Zimmer Biomet(ZBH) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, the company achieved organic constant currency sales growth of 5.4%, with total net sales reaching $2.244 billion, a 10.9% increase on a reported basis [15][16] - Adjusted earnings per share (EPS) for Q4 was $2.42, up 4.8% year-over-year, while full-year adjusted EPS for 2025 was $8.20 [15][17] - Free cash flow for 2025 was $1.172 billion, marking over 11% growth year-over-year [18] Business Line Data and Key Metrics Changes - U.S. Knee sales grew by 6% in Q4, driven by the Persona OsseoTi and Oxford Partial Cementless Knee products [6][7] - U.S. Hip sales increased nearly 8% in Q4, with the Z1 implant representing over 35% of U.S. hip stems [7] - The U.S. technology and data segment saw over 10% growth, attributed to strong robotic capital sales [7] Market Data and Key Metrics Changes - The U.S. business grew 5.7% on an organic constant currency basis, while international revenue grew by 5% [15][16] - The company expects organic constant currency revenue growth for 2026 to be in the low single-digit range of 1%-3% [19] Company Strategy and Development Direction - The company is transitioning to a dedicated and specialized U.S. sales channel to drive consistent growth, with expectations to complete this by the end of 2027 [8][9] - Strategic priorities include enhancing people and culture, operational excellence, and innovation and diversification [10][12] - The company plans to prioritize returning capital to shareholders over M&A activities in the near term [86] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges of the U.S. Salesforce transition but expressed confidence in the long-term benefits of the transformation [31][81] - The company is focused on ensuring that the U.S. market achieves mid-single-digit growth to realize its long-term aspirations [81] - Management expects some short-term disruption due to the Salesforce transition but believes it will set the company up for success in 2027 and beyond [81] Other Important Information - The company reported a GAAP-diluted EPS of $0.70 for Q4, down from $1.20 in the prior year due to one-time charges and restructuring costs [17] - Adjusted gross margin for Q4 was 72.4%, higher than the previous year, while adjusted operating margin was 29.1% [17] Q&A Session Summary Question: Impact of Salesforce optimization initiatives - Management explained the transition to a dedicated Salesforce is necessary to improve productivity and leverage new products, with expected completion by the end of 2027 [31] Question: Guidance for 2026 and factors influencing it - Management indicated that the guidance reflects the Salesforce transition, new product adoption, and international performance, with potential for higher growth if the transition goes well [36] Question: Pricing erosion expectations - Management expects up to 100 basis points of pricing erosion in 2026 due to market conditions and regional pricing strategies [41] Question: Contribution from Paragon 28 and market health - Management noted that while the contribution from Paragon 28 was slightly below expectations, they remain committed to achieving double-digit growth in 2026 [75] Question: Confidence in Salesforce transition - Management cited data and benchmarking against competitors as the basis for confidence in the Salesforce transition, emphasizing the need for specialization to improve productivity [80]