Zimmer Biomet Holdings, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• 3 Key Strategic Priorities: People and culture, operational excellence, innovation and diversification.
• Q2 2025 Performance: Delivered solid top and bottom line despite headwinds. Updated full year organic constant currency revenue growth expectation to 3.5%-4.5% (excluding Paragon 28) from previous 3%-5%, and raised adjusted earnings per share guidance to $8.10-$8.30 from $7.90-$8.10.
• Strategic Priorities Progress:
  • Innovation and Diversification: Announced acquisition of Monogram Technologies with first-to-the-world robotic technology. Acquisition of Paragon 28 earlier this year is leveraging M&A to diversify into higher growth segments, with integration proceeding as planned.
  • Operational Excellence: Focus on strengthening commercial execution in the U.S. to drive growth, improve margins, and reduce inventory for better free cash flow generation.
  • People and Culture: Welcomed Kevin Thornal as Group President for Global Businesses and the Americas.
  • New Product Launches: U.S. Hips, U.S. Knees, and S.E.T. segments seeing growth from new products like Z1 triple taper hip stem, Persona OsseoTi cementless total knee, Oxford partial cementless knee, and S.E.T. products.

Segment Performance

• U.S. Hips: Grew 5.2% over the prior year, accelerating from 3.7% growth in Q1 2025. It was a strong driver of results.
• U.S. Knees: Increased sequentially by 150 basis points, growing 1.7% over the prior year period.
• S.E.T.: Reported mid-single-digit organic constant currency growth for the seventh consecutive quarter, nearly 5% growth. Within S.E.T., Sports Medicine and CMFT had double-digit growth, and upper extremities had high single-digit growth. S.E.T. is now the second largest business after the Paragon 28 acquisition.
• Global Hips: Grew 4%, with U.S. increasing 5.2% and international 2.7%.
• Global Knees: Grew 1.8% in the quarter, with U.S. growing 1.7% and international 1.8%.
• Technology and data, bone cement: 2.2% due to difficult comps from the prior year and mix shift towards ROSA volume-based placements versus outright sales.

Guidance

• 2025 Updates: Reported revenue growth revised to 6.7%-7.7%, adjusted EPS to $8.10-$8.30, and free cash flow to $1B-$1.2B.
• Organic Constant Currency: Narrowed revenue growth guidance to 3.5%-4.5% from prior 3%-5%.
• FX Impact: FX expected to be a more meaningful tailwind, contributing 50 basis points of growth.
• Paragon 28 Contribution: Expected to contribute about 270 basis points of growth.
• Tariff Impact: Lowered tariff impact expectation for 2025 to ~$40M headwind to operating profit, down from $60M-$80M previously.
• Second Half Acceleration: Anticipate second half 2025 growth acceleration due to no selling day headwind, more favorable comps, new product launches, and timing of orders in EMEA.

Risks

• Global Tariffs: Uncertainties related to global tariffs, although mitigation efforts are being made.
• Foreign Exchange: Impact of foreign exchange rate fluctuations.
• Acquisition Integrations: Integration challenges of acquisitions like Paragon 28 and potential challenges with future acquisitions like Monogram Technologies.
• Regulatory Timelines: Regulatory requirements and timelines for new product launches, especially for fully autonomous robotic technology from Monogram.

Question and Answer

• Q: Robbie Marcus on second half growth acceleration drivers A: Ivan Tornos discussed day rate headwind removal, ERP comparable, new product performance, and emerging markets distributor purchase contributing to confidence in second half acceleration.
• Q: David Roman on end market trends A: Ivan Tornos said market is still healthy, higher than pre-COVID levels, with July being strong.
• Q: Jason Wittes on Monogram's position A: Ivan Tornos discussed Monogram's first-to-the-world robotic technology, autonomy benefits, and features like 7 degrees of freedom, CT-based planning, AI, etc.
• Q: Larry Biegelsen on capital allocation and M&A A: Ivan Tornos said capital allocation has evolved to focus on responsible M&A for diversification into higher growth spaces.
• Q: Travis Steed on Q3 growth and 2026 outlook A: Ivan Tornos said Q3 likely to be around 6% organic growth, and improvements in 2025 will carry into 2026.
• Q: Vijay Kumar on margins A: Suketu Upadhyay discussed tariff improvement, better free cash flow, lower interest expense, and operational improvements contributing to margin changes.
• Q: Chris Pasquale on Monogram commercialization and EPS neutrality A: Ivan Tornos discussed regulatory confidence, commercialization timeline, and reallocating OpEx for noncore areas for Monogram investment.
• Q: Ryan Zimmerman on knee growth A: Ivan Tornos discussed acceleration in U.S. knee growth due to new product introductions and commercial investments, with international also expected to improve.
• Q: Patrick Wood on Hips and Z1 A: Ivan Tornos said Z1 is taking market share with 50% competitive conversions, supply is good, and it's amplified by related products.
• Q: Danielle Antalffy on Monogram and ROSA coexistence A: Ivan Tornos said ROSA and Monogram coexist to provide comprehensive solutions for different surgeons.
• Q: Matt Miksic on Paragon 28 retention and future acquisitions A: Ivan Tornos said Paragon 28 integration is going well with no management turnover, and it's a model for future acquisitions.
• Q: Shagun Singh on Monogram fully autonomous progress A: Ivan Tornos discussed progress in fully autonomous surgery, clinical trial, and launch timeline.
• Q: Richard Newitter on robotics portfolio A: Ivan Tornos explained ROSA's role for surgeons who prefer image less robotics, and Monogram's role for others, with no race between internal offerings.
• Q: Caitlin Cronin on robotic placements and pipeline A: Ivan Tornos discussed robotic placements on track, extended partnership with THINK Surgical, and upcoming ROSA knee launch.