Q1 2026 Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded today, April 28, 2026. Following today's presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to David DeMartino, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to Zimmer Biomet's First Quarter 2026 Earnings Conference Call. Joining me on today's call are Ivan Tornos, our Chairman, President and CEO; and Suky Upadhyay, our CFO, to be Finance Operations and Supply Chain.

Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. For details this can involve these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements, please refer to our SEC filings. Please note, we assume no obligation to update these forward-looking statements, even if actual results or future expectations change materially.

Additionally, the discussions on this call will include certain non-GAAP financial measures, some of which are forward-looking non-GAAP financial measures. Reconciliation of these measures to most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our first quarter earnings release, which can be found on our website, zimmerbiomet.com. With that, I'll turn the call over to Ivan. Ivan?

Good morning, everyone, and thank you for joining today's call. I would like to start, as I always do, by sharing my gratitude to our Zimmer Biomet team members around the world, your determination, your discipline and your dedication to customers and patients are what moves our business and our mission forward. We're off to a strong start to the year, strategically, operationally and financially, and that momentum is a direct reflection of the strength of our team the resilience of our business and the impact that we can have where we stay focused on innovating and executing for our customers.

Once again, my sincere thanks to the Zimmer Biomet team members. . During my prepared remarks this morning, I'm going to cover 4 key areas. First, I'll start by summarizing our first quarter results. Second, I will provide an update on our U.S. go-to-market changes.

Third, I will discuss our 2026 outlook. And then lastly, I'll briefly cover the progress that we continue to make across the 3 key strategic priorities of the company, those being people and culture, operational excellence and innovation and diversification. Starting with the first quarter results. I'm proud of how the team began the year, making strong progress to our 2026 sales growth commitments, EPS and free cash flow commitments.

In the first quarter, we grew sales 2.9% on an organic constant currency basis at the upper end of our annual 2026 revenue guidance range. And we delivered adjusted EPS of $2.09, which was up 15% year-over-year. Notably, the first quarter saw a $0.20 benefit from tariff-related items relative to our expectations. As we get into the details of these results, unless otherwise noted, all statements on this call will be about the first quarter of 2026 high compared to the same period in 2025 and all commentary would be on a constant currency and adjusted operating basis.

First quarter 2026 organic constant currency commentary excludes the impact from the Paragon 28 acquisition, which we closed in April of 2025. Looking at the first quarter results in more detail. Our U.S. business increased 3.2% and while international grew 2.5%. These results reflect healthy end markets, strong technology sales, which once again grew in strong double-digit rates and continued momentum from our recently launched new products. Importantly, this performance was against the backdrop of changes to our go-to-market strategies in both the U.S. and some designated international markets.

U.S. knee growth of 2.2% in the quarter reflects a greater than 20% increase in partial knee cells driven by our Oxford Partial Cementless Knee, the only partial cementless knee on the market in the United States. This performance was partially offset by pressure in our legacy Toran Knee implants, such as NextGen and [indiscernible], which we continue to phase out as part of our brand rationalization strategy. International Knees grew 1.3% for the quarter. Our U.S. hip franchise grew 5% in the quarter as we are seeing increasing traction of our hip triple play of one which now represents nearly 40% of our U.S.

Hips temps, OrthoGrid, or AI-based hem navigation platform, a HAMMR or surgical impact. International Hip sales increased by 1%. The -- while still early in its launch, we are seeing rapid adoption in Japan, the second largest market for Zimmer Biomet or for first of the warm iodine core hip implant, which is designed to help address the risk of very prosthetic joint infection after total joint replacement. Our technology and data, bone cement and surgical business grew nearly 12% in the quarter.

Our strategy of offering a comprehensive suite of technology solutions is paying dividends. as we are seeing continued strong ROSA and TMINI sales across the board. To further this one-stop shop approach at the American Academy of Orthopedic Surgeons in March in New Orleans, we hosted technical evaluations of boss or fully autonomous AI-driven orthopedic robotic system, which we acquired via the Monogram acquisition. Surgeon feedback was overwhelmingly positive as the potential gains in safety, efficiency, ease of use, reproducibility and accuracy resonated very strongly with the customers that we engage.

We recently completed enrollment in our 102-patient clinical study, we continue to expect U.S. approval and the launch of the semiautonomous version in early 2027, followed by the fully autonomous version in late 2027 or early 2028. In anticipation of the mBos launch, we're increasing the number of robotic clinical sales representatives targeting to hire over 200 by the end of 2027. Finally, SCP growth of 1.6% was once again led by our U.S. CMFT and Upper Extremities businesses, partially offset by continued challenges in restorative therapies and in our trauma business. Double-digit CMFT growth in the U.S. was driven by our external closure franchise which continues to perform very nicely above market per extremities increased upper single digits in the U.S. as both our OCF stemless shoulder and our Identity total shoulder platform continued to gain momentum.

Moving on now to discuss the U.S. got market changes. In the U.S., the transition to a dedicated and specialized sales channel is progressing as planned. While the quarter did see some modest disruption, it was in line with our expectations. And importantly, we are seeing rapid increases in productivity in those territories that we have transitioned.

We remain on track to complete the transition by the end of 2027. Internationally, the evolution of our go-to-market models, particularly in emerging markets, is ongoing and also is performing in accordance to the plan and the expectations that we have. While we did see an impact on growth in the quarter, this was very much accounted for internally. While our commercial changes are progressing as planned, given that it is still early in the year, we are maintaining our full year 2026 organic constant currency revenue growth guidance of 1% to 3%, with growth roughly consistent throughout the remainder of 2026. Instead of this, our assumption of up to 100 basis points of price erosion is unchanged.

We continue to anticipate an approximate 50 basis points FX tailwind to full year revenue growth with the second quarter being a bit neutral at current rates and Paragon 28 to contribute around 100 basis points to reported sales growth in 2026 before being reflected in organic growth. As a result, our reported sales guidance also remains unchanged at 2.5% and to 4.5% for the full year. We now expect 2026 operating margins to be better than anticipated, down slightly less than 50 basis points from 2025, which still contemplates lower gross margins, dilution from the Paragon 28 acquisition and increased investments in our U.S. commercial channel.

We anticipate operating margins in the second quarter of 2026 being down roughly 200 basis points from the second quarter of 2025. In the third quarter, operating margins being down around 50 basis points sequentially from the second quarter. Our guidance for interest expense, tax rate and end of year shares outstanding, which we continue to assume up to $750 million of share repurchases remains unchanged. Given these dynamics, we are raising both our EPS and free cash flow growth expectations for the year 2026. We now expect adjusted EPS to be $8.40 to $8.55 from the previous guide of $8.30 to $8.45. And we expect our free cash flow growth to be in the range of 9% to 11% versus the previous guide of 8% to 10%.

As I said, all in, the year is off to a very strong start, and I could not be any prouder or excited about what the remainder of is going to bring to Zimmer Biomet. Turning now towards 3 key strategic priorities for the company, people and culture are being number one; operational excellence, number two; innovation and diversification number three. People and culture remain the key competitive differentiator for Zimmer Biomet. And we continue to focus on placing the right talent in the roles to advance our strategy.

With that in mind, I'm very pleased to share that Dr. Jonathan [indiscernible] reknown surgeon from the hospital for special surgery has joined Zimmer Biomet as Chief Science Technology and Medical Affairs Officer reporting to me. In this role, Dr. [indiscernible] will lead the strategy, delivery and management of our global portfolio spanning AI-enabled robotics, software and data, smart implants and connected technologies while also overseeing or global medical education. On our second priority of operational excellence, we continue to make great strides in improving operating efficiency through expanding our manufacturing footprint into lower-cost geographies.

In addition, we're making very meaningful progresses on reducing working capital by lowering our days of inventory on hand while at the same time accelerating a very robust SKU rationalization program. We expect these combined efforts to strengthen our industry-leading margins while meaningfully continue to improve our free cash flow conversion rates. On Pillar #3, from an innovation perspective, we recently committed to becoming the exclusive orthopedic investor in the mobility revolution fund, a musculoskeletal venture capital fund launched through our collaboration between Deerfield management and the Hospital for Special Surgery in New York City.

This is going to give us the opportunity to invest in technology that has the potential to truly change the standard of care from AI data applications to cartilage repair solutions. Speaking of the latter, we're also teaming up with some of the world's leading researchers in this groundbreaking opportunity. It is inspiring to see how rapidly we're advancing our commitment to solving some of the key [indiscernible] orthopaedics whether it's awareness, safety, efficiency and outcomes today and in the future. Lastly, on diversification, our recent acquisitions are all seeing positive momentum.

Paragon 28, first quarter growth accelerated around 200 basis points from the fourth quarter of 2025 and is trending back towards double-digit growth performance. OrthoGrid delivered its strongest quarter to date, with significant growth and accelerated adoption, solidifying OrthoGrid as a core driver of our digital ecosystem and interior hip triple play. Finally, with enrollment complete in the Monogram clinical study, we remain on track to bring this very exciting first-to-the-world technology to market. In conclusion, we are very proud of the progress that we're makeing so far in 2026. We continue to prioritize our go-to-market commercial transformation in the U.S., and we continue to focus on driving robust adoption of our new product innovation cycle.

Before I turn the call over, I want to comment on the announcement that we made this morning regarding Suky's decision to leave Zimmer Biomet for a new opportunity in the biotechnology space. For nearly 7 years, Suky has been a value partner and disciplined operator, helping us in improving our WinGuard weighted average market growth rate profile through organic and inorganic portfolio optimization driving a top quartile margin profile for Zimmer Biomet, strengthening the balance sheet and significantly improving the free cash flow conversion and growth. I'm thankful for his leadership and contributions.

And we think continued success in his next chapter. Above all, I'm thankful for his friendship, which I know will continue for many years to come. During this transition, Paul Stellato, our current Controller, Chief Accounting Officer and Head of Corporate FP&A, will serve as Interim Chief Financial Officer. Paul is a seasoned business leader bringing more than 20 years of financial and IR Investor Relations experience to the role.

Since he joined Zimmer Biomet in 2022, Paul has been instrumental in translated our strategy into disciplined capital allocation, including our share repurchase program and recent acquisitions as well as leading the creation of global search services around the world. I'm extremely confident that he is the right leader at the right time, and I'm confident he will provide a steady direction and leadership as we continue to conduct a search for a successor, and I look forward to our continued partnership. With that, let me turn the call over to Suky. Thank you.

Thank you, Ivan, and good morning, everyone. I'm proud of what we've accomplished together over the past 7 years. I believe Zimmer Biomet has a clear strategy and meaningful opportunity ahead. I would also like to take a minute to thank the entire Zimmer Biomet organization for all of the hard work and dedication that you put into advancing our mission while delivering on the company's objectives.

The dedication and resiliency are impressive. I wish you continued success. Now turning to the results. Reviewing the first quarter results, net sales were $2.087 billion, an increase of 9.3% on a reported basis. and 2.9%, excluding the impact of foreign currency and the Paragon 28 acquisition.

Consolidated pricing was 40 basis points negative in the quarter, in line with our expectations. Growth in the quarter benefited from opportunistic end-of-quarter purchases above historical levels, continued momentum from our recently launched products, as Ivan noted, and strong robotic sales. Turning to our P&L. We reported GAAP diluted earnings per share of $1.22 compared to GAAP diluted earnings per share of $0.91 in the prior year quarter.

Higher revenue and lower restructuring costs, the previously mentioned tariff benefit and lower share count were partially offset by modestly higher taxes in the quarter due to geographic mix. On an adjusted basis, we delivered diluted earnings per share of $2.09 compared to $1.81 in the prior year. This increase was driven by higher revenue, the aforementioned tariff benefit and a lower share count, which were partially offset by increased commercial investments. Adjusted gross margin was 73% and higher than the first quarter of 2025, driven by favorable mix and a benefit from tariffs.

Notably, a portion of this tariff benefit included refunds that we had anticipated in the second half of the year. Adjusted operating margin was 27.3%. Adjusted net interest and nonoperating expenses were $71 million above the prior year driven by higher debt related to Paragon 28. Our adjusted effective tax rate was 18% and fully diluted shares outstanding were 195.8 million, down year-over-year due to $250 million of share repurchases in the first quarter. Now turning to cash and liquidity.

Another strong quarter of cash generation with operating cash flows of $359 million and free cash flow of $246 million. We ended the quarter with approximately $424 million in cash and cash equivalents. As Ivan had covered the rest of year outlook, I would like to close by again thanking the entire ZB team for their hard work and dedication. And with that, I'll turn the call back over to David.

Thank you, Suky. Operator, let's open up for questions. [Operator Instructions]. Operator, please go ahead.

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

Going to miss you, Suky. From my perspective, the year is off to a good start, you outperformed Ivan in the quarter, you beat sales, strong gross margin speeds. But just since I only have 1 question, but you didn't raise by overall by the beat, you left sales unchanged EPS less than the EPS beat. I appreciate you keep talking about being more balanced and tempered as you think about guidance.

But it's the start of the year. Is there -- are you seeing anything in the business or the market or competitively or in your sales transition that prompts that conservatism beyond just again, your desire to stick with your tempered guidance.

Rick, thanks for the question. So as you highlighted, we had a very strong first quarter. And as I sit here looking at the next 3 quarters, the word that comes to mind is confident. I'm very confident that we're more in the right direction.

We continue to see the sales force changes progressing as planned. We had some disruption in the quarter early in Q2, but everything is going in accordance to plan. We have a solid pipeline in technology. You saw the growth in technology, continue to see great momentum with new products.

We've got a very robust list of new customer targeting strategies that are materializing. So from a revenue standpoint, I'm very confident that we are moving in the right direction. On EPS, we did raise -- maybe didn't raised by the entire bid. We're also investing in a variety of fronts, namely in the sales force and model changes.

And we did raise free cash flow. So again, very solid first quarter everything move in the right direction. So why are we not raising our guidance now because it's early in the year. This is a year of transition.

We said so. We are making fairly substantial changes in a variety of fronts, go-to-market models here in the U.S. some changes in emerging markets, namely China. We're making investments in innovation at a ball pace. We're hiring people.

We're making talent changes. So we feel, even though the first quarter was very strong, it's probably prudent to wait, let's call it, 90 days and then have the conversation again. But again, I'll leave you with 1 word confident, very confident that we move in the right direction. Thank you for the question.

We'll go next to Vijay Kumar with Evercore ISI.

Congrats on a nice print here. And Suky, I wish you the best. Maybe 1 sort of high level, Evan,Ivan, and you mentioned U.S. sales force transformation is on plan. Any -- you also made some interesting comments about you're seeing rapid increase in productivity in regions where you're seeing this transition.

Any further details that you can share on other metrics that you're tracking perhaps, things like attrition rates, what percentage of sales force now dedicated or direct, if you will, in sort of on the similar line and any macro impact that we need to think of outside of the sales force reorg anything from Middle East .

Absolutely. So let me give you some of the key public metrics that we've been sharing. So at the beginning of the journey, early 2026, we mentioned that roughly 66%, so 2/3 of the U.S. sales force, roughly 2,500 people were 1099. At the end of Q1, the number is already slightly below 60%. And -- it's already roughly a 10% reduction on the number of 1099s.

And obviously, that implies that these 1099s are now fully dedicated to Zimmer Biomet. So no longer they're doing Zimmer Biomet 1 or 2 other jobs. So a fairly significant decrease in the number of nondedicated individuals. We started the year with roughly 25% of the sales force being specialized.

So 1 of every 4 reps carrying a dedicated sales back. Another number is approaching, if not exceeding 30%, 3-0. We loin, I believe and I spoke about this, Vijay, the top 6 independent distributors accounting for roughly 40% of sales. They're in extension of no less than 7 years with Biomet. So that was a fairly significant risk that we retired.

Relative to turnover rates, we had a target of no more than 12% turnover given the changes and our turnover rate is in the single-digit range. So again, early in the year, only 9 days behind, but everything is progressing in accordance to plan. To the point that we're thinking that perhaps we could go a bit faster as we get into Q2, Q3 and the rest with the commitment is still being we're going to close the entire transformation by the end of 2027. I believe you had a second question or part 2 of the question. Anything else, any follow-ups there.

Just on the macro piece, Middle East, any impact?

Okay. Middle East. From a macro standpoint, obviously, like everybody else, we continue to monitor what's happening in the Middle East. Today, we have seen no material supply disruptions, a minor freight cost increase in the quarter that we're able to absorb.

From a supply standpoint, most of our key products are dual source, if not 3 sources. We got at least 1 year of poly. So this is not something that we're concerned about. So we're not seeing any distribution challenges there.

So again, so far, life is good. . And then from a sales impact standpoint, we didn't see any impact in the first quarter. So that's on the Middle East. And then you got a variety of other macro or deals that we're monitoring, but nothing that it was impactful in the quarter, and nothing that we see has been impactful in the second quarter and beyond.

Thank you for the question, Vijay.

We'll go next to Matthew Blackman with TD Cowen. .

You hear me okay?

Yes, we can. .

Great. Ivan, Vijay actually asked this, I think, in those list of questions, but I'm not sure that you touched on it. You did talk to seeing increasing productivity in some of the geographies where you're doing the sales force work. I was just hoping maybe you could expand a little bit on that, just maybe in general, talk to some to the extent that you're seeing any green shoots, let's call it, from the work that you've done maybe sort of in the latter part of 25 or maybe even early here in 2026. That's worth calling out that gives us confidence in the lift that you still have ahead of us -- ahead of you.

I appreciate the question, Matt. So we probably could spend an hour going through data points. As you can imagine, given the magnitude of the project, we're tracking all gaps of KPIs, but I'll give you maybe 3 or 4 reasons to believe. In the territories that we did switch from nondedicated to dedicated.

So again, a 10% reduction, we've seen fairly dramatic improvements in productivity. Nationwide or average [indiscernible] around 7 cases our lead competitor is in the 16, 17 cases per week run in the territories where we made the switches already are in double-digit ranges for the number of cases. So that's pretty encouraging to see very quickly that improvement, no surprise. When you go from spending 2, 3 days, are we doing cases to 5 days, you can imagine the product that is going to increase. along with productivity increases we've seen sales improvement in those dedicated structures.

Our average extremities shoulder number for the quarter was strong. that is directly correlated to the number of shoulder specialists that we have added, both in an inpatient HOPD structure as well as in ASC, and we continue to see great momentum in shoulder. So productivity is improving a number of cases. Sales is improving in those territories. The lower turnover rates that I was [indiscernible] to Vijay is mostly coming from some of these story changes, higher engagement once we come fully part of the company.

So again, plenty of reasons to be in that we're in the right direction. .

We'll go next to Robbie Marcus with JPMorgan.

Suky, I'll add, I guess, my sadness and congratulations. You'll be missed. I wanted to follow up, IvanIvan, maybe on a couple of things you mentioned. And it really comes down to what is and what isn't maybe onetime in the quarter?

It seems like there were some product discontinuations in these, maybe a little bit of end of quarter purchasing and then perhaps maybe some benefit in gross margin. Wondering if you could size any of those? Any other potentially onetime items in the quarter and how to think about that resolving over the rest of the year? .

Absolutely. Thank you, Robbie. So I'll touch on U.S. needs and what happened in the quarter? And then maybe Suky, you can comment on gross margins and how durable they are.

So look, it was not the greatest quarter for U.S. knees, but it was definitely in alignment to our expectations. We knew we were going to be going through some of these changes related to the go-to-market transformation, and we accounted for those. So I would say the single largest reason why the USD number was no higher than the 2.2% is some of the changes that we made in the U.S. organization. We lost 2 accounts in the quarter, fairly large.

We believe going to be able to recoup some of the business, but we'll see as we get into the rest of the year. There was a Kaiser strike in the West Coast where we had the highest share in knees. So while that was disrupted for everybody, it was more disruptive for us. . In my prepared remarks, Robbie, mentioned how we are moving from legacy brands. namely NexGen and Vanguard to making the transferring to a one new franchise, that being persona.

And as we went through that, we saw some disruption. So I will tell you, probably mostly in line, except a couple of the accounts that we lost -- and that's the body. We got to do better, and we expect to do better than growing 2.2% in U.S. knees. Relative to quarter-end deals, all the staff, those are in line with what we typically do.

It was not a significant onetime event. We do strategic purchases. We try to convert ASCs. There is demand in the market for bundled deals, we include technology, implants and whatnot, and we're going to continue to do those.

Suky, do you want to comment on gross margin?

Robbie, on gross margin, we saw a very strong quarter. largely driven by the invalidation of the IEEPA tariffs, which contributed about $0.20 to results in the quarter. We were beyond that a little bit better on underlying performance as well. The way you should think about the gross margin line is of that $0.20 that we benefited in Q1, we had originally assumed about half of that would be credited in the second half. So that was a bit of a pull forward.

And so the remainder of that $0.20 drops $0.10 to the bottom line and is largely the driver of the beat or the raise, I should say, on earnings per share. As you think about gross margin for the full year, we still expect it to be down modestly versus prior year at around 71%, give or take. And the way you should think about the cadence is that it's going to be roughly consistent for the remainder of the quarters. So again, underlying performance on gross margin is as expected.

The biggest driver in Q1 was the invalidation of those tariffs.

Our next question comes from Travis Steed from Bank of America.

Just to follow up a little bit on Robbie's question. I guess looking at the U.S. knees specifically, comps do get 400 basis points tougher in the back half. And so just how do we get confidence that in the kind of the back half acceleration in U.S. Knees?

And I don't know if I heard correctly, was there -- did you say in the earlier question, you saw some disruption early in Q2. I don't know if that was an early Q1 misspeak or maybe I missed it wrong?

No, no. The disruption was on Q1, Travis. So when you look at the changes we made in the first quarter, I noted a reduction on nondedicated representatives there was some disruption. We did lose 2 fairly large accounts in the quarter.

So no, I did not comment on disruption on the second quarter. Your main question, what gives us confidence that we're going to accelerate our net growth in the second half is the ramp-up of our new products is the fact that we continue to place and sell a lot of technology, 30% growth in technology in the first quarter, all in with the rest of surgery, bond cement is 12%, but the actual technology growth in the first quarter, and that's TMINI is 30%. So once you start growing technology at those rates, obviously, implants fall at some point. So the account conversions that we've seen in the technology sales, the changes we're making from a go-to-market standpoint, new product acceleration gives us confidence that the numbers should increase.

Thank you, Travis. Thank you.

We'll go next to Chris Pasquale from Nephron.

It didn't come up in your prepared remarks, but 1 of your competitors have been dealing with an issue that impacted their ability to serve customers for a few weeks at the end of the quarter. doesn't appear to me at first glance like you benefited much from that dynamic. But could you just talk about what you've seen in the market and whether you think that has any implications for your business, either here in the first quarter or what you're expecting in .

Yours. First things first, it's very unfortunate that companies go through those dynamics. So I'll start with a No, we did not see any material impact. So we do not see the fact that we had a competitor going through such dynamic impacting our business in a meaningful way. .

We'll go next to David Roman with Goldman Sachs.

Maybe we could unpack a little bit some of the trends outside the United States. I think this is the first quarter in quite some time that OUS growth has trailed the U.S. and likely trailed where end markets look to be performing. So could you maybe help us think through some of the factors influencing those geographies to the extent to which there might have been any type of intermittent disruption versus what might be a change in the trajectory of that franchise?

[indiscernible] you, David. So a couple of things. Number one, the comps in the first half for international are more difficult than the second half. So that's one part, and I would like to talk what comes, but it is definitely an element here.

Secondly, we've made, as we announced at the end of 2025 and as we said in 2026 early in the year, we made and we're making some distributor changes in geographies such as emerging markets, Middle East and Europe and China primarily, where we have gone from a large network of distributors to having one, if not true partners. And that's obviously brought some disruption. And then thirdly, there were a couple of onetime events that have been orders in certain geographies internationally that didn't come or wait. But all of that said, the expectation is that we're going to be growing international mid-single digit in the second half of 2026. Thanks for the question, David.

We'll go next to Larry Biegelsen with Wells Fargo.

I guess for my 1 question, I'd love to hear about the rollout of Monogram. I know it's early, but it's an important product for you. So once you launch the semiautonomous system with Persona early next year, how should we think about the pace of the rollout? Will there be a limited launch initially at select centers and how that might impact ROSA. Just help us think about that, please. .

Larry, I love the fact that you always got a technology-related questions about the future of the company. So thank you for that. Very excited about Monogram. As I mentioned in my prepared remarks, we completed the clinical trial.

So we are deeply focused now on the preparation of the 510(k) submission. And we continue to anticipate that we're going to be in a position to launch this new-to-world technology in early 2027. What should we expect of Monogram? If what we've proven is right, the fees remain there going to be launching the most efficient readout there in what we can do cases under 4 minutes procedure times. We believe that it's going to have the highest amount of safety given the enhanced surgical boundaries.

We believe that it's going to really democratize orthopedic cases from a technology standpoint, very consistent when it comes to a procedure is very reproducible. The learning curve is very short. So it is easy to use. And then again, the level of accuracy we've seen with the robot is like nothing that I've seen in my many years dealing with technology.

So we believe we got a bulk platform that can get scale up fairly rapidly. And to that point, we are going to invest to make sure that's the case. So we are hiring north of 200 sales reps behind the launch of Monogram in addition to the many reps that already got in the field. We are investing heavily on clinical evidence.

We recently announced that we hired Dr. Jonathan [indiscernible], who happens to be 1 of the world's global key opinion leaders when it comes to technology, some of who's actually been an entrepreneur as well. We're also investing in rethinking or rather thinking, not just the clinical strategy, but also the economic strategy. So I can spend an hour talking about it, but I will say this is going to be a very bold launch, one that we're prepared already as we speak.

What's going to happen with ROSA. We are committed to having a suite of technology solutions. So ROSA with TMINI was recently launched. One of the reasons why technology is growing 30%.

We're going to keep that. It is the #1 robot outside of the U.S. where CT scan is not CT scanning. It's not the preference. We love what we're seeing with our partnership with Finsurgical and TMINI.

So we strongly believe that the combination of Monogram plus ROSA plus TMINI, it's going to give us a competitive advantage. Very excited about Monogram. Thanks for the question.

We'll go next to Matt Taylor with Jefferies.

I actually wanted to ask a final question about the tariff impact you saw the benefit here in Q1. I guess what are you assuming for the rest of the year with regards to EPA tariffs or tariffs in general? And what do you think could happen with the 232 investigation. Just asking a curiosity more than anything else.

Yes. Matt, good to talk to you. So we are assuming that the 122 tariffs remain intact for -- into the second half of the year. we are assuming that the EPA remain invalidated. And therefore, we took the benefit of that $0.20 in the first quarter, as I mentioned.

And moving forward on the 232, I think it's still evolving and dynamic and no material updates at this point, but the overall situation remains fluid, and we'll keep you posted as things unfold. .

I'll just add Matt, quickly. On the 232, the validation we're getting from our IT sources is that it's not going to impact those companies that operate under the Nairobi protocol. So we're feeling pretty confident that we've got a pathway to mitigate that. Thank you. .

Our next question comes from the line of Richard Newitter with Truist Securities. .

One of the innovations that feels most innovative for you guys that's exclusively in your hands. It's the Canary smart implant that's embedded in Persona IQ. But just noticed it doesn't get a ton of airtime even on this call. And I know you had some positive clinical trial updates at AAOS for this technology.

It seems like there's potential to generate real savings to the system here, better patient management post surgery. I know in the most recent CMS inpatient rule proposal, the CCJR is extending some of those initiatives that would seem to lend themselves in favor of a technology like this. I'd just love to hear kind of where you are on this particular product subsegment? Why we're not hearing about it more?

How and if this can be leveraged as a more meaningful differentiator moving '26 into '27?

A lot of the question, Richard. Thank you. Look, early on, probably, we talked too much about Persona IQ without having the data. Now we're taking a different approach.

We're going to get all the data. we're going to get everything validated, and they want to talk about it. I will tell you, overall, everything is tracking in accordance with expectations. As you mentioned, we did publish some very robust data on what Persona IQ brings in terms of lowering cost, improving outcomes, et cetera, et cetera. So that was published, I think it was 4 to 6 weeks ago.

I've seen with some of the changes around IPPS and the CJR expansion, this is the kind of product that can make a robust impact. There is an increase on DRGs or expenditures, as you say, with DRGs, 469, 470 for those companies that perform better. So now we will be in possession of the implant that can, in an objective way, track whether our implant is performing better. So companies that have connected data before, during and after the procedure.

Companies that can being objective data around outcomes, promo whatnot, and they can validate that can reduce the cost of care I believe they're going to be meaningfully rewarded. So we continue to invest in a variety of fronts to make sure that we are the company that can validate all of the above. So committed to the space, the technology, and we like what we see.

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

Just to touch on ROSA shoulder. Any updated color on the launch and when will move to a broader launch?

Thanks for the question. We are now fully on the full market release. I was actually done in Florida, where we've been demo in the technology. The feedback continues to be very strong.

It is surgeon center. So we're not launching a technology that only certain surgeons can use. So if you are an anatomic or reversed type of surgeon case technique you can use ROSA Shoulder for both types of surgery. We are getting really solid data around the accuracy of the platform.

So we can robotically do surgeries that impact the land as well as the humoral, -- so we can do both the gleno and human resection. It is extremely efficient. We already are actively working on version 2 that's even more efficient than the first generation of ROSA Shoulder and it is fully integrated to the rest of the ROSA ecosystem. So again, another example going back to the question that Rich had of collecting data before doing after surgery with ROSA Shoulder and being able to engage in proms, conversations, outcomes and whatnot.

So again, we move from limited market release to full market release, and we're going to scale up the number of units that we're going to be deploying in the U.S. and other markets. Thank you, Caitlin.

We'll go next to Matt Miksic with Barclays.

Follow-up on Paragon. You mentioned some acceleration there. If you could talk about what's driving that and whether you expect to maybe exit the year on double digits? And how we should think about the time line for another potentially paradigm like strategic investments? .

Thanks, Pat. So we actually -- the first quarter almost a double digit when it comes to Paragon 28. And early in the second quarter, we are in the teens. So the growth is accelerating. We also saw a 200 basis point sequential increase from Q4 of 2025 to Q1. And to answer your question succemely, what's driving this is focus.

We live in Albert and the Timalon. They're getting robust investments behind the platform. The launching products at a rapid pig the hiring reps in a variety of fronts. So focus is what's driving the growth here.

And we expect to exceed 2026 strongly in the double-digit growth. In terms so when are we ready to do the next deal. Look, we've got a lot going on here. We are changing the go-to-market model here in the U.S., integrating Paragon about to launch Monogram, which is going to be very disruptive and it's required a lot of focus.

And then we've got another deal called [indiscernible] also doing really well that we're integrating. So we're going to pause. We're going to continue to do buybacks. And at the right time, we'll execute on a deal similar to Paragon, which I think is prone to be very solid for Zimmer Biomet.

Thanks for the question, Matt.

We'll go next to Steve Lichtman with William Blair.

Suky, all the best to you. Ivan, where do you think we are at on underlying hip and knee market growth? Are there any incremental headwinds to market growth in the U.S. that you're seeing on elective procedures or willingness of your hospital customers to purchase bigger ticket items like ROSA? .

We continue to track the market growth rates and it's very solid. We pick the overall recon market to be growing north of 4%, not 4.5%. So obviously, we got to do better in Knees. We are where we need to be, but we're going to accelerate in hips.

We've not seen any material impacts. I get the question around what's happening with Medicaid, ACA and whatnot, we track cost of data. First of all, Medicaid is low single digit for us. So said differently, I think it's about 1% of our revenue comes from Medicaid, less than that.

And then in terms of ACA, is less than 12% of our cases. . We track the top 10 accounts in the U.S. to 10 accounts being hospitals like Mayo, Cleveland, HSSC New York and Other. We continue to see waiting lease being fairly long. So I would say the market is 4%, 4.5% durable.

Pricing dynamics continue to be where they need to be. So we had a quarter of 40 basis points of price erosion overall, in line with our expectations. So we don't see anything from a market perspective that we're concerned about. Thank you.

We'll go next to Jeff Johnson with Baird.

Suky, best of luck. Ivan, maybe on the sales transition. I know we covered a lot of this last quarter, but I just want to make sure I'm understanding a couple of things. we've heard in some conversations. I think some of your reps that were not 100% dedicated, you're kind of truing up and giving them guarantees this year.

That extra stub that you may be guaranteeing some of those reps. Are you excluding those costs from non-GAAP EPS and margins, just I think about how to set my model up for next year or this year and next year? And then secondly, in some of those conversations, we've heard if those guys were trued up and given a guarantee this year, it might be more next year they think about, do they stay or not without that guarantee. So -- how are you thinking about the disruptions from the sales transition?

Is that more of a 26% impact? Could some of that continue into '27? Just wondering how you think kind of these disruptions gate out between this year and next year?

Thank you, Jeff. Look, we go through sales force changes in a variety of ways and magnitudes often. So this is not something we exclude. So going back to why OpEx is slightly higher and what is the EPS going.

We're investing in making sure that this works out. So that's number one. We have offered 2-year guarantees that are backed up from a revenue standpoint, in some cases, 3-year guarantees. But I would tell you, Jeff, the single largest guarantee that you can offer a sales rep is to let him or her now that it is going to be a long-term future for the employee.

So money may cover 2 to 3 years. But when you have technology that you're launching like Monogram, when you have the full [indiscernible] in Orthopaedics you're making the investments that we're making, most reps see this as the place to be for the next 2 years. We can also with jobs every other year. Money is not going to keep you there.

But having the feature that they feel they have a Zimmer Biomet was keeping them here. . So I will tell you in my conversations we sold reps all over the U.S., and I'm spending 70% of my time on the road visiting every single territory. That's what we hear. -- if you give me a bank that is robust, if you made me part of something that is going to be great for the long term. money matters in the short term, but my career is probably more important. Thank you, Jeff.

We'll go next to Matthew O'Brien with Piper Sandler.

And Suky, best wishes in your future endeavors. Just on the pricing side, Ivan, you mentioned down 40 bps in Q1, but I think you said you're sticking with the down 100 for the year. I guess why stick with the 100 bps should we expect things to get progressively worse throughout the course of the year and then exit the year down even more than 100 basis points and kind of continue forward at a higher rate than we've seen historically? Or are you just still going to be still trying to build in some conservatism with that metric here this year and then going forward? .

Well, first of all, that is the range that we've been given for a while, flat to 100 basis points. In '25, we did better than that. There were a couple of onetime events in international markets. As we enter 2026, we guided flat to 100. We closed the first quarter, but it's a similar answer to revenue and other elements of the guidance.

We're going to wait and see there are macro events happening. There are changes in a variety of international markets. There is competitive pressure here in the U.S. So we're going to wait and see.

We like where we are at the end of the first quarter. We'll update you on pricing again in the August call. Thank you.

This concludes the question-and-answer portion of today's call. I would like to turn the call over to back over to Ivan Tornos for any closing remarks.

Sure. I want to thank everybody for joining the call today. And most importantly, I want to thank the Zimmer Biomet team for the strong execution in the first quarter. I give you 1 word confidence.

We -- I am very confident we were in the right direction, not just into 2026, but most importantly, how we are making the company future proof when it comes to the strategy that we have how we think about operating the company for the future and the commitments that we're making. I would like Suky, my friends okay here to close the call, given the fact that this is going to be the last time that he represents Zimmer Biomet as the CFO. So Suky?

Yes. Thanks, Ivan. So I've learned and taken a lot of away from you over our 7 years together. And the 1 thing that's most impactful is your approach to gratitude.

So I'll start there. I'd like to thank you, the ZB team, the Board and all of our many partners for an amazing 7 years. We've accomplished a lot in a really tough environment. But Ivan, we've built a strong foundation from which to grow. -- and I'm confident that under your leadership and with the team's execution, you will take ZB to the next up.

I wish you all the success and I'll be shining from the sidelines.

I'm going to miss you. Thank you. Thanks, everybody. Bye-bye. .

This concludes today's call. Thank you for your participation. You may now disconnect.