Zimmer Biomet Holdings, Inc. Q3 FY2025 earnings call

Ivan Tornos began by thanking the Zimmer Biomet team. He summarized third quarter results, noting 5% organic constant currency sales growth with the U.S. business accelerating to 5.6%. New products like Persona OsseoTi and Oxford knee implants have strong market reception. Commercial execution improvements include changes in sales leadership, sales incentive plans, and leadership changes in certain businesses. The updated 2025 guidance sees organic constant currency revenue growth expectation adjusted from 3.5%-4.5% to 3.5%-4%, while maintaining adjusted EPS guidance of $8.10-$8.30. The three strategic priorities are: People and culture - committed to having the right people in the right roles with performance-based changes; Operational excellence - efforts on top and bottom line to accelerate revenue growth, improve margins, and increase free cash flow through inventory management; Innovation and diversification - closed acquisition of Monogram Technologies, demonstrated mBôs technology, and has ongoing innovation in areas like iodine-treated hip in Japan and next-generation foot and ankle products.

Zimmer Biomet achieved 5% organic constant currency sales growth in the third quarter. The U.S. business was the largest segment, accelerating to 5.6% growth, the best in over a year. Globally, Knees saw 5.3% organic constant currency growth. Hips experienced mid-single digit growth. The S.E.T. segment grew 3.6% globally on an organic basis. Technology and data, bone cement and surgical increased 11.3% globally. Specifically, the U.S. business' 5.6% growth was driven by new products like Persona OsseoTi and Oxford knee implants. Knees globally had 5.3% organic constant currency growth, with Hips delivering mid-single digit growth. The S.E.T. segment's 3.6% organic growth was partially offset by a low teens decline in restorative therapies, while Technology and data etc. grew 11.3%.

Zimmer Biomet maintains 2025 reported revenue growth guidance of 6.7%-7.7%, adjusted EPS guidance of $8.10-$8.30, and free cash flow guidance of $1 billion-$1.2 billion. The organic constant currency revenue growth expectation is updated to 3.5%-4% from 3.5%-4.5%. FX is expected to contribute 50-100 basis points of growth in 2025. Paragon 28 is expected to contribute around 270 basis points to reported sales growth in 2025. Operating margins are expected to be down about 100 basis points vs 2024. Adjusted net interest and other nonoperating expenses are expected ~$280 million, down from $290 million. Adjusted tax rate is expected ~18% for the full year, and fully diluted shares outstanding are expected ~200 million.

Unexpected weakness in Eastern Europe, Latin America, and noncore segments of S.E.T. (specifically restorative therapies) impacted growth by nearly 120 basis points in the third quarter. Challenges in commercial execution in certain areas, including noncore businesses and some market dynamics that led to the weakness in those regions.

Q: Robbie Marcus asked about guidance philosophy and what happened in the quarter.

A: Ivan Tornos explained that unexpected weakness in Eastern Europe, Latin America, and restorative therapies impacted growth by nearly 120 basis points, and emphasized being more measured in future commentary.

Q: Travis Steed asked about the 120 basis points headwind continuing, slowdown in U.S. revision market, and capital allocation.

A: Ivan Tornos said the noise from those areas won't be counted in 2026 guidance, and Suky Upadhyay discussed strong fundamentals, disciplined capital allocation strategy.

Q: David Roman asked about contextualizing performance against LRP targets.

A: Ivan Tornos said market dynamics support mid-single digit growth, innovation cycle is working, and need to address commercial execution issues.

Q: Caitlin Cronin asked about product pipeline, iodine technology.

A: Ivan Tornos talked about iodine technology approval in Japan, launch in end 2025, and Breakthrough Designation in U.S. for iodine hip.

Q: Patrick Wood asked about incentive structure.

A: Ivan Tornos said incentive plan is at all levels, paying on growth, margin, etc.

Q: Larry Biegelsen asked about recon market in Q4 and EPS goal.

A: Ivan Tornos said market is healthy, Suky Upadhyay talked about disciplined margin growth.

Q: Rick Wise asked about innovation pipeline.

A: Ivan Tornos segmented innovation into Wave 1 (Magnificent 7), Wave 2 (customer-centric innovation like robotics, iodine technology), Wave 3 (outside core orthopedics).

Q: Matthew Taylor asked about pickup in international markets in 2026.

A: Ivan Tornos said hiccups from those areas won't be in 2026 guidance.

Q: Joanne Wuensch asked about 2026 guidance.

A: Ivan Tornos said it's early to talk, but markets, innovation, and commercial execution are key factors.

Q: Matthew O'Brien asked about U.S. knee market share.

A: Ivan Tornos said losing market share at lower rate, innovation cycle is working.

Q: Ed Ridley-Day asked about Paragon and J&J disruption.

A: Ivan Tornos talked about Paragon's organic growth and respectful of J&J disruption.

Q: Matthew Miksic asked about iodine hip and restorative therapies.

A: Ivan Tornos said iodine hip has Breakthrough Designation for better pricing, and restorative therapies had budgeting, execution, and reimbursement issues.