ZIMMER BIOMET HOLDINGS, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• People and Culture: Added new leaders in senior roles, hired commercial leaders in key geographies, made changes in U.S. general management, and adjusted pricing capabilities.
• Operational Excellence: Making changes to optimize U.S. sales channel, specializing S.E.T field team, bolstering ASC offerings, expanding robotic platforms, and working on margin improvement and inventory reduction.
• Innovation and Diversification: Focusing on addressing unmet needs in musculoskeletal health, including awareness (You'll Be Back Campaign), safety (iodine-surface-treated implants), efficiency (smart implants, AI), and outcomes (Oxford Partial Cementless Knee).
• Paragon 28 Acquisition: Successfully integrated, with senior leadership and U.S. sales channel joining Zimmer Biomet, preserving Paragon 28's culture.

Segment Performance:

• U.S. Hips grew nearly 4% in Q1 2025.
• S.E.T. had mid-single digit growth.
• Global Hips grew 2.4% (U.S. 3.7%, International 1%).
• Global Knees grew 1.9% (U.S. 0.2%, International 4.2%).
• S.E.T segment grew by 4.9%, sixth consecutive quarter of at least mid-single digit growth.
• Technology & Data, Bone Cement and Surgical declined 3.5% due to tough comps from prior year and mix shift.

Guidance:

• 2025 organic constant currency revenue growth expected 3% to 5%, excluding Paragon 28.
• Adjusted EPS guidance revised to $7.90 to $8.10 from $8.15 to $8.35, offsetting tariff impact with weak dollar and operational strategies.
• Paragon 28 expected to contribute 270 basis points to sales growth.
• Tariffs expected to be a $60 million to $80 million headwind in 2025, with majority in Q4.
• Full year adjusted operating margins down 100-150 basis points vs 2024.
• Free cash flow expected $750 million to $850 million.

Risks:

• Tariffs: Uncertain macro environment, potential changes in policy affecting cost of goods and sourcing.
• Integration Challenges: Continued management of Paragon 28 integration and potential impact on operations.
• Market Dynamics: Competition, changing patient behaviors, and regulatory uncertainties.

Question and Answer: Q: Robbie Marcus with JPMorgan on tariffs mitigation.

A: Suketu Upadhyay discussed optimizing country of origin, transfer pricing, dual sourcing, and discretionary spend to mitigate tariffs.

Q: David Roman with Goldman Sachs on digesting variables for growth.

A: Ivan Tornos and Suketu Upadhyay discussed Q2 dynamics, new product launches in second half, and confidence in executing guidance.

Q: Chris Pasquale with Nephron on Z1 users and Knee product impact.

A: Ivan Tornos said 50% of Z1 users are competitive accounts and Knee products would show momentum in Q2.

Q: Matthew O'Brien with Piper Sandler on pricing tailwinds.

A: Suketu Upadhyay discussed pricing being flat for 2025, better competitive response, and internal capabilities.

Q: Matthew Taylor with Jefferies on tariffs headwind without mitigation.

A: Suketu Upadhyay talked about China being largest exposure, inventory optimization, and sourcing changes.

Q: Larry Biegelsen with Wells Fargo on ROSA competitiveness.

A: Ivan Tornos discussed ROSA advancements, submissions, and partnership with THINK Surgical.

Q: Josh Jennings with TD Cowen on ASC vs hospital channel.

A: Ivan Tornos said 20%+ of sales from ASC, growing trend, and well-positioned in ASC space.

Q: Joanne Wuensch with Citi on Technology & Data rebranding.

A: Ivan Tornos explained rebranding to better reflect enabling technologies growth.

Q: Caitlin Cronin with Canaccord Genuity on Paragon 28 integration.

A: Ivan Tornos said Paragon 28 integration going well, retaining leadership and minimal disruption.

Q: Richard Newitter with Truist Securities on sales force reorganization.

A: Ivan Tornos said no impact on guidance, changes for U.S. growth, and evolution of sales force.

Q: Shagun Singh with RBC on M&A appetite.

A: Ivan Tornos said strong balance sheet, strategic and financial M&A, and interest in ASC and S.E.T.

Q: Rick Wise with Truist Securities on sales force optimization.

A: Ivan Tornos said no guidance impact, changes for U.S. growth, and evolution of sales force.

Q: Jeff Johnson with Baird on opportunistic pricing and 2026 tariffs.

A: Suketu Upadhyay talked about capital area pricing and not using Q4 as 2026 run rate.

Q: Mike Matson with Needham & Company on antimicrobial technologies.

A: Ivan Tornos discussed iodine-treated implants, Japan launch, and pathway to U.S. launch.