment to recognize and to show them. Our gratitude to the 18000 Zimmer biomet team members across the globe.

Ivan Tornos: We each and everyday work relentlessly.

Ivan Tornos: In driving our mission forward simply put them I'm very proud of each and every one of you.

Ivan Tornos: Thank you for your dedication, for your commitment, resilience, and for your strong performance at the start of this year, 2024. It is truly this great workforce and the culture that we have here in place at Zimmer Biomet that gives me, and us, confidence behind the financial commitments that we're making. Given the fact that we have a very robust Investor Day coming up in just a few weeks, I will keep my opening remarks short with the goal of moving quickly into today's Q&A session. I'll touch on three key areas briefly. First, I'm going to provide some general comments on the results in the quarter versus or on expectations.

Ivan: Thank you for your dedication for your commitment.

Ivan: Caelian until you had a strong performance to start of this year 'twenty 'twenty four.

Ivan: It is sad truly this great workforce and the culture that we have here in place at Zimmer Biomet that gives me and gives us confidence behind the financial commitments that we're making.

Ivan: Given the fact that we have a very robust investor day coming up in just a few weeks I will keep my opening remarks shortly with.

Ivan: With the Golar moving quickly into today's Q&A session.

Ivan: Although it's shown as three key areas briefly first I'm going to provide some general comments on the results in the quarter.

Ivan Tornos: Secondly, I'll cover the drivers of performance, and we'll touch on why we believe that these drivers are sustainable. And then, lastly, I'll close with a brief summary of our progress against our three strategic priorities, which have been discussed since day one, those being people and culture. Operational Excellence and Diversification Innovation. Starting with the quarterly results, overall, we are very encouraged with our Q1 performance, which was ahead of our own expectations driven by healthy end markets combined with strong execution across the organization globally.

Ivan: Bearish resort unexpected issues.

Ivan: Secondly, I'll cover the drivers of the performance I will touch on why we believe that these drivers are sustainable.

Ivan: And then lastly, I'll close with a brief summary.

Ivan: Owner progress against all three strategic priorities, which have been discussing since day, one does being people and culture.

Ivan: Operational excellence.

Ivan: Diversification innovation.

Ivan: Starting with the quarterly results overall, we are very encouraged with our Q1 performance, which was ahead of what unexpected churn is driven by healthy end markets combined with our strong execution appears organization globally.

Ivan Tornos: We ended the quarter continuing the momentum that we saw in 2023, delivering 4.4 percent constant currency revenue growth while overstepping a sizable day rate headwind and facing rather difficult comparisons versus a year ago. In fact, it is reassuring to see that on a day rate adjusted basis.

Ivan: We ended the quarter continuing the momentum that we saw in 2020 three.

Ivan: The Liberty and four 4%.

Ivan: Constant currency revenue growth, while over to stepping a sizeable they raised headwind.

Ivan: Facing rather difficult comps versus a year ago.

Ivan: In fact, it is reassuring to see that on a day rate adjusted basis.

Ivan Tornos: Our growth for the quarter was greater than 6%, with several areas of the business and geographies contributing to such solid results. In addition to the sound revenue performance, we drove adjusted margin expansion and GRU Adjusted Earnings, even. Wallet's Effective Tax Rate increased over 200 basis points.

Ivan: Our growth for the quarter.

Ivan: Was greater than 6%.

Ivan: With several areas of the business and geographies contributing to such solid results.

Ivan: In addition to the solid revenue performance, we drove adjusted margin expansion.

Ivan: And grew adjusted earnings even.

Ivan: While our effective tax rate.

Ivan: The increase over 200 basis points.

Ivan Tornos: These results to start 2024 give us great confidence that Zimmer Biomet will deliver 5% to 6% constant currency revenue growth in the year while driving sizable adjusted operating margin expansion. So I would like to reaffirm our guidance for the year. This, in turn, will enable mid to high single-digit adjusted earnings growth while realizing our commitment of seeing free cash flow growing faster than earnings. SUKI is going to provide more color around these areas later, but strong performance in the quarter and again reaffirming guidance for the year.

Ivan: These results to start the 'twenty 'twenty four gave us great confidence that Zimmer biomet will de lever.

Ivan: 5% to 6% constant currency revenue growth in the year.

Ivan: While driving sizable adjusted.

Ivan: Operating margin expansion, so pleased to reaffirm our guidance for the year.

Ivan: These are internal will enable mid to high single digit adjusted earnings growth.

Ivan: While realizing all commitment of seemed free cash flow growing faster than earnings so he's going to provide more color around these areas later, but a strong performance in the quarter and again reaffirming guidance for the year.

Ivan Tornos: It is encouraging to see us exiting Q1 of 2024 with a revenue growth run rate in the mid single-digit range, which is consistent with where we exited the second half of 2023, with new product introductions ramping later in the year.

Ivan: Net net it is encouraging to see us exiting Q1 of 'twenty 'twenty four with our revenue growth run rate in the mid single digit range.

Ivan: Which is consistent with where we exited the second half of 2020 three.

Ivan: With new products and new product introductions ramping later in the year.

Ivan Tornos: We like what we see in terms of sustainability in our growth trajectory, which we have said all along will accelerate in the second half of 2025. Key drivers behind our Q1 results came from both a macro and micro standpoint. Starting with macro factors, or in markets, as we've been saying all along, remain very healthy, driven by high levels of patient demand due to a demographic shift. The continued shift to ASCs here in the U.S. is also a tailwind, and across the board in the industry, we've seen better surgical outcomes, and technological advancements, which are driving more pace in demand.

Ivan: We like what are we seeing their self sustainability in our growth trajectory.

Ivan: We have said all along will accelerate in the second half or five 'twenty 'twenty four.

Ivan: Key drivers behind our Q1 results came from both a macro and micro standpoint, starting with macro factors or the markets as we've been saying all along remain very healthy.

Ivan: Driven by high levels of patient demand due to demographic shift.

Ivan: They continue to see today is see here in the U S is also a tailwind.

Ivan: And across the board in the industry, we've seen better surgical outcomes.

Ivan: Technological advancements, which.

Ivan: Our driving more pace in demand.

Ivan Tornos: On top of that, you got to improve pricing dynamics, and to that end, I'm pleased to report that pricing in the quarter was about flat, as opposed to the 200 to 300 basis points of price erosion that this space, this industry has seen historically. From a micro standpoint, the main enablers of Q1 results were the adoption of ROSA technology globally, with a correlated pull-through of Persona knee. We also saw sound execution of drug drivers within SET, particularly in shoulders, within sports medicine, and in our CMFT, cranium axillofacial thoracic business, in conjunction with rapid adoption of Persona Oceotype, which is our Semendes platform, which is quickly gaining share in the markets where we have launched the product.

Ivan: Well that you got a improved pricing dynamics and to that end. Please to report that pricing in the quarter was about flat.

Ivan: Those two the 200 to 300 basis points of price erosion that a visa space B C industry has seen historically.

Ivan: From a macro standpoint, the main enablers, so far Q1, our results where the adoption of our Rosa technology globally with.

Ivan: With a correlated pull through our persona knee.

Ivan: We also saw sound execution of drill drivers, we've seen set particularly in soldiers within a sports magazine and ignored C. M. S. T cranial maxillofacial thoracic business.

Ivan: In conjunction with rapid adoption of personnel Showtime.

Ivan: That he said Sam Mendes platform, which is quickly gaining share.

Ivan: In the markets, where we have launched the product.

Ivan Tornos: As we enter the second half of 2024, these new product introductions, as well as other new product entries, will become more meaningful from a revenue growth standpoint, with Persona Oceatai entering full launch status, seeing higher utilization of HEMR, or Surgical Impactor, which we recently launched, and also gaining traction with ROSA-Solder, which we started doing cases for recently here in the U.S. On top of that, So, really excited about the completed portfolio in hips and the upcoming launch, FDA-approved now, for the Z1 hip stem.

Ivan: As we entered the second half of 'twenty 'twenty four these new product introductions as well as other new product entries will become more meaningful from a revenue growth standpoint with persona Osha die entering then a full launch status.

Ivan: <unk> seen higher realization a hammer.

Ivan: Our surgical impactor, which we recently launched.

Ivan: And also gaining traction with Wassa shoulder, which we started doing cases recently here in the U S.

Ivan: On top of that we're gonna be entering the market with a or triple taper hip stem that Z one.

Ivan: Which is going to allow us to better compete.

Ivan: In the direct anterior he'd category, so really excited about that the completed portfolio in hips.

Ivan: And the upcoming launch of the approved now afford Z want a heap of steam.

Ivan Tornos: In addition to driving successful 2024 annual results, we are committed to the three strategic priorities that were outlined in my first earnings goal as the CEO in November 2023. This, no doubt, will enable long-term success for the organization. I continue to repeat these three priorities over and over at every Zimmer Biomet meeting around the world, and I can tell you that they are resonating with the audience as the absolute must-dos for the long-term success of the organization. Once again, these three imperatives are people and culture, number one; operational excellence, number two; and innovation and diversification, number three.

Ivan: In addition to driving successful 2024 annual results. We are committed to the three strategic priorities that outline it in my first earnings call as a seal in a little bit of 2023.

Ivan: These no that will enable long term success for the organization.

Ivan: I continue to repeat these are three priority these over and over at a body Zimmer Biomed meeting around the world.

Ivan: And I can tell you that they are resonating with allianz as the absolute must dos.

Ivan: For the long term success of the organization. Once again these three imperatives, our people and culture number one.

Ivan: Shall excellence number two on innovation and diversification number to see.

Ivan Tornos: I would like now to quickly provide you with an update in terms of key progress across these three areas. Further detail will come during our May 29th Investor Day in New York City. First, in the area of people and culture, we continue to operate Zimmer Biomed with best-class engagement metrics and low employee attrition. We have been recognized across different areas when it comes to people and culture.

Ivan: I would like now to quickly provide you with an update in terms of key progress across these three areas further detail will come due in at our May 29th Investor Day in New York City.

Ivan: First in the area of people and culture, we continue to operate Zimmer biomed with best in class engagement metrics and low employee attrition.

Ivan: We have been recognized had crows different areas when he goes to people and culture and recently, we've been showcasing various publications, including Newsweek, Great places to work in force.

Ivan Tornos: And recently, we've been showcasing various publications, including Newsweek, Great Places to Work, and Forbes. In the area of people and culture, it is worth noting also that our restructuring program, which we announced a quarter ago, has now been implemented almost entirely with no major disruptions to report. We have realized substantial benefits from this initiative, including realizing cost savings earlier than initially expected, as well as achieving increased operational agility and enhanced accountability. In the second area of operational excellence, we've made robust progress in implementing or enhanced inventory management programs around the world. Working intensely with third-party firms, we developed a plan, and we executed on that plan.

Ivan: In the area of people and culture. It is worth noting also that our restructuring program, which we announced a quarter ago has now been implemented almost entirely with no major disruptions to report.

Ivan: We have realized substantial benefits.

Ivan: Both of these are initiatives.

Ivan: Including realizing cost savings earlier than initially expected.

Ivan: As well as achieving increase operational agility.

Ivan: And enhancing accountability.

Ivan: In the second area of operational excellence, we made robust progress in implementing or enhance inventory management programs around the world.

Ivan: Working intensely with third party firms, we develop a plan we're executing against that plan.

Ivan Tornos: We remain committed to a meaningful improvement in DOH in the year 2024 and in years to come; again, more color in that regard during our Investor Day. In operational excellence, we have also established core initiatives around best-in-class product launches to ensure that these new product introductions gain traction sooner than expected, and we launch these products in a better way than we have launched in the past. This is beyond critical for Zimmer Biomet as we continue to deliver a rapid pace of product launches.

Ivan: We remain committed to a meaningful improvement in D. O H in the year of 'twenty 'twenty four and in years to come again more color in that regard during our Investor day.

Ivan: In operational excellence, we have also established coordinate hippies around best in class product launches to ensure that these new product introductions gain traction sooner than expected.

Ivan: And we launch these products in a better way that we have launched in the past.

Ivan: This is a young critical for Zimmer Biomet as we continued to deliver a rapid cadence of product launches.

Ivan Tornos: We plan to release more than 40 new products in the next 24 to 36 months. One final comment on operational excellence in the area of pricing; we've made structural changes to further enhance the pricing strategy that we put in place over the last several quarters. Moving on to the third and final strategic priority in the area of innovation and diversification, we're making solid progress. We continue to see strong traction for key brands such as Persona and Oceotype, as I mentioned, already gaining share in the markets where we have launched. We've seen progress with ROSA, and we continue to gain momentum with Signature One Planning Guides in the solder space.

Ivan: With plans to release more than 40, new products in the next 24 to 36 months one final comment in operational excellence in the area of pricing we've made the structural changes.

Ivan: To further enhance the pricing strategy that we put in place.

Ivan: Over the last several quarters.

Ivan: Moving onto the third and final list with the priority in the area of innovation and diversification, we're making solid progress.

Ivan: We continued to see a strong traction in key brands such as persona Orchard that I've mentioned already gaining share in the markets, where we have launched.

Ivan: We've seen progress with Rosa, we continued to gain momentum with signature one planning guides in the solar space.

Ivan Tornos: And we like what we've seen with our Embodied Soft Tissue franchise. CMFT continues to deliver new product introductions, gaining share in the markets where we participate, and I'm very excited about the new product introductions that we have seen and will continue to see in our ASC portfolio in the U.S. We've also made tremendous strides in new products with a more focused pipeline that today, as of Q1 2024, has twice the dollar value that we had at the end of 2018.

Ivan: We like what we've seen with her embody soft tissue franchise.

Ivan: <unk> continues to deliver new product introductions, gaining share in the markets, where we partake.

Ivan: And I'm very excited about the new product introductions that we have seen and will continue to see in order to a S. C portfolio in the U S.

Ivan: We've also made tremendous strides in new products with a more focused pipeline that today.

Ivan: And so far Q1, 'twenty 'twenty four.

Ivan: Has twice the dollar value.

Ivan: We had at the end of 'twenty, 18th So the dollar value of the pipeline innovation is twice what it was four or five years ago.

Ivan Tornos: So the dollar value of the pipeline in innovation is twice what it was four or five years ago. It's worth reminding everyone that north of 80% of these products in the pipeline are in markets growing above 4%, and many of them are accretive from a gross margin standpoint.

Ivan: Worthwhile reminding everyone that are north of 80% of these products in the pipeline re Saudi market is growing above 4%.

Ivan: And many of them are accretive from a gross margin standpoint, so we continue our commitment of innovating for.

Ivan Tornos: So we continue our commitment to innovating from a customer-centric standpoint, but also innovating to see incremental profitability and an increased WMGAR profile. In addition to driving results in core markets, we also focus on diversifying our portfolio into more attractive, faster growing markets, with the goal of increasing in Wengar the weighted average market growth rate. We have made significant progress over the past several years, balancing to what it is today. And this fact, in addition to the confidence around future free cash flow generation, gives us the optionality and the far power to execute on the right deals at the right time that, most importantly, mirror internal hurdles from both a financial and a strategic perspective. So again, a lot is going on inorganically, potentially, as well as organically with the size of the population.

Ivan: From a customer centric standpoint, but also innovating to see incremental profitability and an increase when gartner profile.

Ivan: In addition to driving results in core markets. We're also focused on diversifying our portfolio.

Ivan: Into more attractive faster growth end markets with a goal of increasing our winger weighted average market growth rate.

Ivan: We have made significant progress over the past several years the balance sheet two out what it is today.

Ivan: And this fact in addition to the confidence around future free cash flow generation.

Ivan: Is the optionality of the and the firepower.

Ivan: To execute on the right deals at the right time.

Ivan: Most importantly meet our internal harder those from both a financial and strategic perspective.

Ivan: So again lots going on inorganically potentially as well as organically with the size of the pipeline.

Ivan Tornos: While we have flexibility in the size of the deals to come, we continue to favor smaller tack-ins to mid-sized deals. That's up to $2 billion in acquisition price that will become EPS neutral within two years, and that from a Reuters standpoint. Return on Invested Capital will deliver upper single digits, to load Double Digit within five years. As I mentioned earlier, we're very encouraged with our Q1 performance, a quarter where we grew 4.4% in constant currency, north of 6% in day rate, while overcoming a number of headwinds and tough comps.

Ivan: Well, we have fire flexibility and the size of the deals to come we continue to favorite is smaller tuck ins to midsize deals. Thus after $2 billion in acquisition price.

Ivan: That'd be column EPS neutral within two years.

Ivan: And that from a ROIC standpoint.

Ivan: Return on invested capital will deliver upper single digit to low double digit within five years.

Ivan: As I mentioned earlier, we are very encouraged with our Q1 performance a quarter, where we grew four 4% in constant currency north of 6% in day rate, while overcoming a number of our headwinds and tough comps.

Ivan Tornos: It is these results from the first quarter of 2024 that give us strong confidence that in the year 2024, we'll realize our guidance of delivering 5% to 6% in revenue and growing 100 to 200 basis points above market, while delivering earnings growing faster than revenue and delivering free cash flow above earnings growth.

Ivan: It is these quarter results from the first quarter 'twenty 'twenty for.

Ivan: That that give us strong confidence that in the year 'twenty 'twenty four will realize her guidance of delivering a 5% to 6% in revenue.

Ivan: Growing 100 to 200 basis points above market, while delivering earnings growing faster than revenue.

Ivan: And delivering free cash flow.

Ivan Tornos: This is a commitment that we're making for 2024, and it's a commitment that we're going to reiterate at our investor day for years to come. Before closing the call, I'd like to announce that Keri Mattox... has made a decision to depart from Zimmer Biomet at the end of May. Keri has been a trusted partner and a very close collaborator and friend on this journey and has enabled great things for Zimmer Biomet in her four plus years here with CB.

Ivan: Both the earnings growth. This is a commitment that we're making for the 'twenty 'twenty four and it's a commitment that we're going to reiterate you know investor day for years to come.

Speaker Change: Before closing the call I'd like to announce that the carry made oaks.

Speaker Change: Has made a decision to depart from Zimmer Biomet idea to me.

Speaker Change: Terry has been a trusted partner and a very close collaborator I'm frame on these Germany has enabled great things for Zimmer Biomet.

Ivan: Her four plus years here with that with C. B.

Ivan Tornos: She's going to be Miss London, and we wish her the best in her future endeavors. A search for a head of IR position is in progress with a leading executive search firm, and we hope to announce a carriage replacement here very soon. Zach is going to continue to lead IR interactions for Zimmer Biomet, so a plan for continuity is in place. In conclusion, we're very proud of how far we have come as an organization and are even more excited about where we can go.

Ivan: He is gonna be missed.

Ivan: And we wish her the best in her future endeavors.

Ivan: Our search for a head of IR position is in progress with a leading executive search firm and we hope to announce that carries replacement here it out very soon.

Ivan: <unk> continued to lead IRT Interacciones for Zimmer Biomet. So a plan for continuity is a is in place.

Ivan: In conclusion, we are very proud of how far we have come as an organization and are even more excited about where we can go.

Ivan Tornos: Strong confidence in the year 2024. We continue to make commitments and deliver on those commitments, as evidenced by these results and as evidenced by the new product introductions commitment that we made and that we realized. I love the fact that we're impacting the lives of millions of patients around the globe, and I'm inspired by the fact that my teammates and I are living the Zimmerbaum mission of alleviating pain and improving the quality of life for people around the world. And with that, I'll turn the call over to Suki. Okay?

Ivan: <unk> confidence on the year of 'twenty 'twenty four we continued to make commitments and deliver on those commitments as evidenced by these results and as evidenced by the new product introductions commitment that we've made and we're realizing it.

Ivan: I Love, the fact that that would impact the lives of millions of patients around the globe.

Ivan: And I'm inspired by the fact that my teammates or I are leaving the Zimmer Biomet mission of alleviating pain.

Ivan: And improving their quality of life for people around the world.

Speaker Change: And with that I'll turn the call over to the sugar so okay.

Suketu Upadhyay: Thanks and good morning everyone. As Ivan mentioned, we had another good quarter driven by healthy end markets and solid execution across the organization. Overall, we remain on track to deliver on our 2024 financial guidance with mid-single-digit constant currency revenue growth, Adjusted Operating Margin Expansion, and over $1 billion of free cash. Assuming current marketing conditions, this is a financial profile that we believe is durable going forward. Moving to the Q1 results

Sugar: Thanks, and good morning, everyone as Ivan mentioned, we had another good quarter driven by healthy end markets and solid execution across the organization overall, we remain on track to deliver on our 2024 financial guidance with mid single digit constant currency revenue growth adjusted operating margin expansion and over $1 billion of free cash flow.

Sugar: Assuming current market conditions. This is a financial profile that we believe is durable going forward.

Suketu Upadhyay: Unless otherwise noted, my statements will be about the first quarter of 2024 and how it compares to the same period in 2023, and my commentary will be on a constant currency and adjusted operating basis. Net sales were $1.889 billion, an increase of 3.2% on a reported basis and an increase of 4.4% excluding the impact of foreign currency. Additionally, we had a selling day headwind of about 200 basis points that impacted all regions and product categories at about the same level.

Ivan: Moving to Q1 results unless otherwise noted my statements will be about the first quarter of 'twenty 'twenty four and how it compares to the same period in 2023.

Ivan: And my commentary will be on a constant currency and adjusted operating basis.

Ivan: Net sales were 1.889 billion, an increase of three 2% on a reported basis and an increase of four 4% excluding the impact of foreign currency.

Ivan: Additionally, we had the selling day headwind of about 200 basis points that impacted all regions and product categories at about the same level.

Suketu Upadhyay: Excluding the selling day impact, consolidated constant currency sales would have grown above 6%. US growth was 3.7%, and international growth was 5.4%. Growth in the U.S. was driven by solid performance in recon, in our priority areas within SET, as well as in our other categories. Outside of the U.S., EMEA saw stronger-than-expected growth on a regional basis, and from a portfolio perspective, OUS growth was primarily driven by our need category. Global needs grew 4.3% in the quarter, with the U.S. growing 2.2% and international growing 7.3%.

Ivan: Excluding the selling day impact consolidated constant currency sales would have grown above 6%.

Ivan: U S growth was three 7% and international grew five 4%.

Ivan: Growth in the U S was driven by solid performance in recon and our priority areas with N S E T as well as our other category.

Ivan: Outside of the U S EMEA saw stronger than expected growth on a regional basis and from a portfolio perspective O U S growth was primarily driven by our knee category Global knees grew four 3% in the quarter with the U S growing two 2% and international growing seven 3% growth in our knee business continues to be driven by our persona.

Suketu Upadhyay: Growth in our knee business continues to be driven by our Persona product portfolio and Rosa Robotics platform. We remain excited about the growth coming from new and recent product launches across the nation. Global HIPs grew 1.5% in the quarter, with the U.S. growing 1% and international growing 2%. We remain focused on accelerating performance in the HIP segment with key product launches that Ivan mentioned earlier. Next, the SET category grew 5.3 percent, led by our key focus areas of CMFT, upper extremities, and sports, growing on average about low double digits.

Ivan: Portfolio and Rosa robotics platform.

Ivan: We remain excited about the growth coming from new and recent product launches across the knee segment.

Ivan: Global Hips grew one 5% in the quarter with the U S growing 1% and international growing 2%.

Ivan: We remain focused on accelerating performance in the hip segment with key product launches that are bond mentioned earlier.

Ivan: The S E. T category grew five 3% led by our key focus areas of C. M. F T upper extremities and sports growing on average about low double digits. This strong growth was partially offset by the other sub segments within the category.

Ivan: Despite the Choppiness within S. E. T. We remain confident this business will drive mid single digit or above growth for the full year.

Ivan: Finally, our other category grew 12, 2% driven by continued strong Rosa sales.

Suketu Upadhyay: This strong growth was partially offset by the other sub-segments within the category. Despite the chockiness within SET, we remain confident this business will drive mid-single digit or above growth for the full year. Finally, our other category grew 12.2%, driven by Continued Strong Rosa Sales.

Suketu Upadhyay: We expect growth in the other category will moderate lower as we move through the rest of the year. In Q1, we reported gap-diluted earnings per share of $0.84 compared to gap-diluted earnings per share of $1.11 in the prior year. Higher revenue and a lower share count in Q1 2024 were offset by higher selling costs and expenses associated with our restructuring program. On an adjusted basis, we reported diluted earnings per share of $1.94 compared to $1.89 in the prior year.

Ivan: We expect growth in the other category will moderate lower as we move through the rest of the year.

Ivan: In Q1, we reported GAAP diluted earnings per share of <unk> 84 cents compared to GAAP diluted earnings per share of $1 11 in the prior year higher revenue and a lower share count in Q1, 'twenty 'twenty four was offset by higher selling costs and expenses associated with our restructuring program on an adjusted basis, we reported diluted earnings per share.

Ivan: <unk> of $1 94, compared to $1 89 in the prior year.

Suketu Upadhyay: Step-up is primarily driven by revenue growth, the Accelerated Savings Pull-Through from the Restructuring Program, and a lower share, partially offset by higher interest expenses and taxes related to Pillar 2. Foreign currency was a headwind of about $0.04 in the quarter when compared to the prior year.

Ivan: The step up is primarily driven by revenue growth accelerated savings pull through from the restructuring program and a lower share count.

Ivan: Partially offset by higher interest expenses and taxes related to pillar two.

Ivan: Foreign currency was a headwind of about four cents in the quarter when compared to the prior year.

Suketu Upadhyay: Our adjusted gross margin was 72.9%, driven by higher manufacturing costs, which were offset by better pricing and lower royalties. Overall, gross margin was in line with expectations and with the prior year. Adjusted operating margin was 28.6%, slightly higher than the prior year. The increase in operating margin was driven by higher sales and lower SGNA related to the restructuring program I referenced earlier. Net interest and other adjusted non-operating expenses were $49 million and a quarter, slightly higher than the prior year. And our adjusted tax rate was 18.5%, and we continue to project our four-year rate at 18%. Turning to cash and liquidity.

Ivan: Our adjusted gross margin was 72.9% driven by higher manufacturing costs, which were offset by better pricing and lower royalties.

Ivan: Overall gross margin was in line with expectations and with the prior year.

Ivan: Adjusted operating margin was 28, 6% slightly ahead of the prior year. The increase in operating margin was driven by higher sales and lower SG&A related to the restructuring program I referenced earlier.

Ivan: Net interest and other adjusted non operating expenses were $49 million in the quarter slightly higher than the prior year.

Ivan: And our adjusted tax rate was 18.5% and we continue to project our full year rate at 18%.

Suketu Upadhyay: We generated operating cash flows of $228 million, free cash flow of $91 million, and we ended the quarter with $393 million of cash and cash equivalents. Regarding our outlook for the rest of the year, we are reiterating our full year guidance, including constant currency growth of 5 to 6%, or 4.5% to 5.5% reported revenue growth with a 50 basis point currency headwind. Additionally, we continue to expect earnings to be between $8 and $8.15 and that we will generate between $1 billion and $50 million to $1.1 billion of free cash.

Ivan: Turning to cash and liquidity we.

Ivan: We generated operating cash flows of $228 million free cash flow of $91 million and we ended the quarter with $393 million of cash and cash equivalents.

Ivan: Regarding our outlook for the rest of the year, we are reiterating our full year guidance, including constant currency growth of 5% to 6%.

Ivan: Or four and a half to five 5% reported revenue growth with a 50 basis point currency headwind.

Ivan: Additionally, we continue to expect earnings to be between $8 to $8.15 and that we will generate between $1.050 billion to $1.1 billion of free cash flow.

Suketu Upadhyay: From a cadence perspective, we still expect constant currency revenue growth for the first half of the year to be at the lower end of mid-single-digit growth, and the second half of the year to be at the higher end of mid-single-digit growth. As a reminder, Q2 and Q3 will each have about 150 basis points of tailwind due to selling the company, and the selling day impact for Q4 and for the full year is expected to be immaterial or less than 50 basis points.

Ivan: From a cadence perspective, we still expect constant currency revenue growth for the first half of the year to be at the lower end of mid single digit growth.

Ivan: In the second half of the year to be at the upper end of mid single digit growth.

Ivan: As a reminder, Q2 and Q3 will each have about 150 basis point tailwind due to selling days.

Ivan: And the selling day impact for Q4 and for the full year is expected to be immaterial or less than 50 basis points.

Suketu Upadhyay: Regarding the P&L. We expect adjusted gross margin to be broadly in line with 2023 and slightly better than our original thinking due to less FX headwinds than originally assumed. Given the strength in the dollar, FX hedge gains are not as big a step down in 2024 as originally expected.

Ivan: Regarding the P&L we.

Ivan: We expect adjusted gross margin to be broadly in line with 2023 and slightly better than our original thinking due to less FX headwinds than originally assumed.

Ivan: Given the strengthened dollar FX hedge gains are not as big a step down in 'twenty 'twenty four as originally expected.

Suketu Upadhyay: Looking at gross margin, we expect Q1 to be the high watermark, followed by a modest sequential step-down throughout the year. Overall, first half gross margins will be about 100 basis points higher than the second half as we continue to feather in capitalized inflationary costs from the second half of 2023. Turning to Adjusted Operating Margin, we are pleased with the start to the year as our restructuring efforts are delivering slightly ahead of schedule.

Ivan: Looking at gross margin, we expect Q1 to be the high watermark, followed by modest sequential step down throughout the year.

Ivan: Overall first half gross margins will be about 100 basis points higher than the second half as we continue to feather in capitalized inflationary costs from the second half of 2023.

Ivan: Turning to adjusted operating margin, we are pleased with the start to the year as our restructuring efforts are delivering slightly ahead of schedule.

Suketu Upadhyay: Overall, second half operating margins will be higher than the first half, and we expect for the full year that at the midpoint of our guidance, we will increase operating margins by about 80%. In summary, Q1 was a good start to the year. We delivered results ahead of expectations and continue to feel confident in our 2024 outlook, as evidenced by the reiteration of guidance. With that, I'll turn the call back over to Keri.

Ivan: Overall second half operating margins will be higher than the first half.

Ivan: And we expect for the full year that at the midpoint of our guidance, we will increase operating margins by about 80 basis points.

Ivan: In summary, Q1 was a good start to the year. We delivered results ahead of expectation and continue to feel confident in our 2024 outlook as evidenced by the reiteration of guidance with that I'll turn the call back over to Kerry.

Keri P. Mattox: Thanks, Suki, and thanks, Ivan, for the kind words. It's been such a privilege to be part of the Zimmer Biomet team for these four and a half years, and I wish the team much continued success moving forward. Now, before we start the Q&A session, just a quick reminder to please limit yourself to a single question and one brief follow-up so that we can get through as many questions as possible during the call. With that, Operator, may we have the first question, please?

Keri P. Mattox: Thanks, Izzy and thanks, Ivan for the kind words, it's been such a privilege to be part of the Zimmer Biomet team. These four and a half years and I wish the team much continued success moving forward.

Speaker Change: Now before we start the Q&A session. Just a quick reminder, to please limit yourself to a single question and one brief follow up so that we can get through as many questions as possible during the call with that operator may we have the first question. Please.

Operator: Thank you. We'll go first to Travis Steed with Bank of America.

Speaker Change: Thank you we'll go first just Travis Steed with Bank of America.

Travis Steed: Hey, Thanks for taking the question and carry a great working with you and good luck on Interconnects endeavors.

Travis Steed: I guess kind of high level, you guys have this kind of algorithm, you know, five to six percent revenue growth, potential for some margin expansion, and possibly kind of low double-digit EPS growth. And just trying to think about how we should think about that algorithm over the long term. Is it more of a base case or kind of best case?

Travis Steed: I guess kind of high level.

Travis Steed: How does this kind of algorithm you know five years to 6% revenue growth potential for some margin expansion and possibly kind of low double digit EPS growth just trying to think about how we should think about that algorithm over over the long term. This is more of a base case or best case, there's just a lot of skepticism from the investor community.

Travis Steed: There's just a lot of skepticism from the investor community about that algorithm and trying to think about, you know, what's the Zimmer growth rate, kind of on a sustainable basis in a normalized market. And then just the second question I'll go ahead and throw out, too, is just any color on Q2 sequentially. It's usually down. Tipton is usually down a little bit sequentially. But with some of the selling day stuff, I just wanted to make sure there wasn't any titration in Q2.

Travis Steed: That algorithm and in trying to think about you know, what's the zimmer growth rate kind of on a sustainable basis and in a normalized market.

Travis Steed: And then just the second question I'll go ahead and throw out too is just any color on Q2 sequentially. It's usually down something is usually down a little bit sequentially, but with some of the selling day stop just wanted to make sure there wasn't any titration on on Q2.

Speaker Change: Thanks, a lot.

Travis Steed: Yeah.

Ivan Tornos: Hey Travis. Good morning. Ivan here.

Speaker Change: Hey, Travis good morning anywhere here. Thanks for the question I'll touch on both components of your question and I'll make sure that Suki speaks up yet as well so starting with the algorithm on revenue EPS and free cash flow, we're going to give more color in the investor day, but I will tell you today I suppose it prepared remarks. This is a long.

Ivan Tornos: Thanks for the question. I'll touch on both components of your question, and I'll make sure that Suki speaks up here as well. So, starting with the algorithm on revenue, EPS, and free cash flow. We're going to give more color on investor day, but I will tell you today, as per the prepared remarks, this is a long-term commitment. So, it's not a 2024 target to only deliver revenue above market, EPS above revenue, and free cash flow above EPS growth.

Ivan Tornos: Term commitment so it's not about 'twenty 'twenty four only deliver revenue above market E. P. S above revenue and free cash flow above EPS growth and unpacking. The drivers here on revenue is all about new product introductions, we're going to gain share by delivering innovation that matters chew hungry hungry to 200 basis.

Ivan Tornos: And unpacking the drivers here on revenue is all about new product introductions. We're going to gain share by delivering innovation that matters. 200, 100 to 200 basis points, large amounts are going to come from new product introductions. And as we said all along, we have a pipeline that we didn't have before.

Ivan Tornos: <unk> largely is going to come from new product introductions and as we said all along we got a pipeline that we didn't have before 40, new product introductions over the next 24 to 36 months I'm wanting to make them. So that's the number one driver on revenue now you seem to always leave pricing dynamics and commercial execution on EPS growth.

Ivan Tornos: 40 new product introductions over the next 24 to 36 months, and more are in the making. So, that's the number one driver of revenue, in addition to pricing dynamics and commercial execution. On EPS growth, we're doing things differently. When it comes to margin, I already mentioned pricing, but other components, how we think about inventory in excess and obsolescence, how we think about the allocation of OPEX, where we get the greatest return, et cetera, et cetera.

Ivan Tornos: Doing things deepening when it comes to our margin already mentioned pricing, but other components, how we think about inventory in excess and obsolescence.

Ivan Tornos: Think about allocation of Opex, where we get the greatest return it said that I've said that.

Ivan Tornos: And then free cash flow, the main driver, is the fact that we have run this company in quite an inefficient way when it comes to inventory management. North of 400 days on hand when it comes to inventory, not really engaging in prioritization of geographies. Portfolio management is not what it needs to be. So those are the key drivers of sustainability. I'll touch on number two, and then I'll give it to Azuki.

Azuki: And then free cash flow. The main driver is the fact that we have run this company in quantity and efficient way when it comes to inventory management.

Azuki: North of 400 days on hand, when it comes to inventory no really engaging on prioritization privatization or geographies portfolio manage these buildings to be so those are the key drivers on the sustainability.

Azuki: I'll go to number two and then I'll give it to us in terms of our Q1 to Q2 to Q3 to Q4, what happens sequentially look we're not going to get into the Jeep nasty Exxon what happens quarter over quarter Augusto timing one quarter to the other we call. We have we're having similar conversations in Q4.

Ivan Tornos: In terms of Q1 to Q2 to Q3 to Q4, what happens sequentially? Look, we're not going to get into the gymnastics of what happens quarter over quarter, all kinds of timing one quarter to the next. We're having similar conversations in Q4. Here's what I'll leave you with.

Ivan Tornos: Q1 was very strong, 4.4% growth in constant currency, and north of 6% in day rate. As we see here, looking at the year, we were confident at the very beginning of the year in the guidance of 5% to 6%. A quarter behind, we're extremely confident in that guidance. The growth drivers that get us there are working in the right direction. So, very, very confident, very proud of Q1. And again, we'll talk more about other dynamics at InvestorDay.com.

Ivan Tornos: Here's what I'd leave you with Q1 was very strong a 4.4 ports, saying growth in constant currency a notice of 6% in day rate as we see here looking at the year. We're country. Then there may be another year in the guidance of 5% to 6% a quarter behind with extremely confident on the guidance the growth drivers there.

Ivan Tornos: As there are working in the right direction. So very very confident very part of Q1 and again, we'll talk more about other dynamics at Investor day. So yeah.

Suketu Upadhyay: Yeah, I think Yvonne summarized it really well, so I'll just try to make some incremental points here. I think at that mid-single-digit growth top-line profile that Yvonne mentioned, we do have a durable path to operating margin expansion as well as improvements in overall free cash flow conversion. On the earnings outlook, you know, this year, if you look at our guide, it's 6% to 8%, which we reiterate and feel confident in.

Speaker Change: I think you summarized it really well so I'll just try to build incremental points here I think at that mid single digit growth topline profile that Elon mentioned, we do have a durable path.

Suketu Upadhyay: Operating margin expansion as well as improvements in overall free cash flow conversion.

Suketu Upadhyay: On the earnings outlook. This year, if you look at our guide of 6% to 8%, which again, we reiterate and feel confident in if you are on an underlying basis. If you back out the step up in tax rate that we saw out of pillar two as well as headwinds that I think everyone's facing on interest as well as FX.

Suketu Upadhyay: If you, you know, on an underlying basis, if you back out the step-up in the tax rate that we saw out of Pillar 2, as well as headwinds that I think everyone's facing on interest as well as FX, the underlying growth on the bottom line is much better than 6% to 8%, maybe 300 to 400 basis points better on an underlying basis, which puts us kind of in the high single digits, low double And if you look at what we did in 23, I think we were also there.

Suketu Upadhyay: The underlying growth in the bottom line is much better than six to eight maybe three to 400 basis points better or an online basis.

Suketu Upadhyay: Which puts us kind of in that high single digits low double digits and you look at what we did in 'twenty. Three I think we were also there as we look forward.

Suketu Upadhyay: As we look forward, you know, using your words, Travis, base case, et cetera, we think there's a pathway to low double-digit earnings growth. But I wouldn't say that was our base case or our commitment. And again, we're going to provide more color on our analyst day. But as we think about margin expansion with revenue growth, we just want to make sure we've got the right investment profile for the company to make sure that that growth is durable. So is that our base case? I wouldn't necessarily go there. I'd say we have a pathway there, but we're going to provide a lot more color in just a few more weeks.

Suketu Upadhyay: Using your word stratas base case et cetera, we think there's a pathway to low double digit earnings growth I wouldn't say, it's our base case or a commitment again, we're going to provide more color on our analyst day.

Suketu Upadhyay: But as we think about margin expansion with revenue well, we just want to make sure. We've got the right investment profile of the company to make sure that that growth historical so is that our base case I wouldn't necessarily go there I'd say, we have a pathway there.

Suketu Upadhyay: But we're going to provide a lot more color in just a few more weeks. So thanks for the question Ross.

Keri P. Mattox: So thanks for the question. Of course. Great. Thanks so much. Katie, can we? Yeah. Thanks, Travis. And thanks for the comment.

Speaker Change: Of course, great. Thanks, Katy can we yeah, thanks, Patrick and thanks for the comment Katy can we have the last question in the queue.

Operator: We'll go next to Steve Lichtman with Oppenheimer & Company.

Speaker Change: Well go next to Steve Lichtman with Oppenheimer <unk> company.

Steven Michael Lichtman: Thank you. Congratulations on the quarter, guys. And, Keri, it's been great working with you. I guess I'll first start with pricing commentary. I thought that was notable. Ivan, can you talk about where the positive surprise came from on that front? Are the benefits of your efforts coming sooner? Just some general comments on the pricing environment would be great.

Steven Michael Lichtman: Thank you congratulations on the quarter guys, Terry it's been great working with you.

Steven Michael Lichtman: I guess I'll first start on pricing commentary I thought that was notable okay. If I can can you talk about where the positive surprise came from on that front are the benefits of your efforts coming sooner just some general comments on the pricing environment would be great.

Ivan Tornos: Yeah, we're very, Steve, thank you. We're very pleased, obviously, with the price and performance. Recall that in 2023, the second semester of 2023, so the last half of 2023, we're already flat east when it comes to price. So this is a business that, in previous years, was experiencing three to five hundred basis points of price erosion in the US, pretty significant in the US. That's not the trend that we have going on.

Ivan Tornos: Yeah, we're very yes, Steve. Thank you, we're very pleased obviously with pricing for four months recalled that in 2020 three the sequence we messed it up 20 cities. So then the last house, a 20 city, we already flattish when it comes to price. So this is a business that in previous years was having three to 500 basis points of price.

Ivan Tornos: Erosion in the U S pretty significant O U S.

Ivan Tornos: We put a structure in place, we put governance in place, new product introductions are helping from category contracting. I wouldn't say there are any real surprises. Europe may be doing slightly better than anticipated. You've got all kinds of tender dynamics that come in and out.

Ivan Tornos: That's another change that we've got going on we put a structure in place we put governance.

Ivan Tornos: New product introductions are helping them from a category contracting I wouldn't say, there's any real surprises Europe may be doing slightly better than anticipated you've got all kinds of tender dynamics that come in and out but net net we don't appointed what is pretty predictable.

Ivan Tornos: But net net, we're at a point where it's pretty predictable. We like the strategy in place. We like the governance. We're not going to commit here to doing dramatically better, but no real surprises, solid Q1 and a great outlook for the rest of the year. Suki, I don't know if you have any other comments.

Ivan Tornos: We like the strategy in place related governance.

Suki: We're not going to call me here to doing dramatically better, but no real surprises solid Q1, and a great outlook for the rest of the year. So if you have any other comments I think overall, we're in a more favorable environment than we've been let's call. It three or four years ago. When you combine that with some of the structural changes, we're making inside the company. That's a I think those two things.

Suketu Upadhyay: I think overall we're in a more favorable environment than we were, let's call, three, four years ago. When you combine that with some of the structural changes we're making inside the company, I think those two things are really leading to better price performance. I'll tell you, I'm really impressed and optimistic about the cultural change, quite frankly, within Zimmer Biomed. As I talk to distributors or field level reps and, you know, their desire to want to make sure that we're getting the value for the products that we bring to the market, that's encouraging, and I think that makes it durable.

Suketu Upadhyay: We're really leading to better price performance I'll tell you I'm really.

Suketu Upadhyay: Crest and optimistic about the cultural change quite frankly, with Zimmer biomet as I talk to.

Suketu Upadhyay: Distributor field level reps and their desire to want to make sure that we're getting the value or the products that we bring to market, that's encouraging and I think that makes a durable in the quarter. We were roughly flat I do expect us to be.

Suketu Upadhyay: In the quarter, we were roughly flat. I do expect us to be. You know, when I set out the year, I thought we'd be 100 to 150 basis points of erosion. I think we're now under 100 basis points of erosion, especially given what we saw in the first quarter. But I don't expect that flat profile to continue through the rest of the year because we've got a number of things that happened at the back end of last year, especially in Europe, where we took some pretty large price increases in devalue. sort of currencies and markets.

Suketu Upadhyay: When I set out the year I thought we'd be $100 and 50 basis points of erosion I think we're now under 100 basis points of erosion.

Suketu Upadhyay: Especially given what we saw in the first quarter.

Suketu Upadhyay: Don't expect that flat profile continue through the rest of the year because we've got a number of things that happened at the back end of last year, especially in Europe, where we took some pretty large price increases in the value sort of currencies in markets.

Suketu Upadhyay: That will sunset later this year. Also, we've got some new contracts that are coming up, which will create a little bit of pressure. So I don't expect that flat profile to continue through the rest of the year. But nonetheless, we're in a much better spot than we were a few years ago. And again, I expect overall pricing to be somewhere under 100 basis points for the full year.

Suketu Upadhyay: Onset later on this year are also we've got some new contracts that are coming up which will create a little bit of pressure. So I don't expect that flat profile to continue through the rest of the year, but nonetheless, we're in a much better spot than we were a few years ago again expect overall pricing to be somewhere under a 100 basis points for the full year 'twenty four.

Steven Michael Lichtman: Great, thanks for that. And then just a quick follow-up, or just the one to follow up, okay, real quickly on Rosa's shoulder, you know, just on the initial launch and your outlook for RAMP this year. Yeah, thank you.

Speaker Change: Great. Thanks for that and then quickly follow.

Speaker Change: I wanted to follow up real quickly on the Rosa shoulder.

Speaker Change: Just on the initial launch in your outlook for a ramp this year.

Ivan Tornos: Thank you. Obviously, we are very excited in terms of this product launch. We did the first cases at the Mayo Clinic a couple of weeks ago.

Speaker Change: Yeah. Thank you all obviously very excited in terms of these product launch we did the first cases at the Mayo clinic, a couple of weeks ago feedback was very solid.

Ivan Tornos: It is a product that has a high degree of accuracy in the cards and the visibility of the anatomy ete's of PCM com and instrumentation standpoint is fully interconnected with the rest of the C V S ecosystem.

Speaker Change: K somebody case, the feedback was that you do achieve time efficiencies. So the learning curve visa is rather short so very solid clinical feedback in terms of the impact we said all along that that was going to take it slowly in the first.

Ivan Tornos: Feedback was very solid. It is a product that has a high degree of accuracy in the cuts and in the visibility of anatomy. It is efficient from an instrumentation standpoint, and it is fully interconnected with the rest of the CVH ecosystem. Case over case, the feedback was that you do achieve time efficiencies, so the learning curve is rather short. So, very solid clinical feedback. In terms of impact, we said all along that we were going to take it slowly in the first, call it 90 to 120 days, and you will see the real impact as we get closer to the end of the year.

Ivan Tornos: Call. It 92, a heightened 20 days.

Ivan Tornos: You'll see the real impact as we get closer to the end of the year, but a very very meaningful product launch for the company I'm very excited about it thanks, Steve.

Speaker Change: Great. Thanks, Scott.

Ivan Tornos: Thanks.

Operator: We'll go to the next question in the queue. Larry Biegelsen with Wells Fargo.

Speaker Change: Well go next.

Speaker Change: Question at you.

Lawrence H. Biegelsen: Larry <unk> with Wells Fargo.

Operator: Hey, good morning. This is Vik Chopra with Larry Biegelsen.

Operator: Hey, Good morning. This is Victor O'brien for Larry and Thanks for taking me.

Vijay Muniyappa Kumar: Good question Kerry Thanks for all your help and good luck.

Vijay Muniyappa Kumar: Two for me.

Vijay Muniyappa Kumar: Wanted to get a sense as to kind of what we can expect at your upcoming Investor day at the end of the month with regard to financial goals will you have specific LLP goals or revenue or will it be relative to the market. For example, a growth of 100 to 200 basis points above market.

Operator: Thanks.

Operator: Sure.

Vijay Muniyappa Kumar: Thanks for taking the question, Keri. Thanks for all your help, and good luck. So two for me, you know, just want to get a sense as to kind of what we can expect at your upcoming Investor Day at the end of the month. With regard to financial goals, will you have specific LRP goals for revenue, or will it be relative to the market? You know, for example, growth of 100 to 200 basis points above market? I don't know how to follow up. Thanks.

Vijay Muniyappa Kumar: Yeah, No, we'll we'll definitely cover the how we plan to achieve these SaaS silicone MIM is we make game from a financial perspective in terms of what are the drivers for revenue EPS and free cash flow. So we'll definitely provide those details will colbert are the new product introductions, we've seen that with regard to capital location on the study moving forward. So he is going to be very real.

Ivan Tornos: Yeah, no, we'll definitely cover how we plan to achieve these three commitments we're making from a financial perspective in terms of what are the drivers for revenue, EPS, and free cash flow. So we'll definitely provide those details. We'll cover the new product introductions within that. We'll talk about the capital allocation, the strategy moving forward. So it's going to be very robust. So that's the analyst day.

Ivan Tornos: So that's the that's the analyst day.

Ivan Tornos: The second question I had was, you know, you beat consensus EPS by about 7 cents, but you didn't really raise the guidance for EPS. Can you just provide some color on that? Thank you.

Speaker Change: Got it.

Ivan Tornos: Yes.

Speaker Change: The second question I had was you.

Ivan Tornos: We present, the PBS by about 7%, but you didn't really raise the guidance on EPS can you just provide some color on that thank you.

Suketu Upadhyay: Yeah, you know, I think Yvonne said it really well in his opening remarks. We had a good start to the year, and it was great to see the better than expected performance and revenue. And we saw very good flow through all the way to the bottom. So I love the discipline that we've got throughout the company. I would say that this just reinforces and gives us more conviction in the guidance range that we provided earlier this year.

Ivan Tornos: Yeah.

Ivan Tornos: You know I think Ivan said, it really well in his opening remarks, we had a good start to the year and it was great to see.

Suketu Upadhyay: The better than expected performance revenue and we saw very good flow through all the way to the bottom.

Suketu Upadhyay: So I love I love the discipline that we've got throughout the company.

Suketu Upadhyay: I would say this just reinforces and gives us more conviction in the guidance range that we provided earlier this year.

Speaker Change: Thank you.

Keri P. Mattox: Katie, can we go to the next question in the queue?

Suketu Upadhyay: Sandy can we go to the next question in the queue.

Operator: Thank you. We'll go next to Rick Wise with Stiefel.

Keri P. Mattox: Thank you we'll go next to Rick Wise with Stifel.

Frederick Allen Wise: Good morning, and we'll miss you, Gary. I'll ask my question and my follow-up at the same time. Yvonne, you know, obviously, on the new product front, you have all these new introductions, Ossetai, Hammer, the robotic shoulder, and all of them sound like they'll be meaningful, and I assume they will help pricing, help gain share, help leverage your fixed costs, your operating costs. But I'm hoping you'll focus in particular on the implications of the Z1 launch. You highlighted the product several times.

Frederick Allen Wise: Good morning.

Frederick Allen Wise: And we'll Miss you Gary.

Frederick Allen Wise: I'll ask my question and my follow up.

Frederick Allen Wise: At the same time.

Frederick Allen Wise: Yvonne.

Frederick Allen Wise: Obviously on the new product front do you have all these new introductions.

Frederick Allen Wise: <unk> hammer that robotics shoulder, but.

Frederick Allen Wise: And all of them sound like there'll be meaningful and I assume will help pricing will help gain share will help leverage.

Frederick Allen Wise: Your your fixed costs or operating costs.

Frederick Allen Wise: I was hoping you'll you'll you'll focus in particular on the implications of the Z one launch.

Frederick Allen Wise: Is this the linchpin product that you've been missing to make your hip portfolio more credible and to bring your business up to sort of more industry norms? And my second, my follow-up is sort of related to all that, relating to margin and Suki.

Frederick Allen Wise: You you highlighted.

Frederick Allen Wise: The product several times is this the lynch pin product that you've been missing to make your hip portfolio more credible and to bring your business up to sort of more.

Frederick Allen Wise: Industry norms and my second my follow up is sort of related to all that.

Frederick Allen Wise: It relates to margin Suki.

Frederick Allen Wise: I mean, I heard what you said about gross and operating margins, but again, when I think about all these introductions, I assume better pricing and margins, share, and leveraging. Why should I believe you on everything you just said about the margin outlook? Thank you.

Frederick Allen Wise: I heard what you said about gross and operating margins, but again when I think about all these introductions.

Frederick Allen Wise: I assume better pricing and margins and share leveraging our why should I believe you.

Frederick Allen Wise: On everything you just said about the margin outlook. Thank you.

Ivan Tornos: Thank you, Rick. I'll cover the HIP question, and then we'll proceed with the interrogation of Suki here when it comes to the margin. One product is not what's going to win the battle here, right? It is a category of products. We've been very transparent that we have not done great when it comes to HIPs over the last three or five years, and essentially, it's driven by three product categories. The first one is the direct anterior stem, which is not in the market as a triple tapered stem, and it was a deficiency that we had. Z1 solves that problem, and it does it in a differentiated way.

Speaker Change: Thank you Rick I'll I'll cover to the hip question and then we'll proceed with interrogation Asuka here when it comes to the margin.

Ivan Tornos: <unk> product is now.

Ivan Tornos: One product is not what's going to win the battle here right.

Ivan Tornos: It is a category of products.

Ivan Tornos: We've been very transparent that we've not done great. When it comes to heaps over the last two five years and essentially a dream by city product categories. The first one is a direct on Peter your stem what.

Ivan Tornos: What is not in the market I said people. They put his stamp on it was a deficiency that we had.

Ivan Tornos: Z one shows that I need to ask it in a differentiated way. So now we'd be five 10-K approval, we compete with the two other large orthopedic companies in direct anterior.

Ivan Tornos: So now, with this 510K approval, we compete with the two other large orthopedic companies in direct anterior. The second category was a surgical impactor. It drives efficiency, it drives accuracy in how you treat the cases, and it integrates with the rest of the procedure.

Ivan Tornos: The second category was a surgical impactor.

Ivan Tornos: And drives efficiency E drives.

Ivan Tornos: Drive.

Ivan Tornos: Chrissie in how you treat the cases it integrates with the rest of the procedure you need that certain levels of power as you're doing that the hip surgery. So that is a surgical impactor, there and we have that with hammer.

Ivan Tornos: You need certain levels of power as you're doing that hip surgery, so that is a surgical impactor, and we have that with hammer. Fully launched, we're going to run that up. And the third thing that we needed was to have navigation. We have two modalities in navigation.

Ivan Tornos: Fully launch we're going to run that out and it's fair to say that we needed was to have navigation.

Ivan Tornos: We got two modalities navigation, obviously, we've got Rosa heap, we are the only company with a five 10-K.

Ivan Tornos: Obviously, we got Rosa Hip. We are the only company with a 510K FDA-approved mixed reality technology in our partnership with Hip Insights. So, again, it's not just Z1, it's the full portfolio. Direct Interior, stems, surgical impactors, and some sort of navigation. So I do believe, we do believe, with a high degree of confidence, that we're going to regain our position in hips, still remain the number one hip company in the world, and I think that this portfolio accelerates our growth journey moving forward.

Ivan Tornos: D a approved mixed reality technology.

Ivan Tornos: Our partnership with he'd been site. So again as <unk> Z. One is the <unk> is a pooled portfolio direct them periodic <unk>.

Ivan Tornos: Surgical impactor on some sort of navigation. So I do believe we do believe we have a high degree of confidence that we're going to regain our position heaps still remain the number one company in the world and I've seen that these portfolio acceleration growth journey moving forward.

Suketu Upadhyay: And hey, Rick and Suki, always good to hear from you. On the margin front, you know, I know the past isn't always indicative of the future, but I'll just say, it is a good validation and proof point, I think, in our situation. In both 22 and 23, we were able to expand operating margins quite significantly, I would say, even in the backdrop of a pretty hostile inflationary environment. And so, again, kudos to the entire CB team.

Speaker Change: And Ah Hey, Rick it's always good to hear from you on the margin front I know the past isn't always indicative of the future, but I'll just it is a good validation and proof point I think in our situation.

Suketu Upadhyay: Wanted to in 'twenty, three we were able to expand operating margins significantly I would say even in the backdrop of.

Suketu Upadhyay: A pretty hostile inflationary environment, so again kudos to the entire <unk> and 'twenty four we expect to do it again and here's what I would say what we're doing it across the entirety of the P&L first through revenue growth and leverage our fixed costs.

Suketu Upadhyay: In 24, we expect to do it again. And here's what I would say: we're doing it across the entirety of the P&L. First, through revenue growth and leverage over fixed costs. Secondly, we're making improvements in COGS at a rate that we've not done before through inventory reduction, site optimization, and reductions in E&O. Three, we're even getting more efficient inside of R&D, looking at, hey, do we really need all this sustaining? And how can we rationalize some of our portfolio, migrate our customers to better products, get rid of some of these products, which then reduces the amount of sustaining engineering, which we can then makeshift into NPI.

Suketu Upadhyay: Secondly, we're making improvements in Cogs at a rate that we've not done before through inventory reductions site optimization and reductions in.

Suketu Upadhyay: We were even getting more efficient inside of R&D looking at Hey, do we really need all of the sustaining and how can we rationalized some of our portfolio migrate.

Suketu Upadhyay: Our customers to better products getting rid of some of these products, which then reduces the amount of sustaining engineering, which we can then mix shift into NPI, we're getting it through SG&A, we're getting it through better allocation of capital and reducing our cost of debt.

Suketu Upadhyay: We're getting it through SG&A. We're getting it through a better allocation of capital and reducing our cost of debt. The beauty of that is when you have multiple shots on goal to improve operating margins, even if things go unexpectedly from a macro perspective or a micro perspective, we have other levers to continue to help us pull margins as we move forward. And so the thing I'll leave you with is it's not just in one area of the company.

Suketu Upadhyay: The beauty of that is when you have multiple shots on goal to improve operating margins, even if things go.

Suketu Upadhyay: Unexpectedly from a macro perspective or micro perspective, we have other levers to continue to help us with margins.

Suketu Upadhyay: As we move forward and so the thing I'll leave you with is is it's not just in one area of the company. It's throughout the entirety of the P&L and we feel confident about where we're going and quite frankly, and I love what advanced bringing he's bringing this owner operator mindset to the company. He's got the company thinking not just about top line, but all the way through.

Suketu Upadhyay: It's throughout the entirety of the P&L, and we feel confident about where we're going. And quite frankly, and I love what Yvonne's bringing, he's bringing this owner-operator mindset to the company. He's got the company thinking not just about the top line but all the way through cash, cash being king. And I think that's really driving the culture change within our company as well. So I'm optimistic about where we're going, Rick.

Suketu Upadhyay: <unk> cash cash being King and I think that's really driving a cultural change within our company as well so I'm optimistic on where were gone Rick.

Speaker Change: Thank you so much.

Rick: Thanks, Brad Kt, we can go to the next question in the queue.

Suketu Upadhyay: Thanks. Thanks, Rick. Katie, we can go to the next question in the queue. Thank you. We'll go next to Peter Chickering with Deutsche Bank. Hey, good morning. This is actually Imran Zafari from PETA. First question is on Rosa, obviously.

Suketu Upadhyay: Thank you we'll go next to Peter Chickering with Deutsche Bank.

Operator: Thank you. We'll go next to Peter Chickering with Deutsche Bank. Hi, good morning. This is actually Imran Zafar from PETA.

Imron Shahzad Zafar: Hi, Good morning, this is actually Imran zafar in for Peter Ho Hum.

Philip Chickering: First question is on Rosa, obviously, a strong first quarter. There can you talk about placement trends in the quarter by site of care hospital versus the ASC and then also.

Philip Chickering: Competitive dynamics for for works joint orthopedic robotics.

Ivan Tornos: Absolutely. Thanks for the question. So let's start with a global picture, if you will, very excited in terms of where we are overall with ROSA. So globally, ROSA is becoming the preferred robotic option in many markets outside of the U.S. Here in the U.S., we're approaching around 20% penetration of ROSA in cases. As you saw in the quarter, we had a large number of ROSA cells, which is encouraging because that means in the other category, that's encouraging because that's a future stream of knee pull through.

Philip Chickering: Absolutely. Thanks for the question. So let me start with a global picture to be well very excited in terms of where we are overall with how Rosa.

Ivan Tornos: So globally raw size, becoming the preferred robotic option in many markets outside of the U S are here in the U S. We're approaching around 20% penetration of Rosa in cases.

Ivan Tornos: As you saw in the quarter was we had a large amount of Rosa sales, which is encouraging because that means in the other category, that's encouraging because that's a future stream or nimble soup.

Ivan Tornos: About a third of all the installs that we do in the U.S. go to an ASC environment, which again is not a surprise given the fact that ROSNA does drive easier pre-planning. For example, you don't need to do a CT scan.

Ivan Tornos: About a third of all the installs that we do in the U S go to an ASC environment.

Ivan Tornos: Which again is not a surprise given the fact that Russia does drive easier preplanning.

Ivan Tornos: It's very surgeon-centered, so it's very controllable, and we continue to see that there is a high degree of preference for ROSNA in those higher volume accounts. So, net-net, everything in the right direction in terms of penetration, where we are gaining traction in key markets around the world. And I love the dynamic that we're seeing here in the U.S. ambulatory surgical center environment. Thanks for the question, Peter. Okay, just a quick follow-up.

Ivan Tornos: I need to see this game he's very surgeon center. So you sound very controllable and we continue to see that that there is a high degree of preference for Rosemont in those higher volume accounts.

Ivan Tornos: So net net a be seen in the right direction and pencil penetration, where we are gaining traction in key markets around the world.

Ivan Tornos: Although the dynamic that we're seeing here in the U S ambulatory surgical standard environment. Thanks for the question Peter.

Peter: Okay, and then just sorry to follow up.

Ivan Tornos: Just as a quick follow-up, can you remind us what the site of care mix is for Shoulder Recon Hospital versus ASU? So we are starting to see a dynamic where cases are moving to the ASC for solders, getting the CMS change. I would say today probably around 60 to 65 percent of the cases sold are now done in the ASC, but that's moving pretty rapidly given the change in reimbursement. We have a strong position both in the inpatient and outpatient setting, as well as in the ASC, but I would say net-net is around 60, 65 to 35 in terms of that mix.

Peter: Is it just as a quick follow up can you remind us what the site of care mixes for shoulder Recon hospital versus ASC.

Ivan Tornos: Yes.

Ivan Tornos: So we were starting to see a dynamic where cases are moving to the AUC for soldiers getting the CMS change I would say today, probably around 60% to 65% of the cases shoulder I've not done in D C, but that's moving.

Ivan Tornos: Pretty rapidly given the change of reimbursement and we got a we got a strong position both in the inpatient and outpatient is one of the AUC, but I would say net net is around 60% to 65% to 35 in terms of that mix.

Operator: Okay, thank you very much. Thank you, thank you. Katie, can we go to the next question in the queue? We'll go next to Kaitlyn Cronin with Canaccord Genuity.

Speaker Change: Okay. Thank you very much. Thank you all right. Thank you.

Caitlin Cronin: Thank you Katy can we go to the next question. Thank you.

Operator: We'll go next to Caitlin Cronin with Canaccord Genuity. Great, thanks for taking the questions.

Caitlin Cronin: Well go next to Caitlin Cronin with Canaccord Genuity.

Caitlin Cronin: Great. Thanks for taking the questions just touching a little bit further on Rosa and strengthen the other lines. Since you did you say that you expect growth in this segment through the year.

Caitlin Cronin: It was a little bit choppy there, Caitlin, sorry, did you ask if you asked something about another, could you repeat the question? Oh, yeah, apologies. Did you say that you expected lower growth in the segment throughout the year? Yeah, yeah.

Caitlin Cronin: It was a little bit choppy there Caitlin sorry did you ask its you asked something about other could you repeat the question.

Caitlin Cronin: Oh, Yes, apologies did you say that you expect lower growth in this segment throughout the year.

Suketu Upadhyay: So we had a pretty strong quarter in our other category, primarily driven by Rosa Capital. We saw good installs, And we saw a higher mix of sales versus placements, which drove a higher level of dollar revenue in that quarter. The good news is we saw a lot of new placements and new ASCs, which is exactly where we want to see Rosa's position. And the capital sales were very good. We also love placements because that comes with a longer-term commitment. Our expectation is that we'll step down from what you saw in the first quarter as we move throughout the year, and that's been assumed in our guidance reiteration. Thank you. I got it. Okay.

Caitlin Cronin: Yeah, Yeah, Yeah. So we had a pretty strong quarter in our other category, primarily driven by Rosa capital. So we saw good installs.

Suketu Upadhyay: And we saw a higher mix of sales versus placements, which drove a higher level of dollar revenue in that quarter.

Suketu Upadhyay: The good news is we saw a lot of new placements and new ASC, which is exactly where we wanted to see roses position and.

Suketu Upadhyay: And the capital sales were very good we also love placements because that comes with a longer term commitment.

Suketu Upadhyay: Our expectation is that will step down from what you saw in the first quarter as we move throughout the year and that's been that's been assumed in our guidance reiteration.

Speaker Change: Thank you got it okay.

Speaker Change: And then any update on per stone.

Suketu Upadhyay: Go ahead with the follow-up. Go ahead. Yep. Go ahead with your follow-up. The line is kind of choppy, but go ahead.

Speaker Change: So go ahead with the follow up go ahead.

Suketu Upadhyay: Go ahead with your follow up.

Speaker Change: Your line is kind of choppy you go ahead.

Suketu Upadhyay: Okay.

Suketu Upadhyay: Apologies.

Speaker Change: Any updates on that persona Iq rollout.

Ivan Tornos: Yes, thank you, Caitlin. It's moving in the right direction. I will say as of late, things are accelerating, both from an innovation and a commercial execution standpoint. So on innovation, we did receive recently the 510k approval for the STAVI, so the shorter stem version of Persona IQ, which has been a gating factor for some surgeons that don't use the longer stem. So that's an innovation out there right there.

Speaker Change: Yes, Thank you Caitlin.

Ivan Tornos: He is moving in the right direction I will say as of late <unk> accelerating both from an innovation.

Ivan Tornos: On a commercial execution standpoint, so on innovation.

Ivan Tornos: We did receive recently the five 10-K approval.

Ivan Tornos: Do they make it to the press release for the stubby. So as these shorter stem version of persona IQ, which he has been a gating factor for some surgeons that don't use the the longer stem. So that's an innovation and they are there.

Ivan Tornos: The other piece that is gaining traction is the launch of what we call recovery curves. This is a platform that only Persona IQ has, which interconnects the data of the STEM with a dashboard that, in a very objective way, can quantify how patients are doing in comparison to other patients with similar dynamics. So those are two innovation updates that are more in the right direction. In terms of the execution and commercial journey, we have what we need, you know; we have the right designs.

Ivan Tornos: The other piece that is gaining traction is the launch or what we call recovery curves.

Ivan Tornos: This is a platform that only persona IQ has interconnects to date out of the same with a dashboard that in a very objective way Kim quantify how patients are doing in comparison to other patients with similar dynamics. So those are two innovation updates that are more in the right direction.

Ivan Tornos: So far the execution and commercial journey, we got what we need you know we got the right designs. We've been talking about value proposition has been resonating we are in some of the largest teaching institutions.

Ivan Tornos: And we continue to be committed to the journey. So very excited about persona IQ. Thank you for the question.

Ivan Tornos: We've been talking about the value proposition, and it's been responding. We are in some of the largest teaching institutions, and we continue to be committed to the journey. So, we are very excited about Persona IQ. Thank you for the question.

Keri P. Mattox: Yeah, thanks Caitlin. Katie, we can go to the next question in the queue.

Speaker Change: Yes, Thanks, Caylin Kt, we can go to the next question in the queue.

Operator: We'll go next to Mike Matson with Needham & Company.

Keri P. Mattox: We'll go next to Mike Matson with Needham <unk> company.

Michael Stephen Matson: Yeah, thanks. So, I just want to ask one about kind of what the guidance implies for second quarter revenue. You're saying you expect to be at the low end of the mid-single digits, so sort of like 4% in the first half. Based on what you did in the first quarter, that implies, you know, kind of like 3.5% constant currency growth, but you have the 1.5% selling day benefit, so that implies like 2% kind of underlying growth. Is my math right there? And, I guess, why do you only expect 2% growth in the second quarter?

Michael Stephen Matson: Yeah. Thanks, So I just wanted to ask one about kind of what the guidance implies for second quarter revenue.

Michael Stephen Matson: You expect to be at the low end of the mid single digits is sort of like 4% in the first half.

Michael Stephen Matson: Based on what you did in the first quarter.

Michael Stephen Matson: That implies kind of like three and a half a.

Michael Stephen Matson: Percent constant currency growth, but you have wanted to have per selling day benefit for that applies like 2%.

Michael Stephen Matson: Underlying growth.

Michael Stephen Matson: Is that is my math right, there and I guess why why do you only expect 2% growth in the second quarter.

Suketu Upadhyay: Yeah, hey Mike. Directionally, the way you're thinking about it is right; I wouldn't quite go as low as that.

Speaker Change: Yeah, Hey, Mike.

Mike: Directionally the way you're thinking about it right I wouldn't quite go as low as that.

Mike: Well look quarter to quarter, there's going to be choppiness theres going to be noise based on.

Mike: Timing contracts et cetera, we had a great start to the year, we continue to believe and reinforce our guidance and still believe that the first half has been a land.

Speaker Change: We expect when we initially gave guidance so nothing in particular about the quarter of note, but just the overall cadence that's how we expect first half versus second half to play out for this year.

Suketu Upadhyay: But look, quarter to quarter, there's going to be choppiness, there's going to be noise based on timing, contracts, etc. But we had a great start to the year. We continue to believe and reinforce our guidance and still believe that the first half is going to land as we expect it to when we initially gave guidance. So, nothing in particular about the quarter of note. But just the overall cadence; that's how we expect the first half versus the second half to play out.

Ivan Tornos: Okay, thanks. And just to follow up on Asiutai, you mentioned it's gaining share. Does that mean that it's actually converting competitive surgeons, or does that just mean it's cannibalizing the cemented persona?

Speaker Change: Okay. Thanks, and then just a follow up on a few times so.

Ivan Tornos: You mentioned, it's gaining share does that mean that it's actually converting competitive surgeons or does that doesn't mean it cannibalizing.

Ivan Tornos: Persona.

Ivan Tornos: No, we definitely are upgrading, if you will, the cementless legacy cementless platform over to Persona Oceantec, but at the same time, a sizable amount of the business is coming from converting accounts. So, you've seen that the U.S. new number in the quarter was strong, and a large component of that was the fact, with pretty heavy coms, by the way, comes from the introduction of Persona Oceantech. And the expectation is that as we continue to move into the acceleration of the product launch, we're going to continue to gain share. So, it's both existing accounts and new accounts.

Speaker Change: No. We are we definitely are upgraded if you will some of for some endless legacy tremendous platform over to personnel shebang, but at the same time, a sizable amount of <unk>.

Ivan Tornos: The business is coming from converting accounts.

Ivan Tornos: So you've seen that the U S knee numbers in the quarter was strong.

Ivan Tornos: A large component of that was the fact that we're pretty heavy comes by the way.

Ivan Tornos: From the introduction of persona El show de <unk> and the expectation is that as we continue to move into the acceleration of the product launch we're going to continue to gain share. So is both existing accounts and new accounts.

Speaker Change: Got it thanks for the questions Mike.

Ivan Tornos: Thanks for the questions, Mike. Yeah, absolutely. Katie, can we go to the next question in the queue? Thank you. We'll go next to Vijay.

Speaker Change: Yeah, absolutely Katy can we go to the next question in the queue.

Keri P. Mattox: Thank you. We'll go next to Vijay Kumar with Evergreen.

Ivan Tornos: Thank you we will go next to Vijay Kumar with Evercore ISI.

Operator: Vijay

Vijay Muniyappa Kumar: Hey, guys.

Vijay Muniyappa Kumar: Steve again.

Operator: Vijay, we can't hear you if you're talking. Sorry, this is Sophia on behalf of Vijay.

Vijay Muniyappa Kumar: Mr. Yu Dang here you Kathy.

Sophia: One quick one on gross margins and operating margins. Were there any one-offs in the first quarter on gross margins? You guys raised the guide for margins, but EPS was maintained. So is operating margin slightly down? And how do we think about margins for the rest of the year?

Operator: Alright. This is Sophia on for Vijay one quick one on gross margin and operating margin were there any one offs in the first quarter on gross margin.

Sophia: <unk> raised the guide for Martin, but EPS was maintained operating margins slightly down and how do we think about margins for the rest of the year.

Suketu Upadhyay: Yeah, no real, in any given quarter, there's going to be some calls put on both in gross margin and operating margin, but nothing material or out of the ordinary. We did a little bit better on gross margin than we expected to. We saw that flow through in the operating margin, so I feel really good about the start of the year. As we progress through the year, we do expect operating margins to step up in line with normal seasonality as revenue continues to step up and our savings programs pull through.

Sophia: Yes, no no real debt in any given quarter, there's going to be puts and calls both in gross margin operating margin, but nothing material or out of the ordinary.

Suketu Upadhyay: A little bit better on gross margin then we expect it to we saw that flow through in the operating margin. So feel really good about the start of the year.

Suketu Upadhyay: As we progress through the year, we do expect operating margins to step up.

Suketu Upadhyay: In line with normal seasonality as revenue continues to step up in our savings programs pull through so again very confident in.

Suketu Upadhyay: So again, very confident in where we're headed from an earnings perspective in our guide. And if you recall, I think we said on the last quarterly call that at the midpoint, that implies about an 80 basis point lift in operating margin. And we still

Suketu Upadhyay: And where we're headed from an earnings perspective in our guide and if you recall I think we said on the last quarterly call that at the midpoint that implies about an 80 basis point lift in operating margin and we still are we're still confident in that.

Suketu Upadhyay: Okay, great. Quick follow-up question. Okay. Yeah, just one quick one on M&A. I know you guys have made some comments about tuck-ins and kind of what that profile will look like, but anything in the pipeline that is particularly interesting right now that will fit well into the portfolio?

Speaker Change: Okay great.

Speaker Change: A question.

Suketu Upadhyay: Yeah, just one quick one on M&A I know you guys have made some comments about tuck ins and kind of what that profile will look like but anything in the pipeline that are particularly interesting right now that will fit bond portfolio.

Ivan Tornos: Yeah, we always have a robust pipeline, and we'll talk about the pipeline and the optionality of M&A in more depth once we meet later in the month. But the same three key areas apply. We're looking for assets that are mission-centric from a strategic standpoint, fit in the higher growth segments of recon, certainly the high growth segments of SET as a category, and then in the ASC space, which is a mixture of both one and two.

Suketu Upadhyay: Yes, we always have a robust pipeline and we will talk about the pipeline and the optionality of M&A and more to damage. When once we meeting later in the month, but the same three key areas. Our play we're looking for assets that are mission centric.

Ivan Tornos: From a strategic standpoint feed in the higher growth segments of recon.

Ivan Tornos: Certainly the high growth segments of our set category.

Ivan Tornos: And then in the ASC space, which is a mixture of both one and two so we are laser focused on those three key areas. While also keeping an eye on broader diversification.

Ivan Tornos: So we later focus on those three key areas while also keeping an eye on broader diversification. Financially, nothing has changed. We have the flexibility to do larger deals, but we like deals where the acquisition price is under $2 billion. We definitely want to be neutral from an EPS standpoint within two years, and then high single-digit ROIC to double-digit ROIC over the five-year time horizon. So, very clear on strategic and financial filters, and the optionality is there, and the pipeline is there. So, more to come once we meet in New York.

Ivan Tornos: Financially nothing has changed.

Ivan Tornos: We have flexibility to do larger deals, but we like deals what are the acquisition prices under $2 billion we.

Ivan Tornos: We definitely want to be neutral from an EPS standpoint within two years, and then high single digit ROIC to double your ROIC in the in the five year time horizon, So very clear on our strategic and financial filters.

Ivan Tornos: And the Optionality is there and the pipeline is there so more to come once we meet in New York.

Speaker Change: Thanks Sylvia.

Keri P. Mattox: Katie, can we go to the next question in the queue?

Ivan Tornos: Katy can we go to the next question in the queue.

Operator: We'll go next to Robbie Marcus with J.P. Morgan.

Keri P. Mattox: We'll go next to Robbie Marcus with Jpmorgan.

Robert Justin Marcus: Oh, great. Thanks for taking the question. Congratulations on a good quarter. Maybe just one for me.

Robert Justin Marcus: Oh, great. Thanks for taking my question and congrats on a good quarter.

Robert Justin Marcus: Maybe just one for me.

Suketu Upadhyay: You kind of talked about the second quarter and the expectation on the top line, and you just answered the kind of margin cadence through the year. But I want to put a finer point on it and try and avoid some of the cadence issues that we had last year. So you talked about operating margin expanding; I want to make sure I think the prior commentary was that the second quarter would be the highest operating margin.

Robert Justin Marcus: You've kind of talked about second quarter and the expectation on the top line and you just answered kind of margin cadence through the year, but I want to put a finer point on it and trying to avoid some of the cadence issues that we had last year.

Suketu Upadhyay: So you talked about operating margin expanding I wanted to make sure I think the prior commentary with second quarter would be the highest operating margin in fourth quarter would be the highest for the year with the sequential down in third quarter with normal seasonality.

Suketu Upadhyay: Transcripts provided by Transcription Outsourcing, LLC, for EPS for the second, third, and fourth quarter. Are there any cadence changes you think we should be looking at moving one, you know, from one quarter to another? Thanks a lot. Yeah.

Speaker Change: Maybe just kind of say it all the different way are you comfortable with where the street is on EPS.

Suketu Upadhyay: Sure.

Suketu Upadhyay: EPS for second third and fourth quarter are there any cadence changes do you think we should be looking at moving one.

Suketu Upadhyay: From one quarter to another thanks a lot.

Suketu Upadhyay: Yeah, so Robbie, just a little bit of a correction. I'm not sure if I caught everything you said or understood it. I should say everything you said. The fourth quarter will be our high watermark relative to operating margin, in line with, you know, that being our high watermark from a revenue perspective. And so our margin does, in many ways, correlate heavily to our revenue outlook. You know, relative to the cadence, I'm not going to in consensus, I'm not I'm not going to, you know, sort of benchmark relative to that. I think we've actually given pretty good color already around the first half, second half revenue cadence. I've talked about gross margins, plus 101st half, 2nd in the back half, and then operating margins improving in the back half of the year through the restructuring overall.

Suketu Upadhyay: Yeah, So Ravi just a little bit of a correction I am not sure. If I caught everything he said are understood I should say everything you said fourth quarter will be our high watermark relative to operating margin in line with that.

Suketu Upadhyay: That being our high watermark from a revenue perspective, and so our margin does many ways correlate heavily too.

Suketu Upadhyay: Our revenue outlook.

Suketu Upadhyay: Relative to the cadence I'm not going to and consensus.

Suketu Upadhyay: In a sort of a benchmark relative to that I think we've actually given pretty good color already around the first half second half revenue cadence.

Suketu Upadhyay: Talked about gross margins plus 101st half second in that in the back half and then operating margins.

Suketu Upadhyay: Proving in the back half of the year through the restructuring overall, so I think there's actually pretty good color out there.

Suketu Upadhyay: So I think there's actually pretty good color out there in line with how we've traditionally been transparent, so hopefully that gives you enough to go from. Appreciate it. Thanks. Thank you, Rob.

Suketu Upadhyay: In line with how we've traditionally been transparent so hopefully that gives you enough to go from.

Speaker Change: I appreciate it thanks.

Speaker Change: Well, thank you Robin thank you.

Robert Justin Marcus: Thanks, Katie. Can we go to the next question in the queue?

Speaker Change: Thanks, Katy can we go to the next question in the queue.

Operator: We'll go next to Chris Pasquale with Nefron.

Robert Justin Marcus: We'll go next to Chris Pasquale with Nephron.

Christopher Thomas Pasquale: Thanks. Ivan, you talked about four points of your revenue growth this year coming from market gains and then 100 to 200 basis points of outperformance to get you to your 5% to 6% goal. When we look at the first quarter, recon growth was actually a little bit better than that. And that's a really hard comp, the hardest comp of the year. So that 4% feels pretty conservative at this point. And your own performance across hips and knees was a little bit below market.

Operator: Thanks.

Christopher Thomas Pasquale: Ron you talked about four points of your revenue growth this year coming from market gains and then 100 to 200 basis points of outperformance to get you to your 5% to 6% goal. When we look at the first quarter recon growth was actually a little bit better than that.

Christopher Thomas Pasquale: Really hard comp hardest comp of the year, so that 4% feels pretty conservative at this point your own performance across hips, and knees was a little bit below market. So while I. Appreciate youre excited about the pipeline and what it can mean for share gains in the out years are you still thinking about the recipe to get you to your 2024 target the same way.

Christopher Thomas Pasquale: So while I appreciate you're excited about the pipeline and what it can mean for share gains in the coming years, are you still thinking about the recipe to get you to your 2024 target the same way?

Ivan Tornos: Yeah, thank you, Chris. First of all, I wouldn't categorize all performance as below market. I know we can have a healthy debate on whether it is above or below, but what I will tell you is that where we stand here right now, it is not below market. I certainly know from a trending standpoint over a period of time, and now that everyone has reported in Q1, we're not below market. So I'll start with that.

Ivan Tornos: Yeah. Thank you, Chris first of all I wouldn't categorize or performance being below market and now we can have a <unk>.

Ivan Tornos: Debate on whether it is above or below but what I would tell you is that we stay here right now it is not below market.

Ivan Tornos: Certainly now from a training standpoint over a period of time and now that everyone has reported in Q1, we're not below market. So I'll start with that in terms of how we get through the 5% to 6% I seem to formula continues to be product introductions, which the ramp up later in the year.

Ivan Tornos: In terms of how we get to the 5% to 6%, I think the formula continues to be product introductions, which will ramp up later in the year and even more product introductions as we get into 2025. We've never had five and a half, almost six years, here with a company. I've never seen a full portfolio.

Ivan Tornos: And even more product introductions as we get into 2020 five we've never had 500 almost six years here with the company I've never seen a full portfolio I mentioned earlier that we don't have any gaps in hips.

Ivan Tornos: I mentioned earlier that we don't have any gaps in hits. With the introductions that we've done in NIS, there are zero gaps. I'm excited about the upcoming product launches in Europe. Let's not forget we don't have persona revision in EMEA. That's an almost $2 billion product here in the U.S., $2 billion in gross sales over the last three, four years. And let's not forget we also bring Oxford Partial Seamless from Europe here to the U.S.

Ivan Tornos: The interactions that we've done a nice there's zero gaps I'm excited about the upcoming product launches in Europe, let's not forget we don't have persona revision in EMEA, that's an almost $2 billion product here in the U S 2 billion over the last four three or four years in gross sales and let's not forget we also.

Ivan Tornos: In Oxford partial CMA list from Europe to the U S soy streams in any portfolio strengths in the heat portfolio, you've seen that said we made a commitment that said that's a category will grow mid singles or doubles is the third consecutive quarter, who are we seeing that.

Ivan Tornos: So strength in the E portfolio, strength in the HIPP portfolio. You've seen that set. We made a commitment that set as a category would grow mid-single-digit or above. It's the third consecutive quarter that we've seen that, and that's going to stay around. So I will say strength in innovation, strength in commercial execution, and the 5% to 6%, to us, is an admissible commitment.

Ivan Tornos: And that's going to stay around so I will say streamed seen innovation the strength in commercial execution, and the 5% to 6% to us isn't a mutual commitment.

Ivan Tornos: Okay, and then following up on Asiatai, can you remind us where your cementless mix stands today in the U.S. and over what time frame do you think you could close the gap between your current penetration and where Striker is at the moment?

Ivan Tornos: Okay.

Ivan Tornos: And then following up on Osteo tie. It can you remind us where you are someone was mix stands today in the U S and over what timeframe.

Analyst: Thank you could close the gap between your current penetration and where Stryker has at the moment.

Ivan Tornos: Absolutely. So, closing the Q1 quarter approaching 20%. So, it's fairly similar to robotics. Cement is approaching 20%. We'll break down some of these commitments. We keep repeating the same answer at investor day. But our expectation, and our ambition, is to be where our competitors are, 60%, 6-0. We'll provide timelines in that regard, but the North Star is to have robotic penetration in the 60% range and cement penetration in the 60%. So, the fact that today we're at 20% tells you that there is pretty significant upside, and we're excited about the journey.

Asiatai: Absolutely so closing the Q1 quarter approaching 20% so it's fairly similar to our robotics. So CML is approaching 20%.

Ivan Tornos: We'll break down some of these commitments, we keep repeating the same answer at the Investor day, but our expectation and our ambition is to be where our competitors are 60% six zero.

Ivan Tornos: We'll provide timelines in that regard, but they're not studies to have robotic penetration in the 60% range and tremendous penetration in the 60%. So the fact that today. We are at 20% that tells you that there is pretty significant upside.

Ivan Tornos: We're excited about that journey.

Christopher Thomas Pasquale: Chris, thanks for the question. Katie, Katie, I think we have time for maybe one more question in the queue.

Speaker Change: Great. Thanks for the question Katy Katy I think we have time for maybe one more question in the queue.

Operator: We'll go next to Shagun Singh with RBC.

Christopher Thomas Pasquale: We will go next to <unk> Zhang with RBC.

Shagun Singh Chadha: Great, thank you so much. So it seems like orthopedic robotics uptake stepped up for the market in Q1, or at least it was better than expected. Has anything changed from a capital appetite standpoint? Any reason you're seeing more upfront sales versus operating leases? And then just to follow up on M&A, Ivan, you indicated that you want to go bigger and bolder, and we haven't seen a whole lot of that yet. You know, I appreciate all the commentary on deal capacity of up to 2 billion dollars and, you know, favoring tuck-ins. But, you know, very specifically, how do you plan to raise your weighted average market growth from 4% today, mostly with tuck-ins? Thank you for taking the questions.

Shagun Singh Chadha: Great. Thank you so much.

Shagun Singh Chadha: Like orthopedic robotics uptake stepped up for the market in Q1 or at least it was better than expected has anything changed from a capital appetite standpoint, any regions, you're seeing more upfront sales versus operating leases and then just a follow up on M&A. Yvonne you had indicated that you want to be you want to go bigger.

Shagun Singh Chadha: And boy, though and we haven't seen a whole lot of that yet.

Shagun Singh Chadha: I appreciate all the commentary on the capacity of up to 2 billion in Sebring tuck ins, but very specifically how do you plan to read your weighted average market growth from 4% today, mostly with duck and thank you for taking the questions.

Ivan Tornos: Thank you so very much. So, starting with robots and capital dynamics. Look, I will tell you one thing that is pretty prevalent is that here in the U.S., we are seeing cases move to the AEC; not a week goes by that there's not a new AAC opening, and those ASEs do want to acquire robotics, and you either install it, or you purchase it. We saw a dynamic in Q1 where we saw more purchases. We do believe this is ruined by ASC dynamics, but capital continues to be strong. across key markets, so definitely not a gating factor.

Speaker Change: Thank you so very much so starting with our robots.

Ivan Tornos: Capital dynamics look I will tell you one thing that is pretty prevalent here in the U S. You've seen the cases moved to the ASC.

Ivan Tornos: Not a week goes by that there's not a new AUC opening.

Ivan Tornos: Those aussies do why not acquire robotics.

Ivan Tornos: Either installed or your purchases, we saw dynamic in Q1, where we saw more purchases.

Ivan Tornos: We do believe this is driven by AUC dynamics capital continues to be strong across key markets. So definitely not a gating factor.

Ivan Tornos: Again as I mentioned earlier excited about continuing to do here in.

Ivan Tornos: And again, as I mentioned, they're excited about the continuity here. In this regard your second question on M&A, look, we want to be bigger than bolder, but at the same time, we're not going to be reckless. And we say that all along.

Ivan Tornos: Typically a cyclical question on M&A look we want to be bigger and bolder at the same time, we're gonna be reckless and I always say that all along so we went I stick to the strategic and financial thresholds, we got the pipeline we got the money.

Ivan Tornos: So we're going to stick to the strategic and financial thresholds. We have the pipeline, we have the money, and when it's time to act, we'll act on it. And we're not going to take the past as an indicator of how we're going to do things in the present and future. The breakdown on WEMGAR will cover that as well once we get into investor day. And It is a combination of organic and inorganic compounds.

Ivan Tornos: When he started to act, we will act on it and we don't want to take the past as an indicator of how we're going to do things in the in the present and future. The breakdown on the Wenger will cover that as well once we get into the Investor day and it is a combination of organic and inorganic means so we'll talk about the pipeline I already mentioned, we already mentioned that.

Ivan Tornos: So we'll talk about the pipeline. I already mentioned that 80%, if not 90% of the new products in the pipeline are in markets that are growing about 4%, in some cases about 5%, so that's definitely a driver. And then the combination of attacking deals and maybe some bolder moves will get us to the WEM guard that we deserve.

Ivan Tornos: The 80%, 90% of the new products in the pipeline are in markets that are growing above 4% in some cases above 5%. So that's definitely a driver and then the combination of attacking deals maybe some bolder moves will get us to the women garner that with you Sir so more to come in that regard. Thanks for the question.

Ivan Tornos: So, more to come in that regard. Thanks for the question. Thank you. I think we're coming to the end of the call, so I'm just going to briefly close with closing comments. I'll start by saying that it's great to be here at home in Washington, Indiana today, to celebrate Founders Day. So on May 2, 1927, we started the company with a very clear purpose to alleviate pain and improve the quality of life for people around the world.

Speaker Change: Thank you I think we're coming to the end of the call. So I'm just going to briefly close with closing comments.

Ivan Tornos: Start by saying that it's great to be here at home and watching the honor today.

Ivan Tornos: To celebrate our Founder's day, So may 2nd 1927, we started the company with.

Ivan Tornos: With a very clear purpose to alleviate pain and improve their quality of life for people around the world. So 97 years later I just can say that we're just getting started so excited to see where we are as a company.

Ivan Tornos: So, 97 years later, I can just say that we're just getting started. I'm so excited to see where we are as a company. It's an exciting time to be at Zimmer Biomet. The portfolio is what it needs to be. We have strong commercial execution. We are very, very confident in our guidance for the year 2024. We are excited about what's to come in 2025 and 2026 once we are able to discuss the long-range plan. So, we have nothing but confidence and excitement.

Ivan Tornos: <unk> is an exciting time to be at Zimmer biomet the portfolio is what it needs to be.

Ivan Tornos: We have a strong commercial execution, we are very very confident on our guidance for the year 'twenty 'twenty. Four we are excited about what's to come in 2020 six once we are able to discuss the long range plan, so nothing by confidence and excitement.

Ivan Tornos: Before closing, I want to thank Keri for four and a half great years with us. You've been a trusted partner, a great friend. You're going to be missed, although I'm going to continue to call you and seek your advice for many, many years to come. So thank you, Keri, and thanks, everybody. Thanks, everyone.

Ivan Tornos: Before closing I want to thank Cary for Fortinet have great years, with us being a trusted partner and a great friend, you're gonna be means although I'm going to continue to call you on secure device. Many many years to come so thank you Gary and thanks, everybody. Thanks, everyone for joining we'll be talking to all of you. Today. If you have questions of course, please don't hesitate to reach out to the IR team. Thank you again for.

Keri P. Mattox: Thanks, everyone, for joining us today. If you have questions, of course, please don't hesitate to reach out to the IR team. Thank you again for joining the call this morning.

Keri P. Mattox: Joining the call this morning.

Operator: That will conclude today's call. We appreciate your participation.

Speaker Change: That will conclude today's call. We appreciate your participation.

Operator: [music].

Operator: Yeah.

Operator: [music].