ZBH - NYSE

Good morning, ladies and gentlemen, and welcome to the

Thank you, operator, good morning, everyone. Welcome to

Good morning, everyone, and thank you for joining today's call. I would like to start today the way that I always do, by taking a moment to recognize and to show my gratitude to the over 17,000

Thanks, and good morning, everyone. As Ivan mentioned, we closed a solid quarter that demonstrated the early impact of our new product cycle. Despite the selling day headwind, we grew sales 2.3% on a constant currency basis, delivered adjusted earnings per share of $1.81, and generated $279 million in free cash flow. Looking at this quarter's results, unless otherwise noted, my statements will be about the first 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 guidance commentary will exclude any projected impact of the recently closed Paragon 28 acquisition. Net sales were $1.909 million, an increase of 1.1% on a reported basis and 2.3% excluding the impact of foreign currency. Consolidated pricing was 10 basis points positive, marking the fifth consecutive quarter of positive pricing. Our U.S. business grew 1.3%, driven by nearly 4% growth in both Hips and S.E.T. As Ivan mentioned, we continue to make changes to bolster our U.S. performance. This includes new leadership in key geographies, sales rep specialization, expanding our ASC offerings, and committing additional commercial resources in robotics. Internationally, we grew 3.7%, driven by mid-single digit growth in Knees and high-single digit growth in S.E.T. Our S.E.T. business continues to outpace Knees and Hips, and with the closing of the Paragon 28 transaction, it will now be larger than our Hips business. This aligns with our strategy of diversifying into faster growth markets. Global Hips grew 2.4%, with the U.S. growing 3.7% and International growing 1%. We are particularly pleased with the U.S. results given the selling day headwind. As Ivan mentioned, our U.S. performance was driven by the combination of

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

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

Great. Good morning, and congrats on the good quarter. I want to start on the topic du jour of tariffs. I would say that's a much smaller impact than most were expecting on EPS. So maybe, Suketu, if you don't mind walking through what the mitigation efforts are? How you're offsetting the tariff headwind? And you made the comment about the 2025 run rate is not a good exit trajectory to calculate '26 tariffs. Maybe you could just expand on that and help us understand what the right run rate is. Thanks a lot.

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

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

Good morning, and thank you for taking the question. I'm struggling a little bit to put some of the moving parts together in the quarter and the outlook. Certainly appreciate that Q1 matched your expectation was very consistent with what you presented in February. But the absolute level of growth is still below what we saw last year, pretty much in most of the quarters before ERP disruption. At the same time, you're highlighting the positive impact of new products powered by what appears to be performance related commercial leadership changes. But how long should it take to digest all these variables? And what are you seeing specifically today that you can exit the year above 5% growth to get to the midpoint of the guidance you're issuing for organic revenue?

David, thanks for the question, and good morning. So let's maybe unpack this part by part or piece by piece. I'll start, and Suketu, by all means, feel free to add. So starting with Q1, if you add to Q1 the 2.3% constant currency, if you add the impact of the one day less in Q1 of '25 versus '24, that number is between 3.5% to 4%, so close to that midline or a mid-single digit growth commitment. Q2, we do have some timing events in EMEA, Europe, Middle East and Africa, that some orders that are getting that later in the year. We do have the most difficult comp versus Q2 of 2024. So recall that Q2 of 2024, we grew 5.6% ex-FX near 6%, and we do have still some new products that are not in full launch mode. The second half of 2025 is mid-single digit growth based on comps, to your point on the ERP debacle (ph) that we had in '24, and just a lot of new products happening in the second half. We're going to see Oxford Partial Cementless here in the U.S. at full speed. We got Persona Revision in Europe at full speed. We got many launches happening in the S.E.T. category in the second half. And we do have Persona OsseoTi at that point, probably close to 30% penetration in the U.S. So it's a lot happening in the second half of 2025 when it comes to new products. And we feel extremely confident that those new product introductions are going to materialize. We're tracking the number of product trainings that we do. We are weakly tracking supply chain dynamics, making sure we have the right amount of sets in the market. We're tracking our contracting capabilities, making sure that these new product introductions are going to happen. So again, net-net, we are extremely confident that new product execution, new product launch execution is going to materialize. So when you look at that and again, in the backdrop of easier comps, we feel very confident that our current guidance of 0.5% is going to get executed upon. Hopefully, a quarter from now, we're talking about a higher commitment in terms of where we fall within that guidance. Suketu, anything to add?

I think that's well summarized.

Thanks, David.

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

Thanks. Ivan, you highlighted a nice performance in U.S. Hips, which was certainly encouraging. Just wanted to clarify, when you say that 50% of

Thanks, Chris. I'll start with the second question. I do believe we're going to see some of the uptick of new products in Knees within Q2 here in the U.S. So I don't think we need to wait to see Q3, or I don't think we need to wait until Q3. However, obviously, given the quantity of new products in the second half, it's going to be higher in the second half. But you should expect to see some Knee growth momentum in the U.S. within Q2. And early in the quarter, we already seen that. Relative to your first question on Hips, these are true new customers. There might have been some customers that we lost years ago. But yes, 50% of the growth in the U.S. in Hips, that's 3.7% is true new conversions. Customers that are not users of Hips for

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

Good morning. Thanks for taking the question. I wanted to ask a little bit about pricing, excuse me. So last four quarters of pricing have been up 80 basis points, 70 basis points, 60 basis points, and now up 10 basis points. And I'm just wondering, if -- and that plus 10 is off a flat Q1 of '24. So are we to the point now where the tailwinds we're seeing on the pricing side are largely behind us? Are we going to start to see that rollover and get negative like we've seen historically? And I guess with all these new products coming out that are higher priced than this ASP tailwind you should be getting, is it going to make it more difficult to really sell those products in an environment where pricing starts to get a little bit tougher? Thanks.

Yeah. So, Matthew, thank you for the question. This is Suketu. First, I'd start with, we entered the year with a guidance assumption that pricing would be flat to down 50 basis points. So delivering on the first quarter at positive 10% is a little bit better than what we originally expected. And therefore, we're improving our outlook on overall pricing to be flat for this year. I would say, as compared to 2024, you're right, the number has stepped down, but that's something we anticipated, as I said with our initial guide. And remember, we talked extensively about in 2024, a number of sort of one-time items outside of the U.S. that were creating a much more favorable pricing environment, which we do not expect to repeat in '25 and beyond. And so, you're seeing that that play out. As we move forward, again, we -- the majority of our business is contracted. So we have good visibility into how we expect pricing to operate or perform for the rest of this year, and that gives us confidence in that outlook of being about flat. And then, as we move forward, we continue to see the pricing environment be relatively stable compared to our historical norms. And that's really, one, you're seeing really good pricing out of our new products, and there's pricing -- that pricing hold. Two, I think you're seeing a much better competitive sort of response to overall pricing. And third, just internally from a capabilities and governance standpoint, we're a much better company when it comes to price than we have been in fact, even incenting to ensure that the field force operates with a strong sense of margin in addition to revenue growth. So those are all the factors that give us confidence that, that pricing is stable, at least in the near term. Relative to tariffs, I think it's too early to call at this point. We're closely monitoring input costs. We're closely monitoring third-party contract manufacturing costs have not seen anything out of the ordinary on either one of those fronts. We are looking ourselves at potential opportunistic price increases across our portfolio. I would not count on that as a major offset to overall tariffs, but we're going to be opportunistic, where we see a light there. So really, that's our view on pricing just to bring it back. We're doing a little bit better than our original guide for 2025.

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

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

Yeah, Matt. Thanks for the question. So again, the mitigations have really been around, again, optimizing across our portfolio for country of origin, which is the key driver that determines tariffs in addition to transfer pricing. So actually, where you produce is directly indicative of overall tariffs, but it does come down to country of origin and transfer pricing. So our internal teams have done a really nice job of driving optimization there. And secondly, we've made changes in how we source products. China remains our largest exposure when it comes to tariffs. So we've -- we put a good bit of inventory into the country before the tariffs were enacted. And secondly, we're evaluating continuing to source for China in -- from Europe as opposed to the United States, where it makes sense. So those are some of the levers that we're pulling. And so again, we're just looking for any opportunity we can to offset that. Relative to, again, where is the impact, I'd say, China is the largest impact. That's both products shipping into China, as well as product coming out of China into the United States. So, as we see movements in policy there or tariffs that could be a large driver of future changes on the overall tariffs profile for the company. But yes, so overall, I think we're pleased where we started. I think there's more work to be done relative to our ability to mitigate future tariffs.

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

Thank you for taking the question. Just, Suketu, one clarification. Your commentary on 2026 wasn't clear on the net impact of the tariffs and the tailwinds you mentioned. And just for my question, Ivan it's Stryker's recon growth, particularly its U.S. Knee growth, continues to be a lot higher than the other three competitors and we can all see that obviously. We did a lot of channel checks around AAOS, and we continue to hear that the difference is really just still Mako (ph). So, how much do you think that's the case, and what are you doing to make ROSA more competitive? Talk about the three new modalities coming and the implications. Thank you.

Sure, Larry. I'll start with that. And I don't know if Suketu, you want to provide more clarity on 2026, although I think we said planning around 2026 tariffs. Hey, we got to do better when it comes to a new performance in the U.S. Nobody here is pleased with 0.2% growth in the quarter. That said, none of us are surprised about the knee performance or the number in the quarter. We knew that there was going to be a phasing with knees' performance in the U.S., and we're very confident the second half is going to be better. Relative to ROSA, we've done 350,000 surgeries with ROSA since we launched. We are the number two player in the U.S. We continue to see acceleration of penetration quarter-by-quarter. A couple of weeks ago, we submitted our 510(k) submission that’s a 90 day approval submission for what we call ROSA Knee V15. We believe there's going to be a dramatic transformation of ROSA in itself. The value proposition of ROSA Knee 15 is going to enhance surgical accuracy and reproducibility by improving soft tissue laxity, a different user experience. The platform has the ability of doing a kinematic knee. It has a new auto balance procedure, it's faster, it's simpler, it's streamlined. So we believe there's going to be an improvement on the current version of ROSA. On top of that, right after that, we're going to be submitting at some point for the CT scan ROSA platform, as well as down the road, a different Partial Knee platform. As we continue to evolve ROSA, we also have partnerships with THINK Surgical for those surgeons, and some of our competitors do like CT scanning. So we have that optionality as well through our partnership with THINK Surgical. So, look, I don't think the robot is the main reason or why we are behind when it comes to Knee performance in the U.S. It has to do with the fact that we have the largest share and the fact that we got to do better when it comes to commercial execution, and we're going to improve upon that. As I mentioned in my earlier answer, I do think already within Q2, you're going to start to see some improvement in U.S. Knees and as we get into the second half of 2025, I think you're going to see acceleration when it comes to U.S. Knees.

Yeah, Larry. Thanks for the question. I'll go back to some of my earlier comments and maybe try and rephrase them. So I did say that 2025 should not be used as a run rate for 2026 and that you should expect 2026 tariff impact to be higher than 2025. And we're not ready to size that at this time because there are a number of puts and calls and uncertainties that would prevent us from sizing that with precision at this point. But there are some headwinds and tailwinds to help shape that discussion. From a headwind perspective, first, you're going to have annualization, right. So you only had tariffs for part of the year this year. So, assuming you have for a full 12 months next year, that would be a headwind. Secondly, like most companies, the tariffs impact cost of goods that gets inventoried at some level and then capitalized and rolled into the P&L in future periods, that would be a headwind as we moved into 2026. The third element is, we're assuming that the retaliatory tariffs go back in place once the 90 day pause period ends in July of this year. So, assuming that pause period doesn't happen in 2026, that could also be a potential headwind. Again, the environment is fluid, but we're giving you what we know based on the most recent assumptions and announcements from the administration. From a tailwind perspective, we're going to continue to look at sourcing changes that could minimize or improve the tariff impact. Secondly, we're going to look at portfolio optimization. So certain products, for example, in our Knee portfolio are sourced from different locations. We may choose to emphasize one product versus another one based on tariff profile. And then the third one is, we're going to constantly, as we've always done, look at discretionary spending to potentially offset tariffs. So again, we're not ready to size 2026. I don't think any company has been out there sizing '26. But what we did want to do is give you some of the headwinds, tailwinds that could shape that profile for next year.

Thanks, Larry.

Thank you. Next question from -- we'll take our next question from Josh Jennings with TD Cowen.

Hi. Good morning. Thanks for the question. Ivan, I was hoping your team could help us think through

Hey. Thanks a lot, Josh, and good morning. So, roughly today, I would say 20%, if not slightly above 20% of our sales here in the U.S. come from the ASC environment. It used to be somewhere around 2% to 4% prior to COVID. So definitely, there has been a shift. We continue to believe that the number is going to grow. The data that we are triangulating shows that between 40% to 60% of sales in the next five years are going to come from an ASC -- and from an ASC environment. We like that trend with the introduction of the Magnificent Seven, some of the acquisitions we've done in S.E.T, Paragon 28, but before that, acquisition to Sports Medicine, we believe we are well positioned to continue to grow above market in that ASC space. In terms of what are we doing better, we are historically have been and are the number one reconstructed company in the ASC space for Knees and Hips. And so we done better, but we're growing now at a faster pace in S.E.T. So notice in the quarter, we grew globally S.E.T. 5%. This is the sixth quarter in a row that we're growing, S.E.T. at mid-single digit or above. Frankly, that number could have been higher in the quarter, but we had to deal with some one-time events in our Sports Medicine business in the US. So growing at a nice clip at a faster pace in asset, and we believe that's going to accelerate as we exit the year. Thanks for the question.

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

Hey. Thanks for taking the question. I wanted to ask about Q2. The slightly higher comment was that higher than the 2.3% constant currency, or are days adjusted? And then any quantification on the shift of orders from Q2 into the second half? Is that worth 50 basis points or more or less?

Yeah. It's off of the constant currency number, the 2.3 number we posted in the first quarter, and we're not sizing the overall impact for those -- for those orders. We're not really giving quarterly guidance, but we just wanted to give some directional shaping for your models.

Thank you.

We'll take our next question from Joanne Wuensch with Citi.

Good morning, and thank you for taking the question. Your other category was relabeled Technology & Data, Bone Cement and Surgical. I'm always curious when people change the name of things, I'm curious why you chose to do that and how do we think about those bits and pieces? Is this an area also for when you talk about portfolio optimization or M&A? Thank you.

Hey. Good morning, Joanne. Thank you. Hey, we like the new name better than the other name, no pun intended used to be called other, and we have in there Bone Cement, we have Surgical, and then we have enabling technologies, and enabling technologies one of the fastest growing businesses at

We'll go next to Caitlin Cronin with Canaccord Genuity.

Hi. Thanks for taking the question. Just to touch on the Paragon acquisition. I mean any kind of early news there, and kind of updates on the timeline for the integration?

Well, it's going -- Caitlin, thank you for the question. It's going far better than expected. So we had two or three goals at the onset of the journey. Goal number one was to retain the leadership team. Albert Acosta, former Chairman and CEO of Paragon 28; their Chief Commercial Officer, Matt Jarboe; and the entire, again, commercial leadership team checked on that, all of them have signed with

Thank you. We'll go next to Richard Newitter with Truist Securities.

Thanks for taking the question. I wanted to just ask -- I thought I heard early in the prepared remarks something about a sales force reorganization or optimization. If you could just elaborate a little more on what exactly that is, what prompted it? It sounds like that's new. And is there any negative impact that's contemplated in -- granted, you reiterated your constant currency guidance for the year. Is there anything that's implicitly contemplated from a headwind on that standpoint incrementally now?

Thank you, Richard. So, first things first, start with the final part of your statement. So no, we're not changing guidance. There is no impact whatsoever on either revenue or EPS associated with the evolution of the change. And I want to emphasize that word evolution. We've been doing this for a while. We're going to go faster at it. Why do we need to make changes in the U.S.? Well, you cannot grow the U.S. new business 0.2%. So we're making changes. We're making changes in terms of some leaders. We're making changes in terms of the quantity of territories. We have made changes in terms of the incentive plan. As a result of the lack of growth, certain individuals will be exiting the organization fairly, fairly soon. And we're just changing the whole dynamic in that regard when it comes to the U.S. dynamic. We've been talking about specialization for a while. We need to have the right amount of people behind the right businesses. We believe we can grow faster in S.E.T if we add additional capabilities. So we're going to be deploying more people into S.E.T. We know we can do better in robotics, if we add the right quantity and quality of individuals. So that's another change we're making. And then the ASC, we're growing strong in the teams. We believe we can do better. So we're going to add additional people in the ASC environment. So again, changes making sure we have the right quantity and quality of leaders, changes around the incentive plan. I know this is not something that is new. We're just going faster at it because we deserve to grow at a faster pace in the U.S.

Thank you. We'll take our next question from Shagun Singh with RBC.

Great. Thank you so much. I was wondering if you can elaborate on your appetite for M&A post the Paragon 28 acquisition. More specifically, how are you thinking about further boosting your position in the ASCs, and then also expanding potentially into new adjacencies maybe in and out of the hospital, as you think about raising your weighted average market growth further beyond the mid-single digits?

Thanks for the question, and good morning. So we -- even after doing Paragon 28 and in the backdrop of tariffs, the far power is pretty strong here at

We'll take our next question from Rick Wise with Stifel.

Hi. Good morning. Hi, Ivan. I was hoping you would expand a little more on your progress with the Oxford Partial Cementless Knee. You sound excited. You've trained several hundred customers. My impression, if I remember correctly from AUS that you hope to train maybe 1,000 by year end. Are you on track with that? And talk about the training and interest, and how long do you think it takes for the Oxford Cementless here in the U.S. to match the 60% of the mix in Europe. Thank you.

Thanks for the question. I think this is one of the most exciting products that we're going to be launching for a while. As a reminder, it's the only PMA approved Partial Cementless system in the U.S. I do think we're going to be north of the 1,000 trainees by the end of 2025. Already done close to 400. We've done training events in Dallas. We had around 250 people there. Chicago, we're going to be in Nashville coming up. So I do think that number is going to be north of 1,000. You got to train for the product before you use the product, but it's not a lengthy deal. So after you train a couple of cases, you're good to go. So we'll be north of 1,000. We are putting the product in many contracts. I think our contract penetration is around 50%, 55% today, that number is going to be around 70%, 80% as we enter into the second half of 2025. And again, I've seen this is going to be one of the most exciting product launches here at

We'll take our next question from Jeff Johnson with Baird.

Thanks. Good morning, guys. Maybe two clarifying questions, just if I could squeeze them into one, if possible. So, Suketu, you talked about opportunistic price increases. Just any kind of color you could provide there. I would assume that's probably more on the capital side, maybe than on the implant side, but any clarification there? And then just again, not to go back to the 2026 tariff, but I'm going to just as I hear your kind of explanation, thinking about your inventory turns, you talk about greater than 50% of that $60 million to $80 million in the fourth quarter. If you were us on the sell-side, we have to put models out. I know you're not quantifying. Would it be crazy to run kind of an absolute $40 million a quarter throughout 2026 as the tariff impact just as a starting point to have something that's holding placed on our models? Thank you.

Yeah. So let me start with the first question on the opportunistic pricing. I think it is going to be more in the capital area. So our recon business tends to be heavily contracted. So there's less near-term opportunity there. So it's really areas where you don't have contracting, which is CapEx surgical, those are probably good surrogates for the areas where you can take better price. On the run rate, I would not use Q4 as a run rate moving into next year. Remember, our capitalization, while it's different product-by-product segment, we have about a year's worth of inventory. So it is going to take a bit longer for that run rate to manifest itself because by the time we get to Q4, you're only about a halfway -- a little bit more than halfway year through the tariffs.

Thank you.

Thank you. We'll take our final question from Mike Matson with Needham & Company.

Yeah. Thanks. Ivan, I wanted to ask about the antimicrobial technologies and iodine coding. I mean, this seems like something that could potentially really differentiate

Hey. Thanks for the question, Mike. So first things first, the approval of the iodine treated hip that we launching this year is outside of the U.S., this is in Japan. It will come in the U.S. at some point. We'd rather not speculate here today, but we do have a pathway to get this into the U.S., and it is going to be transformational. It is the only platform in the world that has data on preventing biofilm formation on the implant surface by alluding over a prolonged period of time. So tons of data in that regard on an implant that has stable fixation. So we do need this to be transformational. We're not doing just coded implants. We got technology that expedites surgeries. We have external investments in companies are working on infection. As I mentioned in my prepared remarks, it's one of the key four problems that we're trying to solve. So it's more than coded devices, it's more than technology, it's a lot of different things, a lot of shots on gold when it comes to inflection. So -- but again, we will be launching Iodine at the end of 2025 here in Japan outside of the U.S., and we have a plan to get these into the U.S. as soon as we can.

Thank you. That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Ivan for any additional or closing remarks.

Hey. Thanks, Katie, and thanks, everybody for joining the call. I know there's a lot going on. I don't envy your jobs these days. But if you allow me a minute, I'd like to recap the quarter where