Matt Abernethy - Vice President, Investor Relations and Treasurer Dan Florin - Interim Chief Executive Officer and Chief Financial Officer.

Bob Hopkins - Bank of America Matt Taylor - Barclays Mike Weinstein - JPMorgan David Lewis - Morgan Stanley Joanne Wuensch - BMO Capital Markets Richard Newitter - Leerink Partners Larry Biegelsen - Wells Fargo Glenn Novarro - RBC Capital Markets.

Good morning. I would like to turn the call over to Matt Abernethy, Vice President, Investor Relations and Treasurer. As a reminder, today’s call is being recorded. Mr. Abernethy, you may begin..

Thank you. Good morning and welcome to Zimmer Biomet second quarter 2017 earnings conference call. I am here with our Interim CEO and our CFO, Dan Florin. Before we start, I would like to remind you that our discussions during this call will include forward-looking statements.

Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties. Also, the discussions during this call will include certain non-GAAP financial measures.

Reconciliation to these measures to the most directly comparable GAAP financial measures, are included within the earnings release, which is available on our website at investor.zimmerbiomet.com. With that, I will now turn the call over to Dan..

the negative impact from lower sales expectations, continued investment in critical programs and incremental manufacturing costs from our Warsaw North Campus facility.

Earnings impact from our lower sales expectations has a disproportionately negative impact on our profitability due to the operational sales mix, which is only partially offset by favorable currency adjustments versus our previous outlook.

Additionally, we continue to invest in critical programs such as specialized sales forces, sales incentive programs, core R&D initiatives, including the knee and robot projects previously mentioned and sales support cost to maximize customer engagement. These investments are critical for long-term value creation for our company.

Finally, we will continue to incur incremental manufacturing and distribution costs, primarily in the Warsaw North Campus facility. The expected negative impact of these costs on our full year 2017 earnings approximates $60 million, which is an increase of approximately $30 million versus our previous guidance.

These increased manufacturing costs are expected to continue to have a negative impact on gross margin throughout 2018 until we implement more efficient and automated manufacturing and quality control processes. Special items for 2017 are estimated at approximately $1.235 billion.

This is an increase of $30 million from our previous guidance and wholly attributable to non-cash write-offs of Biomet-related in-process R&D. We expect investments in our quality remediation program for 2017 to be consistent with previously stated amounts. We now estimate our full year 2017 earnings per share to be within a range of $4.15 to $4.35.

Excluding the impact of amortization, inventory step up and special items, we are reducing our full year 2017 adjusted earnings per share guidance to a range of $8.20 to $8.30. This EPS range represents approximately 3% to 4% growth over prior year or 7% to 8% growth when excluding the impact of foreign exchange.

Due to the negative impact of our operational results, we are revising our full year 2017 expected free cash flow range downward to between $1.100 billion and $1.300 billion.

We expect to continue prioritizing our free cash flow in the second half of 2017 towards debt repayment, continuing our path towards our previously-stated leverage target of approximately 2.5x by the end of 2018. Our third quarter projected EPS is in the range of $0.60 to $0.70.

After the elimination of amortization, inventory step-up and special items, our adjusted EPS is expected to be in the range of $1.72 to $1.77. Our third quarter and second half 2017 effective tax rate is expected to be in the range of 23.5% to 24.5%.

We expect our full year effective tax rate to be in a range of 22% to 22.5% as we continue to execute important initiatives that will have permanent benefits to our future effective tax rate. Finally, please note our guidance does not include any impact from other potential business development transactions or unforeseen events.

Before moving on to our Q&A, I would like to emphasize how pleased and enthused I am with the entire team’s focus and effort since I stepped in to my interim role as CEO. We have much work to complete in the coming months, and I am encouraged by the commitment I am seeing across our global organization as we tackle these challenges.

With that, I’d like to open it up to questions..

Thank you, sir. [Operator Instructions] Our first question comes from Bob Hopkins with Bank of America..

Thanks and good morning.

Can you hear me okay?.

Yes, Bob. Good morning..

Good morning, Dan. So, two questions, one on 2017 and then one looking out a little bit.

So first on 2017, just to be clear, so are you saying that the supply issues will be behind you exiting 2017? And then also in 2017, can you quantify the total incremental investment that you are making versus your previous guidance?.

Sure, Bob.

First, with respect to the supply issue, we are saying that by the end of this year, we will have basically cleared back orders, restored safety stock levels to normal levels, which enables our sales force to not only fulfill existing customer demand, but also to start going after new business, which has been a missing piece of our performance.

So certainly the expectation is that during Q3, as we have described, we will continue to make progress on all brands. There are these certain brands with more complex remediation and manufacturing processes associated with them, which will lag a bit, but even those certain brands we expect to be in a good shape by the end of 2017.

The incremental costs and the changes compared to the prior guidance really has to do with the production costs that we are incurring in the North Campus. There is no change to the remediation cost and the programs associated with that. That remains at approximately $210 million here in 2017.

So, the incremental costs to prior guidance that’s included in our adjusted P&L relate to the manufacturing variances out of the North Campus and that’s an incremental $30 million in this new revised guidance..

Okay, that’s very helpful. And then sort of the obvious follow-up to that is looking out a little bit longer term and how we should think about those incremental expenses, you are revising your 2017 guidance down, that’s obvious in the press release.

What I am curious about is do these investments continue into 2018? And when we preliminarily at least think about 2018, can you grow earnings high single-digits in 2018 or are these expenses going to kind of limit growth more to maybe mid single-digits in 2018, again preliminarily?.

Sure. So first, let me just talk a little bit about the production environment in the North Campus and what’s driving those incremental costs and then what’s the path to recovery, if you will, from a cost profile perspective. I think the way I would describe our approach with the North Campus production is to remediate first and optimize later.

And so what I mean by that is we have certainly prioritized our remediation activities on the North Campus, per the commitments we have made to the FDA and we are operating that facility under what we call interim process controls.

And I think it’s important to realize that these interim controls include a significant number of manual production and quality control processes and monitoring systems and that’s resulted in significantly higher variable costs of production.

So, the end state solution is to implement processes with inherently more process capability and consistency and this will take some time. In addition, the lesson we have learned, we need to create redundant capacity in the network to avoid single points of failure with respect to customer order fulfillment.

So as I said in my prepared remarks, the incremental costs will be with us through 2018. And as we think about 2018, we will provide the official guidance, of course, later this year. But I would describe it as this way, Bob.

We are certainly prioritizing our investment to restore full product supply to make the progress we need on the production and quality enhancements that I have described and prioritizing investments to drive growth. Now that said, we do have levers available to us, value creation opportunities, whether it be in the COGS area or the SG&A area.

But again, we are prioritizing our investments towards growth and production and quality enhancement. So, our goal will continue to be to have a levered P&L next year, growing earnings per share faster than sales, the details of that forthcoming however..

Great. Thank you. I will get back in queue. Thanks..

You are welcome..

Our next question comes from Matt Taylor with Barclays..

Hi, good morning. Thanks for taking the question. So, I guess I wanted to understand some of the assumptions in your 2017 guidance. You touched on a few of them in the prepared remarks in response to the first question.

But can you talk a little bit more about your customer recapture assumptions and how you think the supply delays are impacting your ability to recapture customers? And maybe within that, what are you doing on the hiring front in terms of the sales force?.

Sure, Matt. So in developing our guidance, we have considered as best possible about the risks and opportunities. First and foremost, associated with the production, both volume and mix out of the North Campus to clear back orders and replenish safety stocks.

The assumptions along the timing and success rate of recapturing lost business and the timing of going back on offense to bring on new surgeon customers have also been updated. They are inherently linked, of course, with production. Healthy product supply will ensure that we are not missing cases.

And importantly, free up our sales rep time from being in the mode of case logistics experts to getting back on offense and winning, an important element that’s one of those I would describe as indirect impacts of the supply issues.

With respect to recapture, we are seeing instances where some surgeons are waiting to move their business back to us until they see a full product offering with a steady flow of supply for a period of time.

So while we’re getting healthy on certain brands of a particular family, if there is other sub-segments of that family that have not yet healthy on supply, we are seeing instances where the surgeon customer maybe waiting to flip the business back over to us.

So that’s why getting full supply across the full spectrum of parts is so critical to that recapture assumption.

In terms of going back on offense, again, we’ve been prioritizing existing customers and have not been able to bring in new customers to offset some of that natural churn of surgeon activity that takes place in the normal course of business.

So bottom line, Matt, we are in the early stages of getting healthy on supply and then experiencing what that recapture rate looks like. What we are doing to ensure that the sales teams are ready to run with that full supply is looking at rolling in some incremental incentives on win back and growth. So that’s all in motion.

But really first and foremost starts with getting healthy on supply. And then lastly, with respect to the field force and headcount, we had another quarter of net positive adds in total to the sales channel..

Okay, that’s helpful. And just one follow-up on the pipeline, you have a number of knee products and some other products like in shoulders that you have talked about launching over the next 18 months, let’s say.

How are these issues impacting those timelines, if at all?.

As you said, Matt, we have some critical new products that are in the pipeline, particularly in the knee portfolio that are going to fill critical gaps in the portfolio. And we will be launching the Persona Partial Knee, a full commercial launch, later this quarter.

And just to remind folks, the Persona Partial Knee replaces the fixed bearing knee that had to be divested as part of the merger. So, that’s an important segment of the partial knee market that we have not been participating in. The early clinical feedback on that product is excellent and we have high hopes for Persona Partial Knee.

So again, that will launch later this quarter. We also called out the Persona TM cementless knee, again, a very important sub-segment of the knee market, a fast growing sub-segment of the knee market. So that will be launching in the second half of 2018. That brings with it impactful mix and new business opportunities.

So that remains on track with that time frame as does the Persona revision in the pipeline, second half of 2018. We have been without a revision system to the Persona. That’s a critical new product launch.

The robotic application on the total knee application, that program, high priority program, we continue to move that forward in line with our original expectations. So broadly speaking, with respect to how we are prioritizing R&D resources, it is the case that we have had to move some engineering capability over towards the remediation program.

What we have been doing is taking another look at the critical R&D list and focusing that list down, narrowing it to the most critical R&D programs and then ensuring that those critical programs are fully staffed, they have got full support of all supporting teams and driving those to keep those programs on track..

Okay, thank you very much..

You’re welcome..

Our next question comes from Mike Weinstein with JPMorgan..

Thank you and good morning, Dan. I was hoping you could spend a minute on a couple of items that you kind of briefly mentioned here. So, one was the incentive program you are putting in place for the existing sales reps to a) recapture accounts and b) go on the offensive.

Is that program in place? Is that a 2018 program or is that something for the balance of the year?.

That program is for the balance of the year, Mike. I am not going to get into the details of it, but just broad strokes. I mean our existing comp program incentivizes growth, just to be clear on that. So what we are looking at is incremental incentives to make sure that the sales teams are again ready to run as full supply is restored.

So, those are new programs that we will be rolling out that specifically reward growth and win back or recapture of lost business and with the full intention of restoring momentum in the field..

Okay. And then the second item is you have commented on the call like you have in other calls that the net sales force is up globally. I know that you have been building out your dedicated sales force in new categories, where prior to the acquisition, Zimmer didn’t have one.

Can you just talk a little bit about where you are in that process in the various areas, obviously trauma, extremities?.

Sure, sure. So, the comment in terms of adds to the channel was a U.S. comment, but it holds true globally as well. So, it has been a key focus and remains a key focus for us, Mike, to continue to build out focused sales forces and specialized reps, particularly in categories in the S.E.T. category.

So within surgical, throughout the – since the merger closing, we have been adding dedicated salespeople within surgical, that will continue. The surgical team continues to do an excellent job with some new products, an excellent job on commercial execution.

Within sports medicine, the same playbook, let’s add specialized sales reps that can focus on sports only. We have added reps along the way, and we will continue to add sports med reps throughout the future.

The sports med category and then the trauma category and the extremities category, those three areas in particular have been impacted by the North Campus production disruption. So in general, it is clearly our intent to continue to build out and add more dedicated sales reps.

We are pacing that as we sit here today in accordance with that supply recovery, but make no mistake, it’s our clear intent to continue to invest in focused sales reps..

And on the core recon sales force, what has the turnover looked like?.

Yes, the attrit rate is normal, Mike, with respect to everything the team has been through, I think is a remarkable testament to their belief in our portfolio and our belief and the belief that we are going to restore full supply. So I would describe that build as kind of normal course.

The real incremental investments are in the specialized sales force. But the core recon sales force in the U.S. is stable. They are anxious to get supply, needless to say.

And look, a big part of supply, whether it’s the direct impact of supply or indirect impact of supply, the key next step is to, of course, get full supply and start restoring trust, trust within our sales force, trust within our surgeon base that they no longer – there is a day where they will no longer have to worry about product being available.

And we know that day is coming. Again, we want to make sure we have the right people, the right quantities of people, the right incentives in place to catch that and run with it..

Understood. Thanks. That’s helpful, Dan..

Thanks, Mike..

We will take our next question from David Lewis with Morgan Stanley..

Hey, good morning. Dan, I want to focus on a couple of issues. The first is visibility. The second is on some of these costs that you walked through. So can we just talk about visibility into the back half of the year? I guess specific question is your third quarter guidance doesn’t imply much improvement when you sort of adjust for the comp.

So how does that fit with sort of moderately improving supply dynamics into the third quarter? But as you look into the fourth quarter, you actually do get that acceleration in momentum.

So I guess the question is, why don’t you see it in the third quarter? And frankly, what’s your visibility in that more material fourth quarter acceleration? How confident are you in these numbers?.

Sure, David. As we look at the recovery on supply, one of the real lessons in Q2 and we have brought this – these learnings into Q3 and Q4 is the importance of having the full bag ready to go.

And I mentioned before that again, it’s early days but there is some indication that surgeons maybe waiting to give us back our Vanguard business, for example, until we have all variants of Vanguard ready to go. And while we are healthy in many brands, there are other brands that are lagging behind.

So the approach we have taken with this guidance to account for kind of the state of the state or the dynamics that we are dealing with is number one, we have broadened the range as you see from what we have done historically. And we have looked at the timing of getting healthier across all those brands.

And that’s – so that’s what we have contemplated in the Q3 guide. So even though the comp is easier year-on-year, the business momentum is built on a sequential go forward basis and that’s how we have approached Q3, again, with a wider range, the 0.5% to 2% pegged against what we just did at 0.7%.

So, that’s reflective of the pace of production, the mix, the recapture. And all of our dashboard clearly indicates that we expect all brands to be healthy mid-Q4, which again enables not missing existing accounts or cases and going back on offense and acquiring new business.

So I think the bottom line is that we firmly believe in the opportunity that’s still there, David and our guidance for the back half reflects some momentum building throughout the second half. And we have widened the range from where we have been before just to account for the dynamics.

So, on the upper end of that guide, that’s indicating that we land the production volume and mix, the sales force catches it and runs and executes really well..

Okay. So in the interest of not being cute, it’s sort of if you build it, they will come, you are building in the third quarter and the customers come back in the fourth.

Does that sort of paraphrase it?.

I mean, we are still looking to win business during Q3, David. So – but to your point, it’s certainly a more modest growth rate relative to what we expect in Q4. So yes, we will be building momentum through Q3 and start really landing those – that new business in Q4..

Okay. And then just on cost, Dan, I wanted to – I know you talked about these things sort of broadly, but I want to see if we could pencil you again on sort of what these costs are. And obviously, we don’t have all the math here.

But if at the midpoint, you are lowering kind of $0.30 and maybe $0.10 of that is the adjusted for selling day revenue reduction, I kind of come up with $0.20 of sort of underlying reinvestment, so that’s about $60 million or so.

Is the way to think about that $30 million of sort of gross margin from the plant and then $30 million of sort of SG&A reinvestment? And if I think about those two buckets, Dan, how do those play out in ‘18? Do we still have the $30 million of gross margin expense through the end of ‘18, but we sort of get back some of that $30 million SG&A reinvestment? Thank you..

Sure, David. I think the – just listening to your question, I think the math around the revenue takedown is off a bit. Now and it’s really because when you think about the revenue takedown is really skewed towards some of our most profitable products and really concentrated in the United States.

So the drop-through to EBIT on that revenue takedown is more significant than what you are modeling there. So, it’s clearly well above our corporate average, in other words. So I think that’s, for modeling purposes, something to take into account. And that’s a takedown for all the reasons that we have described that we expect that to turn around.

So, as we think about through 2018, recovering that growth particularly in the United States, the drop-through on that turns back around, right. So that comes back in our favor in 2018 as we restore momentum in the U.S. channel. So, that’s a big element in terms of the EPS takedown.

The variances as described, a total in the 2017 P&L, it’s a total of about $60 million that’s in the P&L from a variance perspective, an incremental $30 million, thinking about that next year that – assume that, that’s in the P&L next year.

So then back to your question about what other levers do we have, we want to make these investments whether they are incentives or training and education programs, sales support costs, keeping these critical R&D programs moving ahead as well.

As we exit this year and think about guidance for next year, we have a line of sight to additional levers to pull on. Of course, I have a point of view on that. When the new CEO comes in, I will review that with the new CEO and we will decide how we want to approach 2018 from a reinvestment perspective..

Okay, thanks, Dan..

Our next question comes from Joanne Wuensch from BMO Capital Markets..

Good morning and thank you so much for taking the question.

Understanding that all of the changes that have happened regarding your CEO search are relatively fresh, do you have a sense of timing? Do you internally or does the board internally have a view towards, okay, we should probably be doing this before year end or something of that sort?.

Sure, Joanne. As I said in the prepared remarks and in our release, the board has retained an executive search firm, so that firm is now in place. As described, the board is looking for a proven growth-oriented leader with a strong background both operationally and strategically.

So clearly, we are moving forward with a sense of urgency, but there is no defined timetable. The board is willing to take its time to find the right candidate. So that’s really the – that’s the plan and we are off to a strong start..

Okay. And then to get into some more of a line item idea, can you discuss what’s happening in your spine business? It’s a little over a year since you purchased LDRH. That appears to be integrated. But what is going on in broadly the spine market and your business within it? Thank you..

Sure. So, I think importantly, you are right, we have anniversaried here in July with the acquisition of LDR. The commercial integration, meaning the sales force integration of that channel is largely complete. And similar to the orthopedic sales channel, that’s a critical – it’s a critical asset.

It’s a critical part of the integration and getting that right is mission-critical. It’s taken us the full year to do that. I think in the past, we have described how we have oriented the channel to make sure that we have full coverage of our full spine portfolio. So we have got representation across the full surgeon base.

The Mobi-C product line continues to perform exceedingly well. We have very high hopes for Mobi-C. It’s clearly a differentiator. The non-Mobi-C part of the portfolio has been challenged with the integration. So, there has been some level of dis-synergies as we have been integrating the channel.

So, our expectations – with the channel complete, our expectations is that in the fourth quarter of this year, we have a global spine business on an apples-to-apples basis that’s growing and contributing to overall Zimmer Biomet growth..

Thank you very much..

You’re welcome..

Our next question comes from Richard Newitter with Leerink Partners..

Thanks for taking the questions. Dan, the first one is on the recapture side and then my second one is on the manufacturing.

On the recapture, you indicated that – well, I was hoping you could just breakout for us, of those customers that have been supply impacted, what percentage are in this kind of, we want to come back, but we want to wait for a thorough portfolio availability versus those that you have identified that are probably kind of trialed and out of the Zimmer camp?.

Rich, it’s still really early days to fully know the answer to that question. I will just say that we have clear line of sight to the surgeon level in terms of where we have been gaining business, where we have been losing business, surgeons that have been added to the funnel or lost, so to speak, in the funnel.

So, clear line of sight to where that business and opportunity is. So, without getting into the weeds on that, we still have high confidence that surgeons again want to use our product. We have described it as the broader issue is the case where surgeons have moved some of their business to a competitor, because of our inability to fully supply them.

So we are referring to that as kind of borrowed market share. So, our ability to recapture that is critical. We are still confident we are going to be able to do that with a full supply.

And again, that aspect of being on offense is a critical part of the growth and momentum story as well, just making sure that we are able to attract new surgeons while at the same time serving existing customers..

Okay, thanks.

And then in response to an earlier question, I think it was David’s question, what gives you confidence kind of in the ramp or what maybe you miscalculated when you gave guidance on the manufacturing remediation efforts and where you would be by the second quarter into the third quarter last time? It sounded like it was a little bit more you maybe miscalculated this issue of what it would take for customers who wanted to come back online to actually come back online.

That seems more on the demand side. But on the manufacturing side, you are also running a little bit behind your schedule.

So I guess my question is why should we have confidence that you are kind of – by end of 4Q 2017, these manufacturing issues are behind you, where you kind of had that timeline planned out before? Has anything changed in your planning processes, the team that’s in place that’s overseeing this? What can you say to give us confidence that you have got the right kind of target here?.

Sure, sure. We have obviously been learning a lot through this, okay. I described before the approach to the North Campus is first and foremost to remediate the plant and then to optimize it.

I think just taking a step back a little bit, just to remind people that the Biomet Warsaw facility has historically had an excellent FDA track record, producing products for decades with a strong and lengthy clinical heritage. And the plant has operated in a particular manner for decades, with established manufacturing and quality processes.

And look, we are on a journey to remediate those processes and also raise the plant up to more contemporary quality standards. And without a doubt, the journey has been more complex than we anticipated.

So I think I want to acknowledge that due to the ongoing remediation work and interim process controls in the North Campus, of course, there’s some risk of future disruption in production. We believe we have a strong grasp on the issues, Rich, and we’re implementing the appropriate solutions.

We are running the plant under these interim controls with more manual production and quality control. So kind of the inherent risk is above normal. And I think we’ve learned from that. Our updated timetables, I believe, account for that as we look through the journey in the back half of the year.

And there is – we have made changes from a personnel perspective. I believe strongly we have the right team in place with the right focus and the team is doing everything possible to meet these revised dates..

Thank you..

You’re welcome..

And we will take our next question from Larry Biegelsen with Wells Fargo..

Hi, guys. It’s Craig on for Larry. Thanks for taking the questions. I want to start with top line growth progression. Obviously, Q3, you expect an acceleration, Q4, an acceleration on – the sequential acceleration on top of Q3.

So just want to think about 2018 and is that 2% the right way – could it be thought of as a jumping off point for 2018? And then also just wanted to see, is 4% that you have mentioned before, before some of the production issues, is that still the right long-term target growth for the company?.

Sure, Craig. We absolutely believe 4% is the right long-term top line growth rate for the company. The Q4 range of 1% to 3%, the high-end of that range says that we have executed commercially and manufacturing wise in the right manner. That opportunity exists to exit in that, take the midpoint, 2%, to your point.

So, the path to 4% is absolutely clear to how we deliver that. And it first and foremost starts with better performance in the U.S. with respect to hips and knees. And again with full supply, with a sales force ready to run, that’s our goal through 2018.

And the importance of the new product flow that’s going to be coming into that channel starting later this quarter with Persona Partial Knee and then the cementless and revision Persona coming later next year is an important part of that. You combine that momentum with the S.E.T.

category, a spine business, as I said that we expect to contribute to growth in the fourth quarter and carry that momentum into 2018. So 4% is clearly the goal. We still believe that’s very achievable.

One other point with respect to production feeding that and the North Campus is I just want to make the point about the importance of the buffer inventory that we will be building in the back half of this year and how important that is to restoring trust in the channel.

With safety stock inventory or buffer inventory, that really does protect the field from disruptions from a production perspective. So that’s why we have been so focused on clearing back orders, building safety stock, getting back on offense. That safety stock buffer is a critical part of the equation..

Thanks. That’s helpful. And as a follow-up, Dan, you have talked about the spine business quite a bit. And with the management change upcoming with respect to the spine business and the dental business, I just wanted to see if there is any change in strategy going forward.

I know at times, there has been discussion about potentially divesting the dental business.

So, just wanted to get a sense for if there is any change in the spine or dental strategy?.

divestiture, acquisitions, adjacencies, focusing on what would deliver long-term value to shareholders. So, that’s always the conversation. We believe in the spine and dental markets. The spine market, again, we believe we are going to be growing in that market in Q4. We are very excited to have the LDR portfolio as part of that business.

The dental side, as we have described, dental did decline in the quarter. That actually was consistent with our internal expectations for Q2. That was really tied to disruption in our European commercial organization as we reposition that for long-term growth. Importantly, the U.S. had a positive growth quarter, the first one in quite some time.

So that’s very encouraging. As we have described previously, Craig, we like the dental market. We estimate that market growing 3% to 5%. The business provides an attractive return on invested capital. We need to get it growing. We are making adjustments to the portfolio. We have just hired an excellent leader for the dental business.

And as we sit here today, we believe in the market and our ability to restore momentum in the dental market..

Great. Thanks for taking the questions..

You’re welcome..

Lauren, we have time for one more question..

Our next question comes from Glenn Novarro with RBC Capital Markets..

Hi, good morning, guys. Thanks for taking the question. Hey, Dan. Can you just give us a quick update on how the dialogue is going with the FDA regarding the 483s on the North Campus? There are a number of 483s.

Where are you in kind of the remediation effort, kind of checking the box off on the observations? And it seems to me though that even with all the observations, you are still going to be getting approval out of these facilities given the timelines you have given, for example, on some of the Persona products. So that’s my first question.

And I had a quick follow-up..

Sure, Glenn. We continue to communicate with the FDA regarding the status of the corrective actions and remediation work for the North Campus. So, that process is ongoing. The team is making excellent progress, consistent with our responses to the 483s. And we will keep all stakeholders up-to-date with appropriate disclosures in our periodic filings.

Sorry, go ahead..

Well, I was going to say at this point, one of the concerns we often hear from the investors is could this lead to a warning letter? Can you comment on your thoughts there?.

It’s hard to predict, Glenn, what the ultimate outcome is. We continue to communicate with the FDA on the progress we are making towards that remediation plan that we have detailed out. So we are kind of heads down, executing that remediation plan and moving forward..

Okay. And then just my last follow-up, you talked about supply constraints in the S.E.T. segment.

Are those products coming out of the Warsaw plant or is this a different plant?.

No, they are coming out of the North Campus, the Biomet Warsaw facility. So specifically, across legacy Biomet sports medicine, legacy Biomet extremities, upper extremities and then certain trauma products are – come out of that North Campus. So yes, that is impacting the S.E.T. growth rate on a temporary basis..

Okay, great. Thank you..

You’re welcome, Glenn..

So thanks, everyone. Thanks for joining the call today and we look forward to giving you an update on our progress on our third quarter conference call. Thank you..

Thank you again for participating in today’s conference call. You may now disconnect..