Q2 2025 Zimmer Biomet Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Second Quarter 2025 Earnings Conference Call.
If anyone needs assistance at any time, during the conference, please press the star followed, by the zero.
Is being recorded today. August 7th, 2025
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 1 on your push button phone.
I would now like to turn the conference over to David D, Martino senior vice president of investor relations. Please go ahead.
Thank you, operator and good morning everyone. Welcome to zero biome at second quarter 2025 earnings conference call.
Joining me on today's call are on tornos our chairman president and CEO and sukia our CFO and EVP, Finance operations, and supply chain.
Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements actual results. May differ materially from those indicated by defaulting statements, due to a variety of risks and uncertainties,
For detailed discussion of all these risks and uncertainties, in addition, to the inherent limitations of such forward-looking statements, please refer to our SEC filings.
Please note, we assume no obligation to update these formative statements. Even if after a result or future expectations change materially,
Additionally, the discussions on this call will include certain non-gaap Financial measures, some of which are forward-looking non-gaap Financial measures reconciliation on these measures to the most directly comparable, gaap, Financial measures and an explanation of our basis. For calculating these measures is included within our second quarter earnings release, which can be found on our website. They were biomet.com with that, I'll turn the call over to Ivan Ivan.
Good morning everyone. And thank you for joining today's call.
I would like to start today, the way that I always do.
By sharing my gratitude to the more than 17,000 Zimmer biomed team members who move our business and Mission forward each and every day.
Thank you for your Talus work. Thank you for your strong performance. And yes, most importantly, thank you for your relentless commitment to serving our customers and their patience.
A firmly believe that the zimma may work force and our culture here.
At amongst our key competitive advantages.
During my prepared remarks this morning I'm going to cover 3 key areas first. I'll summarize the second quarter of 2025 performance.
As well as providing the general update behind our positive adjustments to a yearly guidance.
Secondly, I'm going to cover the 3 key strategic priorities for Zimmer Biomet. Providing some examples of a progress. As a reminder those 3 priorities are people and culture operational excellence and Innovation and diversification.
And then thirdly, our provides some quantitative data points that will validate or confidence behind, or new product introduction performance, which is 1 of the main reasons of what we feel. So, confident on the second half of 2025 growth acceleration
Starting with a quarter uh, with deliver a very solid quarter on both the top and bottom line.
This was against the backdrop of an 80.
Basis points 7 Day headwind.
In the quarter with the strongest comps for the year versus 2024.
and with the announced significant delay in international orders,
Which have now moved into the third quarter.
In spite of all of the above, we did grow the, in the quarter, uh, sales by 2.8% on an organic constant currency basis.
For the second consecutive quarter or us hips business, drove a strong results.
We grew 5.2%.
Over the prior year.
Accelerating from 3.7% growth in the first quarter of 2025.
Also us needs increase sequentially by 150 basis points.
Growing 1.7%.
Over the prior year period.
And set 1 of our most exciting businesses reported another solid mid. Single digit. Organic constant currency growth quarter which is not a 17 in a row.
At nearly 5% growth.
We've seen set. We deliver double digit growth in sports medicine and cmft. Cranio maxillo facial thoracic, while delivering high single-digit growth in appetite extremities within the quarter.
This was driven by our differentiated product portfolio and our solid ASC.
Execution.
for 2025, we're updating our full year, organic constant currency Revenue, growth expectations,
To arrange a 3.5.
To 4.5.
5% range.
Excluding the contribution of paragon, 28.
We continue to expect Paragon. 28 to contribute 270 basis points.
to our sales growth projection in 2025,
We are also raising our 2025 adjusted earnings per share guidance to $8.
And 10 cents to 8.30 cents from the previous range of 7.90 to 8.10.
This range of guidance contemplates, 4 things, firstly, or continued confidence. In a second half 2025 sales acceleration during by your new product cycle,
Secondly, increase operational, efficiency.
Third, a lower impact from tariffs that initially anticipated.
And 4.
The weakening of the US Dollars FX benefit.
so, if it's going to provide more detail, on guidance, during his prepared remarks,
Or confidence in delivering this forecast is very high and with July now behind with even more confident in the acceleration of growth relative to the new products that we launched in.
in particular in the us where we saw the strongest month, so far in the year 2025, that being the months of July,
But we are pleased with our solid financial performance. What? I'm most proud of this quarter is the Strategic and operational progress. We're making towards our long-term ambitions.
We continue to transform Zimbabwe at a very rapid Pace as we execute on our key.
Priorities from a strategic standpoint.
Those 3 priorities 1 second are people and culture operational excellence and Innovation and diversification.
Let me share several recent and very exciting updates on these 3 priorities and I'll start with Innovation and diversification.
And or framework to conduct discipline m&a, in order to move into higher growth spaces.
On July 14th, we announced a definitive agreement to acquire monogram Technologies.
Which is the company behind emboss, the robot with semi and fully autonomous. AI driven robotic capabilities.
Recently Monograms robot became the first robot in the world.
To complete a fully autonomous surgery. Using Monograms implants
This is very exciting and disruptive technology which is highly complementary to a technology, sweeter solutions that we have here at gmail biome.
As a complement to our broad Suite of robotic and navigation Solutions.
Monograms first to the world technology, has the potential to change the standard of care and transform the future of orthopedic surgery.
Solving some of the most meaningful challenges in muscular skeletal health.
Those being efficiency. Accuracy and reproducibility.
This plan acquisition of monogram and our commitment to Rosa and his robust Pipeline and the score. Zimmer Biomet and presidential strategy of enabling today, while boldly defining the future of orthopedic surgery.
So discipline m&a.
And the monogram acquisition meets or is stringent financial and strategic criteria.
The acquisition is expected to be neutral to adjusted earnings per share from 2025 through 2027 and I created thereafter.
You will contribute to revenue growth beginning in 2027 and will generate High single digit. Roi return invested Capital by year 5.
With increasing contributions starting in year 6.
The acquisition of paragon 28 earlier. This year, is another way. We leveraging m&a to diversify our company into higher growth segments,
we completed the acquisition on April 21st, and the integration so far is proceeding as planned.
we recently transitioned Zimmer, biomed's food and anal portfolio to Paragons 28 sales team, creating more scale and leveraging the strong Commerce of Channel and capabilities that Paragon 28 is known for
I love the contribution that Paragon 28 is making and I look forward to ongoing journey together.
Now, turning to our second priority, the operational excellence is a strategic pillar that encompasses efforts on both the top and bottom line.
As we work to strengthen, our commercial execution in the US to drive consistent about market growth, improve margins for customer by globally and reducing inventory for the organization in order to improve free cash flow generation.
The team has done in 2025 so far to drive EPS growth.
Their work has now enabled. Zimmer Biomet.
To be able to grow earnings in the year 2025 versus 2024 in in spite of executing 2, significant m&a deals.
Investing in large commercial initiatives.
Launching new products driving the boldest, dtp campaign and absorbing the terrifying impact.
Of course, none of these progress will be possible without our team.
Our priority is dedicated to people and culture.
And student will have the right people in the right roles.
We recently, welcome, Kevin thorell as our group president for Global businesses and the Americas.
Kevin is a very Dynamic and efficient leader who brings a wealth of knowledge and experience in driving growth and Commercial Excellence within medical devices, including Orthopedics.
I look forward to Kevin's leadership and contributions as we continue to accelerate growth and transforms human biomed into the boldest. Most customer Centric company in Medtech.
The progress that we're making in each of these 3, strategic priorities is real and reinforces my conviction in both our plan. Second half acceleration as well as the long-term opportunity. That Zimmer biome has ahead
We believe that the early customer enthusiasm and adoption that we've seen behind our magnificent 7 product cycle, will continue to fuel our growth, in the back half of 20, 25 and Beyond. And again 1 month into Q3, we seen that coming to realization.
Here are a few recent trends that are inspiring our confidence in the second half acceleration and solid growth over the long range plan.
In US hips. We continue to drive robust adoption of our Z1. Triple tapered stem. For direct interior. Heat procedures with now, roughly 50% of Z1 users converting to zero environment from competitive offerings.
We believe the combination of C1 hammer or surgical impact on an ortho Grid or AI driven. Surgical guidance system for thoracic replacement is going to continue to drive a strong growth through the second half of 2025 and Beyond.
Us niece or Persona oo, penetration continues to move in the right direction.
In addition, we are seeing very strong early adoption of our Oxford. Partial cementless knee.
Nearly 50% of surgeon strain on Oxford to the second quarter of this year.
Have adopted their implant, our implant in the practice.
With 10% of them being competitive conversion.
We have planned, countless new training, programs for the rest of 2025 and going into 2026.
In Europe, the Persona revision. Need launch continues to gain traction with more than 100 accounts in planting the system across the key countries of Western Europe.
We expect Persona revision adoption to accelerate meaningfully throughout the end of 2025, with plenty of additional training events.
Scheduled throughout the rest of the year and a very solid supply platform across the continent.
lastly, in SCT or in body, line of collagen Bass, by integrative Solutions, continues to exceed expectations,
when you launches are driving sir, gains in shoulder arthroplasty,
More than 1/3 of Surgeons, implanting or identity total shoulder. We're using competitive systems 2 years ago. While 40% of Osteo feed a stemless shoulder users are new to zero Bowman.
These products underscore our confidence in at least mid single digit. AC growth going forward.
Our team is only in and committed to executing with urgency and Excellence for the rest of 2025 and again our confidence in the second half Revenue. Growth expectation for the year is very high.
In conclusion, we are very proud of the progress in organization and we look forward to continuing to execute and build momentum as we move through the second half of this year 2025.
I have more conviction in our strategy and team than ever.
And I am deeply inspired every day, knowing that my teammates. And I are leaving the zoom environment mission of Alibi and pain and improving the quality of life for people around the world.
And with that, I will turn the call over to Suki. Thank you.
Delivered, another solid quarter that demonstrated the early impact of our new product cycle.
We grew sales 2.8% on an organic constant currency basis, despite an 80 basis. Point selling day headwind,
In addition we delivered adjusted earnings per share of 2.7 cents which was up. 3% year-over-year despite dilution from the Paragon. 28, transaction and continued investments into our commercial organization.
As we get into the details of the results, unless otherwise noted, my statements will be about the second quarter of 2025 and how it compares to the same period in 2024.
And my commentary will be on a constant currency and adjusted operating basis.
2025 organic constant currency commentary and guidance. Excludes any impact from the recently closed Paragraph 28 acquisition.
Net sales were 2,077 million. An increase of 7% on a reported basis and 2.8% excluding the impact of foreign currency and the Paragon. 28 acquisition.
Consolidated pricing was 20 basis points positive marking another consecutive quarter of positive pricing.
Our us business grew 2.3%, on an organic basis driven by over 5% growth in hips and 150 basis points sequential acceleration in needs to 1.7%.
As Ivonne mentioned, this performance reflects contribution from and early customer enthusiasm for several new product launches across our business.
Internationally. We grew organic Revenue, 3.4%
Global hips, grew 4% with the Us increasing 5.2% in international increase, in 2.7%.
The US performance was driven by rz1 triple taper hip stem, which continues to exceed our expectations.
Z1 in combination with hammer and Ortho grid is driving, Sheriff wallet and competitive conversions.
Global needs grew 1.8% in a quarter with a us growing 1.7% and international growing 1.8%.
This quarter's us results, reflect increasing. Penetration of our Persona Osteo ties cementless total knee and early adoption of our Oxford partial cementless knee.
While room for improvement, remains we continue to invest in high growth, segments, such as asc's and Robotics to increase our penetration.
The early adoption of our new product launches coupled with ongoing commercial Investments, reinforce confidence in a second, half acceleration.
Next, our SCT segment, grew by 4.9% on an organic basis, led by double digit growth in cmft and Sports Medicine in the high single digit growth in upper extremities.
This marks the seventh consecutive quarter of at least mid single digit growth in set a trend we expect to continue as planned product launches accelerate
as a reminder with the closing of the Paragon, 28 acquisition set is now our second largest business
Finally technology and data bone cement and surgical declined, 2.2% due to difficult comps from the prior year and a mix shift towards Rosso volume based, placements versus outright sales.
Returning to our p&l.
We reported Gap diluted earnings per share of 77 cents compared to Gap, diluted earnings per share of a dollar 18 in the prior year.
Higher revenue, and lower year-over-year. Restructuring charges were more than offset by acquisition related charges and interest expense due to the Paragon. 28 transaction.
On an adjusted basis. We delivered diluted earnings per share of $2.07 compared to $2.01 in the prior year.
This increase was driven by higher revenue and a lower share count partially offset by a step up in sgna and interest expense tied to the Paragon. 28 transaction.
Adjusted gross margin was 72.3% higher than the second quarter of 2024. Largely due to favorable mix and lower Eno which more than offset higher manufacturing costs.
adjusted operating margin was 27.8% lower than the prior year as a result of increased commercial Investments and the addition of paragon, 28, but in line with expectations
adjusted net interest in non-operating expenses, were 75 million above the prior year, driven by higher debt related to the paragraph, 208 transaction and higher interest rates on refinance, debt that matured in 2024
our adjusted tax rate was 18.2% and fully diluted shares outstanding, where 198.3 million down year-over-year due to the share repurchases from last year and in the first quarter of 2025,
Paragon, 28 transaction in the quarter.
Our working capital initiatives, including inventory, reductions continue to pay off.
as we've reduced days on hands by almost 20 days, compared to the second quarter of 2024,
We are updating our guidance based on a number of factors and now expect 2025 reported Revenue growth of 6.7% to 7.7%.
Adjusted EPS of $8.10 to $8.30 and free cash flow of 1 billion to 1.2 billion.
We are also narrowing, our 2025 organic constant currency Revenue, growth guidance to 3 and a half percent to 4 and a half percent.
From our prior range of 3% to 5%.
Inside of this, we continue to expect the average selling prices to be roughly flat for the full year, and selling day differences to be a modest headwind to growth.
Importantly, as Ivonne mentioned, we remain confident in our expected second. Half growth acceleration, driven by know selling day headwind in the second half of 2025,
More favorable comps resulting from the ERP implementation challenges in the second half of 2024.
Acceleration from new product, launches, particularly our magnificent 7 across all of our business and geographies and the timing of orders Ina.
Now, let's walk through the moving parts. That impact our reported Revenue guidance.
At recent rates, FX is now expected to be a more meaningful tailwind to our full-year outlook than previously anticipated.
At current rates. We now anticipate FX to contribute 50 basis points of growth in 2025,
Second on Paragon, 28, we continue to anticipate the acquisition to contribute about 270 basis points of growth in 2025.
With our successful efforts to mitigate our exposure to Global tariffs and the Assumption of China related tariffs remaining at current levels. We are lowering our expected tariff impact for 2025.
While the situation remains fluid, we now anticipate about a $40 million headwind to operating profit in 2025.
Principally in the second half which is down from the 60 to 800 million. We estimated during the first quarter earnings call.
While we're not providing 2026 guidance at this time. Based on current assumptions. We believe the improvements in 2025 will carry forward into 2026 and Beyond
We now anticipate fully your adjusted. Operating margin to be down about 100 basis points from 2024 versus our prior guidance of 100 to 150 basis points of a decline.
We still expect fourth quarter adjusted, operating margin will be the highest for the year.
Adjusted net, interest and other non-operating expenses are now, expected to be approximately 290 million down from 305 million primarily due to lower borrowings.
We continue to expect our adjusted tax rate to be approximately 18% for the full year and fully diluted shares outstanding to be approximately 200 million.
As mentioned, we project the 2025 tariff headwind to be more than offset by a combination of the weakening US dollar.
And it corresponding FX, Tailwind.
Supply chain, mitigation efforts, proactive, actions were taken to decrease discretionary spending and advancing other operational strategies.
Given these Dynamics and factoring in the dilution, from the Paragon, 28 acquisition, which is in line with our original expectations. We now expect our 2025, fully diluted adjusted earnings per share to be 8.10 cents, the 8.30 cents,
Up from our previous guidance of $7.90 to $8.10.
I'd like to close by thanking the entire ZB team for their hard work and dedication.
We continue to make meaningful positive change across the business while investing to accelerate long-term growth.
With that, I'll turn the call back over to David.
Thank you Suki, operator. Let's open up for questions in order for us to take as many questions as possible. Please limit yourself to 1 question operator, please go ahead.
Thank you, David. We'll take our first question from Robbie Marcus with J.P. Morgan.
Please go ahead. Oh great. Uh, great. Good morning and and thank you for taking the questions. Um,
2 from me, um, both uh, Outlook related, um, maybe on the first. Um,
Visibility and how to think maybe about 3 Q versus 4 q?
Yeah, absolutely. Yeah, good morning Robbie. So I'll start with the latter part of your question. Level of confidence is very high.
And it's very high, giving a variety of factors. Let's talk about the, uh, the basic math and then I'll get into the sand details or new products. But the basic math, as you recall, in the second half of 2025, we don't have the day rate headwind that we did have in the first half of 2025, and that's about 100 basis points right there.
Secondly, and you're acutely aware of this, we do benefit from the Erp.
Comparable from a year ago, so I don't have a 2024. We went through the, uh, Erp. Uh, the Vo.
And that's roughly another 100 basis points right there. So between uh,
The day rate and Erp already got 200 basis points of favorability right there.
Uh strong July. As I mentioned, in my prepared remarks uh actually the strongest months so far in the year 2025 and where the US actually grew um upper single digit in the month of July with mid single digit performance. In the Americas. It needs a hips.
So those are the basic, uh, data points that gives us confidence. As you get into new products. We said from the very beginning of the year that you will see a ramp up. Uh, that's given the Investments done. Early in the year uh, that has to do with the timing of the actual new product launches, you've seen already in the US, the sequentially with growing needs about 150 basis points,
From Q2 to q1 hips, continue to be a strong performance. Uh, so that definitely helps out. And then lastly, the third and final thing I'll say that gives us confidence is the uh Emerging Markets um distributor purchase. Uh we mentioned this in q1, uh the value of that order which would be recognizing here in the next days is around 50 to 60 basis points. Uh, for the company in the quarter, the shifted from Q2, to Q3 and roughly around 110 basis points for the international segment of our business. So, again, through the combination of this mathematical data points, uh, the new product performance, the visibility to your point that we're having. We're extremely confident on the second half acceleration relative to Q3 to Q4, what we typically don't like to give a quality guidance. I'll tell you, I'll be very surprised if Q3 is not a number, scratching 6% and then given comes in Q4 of 24 that number for Q4 of 20.
5S will be a slightly lower.
Thank you.
great, uh, very helpful upon
Oh, can I can I ask a oh it's 1 question mythologies. I'll get back to you. Go ahead. Sorry. Okay.
We'll move to our next question from David Roman with Goldman Sachs your line is now open.
Uh, thank you.
Appreciate your your you're taking the question. Um, can I just, uh, go into a little bit more detail on what you're observing here? With respect to Ed market trends? I think when you add up the totality of companies having reported earnings uh, through Q2, it does look like Orthopedic markets, have slowed a little bit, your commentary around July is, is obviously encouraging for Zimmer, but, but maybe you could you could contextualize results here and what you're seeing in broader market, trends both through the quarter and and what you're observing early here in in Q3.
Thank you. David. Look, I've learned over the last 7 years to done drive or make any assumptions on Market Health, based on 1 quarter, or even 2 quart.
Believe that when you look at the overall Market, uh it still is very healthy. Certainly higher than pre-coastal
As my peers commented that June was somewhat shocked. Uh but uh May and April we're very strong or strong and then July is being very, very strong for us. Part of that is comes relative to a Erb. The other parties that we see in uh high volume of cases coming into a
Into the hospitals, pricing continues to be very, very favorable, um, 20 basis points positive for us. In the quarter, the volume is going to. The ASC are very strong. Uh, we do see a double deep in effect cases, going into, inpatient outpatient, hopd, and asc's. Uh, we continue to monitor waiting list. Those are not slowing down.
So, large centers across the Northeast in the midwest, are reporting of 4 to 6 months waiting list.
As a market is slowing down, thanks David.
We'll move to our next question from. Jason whitties with Roth Capital. Your line is now open.
Hi, thanks for taking the question. Um, want to ask about monogram? Um, specifically, I, I know Mikko and Striker get a lot of credit for first mover, but a lot of that had to do with.
Their intellectual property and, um, sort of how it placed limitations on a lot of the competition. Uh, if you look at monogram which, you know, obviously, you guys are believers in giving the acquisition. Do you think, um, do you think, uh, it gives you a pretty strong position, uh, to maintain both in terms of their cutting.
And their AI applications and related to that. Um, I think there's an ultimate goal there to really reduce the time and reproducibility of these procedures. Um are you anticipating that's going to happen as well with that platform?
Hey, thanks for the question, Jason. So, first things first, uh, Striker that make us will get a lot of credit for, uh, being Visionary is 10 years ago and, uh, and changing how all of the benefits get done. So I'll start with our credit their way. Uh, we believe that we are at a moment right now. If we can have, uh, similar, if not greater impact, by changing the standard of care, launching first to the work technology, that is going to lead us forward into semi-autonomous. I'm fully autonomous. And maybe I'll I'll touch briefly on what an autonomous robot does. And then I can, uh, I can talk about the differentiating features of inbox the, uh, Moines
So, a fully autonomous robot is going to give you precision, um, without the human deviation. The variability of having a surgeon controlling most of the...
So that that in itself breaking the level of precision. Number 2, the automation, or autonomy of emboss or a fully autonomous robot will reduce cognitive load and, uh, surgeon fatigue. So basically this improves well-being, and enables that surgeon to engage in a higher level of decision making. And this is some feedback that we have to do diligence that would be highly disruptive. These are very, very busy surgeons, uh, that are looking for efficiency and they're looking to use their operating time, uh, to think at a level at a higher level. And then, lastly, scalability. This, this is going to be a robot fully autonomous, that is going to be fully integrated in a seamless way with the rest of the CVH ecosystem. So, what you do and plan before surgery goes right into the autonomy of the robot and dictates what happens after. And now, you're not connecting different parts and pieces of the ecosystem. It happen seamlessly. So that's the benefit of having an autonomous robot with acutely aware. That maybe not everybody will want to have a fully autonomous robot.
Relative to the, uh, features of emboss and Jason United Technology, very well. Um, it has a very Dynamic robotic arm with 7 different degrees of freedom. What that basically means is that you're going to be able to avoid cutting the patella, which is something that current, Uh, current offerings. Um, have some issues with at times, uh, secondly, it does have a robotic control so that, uh, prevents, uh, bearing and enables REM. Uh, it is City based, uh, for both planning and intro navigation. Uh, it does have components uh, of, uh, Ai and machine learning that truly personalizes the uh, the entire case, how you plan for it, and how you execute execute the planning. I love the fact that it's marketed as tracking. So even it all the complex markers in the actual case and then lastly and very, very powerful. Uh, it is capable of, uh, engaging in fully remote surgeries
So that that in itself we think is disruptive. So again uh excited about where we are in the journey is a major Leap Forward. Uh we are excited. We ready to uh execute on the launch in early 2027 for at least the semi-autonomous uh version.
And we had a ton of people as we speak and doing a bunch of technical work. So very excited.
Oh, thanks for the detail. I'll jump back in queue.
Thanks Jason, take cards.
We'll take our next question from Larry. Biegelsen with Wells Fargo. Your line is now open.
Uh, good morning. Thanks for taking the question. Uh, Ivonne, you made on a recent podcast. You made some interesting comments. Uh, you said we need to diversify zbh and you know, we're rethinking our Capital allocation strategy, you know, you also said, Zimmer's been too focused on the short term and and EPS dilution can can you elaborate on what you meant and what that could mean for m&a going forward thank you.
Said, for quite some time, we be managing the business, trying to resolve Innovation gas that we had, uh, trying to, uh, be a pleasure of different stakeholders, and we're in a different place today, we have resolved, all the Innovation gaps, that is not a single Gap in the portfolio, whether it is Niche, whether it is hips, whether it is Set, uh, we got the broadest video Solutions in robotics navigation with monogram. Uh, it's going to enable category leadership. So nice about the future and the future that's required diversification. Uh, we aspire to have at least a 5% Ward environment by the end of 2027 and be in a position to be in a 6 to 7%, uh, when got environment by the end of, uh 2030. Uh, so we've uh, that framework. Our Capital location has not changed, but it's certainly evolved. Uh, we want to engage in responsible m&a that will get us into the 5% but, you know, 27 and uh, by 2030 the 63
7%. Uh, we going to allocate the capital to deals that make sense. We don't choose this year uh monogram Technologies, we are doing monogram Technologies and done Paragon, 28, and we got ample 5 power to do more deals that again responsibly, we're going to get a we'll get us into those Ward environments. Uh we are going to focus more important than the uh, What uh, is the how we do those deals. Uh, we're going to solve problems that change the standard of care. Just like the answer that I gave to Jason, we going to move.
From doing things in just, The Chronic spaces into a more, I would say transformational spaces, so it's not changed its evolved and a lot where we are. I love the opportunity ahead and I we're excited about the next 5 years.
Happy Birthday.
Thank you.
We'll take our next question from Travis Steed with Bank of America. Your line is now open.
And it and if you think that's kind of the case, kind of for for knees as well.
Yeah, I I'll give this a sense. So the 6% the scratching 6%, it is organic. So this is in the absence of paragon, 28. So when I mentioned that Q3 should be around 6, I'll be very surprised. If you notice scratching a 6 that is an organic uh, excluding a paragon, 28. And then on 2026, as you can imagine. Uh, we're not going to offer any commentary today, other than we like the momentum that we got. We like the pipeline that we have. Um, we've made a lot of investments in 25 and those 2 materializes we get in 26 and 27, but we're not going to we're going to we're going to
We're not going to engage in run rates and and assumptions here today. Thanks Travis.
All right, thanks a lot.
Thank you, we'll take our next question from Vijay Kumar with evercore isi.
Hey guys. Uh, thanks thanks for taking my question. Maybe 1 on margins here. Operating margins. Uh, you raised it by 50 basis points versus uh, prior assumptions, right? But it's still down 100 basis points, uh, year on year. Uh, can you do the bridge and which change between cars and uh, I think between the Paragon acquisition, this monogram and the incremental head. When you put all those pieces together,
Um, how do you think it was margins? You know, exiting the year in the 26th, uh, should they still be some headwinds as some of these uh, issues annualized. Thank you.
Yeah. Hey Vijay. It's Suki. Thanks for the question. I, I will say it was difficult to hear parts of your question, but but I think I got the gist of it. So if I missed anything just just come back. Um, you're, you're correct. Uh, margins. Were down in the second quarter year-over-year, that's in line with expectations. They were up sequentially from the first quarter, um, and a little bit better than what we originally expected. Um, the the key driver of why they're down here over year, as we've talked about, um, with the Paragon. 28 acquisition is, is simply folding that that company into into our Baseline. When we originally
Provided guidance prior to Paragon 28. We said operating margins would be up slightly; that would have marked, you know, the fourth or fifth consecutive year of increasing operating margins. But of course, we did the transaction, which we think is a very attractive long-term growth driver for us.
Um and it's actually funny if you go back to um, the very beginning of the year and you look at where our guidance for EPS is now we're almost right back where we started even in the backdrop of closing or closing 1 acquired with monogram. Very exciting opportunity and tariffs. So you put all of that into the mix and we're almost right back where we started again. Uh, so what's driving, our our earnings per share? Increase from our last guy. Uh, I'd say it really comes down to 4 key components in in the order of size. First is our tariff. Assumption is better than we originally expected. As we've had more time to work through our mitigation strategies and we're also seeing lower lower, lower overall, tariff rates than than what we're originally announced on our first quarter of call. Um, you know, we're now predicting about 40 million dollars of tariff headwind this year versus our original Assumption of 60 to 80 million dollars. So, that's a, that's a very nice component. Uh, second is, uh, we're doing much better on free cash flow.
This year than originally expected, we're spending Less on the integration of paragon, 28, and that's going as expected. Um, we're also seeing utilization of assets and and better working Capital Improvements that ultimately is leading to lower cost of borrowing and lower borrowings in general. So, that's reducing our interest expense from a little bit over 300 million in our last call to about 290 million this year. So that's another major driver. And then the last 2 are really around operational improvements.
That we continue to drive in the business. We've been talking about that, and that's been delivering operating margin expansion for the last several years; that continues into this year. And then there is a modest FX benefit, uh, from our last call. So those are really the moving parts of why we're increasing our guidance for this year. But, as you said, operating margin, uh, will be down, uh, primarily because of the Paragon 28 integration, but it won't be down as much as we originally thought.
That's helpful. Thank you guys.
We'll take our next question from Chris qual with nefron. Your line is now open. Your line is open.
Thanks. I wanted to follow up on Monogram. Historically, the biggest concern about pursuing a fully autonomous capability for ortho robotics was the perceived onerous regulatory requirements to get sign-off from the FDA. I'm assuming that was the key focus of your diligence process. Um, so can you talk about your confidence in the inbox commercialization timeline? And could you also elaborate on how the deal is neutral to EPS in the free revenue phase? Are you guys making some cuts to internal projects to offset the incremental investment there? Thanks.
Hey, good morning, Chris. Thank you. Um, first things first, we've been looking at this technology monogram for about 2 and a half to 3 years. So we have had ample time to understand regular regulatory pathway uh technology um the opportunity to go from semi-autonomous to fully autonomous. So we believe we know the space very well.
Well, we have engaged third party along. The journey to help us understand complexity associated with different claims. There is a very robust clinical trial associated with, uh, with fully autonomous north of 100 patients and enrolling more. Uh, we working hand in hand with the FDA. Uh, we have experts that have been part of commercialization efforts in the past, for other technology. Uh, so I would say that, uh, the degree of confidence is very high. I don't want to make any assumptions here today, but uh, we understand what we need to do to get there. So, that's, that's piece number 1, and we're being somewhat conservative, when it comes to the assumptions on those product releases, both for the semi-autonomous and fully autonomous.
Relative to uh, how do you make the deal EPS neutral? Uh, a couple of things. Number 1, we are reducing expenses in non-core areas.
So um, as you can imagine, we manage. Um, an Enterprise with around 44. 45% oppax. There is always uh room to take money from non-core areas to um investments in critical areas like technology monogram being 1 of them. We're going to be able to leverage a lot of the R&D engineering sustained engineering platform. So Rosa is a large platform within zoom and the same folks that are doing other sustaining engineering for Rosa are going to be able to do some of these. Um, the same applies for some of the marketing functions, quality Regulatory and whatnot. So we're not going to be cutting, anything that is customer focused. We're not going to be cutting anything that is critical for the
Pipeline. But it has been a a reshuffling of Opex for non-core areas. Thank you, Chris.
Thanks Vaughn.
We'll move to our next question. From Ryan Zimmerman with btig.
Thank you. Uh, good morning. Um,
On to your stack it it did get a little bit better for you guys relative to maybe some of your peers and what we saw in the fourth quarter in the first quarter, so Avon, you know, talk to us about what specifically changed their from those past 2 quarters where it was maybe trailing behind some of your other peers and, and kind of what, you know, in your mind sustains that ability to be, you know, maybe in that 2 spot versus what was, you know, arguably the 3 spot.
Thank you. Uh, Ryan for the question. So, first things first, we we are encouraged with the acceleration that we seen. I'll talk about the us, then we can talk about International, but the Q2, uh, to q1 in the US acceleration of around 150 basis points, I already mentioned July is stronger than that. Uh, so things are moving in the right direction and encouraged by not satisfied when I get back to the days where we were taking share, uh, each and every quarter. And we do believe there's a pathway there through uh new product. Introductions then the road uh technology like monogram, uh, technology, like the Investments we make in, on a smart implants, we do believe that it's a pathway there, uh, on the second half of 2025. Uh, we made a lot of commercial Investments, uh, in terms of, uh, dtp direct to Patient initiatives, they're working out we making, uh, leadership changes. Uh, we have restructured as I mentioned some territories, we have evolved incentive plan, so our level of confidence to assessing the second house or new business in the US is
Is very high internationally is a bit all over the place because you got that tender that move from Q2 to Q3. So I'm convinced we're going to post a very strong knee number internationally in Q3
And then as we get into 2026, uh, there is ample opportunity with additional new product, introductions getting Oxford partial sementes in other markets. Uh, getting, uh, personal revision accelerated in Euro Middle Eastern Africa. So I I do think we turning the corner again. Not satisfied where we are, but very important with the trends Ryan.
Thank you.
We'll take our next question.
With Morgan Stanley.
Beautiful. Uh, thank you so much. I, I'd love to hear on hips, um, and Z1 in particular, you know, the, the, the numbers and the strength that you guys have seen that. Do, you know, has that been probably on the Cox of our side or has that been more broad-based? Uh, across him? Thanks.
We we love what we're seeing with G1. We're actually taking a market share, uh, with this product. So the latest data point that we got is a roughly 50%, uh, of all the Z1 users are competitive conversions. Again, moving into Q3 we continue to see the same Trend. Uh, we had uh in late 2040. We Supply. As of right now, they are zero challenges, zero shortages when it comes to supply. So we're doing a lot of trainings we released in sets and we think that Z1 is going to continue to selling growth as you recall, Patrick for about 5,
5 to 7 years here in the US.
We were sure donors. And, uh, another trend is changing. So, that is the market product. But, uh, you get Amplified through Ortho grid which is an acquisition that is going to both expectations. And then our surgical impactor, Hammer is also going better than expected. So, 2 quarters in the US of 5%, uh, growth and, uh, we expect that the Run rate to be very similar as we actually 2025, if not better.
Love, thanks a lot.
Thank you, Patrick.
Our next question comes from Danielle Andy with UBS.
Hey, good morning guys, thanks so much for taking the question. Ivonne, I guess it's your birthday. So happy birthday, um, and congrats on a good quarter. Um, so just a question on monogram. Um, I thought that deal was was interesting and I'm just curious of on, as you, as you look ahead to when you're launching monogram, sort of how you think of monogram. And Rosa coexisting, um, what you think it brings to the robotics Market overall, um, in addition to what you have with Rosa, thanks so much.
Daniel, thank you so much, and thanks for the uh, birthday wishes. Um, look, um, 2 and a half years, looking into this. Uh, we look at, uh, different Pathways to, um, get to leadership in robotics. Uh, we felt we data that having the most flexible and comprehensive, uh, product Suite is the way to go, uh, you
To get non robotic Believers. We have navigation opportunities, you got large footprint robotic Believers. We got those small footprint robotics. We have an exclusive Partners we think surgical. Uh, there is a strong appetite for autonomous robotics. We're going to be first to Market and based on all the intelligence that we have IP wise, the only 1, uh, for a while. So, we believe that, uh, a comprehensive, uh, pseudo Solutions is the, uh, is the way to go.
So what this will do for a robotics I do think you're going to have a lot of Surgeons entering, the world of Robotics. I think, 1 data point that most people Miss is that here in the US 80 800 8% of Surgeons 29,000, surgeons in the US. Don't use a robot. I I need internationally that number is actually higher, 90, 90% of Surgeons. Don't use a robot.
So providing those surgeons with an efficient, highly reproductive reproductive role uh robot platform uh that drives all the benefits of autonomy. I think expands the pie. So we're going to continue to see growth uh Market expansion of Robotics and uh it enables a great share of wallet opportunity for us here at Zimmerman so very excited about that. This acquisition
Thank you.
Thanks Anil.
Our next question comes from Matt Nix with Barclays.
Hey, thanks so much for for taking the question, can you hear me, okay.
Yes, ma'am. We can hear you.
Great, thanks. Um, so, uh, just a a couple of follow-ups, um, just 1 on on, uh, Paragon. 28. And, um, you know, I think, uh, you've talked about
You talked about bringing that entire organization on, and kind of keeping them together, as kind of a team intact, uh, which seems to be successful so far. So, congrats on that. Um,
and wanted to get a sense, you know, first is there anything that any any retention or any
Any threshold Beyond which we should be, you know, thinking about where you're you're, you may be 100% confident that that's just going to happen and we're going to keep this team together or there's something end of the year or 12 months out that, you know, we get through that threshold and we're good. And, and then the the second part of it is, I guess, at what point you start thinking about, um, you know, bringing on, you know, do you know repeating rinse and repeat on on an acquisition like that to drive growth Drive margins? You know, expand the wander, uh, that sort of thing. Thanks.
Hey, thanks. Matt. Uh, look, Paragon. 28 is going really well? Uh, so, um, we deliver better than expected operational efficiencies, uh, that's part of why the free cash flow position for the rest of the year has improved, uh, delivered lower acquisition cost. Uh, nice savings across the board, but they didn't come from, uh, the commercial Innovation. Um,
Elements of the deal, uh, to your question. There's been no management turnover. As, you know, Alberta Costa, the former chairman CEO Paragon. 28, is the global president of that business? I've said this in a gazillion forums. So, here we go again. I'm pretty much married to Albert for the rest of my life. Um, he wrote with him, the entire commercial channel. Uh, and by that, I mean, the senior leadership in commercial operations, as well as the territory leaders. And I am not aware of any, uh, sales rep or distributor, or anyone in the, in the channel that actually has left zimma. Uh, so they have is not been run to my to, to my intention. So it's not a large number. Uh, we recently integrated the Zimmer bound lower extremities lower trauma, food and Ankle portfolio.
Into that sales channel. So the Paragon, 28 or former Paragon? 28 sales reps are very excited to have those uh new products from uh from simmer biomed. There's been no innovation delays. Um, we are today in Denver, I believe doing an R&D review. All the feedback we get and around Innovation is that is on track and on time, so net net, everything is going really, really well, still expect uh 270 basis points.
So just want to do, get a sense of your comfort level and then just on the competitive landscape, uh, and how that might evolve, I think Striker indicated, on their call that they have the ability to be fully autonomous today, but they decided not to turn it on. Um, so I'm just wondering like, how do you think about the competitive landscape? Once you bring this to Market? Uh, thank you for taking the question.
Well, thank you, look. I'm I'm not going to come in much on competitors and their abilities or lack of abilities, um, but if they can turn it on, I will recommend it that at some point, they do, because this type of Technology will will change the world of forces relative to the, uh, the opportunity, or the level of confidence and fully autonomous. We they, uh, this is not part of yet, just complete. The first, uh, fully autonomous surgery, uh, in the world. I believe it was 2 weeks ago with excellent results. Uh, so that's, uh, a very encouraging data point in terms of, uh, or Pathway to, uh, get there. I, I alluded to the fact that there is a robust, clinical trial. We understand the different steps. We got to take to get to fully autonomous, we have heads when this launch is going to happen. Uh, we continue to work with experts, so, our level of confidence is very high. I, I don't want to speculate too much yet because we're early in the journey, but the assumptions that we're making so far have been validated by the experts. So, uh, really, really excited. And, uh, semi-autonomous, we launched,
Uh, in early 27, uh, we believe that fully autonomous emboss, we launched in late 2027, uh, if not early 2028, and as soon as we can, we'll provide more details into, uh, how that's going.
Thank you. So
Our next question comes from Richard newer with truist securities.
Hi, thanks for taking the questions. Um,
Ivon. I wanted to just, uh, ask a little bit more on the, um, the robotics portfolio approach. Uh, it it makes sense, uh, you know, you want to be able to position to go where the market goes and what it wants and this is an evolving sector. So you know, I appreciate that. But when you were describing kind of, you know, there's something for everyone. You, you kind of characterize our, at least, I thought I heard your characterize Rosa, as kind of, you know, a large footprint robot, you have monogram which has advanced capabilities including autonomous, that's where maybe the Market's going. And then you kind of have, you know, smaller footprint with t mini. I guess 1 is monogram. Large footprint is not necessarily something people want. I guess what, what is it that roses going to do for the marketplace? That monogram isn't going to use Serve and and then, you know, as I think about it, it sounds like it's eventually going to be a monogram key mini kind of race for you guys, but but correct me if I'm wrong there. I'm just trying to get my arms around that. Thank you.
Hey, thanks for the. Thanks for the question, Rich look. Rosa is the number 1 Orthopedic, robot outside of the United States. That that is a fact. And the reason why a lot of, uh, surgeons choose Rosa, um, with approaching, if not exceeding, a 2,000 installations is because uh, there is a large chunk of Surgeons that don't believe in cities scanning. And again, particularly outside of the US, they don't want to expose the patient to radiation. Uh, in some countries is not reimbursed. They don't want to add another step in the procedure. Uh, there is a preference for image less robotics. Uh, there is a segment of Surgeons that want to be fully in control of the case and uh, they like Rosa, uh, they like the way that, uh, it integrates with a pre-planning and, and they used to it. So we're going to keep Rosa and we got 6 different indications coming for Rosa in the next call at 18 to 24 months, so that that's going to stay there. Uh, in terms of, is there a race between team meaning and uh, inbox monogram know, uh, there is not a race between or internal
Offerings. There is going to be a desire to continue to offer different solutions for different customers around the world. And we strongly believe you want to have years of market research, that optionality, that flexibility will win the race.
Thank you, rich.
Our last question comes from Caitlyn Cronin with canaccord.
Hi great. Thanks for taking the questions.
Just me if you could comment on, you know, robotic placements in, you know, this quarter specifically and then just the pipeline for the rest of the year. And then, um, adjacent to that, how is that SAFE partnership really trending and the ongoing commercialization there?
A year ago, that is because of Capital Equipment, sells installations remain on track. We've been sent for, I don't know, 4 or 5 years. That the point of entry is at least 300 and we continue to see that that number of better. Uh, we like the uh, number coming out of asc's, especially new asc's. So everything is going in accordance to, uh, to plan. And again, as we get into late 2025, we're going to be launching Next Generation. A Rosa, uh, with the ability to do a kinematic knee uh with simpler landmarking with better tracking. Uh, so we think that rosani, with what we call optimize will be a, an accelerator of Rosa installs, as we Exit 25, I'm going into 2026
Thanks for the question, Kaitlyn.
I'd like to turn the conference back over to Ivan tornos for closing remarks.
Well, thanks everybody for joining. I'll uh, I'll keep my clothes and remarks uh under a minute. Number 1 started with gratitude. I I do want to end with gratitude to the Zimmer Biomet employees for their progress, this quarter for the efforts.
Which have enabled us to raise EPS for the year 25, as well as free cash flow while narrowing, the revenue guidance um and be true. I want to talk about the level of confidence that we have not just for the second half acceleration given uh new product, introductions a strong July and whatnot. But just giving all the visibility that we have, in terms of what's happening in every in every country and across every platform. So we are
Extremely confident, uh, on the second half acceleration, but most importantly, we are very confident on the features in environment.
We're excited about the future. Um, we have the strongest pipeline that we have had in the 6 and a half years that I've been here and that excludes the opportunities ahead. As we continue to leverage, the balance sheet, uh, to drive responsibly mana, and bring new to the world technology like uh, monogram Orthopedics or Paragon, 28.
So, thank you for your time this morning, and we look forward to the next update in November.
Thank you again for participating. In today's conference call, you may now disconnect, and have a great day.