Q3 2025 Zimmer Biomet Holdings Inc Earnings Call

Please stand by.

Good morning, ladies and gentlemen, and welcome to the Zimmer biome. Third quarter 2025 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. November 5th, 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 Martinez senior vice president, investor relations.

Thank you, operator. And good morning, everyone. Welcome to Zimmer Biomet's third quarter 2025 earnings conference call.

Joining me on today's call or on tornos our chairman president and CEO and took me a party, 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. After the results May differ materially from those indicated, by the board at these statements due to a variety of risks and uncertainties for a detailed discussion of all these risks and uncertainties, in addition, to the inherent limitations of such forwarding statements, please refer to our ICC filings.

Please note, we assume no obligation update. These card will get statement. Even if actual results or future expectations change materially. Additionally, the discussions on this call will include certain non-gaap Financial measures.

Some of which are forward-looking non-GAAP financial.

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 third, quarter earnings release, which can be found on our website zimmer.com with that. I'll turn the call over to Avon.

Thank you, David. Good morning, everyone, and thank you for joining today's call. I want to start today the way that I not always start by sharing my sincere. Gratitude to the Zimmer, team members around the world who move our business and Mission forward each and every day. Thank you for your tireless. Work your dedication to solving the most pressing challenges in healthcare, and thank you for your Relentless commitment to serving our customers and their patience.

Today Zimmer biome medicine is a totally different company than it was just a few years ago.

They may prepare remarks. I'm going to cover 3 key areas. First, I'm going to summarize the third quarter results and review the momentum of a recently, launched new products, which is strongly validated Innovation cycle. While I'm also going to briefly cover, some of the commercial execution improvements that we are making and will continue to make. Secondly I'll address or updated 20, 25 guests,

I'm sure I'll cover the 3 key strategic priorities of Zimmer biomed people and culture, operational excellence, and Innovation and diversification.

Starting with the third quarter, we grew sales 5% on an organic constant currency basis.

With our critical us business, accelerating 330 basis, points. Sequentially to 5.6%,

From 2.3% in the second quarter.

This is the best Revenue growth performance in the US since the middle of 2023 with the us being the largest business here at simmer biomed.

That's it, letting the quarter unexpected weakness in Eastern Europe, Latin America, and non-core segments of sat namely, restorative therapies impacted or growth by nearly 120. Basis points for the quarter, importantly we have identified, the issues are moving swiftly to address them and our contemplating these headwinds in these 3 areas,

In the guidance that we are providing.

For the year 2025.

Overall, we are very confident interactions and remain highly enthusiastic about the early Market reception of our new products and the upcoming launches, which we do believe will be Catalyst for growth. Equally important, we continue to see healthy market growth rates fueled by demographics cytocare Dynamics, like the shift to the ASC ambulatory Surgical Center environment here in the in the US and broader adoption of Technology.

Unpacking or us performance. For the second consecutive quarter here in 2025 needs accelerated. Sequentially with growth of 3.5% or up 180 basis points from 1.7% growth in the second quarter of 2025. This was driven by adoption of persona Osteo or total and Oxford or partial C, which is performing above or internal expectations when it comes to post. Training adoption rates.

Specifically Persona Osteo time. Now represents nearly 30% of our us, totally implants and will remain on track to exceed 50%, 5 of penetration by the end of 2027.

Next or Robotics and navigation strategy of offering a comprehensive and differentiated Suite of customer Centric. Technology Solutions, is resonating deeply with surgeons.

Us technology and data, bone cement and surgical cells. Increase 20.3%, this quarter driven by the strongest robotics, Capital sales quarter in more than a year.

Importantly, itation continues to increase with us Rosa accounts. Now, performing over half of their knee implants, robotically up, 400 basis points for the year.

Us hips were uh at 4% in the quarter as our Triple Play of Z1 hammer and Ortho grid continues to gain traction, Z1 or triple tapered stem and kind of for over 25% of Hippo. Stems in the third quarter of the year and a hammer or surgical impactor. The utilization rates double through the first 9 months of the year to 20%.

Finally, or us sat business continues to benefit from new product, launches growing 6.4% in the quarter up over 250 basis. Point sequentially from 3.9% growth in the second quarter of this year and this is in despite of the weakness in restorative therapies that I mentioned earlier.

Or decision to invest more in high. Growth areas is showing great returns for example, or upper extremities business increased in the high, single digits driven by our identity, total solder and Oyo feed, a stainless solder

For which 80% of users were competitive accounts.

Cranium, maxillo facial thoracic was up over 20% on the back of new product. Introductions in brief trauma, cardiac surgery and no revelation.

Cmft continues to be a recipient of investment and we foresee a bright future for this platform for many quarters and years to come.

For 2025, we're updating our full year, organic constant currency Revenue, growth expectations to arrange a 3.5%.

To 4% from our previous 3.5% to 4.5% range this excludes the contribution from Paragon. 28, what we are maintaining or 2025 adjusted EPS, guidance of 8.10 to 8.30 cents

The updated Revenue range, contemplates about 1, continuous in restorative therapies. Number 2, a more measured outlook for certain International Emerging Markets, while we address some of the challenges that we saw later in the quarter here in Q3. And thirdly, the modest slowdown in the US revision market. For both hips and knees, persisting, throughout the rest of 2025 Suki is going to provide more detail on guidance during his prepared remarks.

We are continuing to transform zebra met at a rapid Pace to achieve our long-term ambitions.

Let me start. Now in closing, some of the updates are relevant to the 3 key priorities of organization. Again, those being people and culture operational excellence and Innovation and diversification.

Starting with people and culture. We are committed to having the right people in the right roles so we can consistently execute on our strategy without hiccups. We owe these 2, all of our stakeholders.

Uh those being patients, customers employees and investors, we hold the team to this standard and we will continue to make performance-based changes when commitments are not made.

Allow with that approach and reflected in the guidance that we're providing today for 2025, we are making leadership.

and governance changes in some of our International businesses to address some of the headwinds that we have seen in this geographies, uh, throughout the year 2025

Also in the US or group president, Uh, Kevin for now continues to drive the US Channel transformation, at the right, pace, solving promising results as we demonstrated in our Q3 third quarter results.

These changes include uh bringing in new sales leadership for ASC and monitoring surgical centers for sat and for a Kia account management. While we also continue to drive a sales incentive plan, which increasingly rewards growth

Kevin is leading a tremendous efforts to drive. Sales excellence.

and he and the team continued to implement Salesforce specialization for key growth categories, such as Robotics and sat

Additionally, we have installed new leadership in restorative therapies and we have changed reporting lines. In some of our us businesses to drive maximum visibility, consistency, and accountability. Again, all of these changes are contemplated in the guidance that we are providing

And confident that The Best Is Yet To Come here at zero biome. As we continue to merge best-in-class Innovation. With solid and consistent commercial execution. Now, according to our second key priority, operational excellence this strategic pillar encompasses efforts on both the top and bottom line to accelerate Revenue growth improved margins and increase free cash flow generation through inventory management.

I'm proud of the work that the team has done in 2025 to drive adjusted EPs and free cash flow.

The efforts of the team have enabled Zimmer biomed to grow adjusted earnings per share in 2025 versus 2024. And this is in the backdrop of executing 2 significant. M&a, deals, monogram and Paragon, 28 absorbing the impact from tariffs and making, meaningful, commercial Investments, that will yield meaningful growth in quarters and years to come.

Meanwhile, the focus on reducing days of inventory on hand and their pins or a strategy to increase free cash flow. And we continue to see progress in this area

Orthopedic robotic system.

A few weeks ago, we held initial demonstrations of this technology at the hip and knee society meeting in Dallas, Texas.

To a selected group of around 100 surgeons most of them currently using competitive technology.

We walked away extremely energized by their feedback. This technology is already changing the conversation and with data and time we expected to also change the standard of care.

In a healthcare system which continues to be constrained by cost and in an orthopedic environment where Physicians and staff are Desperately Seeking more efficient ways to deliver best-in-class, patient care.

We believe that involves will offer an elegant and compelling Solution. That's it, we're not betting on, just 1 platform, we believe in optionality customers, electricity and flexibility.

The monogram technology is 1, part of our very comprehensive Suite of customer Centric offerings, which range from simplify navigation such as orthogrid to non CT, non cat, scan base robotics with Rosa to meet the diverse needs of our broad range of global customers.

We now look forward to completing the clinical protocols for monogram which started back in early July, and to launch. The world's first semi-autonomous robot with Persona implants, the world's leading knee implant in early 2027.

Swiftly, followed by the fully autonomous platform at the end of 2027 or early 2028.

Relative to our diversification Monday.

We continue to see the integration of Paragon 28 moving at the right pace and in the right direction. Our expectations for this business remain unchanged for the year, 2025, and beyond.

The continues to be a strong excitement for the opportunity as we launch new products and continue to integrate commercial.

In addition to monogram, we continue to deliver on a broader Innovation road map, bringing you to the world Technologies. This include iodine treated hip in Japan for which we recently received pmda approval.

This is a first to the world technology that inhibits bacterial adhesion and biofilm formation on the implant surface to address pji. Very prosthetic joint infections

We launching before the end of 2025, Rosa with optimized, which has a simplified user interface and offers kinematic alignment for the implants.

We also deeply in launch mode. For Next Generation. Put an ankle products this come in mostly from Paragon. 28 and include Fusion plating and other key growth areas within lower extremities.

Groundbreaking technology is coming from Zimmer, Biomet as part of our digital ecosystem to complement, our leading positions, and drive core implants, sir. And then lastly, we have over 20 new products in AC

Over the Horizon which address safety, efficiency, and best-in-class, clinical, and economic outcomes.

In conclusion, we are very proud of the progress in our organization and are excited about the future ahead.

We're going to continue to bed bodily on Innovation. That changes the standard occur in high growth areas where we continue to improve commercial execution, along the way. As we responsibly reposition the organization for higher growth.

We've gone to remain highly disciplined on Capital location ensuring that this company remains synonymous with the strong earnings growth and free cash flow generation. And with that, I'll now turn the call over to Suki. Thank you.

Thanks and good morning everyone.

This quarter, we grew sales 5% on an organic constant currency basis and delivered adjusted earnings per share of 1.90 cents, which was up 9.2% year-over-year, despite the Lucian, from the Paragon. 28 transaction, the impact of tariffs and continued investments in our commercial organization,

As Von mentioned, we are encouraged by the progress of the U.S. business, which was up 5.6% on an organic constant currency basis year-over-year.

By our new product cycle.

This performance was partially offset by headwinds in emerging markets. In certain non-core, businesses that negatively impacted growth in the quarter by over 100 basis points.

As we get into the details of the results unless otherwise noted, my statements will be about the third 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 the impact from the Paragon. 28 acquisition that closed in April.

5%, excluding the impact of foreign currency and the Paragon. 28 acquisition.

Consolidated pricing was 20 basis, points positive in the quarter.

Our us business grew 5.6% on an organic basis, which reflects increasing customer. Adoption of, recently, launched products and strong robotic placements,

Internationally, we grew Revenue 4.2% where Emerging Markets represented a headwind to growth.

Global needs grew 5.3% in the quarter With Us, increasing 3.5%, and international increasing 7.8%.

This us performance was driven by increasing penetration of our Persona acet cementless, total knee, and continue to adoption of our Oxford. Partial cementless, knee.

International growth benefited from new products and the timing of orders in Amia which were partially offset by lower growth in China.

Hit screw 3.8% with the Us increasing 4% in international. Increasing 3.6%.

The US growth was a result of our Triple Play of Z1 hammer and Ortho grid driving share of wallet and competitive conversions.

Next, our SAT segment grew 3.6% globally on an organic basis with low teams growth in cmft and high single digit growth in operate extremities.

Partially offset by a low teens decline in restorative Therapies.

Finally technology and data bone cement and surgical increased 11.3% globally with strong, Rosa, placements. During the quarter.

Now, turning to our p&l.

We reported Gap diluted earnings per share of a 16 compared to Gap. Diluted earnings per share of A123 in the prior year.

Higher Revenue, a decrease in acquisition integration related charges and lower. Share count were offset by higher interest expenses due to the Paragon. 28 transaction, and a step up in year-over-year, tax tied to certain 1-time, favorable items in the prior year.

On an adjusted basis. We delivered diluted earnings per share of a $1.90 compared to $1.74 in the prior year.

This increase was driven by higher Revenue improved, gross margin and a lower share count partially offset by a step up in interest expense tied to the Paragon. 28 transaction.

adjusted gross margin was 72.6% higher than the third quarter of 2024 due to lower manufacturing costs and favorable mix

Adjusted operating margin was 26.5% modestly higher than the prior year as a result of better. Growth margin partially offset by increased commercial Investments, and the addition of paragon 28.

Adjusted net interest in non-operating, expenses were 72 million above the prior year driven by higher debt related to Paragon. 28 and higher interest rates on refinance, debt that matured in 2024.

Our adjusted tax rate was 17.8% and fully diluted shares. Outstanding were 198.8 million, down year-over-year, due to share repurchases in 2024, and in the first quarter of 2025,

Now, turning to cash and liquidity, we had another strong quarter of cash, generation with operating cash, flows of 419 million and free cash flow of 278 million. Bringing year-to-date free cash flow to about 800 million dollars.

Our working capital initiatives, including inventory reduction, continue to pay off as we reduce days on hand by 10 days compared to the third quarter of 2024, despite higher inventory levels associated with Paragon, 28,

We ended the quarter with approximately 1.3 billion dollars in cash and cash equivalents.

Now, regarding our outlook for 2025.

We are maintaining our 2025 reported Revenue growth, guidance of 6.7% to 7.7%.

Adjusted EPS guidance of 8.10 to 8.30.

And free cash flow, guidance of 1 billion to 1.2 billion.

We are updating our 2025 organic constant currency Revenue, growth guidance of 3.5% to 4%.

From our prior range of 3 and a half percent to 4 and a half percent.

Inside of this, we continue to expect Consolidated pricing to be roughly flat for the full year and selling dates differences to be a modest headwind to full year growth.

Importantly, as Ivonne mentioned, this updated guidance range. Contemplates continued weakness and restorative Therapies.

A more measured outlook for certain International markets and the slowdown in the US. Revision market for both hip and knee persisting throughout the remainder of the year.

Now, let's walk through the moving parts. That impact our reported Revenue guidance.

For your outlook than previously anticipated.

At current rates. We now anticipate FX to contribute 50 to 100 basis points of growth in 2025

We continue to expect Paragon, 28 to contribute around, 270 basis, points to reported sales growth in 2025.

As previously, communicated, we expect our operating margins to be down about 100 basis points versus 2024, which factors in our previously, communicated Tariff headwind of about 40 million.

Adjusted net interest in other non-operating. Expenses are now expected to be approximately 280 million down from 290 million in part due to lower borrowings on better cash flow.

And 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 shares.

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.

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

Thank you, so key, 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. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad, if you're using a speaker-phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question.

We will take our first question from Robbie Marcos from JP Morgan.

Morning. And, uh, thanks for taking the questions. Um,

Ivonne. I I wanted to ask on

I I would say guidance in general. Um, on the last quarter, call, you talked about scratching 6% in third quarter, which was above consensus at the time and and you ended up at 5.0 for organic growth.

And fourth quarter or the full year guide is ticking down.

Um so really the question is, you know, how are you thinking about guidance philosophy, what happened? Exactly in the quarter and any preliminary thoughts on how we should be thinking about 2026? Recognizing that excluding the easycom from last year where sort of in a 3 plus percent growth range. Thanks.

Hey, good morning. Uh, Robbie and everybody and I'm thanking you for asking that question. It's uh, an extremely far question. So let me let me unpack a few things here, so

I uh, I said back uh, in August that I will be very surprised within a scratch 6% and I tell you what I mean, it very surprised that within over delivered on such number, not not that we didn't scratch it. But rather that, uh, within overdeliver on that 6%,

For uh, what is for, what is worth? It was an actually, it was actually an under commit and over the delivery comment.

Based on what we believe to be very strong data at hand at the time, uh, with the US, uh, in July growing around 7%, uh, robust growth across the board and not just in 1 region, and in possession of a very solid pipeline of positive, things happening across Zimmer bound, uh, at that time almost midpoint into the quarter. So yes, I am very, very surprised. But speaking of surprises, uh, 3 things happened, uh, really late in the quarter, uh, with less than a week to go.

Which cost uh, zero balance around 120 basis points and, and give me just, you know, a minute or 2 to go through some of these and they will talk about guidance and, and philosophy and whatnot.

But uh, with a week to go, uh, in the quarter uh, 3 things happen. We saw a last minute cancellation of the stupid orders in Emerging Markets of Europe, uh, mostly from the Middle East, and Eastern Europe.

Number 2 or restorative therapies business. Really talk about this business, it's around 110 million dollars. Annually. Uh, ha hyaluronic acid injections here, in the US made some pretty basic commitments by a fairly large amount especially for the size of that business.

And then thirdly in Latin America. We missed our forecasts by north of 15%.

Uh, giving some distributor challenges in the uh, in the region. That's 15%. 1 5.

And again that happened really really late in the quarter. So non-core areas, non-core business but but painful uh Robbie. By the time that you put all of them together at the tune of around 24 to 25 million dollars. So again just on those 3 things alone, you got another 120 basis points uh to the 5% that we're reporting today.

In any given quarter. Um, as you can imagine, when you run a complex compile exam in any given quarter, um you're going to have a variety of these things happening.

These events happen at the same time, uh, is unique to say the least especially when you got uh you know just a few days to go to finish the quarter and having budgeted somewhat conservatively for all of uh these 3 items that I'm talking about here today.

Um, clearly, this has told me that, uh, that we or rather, I need to be far more measured in an external commentary, and you better believe Robbie, uh, that has a change. Has started, uh, effective today. I own it. I say what I said, I had the data that we had, um, and I don't anticipate that I'll be repeating. This type of comments moving forward.

Even when the data shows to be as compelling as it was back in uh, in early uh, in early August. So measure is the word uh, when it comes to um, commentary and and philosophy and guidance, or more measure is the word when

You know, talking about commentary and and guide us moving forward, that's a Robbie. I will hope that the comments that, uh, we made or that I made no no improvement. Perhaps in hand side, don't end up tarnishing. What it was? Otherwise a very solid quarter.

Across a variety of key areas.

So as you heard in the paper remarks, we grew our us business by 5.6%, delivering the best quarter in the US, uh, in over 2 years or largest product franchise needs. Actually grew 5.3. Uh, globally. On an organic constant currency basis with, with hips, delivering mid single digit growth. We had the best quarter in robots, uh, in quite some time. Uh, another consistent quarter with the US delivering close to Upper single digit.

EPS that you have from Suki was another solid story. Uh, even with software Revenue coming from these 3 key areas, we ended up delivering above expectation. Epps

And guidance on EPS for the year remains untouched you know we go we're going back to the original 8.10 to 8.30 cents even after dealing with tariffs uh integrating 2 companies.

And absorbing very meaningful commercial Investments so I can go on and on. But again, uh, the comments perhaps don't prudent, but the performance was there.

I say what I said on it, and I make sure to be far more than I mentioned. Removing forward relative to the guidance for the rest of the year to your question. Uh, it is very measure, uh, we're very comfortable that we're going to deliver on that guidance. And once we get into 2026, we'll have a conversation around philosophy. And what the guidance looks like for, uh, 2026. Thanks for the question, again. It was very fair.

We'll go next to Travis Steed with Bank of America.

Hey everybody, um, 1 1, followed by the 120 basis points. This quarter. Is that, um, does that come back at some point? Is it a continued headwind? And, and 26 just is, is it quantify that? And there was some comments on kind of a Slowdown in the US revision Market, does that continue as a headwind and then in the next year as well? And um, the there was also some comments. I noticed in in the script, your main highly disciplined on on Capital allocation so, uh, just wanted to see what that means.

Uh, as you look into the next year as well.

Thank you Travis. Uh, I'll uh, I'll let you talk about Capital location in a second. So uh, this International know is it coming back uh, in 2025 in the fourth quarter? Look as I said we're going to be measured. So we took that out of the guidance so we're not counting on that Revenue. Uh from those 3 uh carriers to be uh to be back in 2025, if it does. Uh, that's great. Uh do we think that's going to continue in 2026 again? 20 to talk about that? But uh what I will tell you is that as we think about external commitments made for 2026. We're going to stay away from putting some of these revenue from non-core areas in order to external uh commentary and the external guidance that we're going to be providing. So do you want to talk about Capital location? Yeah, sure.

I'll start with a few days.

So you know this year, um, we're going to be generating over a billion dollars of of free cash flow quite attractive.

Uh, we are in excess of 1.6 billion almost 1.7 billion dollars of adjusted ebit. Uh, and uh, we have a net debt, leverage ratio on the very low 3. So you can see there. There are some really strong fundamentals there. Very strong balance sheet with uh, with a significant amount of Firepower. The way we think about that Capital, allocation and is uh, we're going to, we're going to prioritize um, businesses and Acquisitions assets. That continue to move us into faster growth markets, uh, that continue to accelerate in your terms as well as long term Revenue. Um, but we're going to do it in a in a prudent way and I think you've seen that with the Paragon, 28 acquisition.

Nothing's really changed fundamentally on our Capital, allocation strategy, if anything it's it it it continues to get stronger.

I'm sure you got a question there around the revision Market uh, that I failed to answer. So look, it's too too early to tell, uh, it's fairly choppy. You know, 1 quarter, we see more revisions at the next, so it's a bit hard to predict. It's too early to tell whether we're going to see softness in a 2026 when it comes to revisions, but but again, going back to guidance. Philosophy will, uh, will account for that, at the time. We provide guidance for a 2026. Thank you. Thank you.

We'll go next to David Roman with Goldman Sachs.

Uh, thank you. Good morning.

Everybody, uh, I I was hoping maybe we could, you could contextualize the performance in 2025 against the lrp targets that you laid out, I guess about, uh, a year and a half ago. Now, as I think about the, the guidance here, the midpoint of the range being, uh, the 3 and a half to 4% range, and the 4 to 6%, that you would provided, you would need each of the next 2 years to be in the 5 to 6% range to end up at the midpoint of, of, of your lrp. And, and I think Yvonne when you talk through some of the Dynamics, that came up late in the quarter, those things like that kind of just happen. So does in material acceleration and growth require and everything goes right instead of circumstances to get into the lrp range and and Is it feasible to see growth in the 5 to 6% range? Going forward?

To get back on track with the lrp.

Hey, thanks. David, so, uh, Christian and future, uh, kind of question here. So in the present second half of 2025, we are growing meet single digit, uh, or above. Uh, so actually meet single, they are not above. So we are we are there as we think about 26 and 27, give us a chance to get into a February and we'll discuss what 26 and 27 looks like I tell you, we think of the 3 year plan, across 3 components, you got market dynamics

Innovation Dynamics and Commercial, execution, Dynamics. We know that from a market standpoint, the market supports companies delivering mid single digit growth, uh, 4 for an a quarter market dynamics. So the Basin is there for companies to deliver mixing or they are above as you move to Innovation? The Innovation cycle is working out? That, that is again. Why in the second half of 2025, we are delivering that missing single digit growth rate and less evaluate the sustainability or acceleration or that Innovation cycle as we get into 26 and 27. But we're very confident that, uh, that the Innovation cycle is real and more things to come. And then you got the lingering question on Commercial execution. Uh, do we feel like today with the fragility regarding some non-core areas with the changes we're making in the US uh that can be an accelerator, that can be something that is going to drive, sustainable meet single digit Revenue growth. That's something we're evaluating and that's something that we're going to discuss coming early 2026. But uh, market is when is to be Innovations where it needs to be.

We got to address some execution issues here. Thanks for the question.

We'll go next to Caitlyn Roberts with canaccord genuity

Hi, great. Thanks for taking my question. I guess just turning to your product pipeline, you've received clearance for your iodine technology, um, in hips recently, in Japan. And then also announced the FDA granted, um, the technology breakthrough device designation in the US, if you could talk through these developments and just the the timeline for the launch in the US and or, you know, further indications Beyond hips, that would be great.

Hey, thanks for the question. Uh, Kaitlin. So, um, exciting, uh product launch. Um, we've been working on this technology in Japan, for over a decade is 1 of the most complex, clinical trials that I've seen in my 31 years in met Tech, and it's great news that we got approval in Japan. Uh, this is a 1.3 billion dollar market. The second largest market, uh, as of the us. And we're going to be launching uh, at the end of 2025. And yes, this is going to be a meaningful Revenue contributor for the 2026 and again, we'll talk about it once it's time to talk about it with uh really good pricing. Uh it is differentiated technology, there's nothing like that. Uh it does uh suppress or prevent biofilm formation on the implant uh with again, robust clinical data over 10 years. Uh, it is technology that eludes over a prolonged period of time.

In the U.S., but, uh, it is a breakthrough. So, uh, we like what we see. We're going to start with hips, uh, and then move into nice shoulders and other categories in due time. But again, it's breakthrough technology. Thanks for the question.

Thanks. We'll go next to Patrick wood with Morgan Stanley.

Beautiful. Um thank you so much. Uh you know you guys mentioned obviously some of the uh refocusing on growth and when it came to the incentive structure was that it like the rep level. Was that the divisional head level just any more details on how you're structuring the incentive plan. That kind of push people towards growth. Thanks.

Patrick good morning. Hello levels. Um so this is a company that is gone through a lot over the last decade, you know that and uh we failed to put the right incentive plan across the board and today we make external commitments around Revenue, earnings per share and free cash flow. Uh, yesterday folks had different levels were not getting paid on those 3 levels of commitment today. I can tell you that every senior manager that runs a p&l here in Zimbabwe gets paid on Revenue growth, uh, earnings per share performance and free cash flow generation. As you click down to the, um, commercial structures. Uh, we are paying people on growth. Uh, we are paying people on margin and that goes all the way to the, uh, sales rep level. Uh, we hold the sales reps across zero environment, accountable, for the pricing Dynamics, and if you're not growing on Revenue, if you're not growing on my

Margin the things that you can control within margin. You're not going to get paid your full compensation. So this is something that is being choppy over the last, you know, quite a few to 5 years but I can tell you that the discipline is there today.

Thanks Patrick.

We'll go next to Larry biegelsen with Wells Fargo.

Uh good morning. Thanks for taking the question. Um, Ivonne it looks like the Recon Market improved in the third quarter versus second quarter. You know, what are you seeing? You know into Q4 and and in Suki you know you have this goal of eps of of 1 point in time, 1.5 time sales, is there anything? You would highlight for for next year like the tariffs, uh, that would make a difficult to achieve in 2026. Thanks.

Hey, Larry. Good morning. Yes, we did see an acceleration Q3 over Q2, uh, or overall. We look at Trends. And if you look at the postco Dynamics and you take at the backlog, we see the market as being healthy. And I think my peers that have reported already have said the same thing that that the markets are stable uh combination of volume and price. In Q4 look I'm going to learn my lessons. I'm going to tell you anything about market dynamics in Q4. I'm just going to tell you that the market overall uh inspect to be around 4% Suki.

Yeah. Um, thanks for the question, Larry. I think you'll see this year and if you look back even over the last several years, we've been incredibly disciplined in growing margins and and growing our uh, and growing our bottom line in concert or better than our our Top Line um as Ivonne noted in his prepared remarks earlier, if you look at our uh, earnings per share guidance for this year and we're we're basically right where we started the beginning of the year. And that's even after stepping over the Tariff burden, as well as integrating Paragon, 208, uh, as well as as monogram. So as you can see, we've been quite disciplined throughout the p&l and uh, all the way down to cash flow. It's too early to talk about 2026 at this time. As Ivonne said, we'll we'll come out in February and give a lot more color on that. Um, what I will point to though is again, the strong performance this year uh which marks a number of uh consecutive years of very strong performance on margin and earnings.

All right. Thank you.

we'll go next to Rick Wise with stifel

Uh, good morning, sorry, good, good morning, Ivonne hasuki. Um, I'm hoping, I I Ivon, I can, uh, ask you to talk a little bit more about, uh, Innovation. Uh, the very visible Innovation. That's, uh, Innovation pipeline at Saint robot. Uh, I hope you would agree that the Innovation done. Well,

Is showing.

I mean, please correct me. If you think I'm wrong, is showing clear positive concrete signs of that early wave 1, roll out with again, more to come. So the bottom line is, is when can we expect a more significant meaningful impact? Uh, from from the, your actually impressive pipeline?

I love the question Rick and uh good morning. So you spoke about waves? Uh so maybe let's let's segment uh innovation of 3 waves. So wave number 1 was catching up on certain categories where where absent? And that's the Lion Share of what we're doing, what we call the Magnificent 7. And as you saw in the US, we deliver 5.6% growth and this is largely induced by This Magnificent 7. And in my prepared remarks, I offer all kinds of commentary around. Adoption rates for Oxford, partial semen above expectations, 01, triple tapers. We we gaining market share a low where we are. Would also agree to navigation a lot. Lots of accounts that we had lost to competitors that we, we are regaining. I like where we are with, uh, the um, the knee franchise. So Wave 1 catch up. Magnificent 7. Uh, is working and it should accelerate as we get into, uh, 2026. So that's what we want. Wave 2 is moving from catch,

App uh what I call competitive Centric, Innovation, things that others were doing that. We felt to do uh, with that behind. We have move already into Wave 2, customer centered, Innovation. How do we change the standard of Care by being first to Market in new technologies? That's fully autonomous and semi-autonomous Robotics. That's next Generation digital ecosystem, which we are doing. That's the example that I provided to a Caitlyn around iodine, core devices. First to Market, uh, with, uh, breakthrough technology. So we are deep already into the second Innovation cycle, so call that that Wave 2. And then is Wave 3, how do we apply this Innovation capabilities into a spaces outside of a quarter Orthopedics. And that's going to come largely or mostly from uh, inorganic means and a lot of the fact that we got the balance sheet that we have to get into that space. So again, 3 different waves of innovation catching up, don't working. Now we need to accelerate it uh, customer Centric Innovation and I provided 2 or 3 examples.

Yes. Uh we look forward to Bringing Innovation capabilities outside our core. Also, I love the question Rick.

Thank you.

We'll go next to Matt Taylor with Jeffries.

Okay, thanks for taking the question. Um, you know, I I know that the the uh, guidance update here includes a more measured outlook for these International markets in the near term, I guess, would you expect some pickup in those areas that you saw softness in in Q3 in in 2026, just at a high level?

Hey, thanks for the question, mark. And I've seen Travis does something similar and I felt to answer know. We we take in those hiccups uh, outside of uh any consideration for 2026. And again, I'm not going to talk on whether they're going to stick around or not. Um,

We're going to take them out. Um that's that's not in the guidance for 2026. The way we think about guidance today again too early and they're not in the guidance for the rest of 2025. So as you think about narrowing, the guidance from seeing, how to find a house.

To now 3 and a half to 4. So I'm thinking of midpoint in around 3.75, not any. That's what we're going to land. That's a 25 basis point reduction, or roughly 20 million dollars. And, uh, that's, uh, largely induced by some of these volatility that we have seen in some of these non-core areas

Thanks.

Thank you.

For the next Q3, Joanne will speak with City.

Uh, good morning, and thank you for taking the question and I'm going to apologize for it in advance. I I think what you're, what many of us are asking today is given the Miss on the third quarter and the updated guidance for 25, how should we think about 26? And, and I'm respectful, it's too early to give that guidance but is there a way to give us some maybe headwinds and Tailwinds um anything that you can help to sort of set our our models correctly? So that when we do get to guidance, we're not surprised.

Thank you.

With magnificent 7. Uh, love the opportunities with things like iodine core devices in Japan and other markets, I love the fact that we move in some of these Innovation from the US now into the geographies. So that's definitely something that give us a lot of confidence. We just need to evaluate some of these fragility around commercial execution. So again the sum of all parts will inform the. The guidance in terms of what is the the right guidance will be measure, will make sure that whatever we say externally uh has a very high probability of being a being over the chief. Thanks for the question.

We'll go next to Matthew O'Brien with Pip.

Uh, morning. Thanks for taking the question. Um, can we just talk about the US, uh, knee Market? Um, specifically. And, you know, I know you've got all these new products coming out, can you talk about some of the, the mixed benefits that you're getting already from these new products? And then I don't have perfect information and 1 of your bigger competitors, hasn't reported, I get that but I'm still showing, you know, you're losing market share here in Q3 in the US. And it's a trend that's been going on for several years. So, what I'm wondering is with some of these these mixed benefits, you might be getting and maybe volume benefits that you could be starting to realize as you get back into some of these accounts is that something where there's kind of a lag effect where it could really Rebound in 26, um, from a, from a share perspective or do you need something else. I don't know if it's a monogram Etc or some of these new Rosa. Um, placements to to really help.

Help you stem. Some of the US uh knee share loss. Thank you.

Another, uh, very further question. So are we losing markets in the US? Let's see what, uh, the quarter looks like. Once everybody reports and, and we're able to analyze, you know, all the different Dynamics, uh, we are losing market share, I'll tell you m, we doing so at a at a much slower rate than we did before, which, again, validates that the Innovation cycle is, is working out and as we get into 2026, we're going to be in, in a much deeper stage of this Innovation cycle with more stuff to come. Uh, so again hard to tell what's going to happen in 26. But but I like the momentum, I like the sequential growth we've seen in the US. I like the 4 5.6% growth in the US. I like where we are with uh, with niece in the US, uh, increase quarter over quarter now, 3.5 and hips, look, it was not too long ago, Matt that were losing market, share at the June of 500 to 600 basis points, and I will grow and meet single digit in the, uh, in the US. So if we are losing market share in the US, is not at the same Pace as before and this is still early in this Innovation cycle in terms of margin, yes, every single 1, if not most of the

New products that we launched in have a better margin profile, whether is Oxford, partial cementless, whether it is Persona revision, uh, in Europe, uh, whether it is a Persona of your time where we get better margin and and definitely get a share of wallet opportunity, it's not just launching Innovation. It's getting a better margin profile with this Innovation and related to 2026. Again, I look forward to the conversation in, uh, in early 2026. Thanks for

Question.

Well, the next to Ed Ridley with Rothschild and Company Redbarn.

Hi, thank you very much. Um, first of all, just a quick 1 on, on Paragon. Can you speak to the organic growth there that you're seeing, uh, behind, um, the, uh, the acquisition benefit, um, and the momentum and

given, uh, Johnson Johnson's are announcement, a long duration, exit tends to flow up, opportunities are for others. Um, can you speak to a little to that and how you, you think that might, um, be some opportunity there. But in terms of personnel, or potentially job of

Hey, thanks for the question. It's so Paragon. 28, maybe, let's take a step back and, and, uh, recall what this ceases behind aquarium, this asset that was, um, we wanted to acquire something that was growing in a higher, uh, way in regarding a higher Market or a higher market growth rate. That that's Paragon, 28. This Market is growing solidly in the college 6, to 8%, uh, range. We wanted to build a platform. Um, not just buying, you know, 1 company. We wanted to build a platform around lower extremities. Uh, we don't that, you know, whether it's lower trauma, whether it is food and ankle and other components biologics. We got that going on. We wanted to have a more meaningful presence in the ASC space. Uh, that's enabling that I wanted to buy a company that had Innovation today but a pipeline for tomorrow and all of that remains true with Paragon. 28, the organic performance, you know, for the quarter was

You know, there may be some hiccups, you know, everyone's in a while but overall the organic growth of paragon, 28 should remain uh in the things. Thanks and sorry relative to J&J look. Um I'm not going to I'm not going to comment on the disruption there. I'm going to be respectful to um my peers out there but there is disruption. Every time you go through a spinoff diversity tour, we seen it here at Zimbabwe. There is going to be some level of disruption and they are customers that are going to be asking whether Zimmer B offers a better solution and there may be some sort of opportunities. But but again, I'm going to be respectful uh, to my peers and and don't come in too much on this.

Thank you.

We'll go next to Matt. Mix with Barclays.

Hey, thanks so much for taking the question. Um, yeah. 1 1 follow up on the iodine, have uh, iodine coated in plants and then just, uh, clarification on on some of the issues that impacted you 3. So on, on the, uh, the sort of new implant line.

Um you mentioned the FDA breakthrough. Designation um wondering if that a um

If that turns into a premium product understanding that, you know, premium and negotiations for Implant prices, engages hospitals, and, and requires, you know, value, uh, you know, assessment, uh, committees and Value Inn in sort of that pathway, um, is this a, is this effectively kind of Drive mix, um, in a significant way?

Or Ivana, you're thinking about this more as, um, as a way of of catching more volumes here just because of the clinical benefits, the the products you're going to bring, um, and I guess with FBA designation or breakthrough designation, is there possibility for for CMS, uh, sort of pass through there to support to support a price list? Uh then I have 1 quick clarification if I could but thanks.

Yeah. So on on iodine, uh, yes, to all of the above, uh, Matt. So again, uh, break through the signation, the US does enable, uh, premium pricing, uh, a better reimbursement Dynamics, uh, you go through value committees at a faster pace and the assumption is that, once we have this problem in the US, it's going to comment, higher pricing. But, but let's, let's not talk about the future and focus on the present. This is already happening in Japan, so with this approval in Japan, uh, it's a similar Dynamic. We are going to get a, a pretty significant price uplift, uh, in the country. And again, it's the second largest market for simmer biomed. Are we going to get a level of reimbursement that, uh, is far better than, uh, than other, uh, other devices in the market. So the answer to our line is yes to what are the above uh, breakthrough does deliver, better pricing Dynamics faster, adoption and opportunities through communities and whatnot. What was your second question? Matt? I apologize.

Yeah, sure. So second just to follow up on the restorative therapies. Uh, you know, um, you know, short with softness or, you know, whatever you would describe it as lower inspected, or orders. That's just to be crystal clear. I apologize. I should know this probably, but is this, is it bone, growth? Stimulus stimulators is this, you know, glue and and also is, I understand there's some additional competition in in bone growth. Not that it's a business, we've been a lot of time thinking about these days, but, uh, was that a factor, you know, any color on on the product lines and and whether what the Dynamics were around, that would be helpful.

Yeah, absolutely. So first things first, let me simplify that we talk about restart this therapies basically talking about 110, 120 million dollars of Revenue, uh, annual and and 1 product, that's ha injection. So that's hyaluronic acid injections.

And uh, and what happened is quite simple. I would say 3 things 1. We didn't budget adequately. Um, so that's, that's a mistake. We're not going to repeat, we have some challenges on Commercial execution, um, because the focus is being elsewhere, and then thirdly as you probably recall, there were some reimbursement changes, uh, in the US through CMS that, that we thought that that were behind and they're not behind. So it's a really acute element of pricing, that, that, that impacts is business, but that I would say, the, the sum of all parts is mostly commercial execution.

And again, as we think about 2026, I keep repeating myself. We're not going to offer commentary, but when it comes to these non-core business, we're going to be far more measured in the expectations that we have from. Um we started therapy is going into a into the year.

Thank you very helpful, thanks.

We'll go next to Daniel and toffee with UBS.

That you are and and sort of how we should think about that potentially impacting. Uh, the next few quarters as far as any potential disruption or or do you feel like those are are pretty easily trans transitional? It's not much of a transition. So we shouldn't expect any issues there. Thank you so much.

Hey, Daniel. Good morning. Thanks for your question. So first things first. Uh the uh organization is always evolving. Come back to a strategic pillar. Number 1, we're going to have the right people in the right jobs. Uh, people folks that know how to uh make commitments and commitments.

And, uh, once those things don't happen, you know, we'll have to make changes at the right pace. Those changes are embedded in the guidance we're providing. So, as we think about this guidance on both revenue and EPS, uh, the assumption of these changes, uh, is already in there. Um, on the commercial changes in the U.S., look, uh, we're going to be a bit faster than before, but we're working on the commercial channel for quite some time. And that's also embedded in 2025, and it will be part of 2026. So, long-winded answer to say is reflect on the guidance, and we look forward to making these changes.

Okay, thank you.

Thank you, Danielle.

This concludes the question and answer portion of today's call, I would like to turn the call back over to Ivonne for any closing comments.

Thank you very much. So my closing comments, is that, uh, we continue to be proud of the, uh, evolution of this business. The improvements that we make in this business. Uh, we're going to stick to the 3 key priorities of organization. And again as we think about uh the rest of the year, we're very confident when achieve the guidance. And as we think about 2026, we continue to see how when it comes to market dynamics. We are highly encouraged about our Innovation cycle and we will address the fragility that we get in some Pockets when it comes to commercial execution. Thank you for your time this morning.

This concludes today's call, thank you for your participation. You may now disconnect

Please stand by the conference. Will begin shortly.

Please stand by the conference. Will begin shortly.

Please stand by the conference. Will begin shortly.