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Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Second Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded today, August 5, 2026. I would now like to turn the conference over to David DeMartino, Senior Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet's Second Quarter 2026 Earnings Conference Call. Joining me on today's call are Ivan Tornos, our Chairman, President and CEO; and Paul Stellato, our Interim CFO and VP, Controller and Chief Accounting Officer. 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 a detailed discussion of all 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 the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our second quarter earnings release, which can be found on our website, zimmerbiomet.com. With that, I'll turn the call over to Ivan. Ivan?
Thank you, David. Good morning, everyone, and thank you for joining today's call. I would like to start the way that I always do with gratitude, thanking our Zimmer Biomet team members around the world. Thank you for your commitment, your resilience and most importantly, your dedication to serving our customers and their patients each and every day. I'm truly grateful to have the opportunity to serve alongside you on this journey. Equally important, I'm beyond proud of the work that you do, David. During my prepared remarks this morning, I'm going to cover 3 things. First, I'll summarize our strong second quarter results. Second, I'll review our upgraded outlook for the year 2026. And then thirdly, I'll provide an update on our 3 strategic priorities, which remain unchanged. First, people and culture; second, operational excellence; and third, innovation and diversification. To begin, we delivered second quarter net sales of $2.177 billion, which came in above our expectations, representing 4.8% growth on a reported basis and 4% growth on an organic constant currency basis. On an organic constant currency basis, we grew 4.6% in the U.S., while our international business grew 3.1%. The growth in the U.S. demonstrates the strong progress we are making across a variety of fronts, including our U.S. sales force transformation. Starting with Hips, we delivered 5.1% constant currency growth, including 5.9% growth in the critical U.S. market and 4.2% growth internationally. In the U.S., our hip triple play continues to gain momentum, driven by the continued penetration of Z1, our triple-taper hip stem, which now represents over 40% of our U.S. hip stems and will soon surpass 100,000 implants worldwide. Secondly, we've seen greater utilization of HAMMR, our surgical impactor, which is now used in over 25% of our U.S. primary hip cases. And thirdly, we have seen increased adoption of OrthoGrid, our AI-based navigation solution for direct anterior hip procedures. OrthoGrid had its strongest quarter to date and the first half of 2026 saw as many cases as the entire full year 2025. We expect growth to accelerate in this platform in quarters to come. Outside the U.S., our iodine-coated hip launch in Japan is exceeding expectations as we are seeing robust demand from both existing surgeons and competitive accounts. We expect this first-to-the-world technology to be a meaningful growth driver in the second half of the year 2026 and well beyond 2026. We're actively pursuing pathways to bring this game-changing technology to additional markets outside of Japan. Knees increased 0.1% in the quarter with U.S. Knee growth of 1.4%, offset by a 1.5% decline internationally, which was heavily impacted by China and core emerging markets. We continue to see traction with new product launches and are very confident that the specialization work being done in the U.S. and go-to-market changes in key international markets will lead to improved performance. S.E.T. grew 3.4% on an organic constant currency basis in the quarter, which was a 180 basis point acceleration from the first quarter of the year. In the U.S., we delivered mid-single-digit growth and Paragon 28 sales increased mid-teens. This was driven by a differentiated and innovative product portfolio, strong execution, healthy market dynamics and the successful integration of the acquisition. CMFT, craniomaxillofacial and thoracic, once again grew double digits, led by our thoracic franchise, while upper extremities reported another quarter of upper single-digit growth. These compelling results were partially offset by continued pressure in both trauma and restorative therapies. Technology & Data, Bone Cement and Surgical grew 21.5%, demonstrating that our strategy of offering a comprehensive suite of customer-centric solutions is resonating with customers. We delivered record capital sales this quarter, driven by both ROSA with OptimiZe and TMINI and saw early contribution from the much anticipated next-generation ROSA Shoulder launch. ROSA Shoulder is the only robotic shoulder system in the world that can perform both anatomic and reverse procedures and reset both the glenoid and humeral sides of the joint. Surgeon feedback from the first round of cases is very strong, and we look forward to doing many more cases in quarters to come. U.S. technology sales grew over 50%, and we continue to have a very robust capital equipment pipeline, demonstrating surgeon enthusiasm for our differentiated product offerings and a healthy CapEx environment. Turning now to our outlook. With a strong first half, the transition to a dedicated and specialized U.S. sales channel progressing as planned, continued new product momentum and healthy underlying markets, we are raising our full year organic constant currency revenue guidance to 2.25% to 3.25% from the previous range of 1% to 3%. We are also increasing our adjusted earnings per share guidance to $8.47 to $8.59 from the previous guidance of $8.40 to $8.55. Paul will provide more detail in his prepared remarks. With that, let's turn to our 3 strategic priorities: people and culture, operational excellence and innovation and diversification. First, in the area of people and culture, which is a key pillar of our strategy, we are doing great things. This is our top priority as a company, underpinning all that we do. And I love that this is truly becoming a competitive advantage for Zimmer Biomet. Over the last year, we were recognized by leading global publications such as TIME Magazine and Forbes as one of America's best companies. We're also highlighted by Fortune magazine as one of America's most innovative companies, and we earned multiple Great Places to Work certifications and Best Workplaces awards all around the world. These recognitions not only cement our status as a best and preferred place to work, but they also help us recruit top performers in key roles while maintaining high engagement and low people turnover. Our people and culture first imperative extends to the acquisitions that we do. When we acquired Paragon 28 just over 12 months ago, our goal was to strike the right balance between integration and preserving the fast, agile and entrepreneurial culture that has been central to the success of Paragon 28. More than a year after the close, Paragon 28 is growing mid-teens with commercial integration largely completed and negligible turnover among key team members. Paragon 28 now represents the template for future acquisitions as we identify a target that makes sense strategically and financially, accelerates our WAMGR and creates a growth platform just like Paragon 28 has done for Zimmer Biomet. We have successfully brought Paragon 28 into the company, combining the best of both organizations, and we are now very confident of the capabilities in place to do future deals with similar dynamics to this one. Finally, our people and culture first imperative is central to how we're approaching our global commercial transformation. In the U.S., our transition to a dedicated and focused sales organization, one specialized around key call points and growth areas is progressing as planned. Six months in, with less customer disruption and sales force turnover than initially expected, we have confidence to accelerate our transformational efforts in certain territories. We firmly believe that once these efforts are completed at the end of next year, Zimmer Biomet will be a stronger company with a far more productive commercial channel and a more durable, diversified and scalable growth engine. Our second priority is operational excellence. We continue to take actions to drive efficiencies. This includes shifting certain R&D spend to our newly opened global capability center in India, where we can access strong talent while improving our cost structure. Additionally, we are excited to open a new manufacturing plant in Costa Rica, which furthers our strategy of increasing supply chain resilience while gaining access to lower-cost geographies. Construction in Costa Rica is well underway, and we are scheduled to establish the initial manufacturing lines next year. Lastly, to drive long-term margin improvement, we're aggressively implementing artificial intelligence initiatives to address our operating expense cost base. Our third strategic priority is innovation and diversification. We remain very excited about our pipeline and the differentiated technologies we are bringing to market. As previously mentioned, we are encouraged by the early launch of our iodine-coated hip platform in Japan, which is designed to help address the risk of periprosthetic joint infection after total joint replacement. Within the overall $0.5 billion Japanese hip market, this first-to-the-world technology is driving share of wallet and also competitive conversions. Looking ahead, in the U.S., we continue to make excellent progress with Monogram and anticipate filing the 510(k) for Monogram in the very near future. Beyond these two transformational product launches, we expect to introduce over 50 new products in the next 36 months with many of these launches being first-to-the-world introductions. While we could not be more enthusiastic about our current product cycle, we are deeply committed to being the boldest innovator in musculoskeletal health for years to come. Our role as the exclusive orthopedic investor in the Mobility Revolution Fund, a musculoskeletal venture capital fund, launched through a collaboration between Deerfield Management and the Hospital for Special Surgery in New York City is an example of this commitment. Throughout the fund, we will have the opportunity to invest in disruptive technology ranging from AI and data applications to cartilage repair with the potential to redefine orthopedic care and further our mission to alleviate pain and improve the quality of life for people around the world. In addition to our organic innovation strategy, we are going to continue to look for responsible opportunities to diversify through M&A as we continue to aspire as a company to have a WAMGR, weighted average market growth rate, of 5% to 6% by the end of this decade. All in, we delivered strong second quarter results, made strong progress on our key strategic priorities and we increased our outlook for the year 2026. The work that we are doing to transform our company, starting with our critical commercial channel is well underway. I'm very proud of the team. I'm very proud of our progress, and I'm very excited with the momentum that we have as we advance our customer-centric strategy and address the most challenging problems in health care. I truly do mean it when I say that the boldest chapters for this company remain ahead. With that, I'll turn the call over to Paul. Thank you.
Thanks, and good morning, everyone. As Ivan reviewed, we grew sales 4% on an organic constant currency basis in the second quarter, driven by strength in Hips, high-growth segments of S.E.T. and Robotics. We reported GAAP diluted earnings per share of $1.03 compared to GAAP diluted earnings per share of $0.77 in the second quarter of 2025. Higher revenue and lower acquisition-related costs, along with a lower share count were the primary drivers of the increase. Our adjusted earnings per share were $2.07, in line with the prior year quarter as higher revenue and lower share count were offset by the expected dilution from the Paragon 28 acquisition and investments in the U.S. commercial organization. Pricing was an 80 basis point headwind in the quarter, within our guidance range of up to 100 basis points of pricing pressure for the year. Adjusted gross margin was 71.1%, down 120 basis points year-over-year and in line with our expectations. This decrease was driven by increased manufacturing costs, partially offset by geographic and product mix. Adjusted operating margin was 25.7%, down 210 basis points year-over-year and in line with our expectations as we continue to invest in our U.S. channel. Adjusted net interest and nonoperating expenses were $71 million, modestly below the prior year. Our adjusted effective tax rate was 18% and fully diluted shares outstanding were 192.8 million, down year-over-year due to $500 million in share repurchases during the first half of 2026, including $250 million repurchased during the second quarter. Now turning to cash and liquidity. We had another strong quarter of cash generation with operating cash flow of $448 million and free cash flow of $308 million, up 18% and 24%, respectively. We ended the quarter with approximately $410 million in cash and cash equivalents. Regarding our updated outlook for the full year 2026. As Ivan mentioned, we now expect organic constant currency revenue growth of 2.25% to 3.25%, up from 1% to 3% previously. We continue to anticipate foreign exchange to be an approximate 50 basis point tailwind to full year revenue growth. In addition, given Paragon 28's strong performance, it will contribute 110 basis points to full year reported sales growth, above our initial expectation of around 100 basis points. As a reminder, the Paragon 28 transaction closed on April 21, 2025, and is now included within organic growth. We now expect 2026 reported sales growth to be 3.9% to 4.9%, up from 2.5% to 4.5%. The updated revenue guidance contemplates a healthy orthopedic procedural market and new product momentum balanced with the continued risk of disruption from our U.S. and international go-to-market changes and up to 100 basis points of pricing erosion. From a phasing perspective, we continue to anticipate third and fourth quarter constant currency growth rates to be consistent, while foreign exchange is expected to be a 50 basis point headwind in the third quarter. Shifting to the P&L. For the full year, we continue to expect gross margin to be around 71%, and we now forecast operating margins to decline a little more than 50 basis points, reflecting the aforementioned investments in our U.S. commercial organization. Within that, we anticipate third quarter operating margins to be down slightly on a sequential basis from the second quarter. Our assumptions for full year net interest and other nonoperating expense and tax rate remain unchanged at $295 million and 18%, respectively. And as previously announced, we now plan to repurchase up to $1 billion of shares this year, an increase of $250 million from our initial expectation. As a result, we now anticipate having about 193 million fully diluted weighted average shares outstanding for 2026. Taking all of this into account, we are increasing our adjusted earnings per share expectations for the year to a range of $8.47 to $8.59 versus our prior guidance of $8.40 to $8.55. We continue to expect to grow free cash flow 9% to 11%. We remain focused on delivering solid results this year while continuing to position the company for long-term success. With that, I'll turn the call back over to David.
Thank you, Paul. Operator, let's open up for questions.
分析師問答
We'll go first to Rick Wise with Stifel.
It's terrific to see all the positive progress and the quarter's healthy beat and raise performance. Of course, I'm inclined to credit your tornado tour efforts for helping, particularly the U.S. sales team get energized. Ivan, could you share some more of your updated thoughts about the sales force transition? It seems to be going well, but help us understand what's left to do and the growth implications since it's performing better than expected. Also, please explain the decision to reinvest some of the sales outperformance and margin outperformance into higher SG&A. Is that a conscious choice? Is there anything we should understand better, and what are the implications going forward in the second half and in 2027?
Thank you, Rick. First and most important, I'm going to invite you to the next tornado tour, you're going to love it — five states in five days, seeing countless reps, managers and distributors. So giddy up because it's an intense week. I'll tell you, the sales force transition, the go-to-market changes are going better, if not much better than expected. And I think that's evidenced in the numbers that we posted for the quarter. We delivered almost 6% growth in Hips, 5.9%. Our technology business, we invested a lot, added a ton of reps in the channel, grew 53% in the quarter. When you look at S.E.T., there is a lot to unpack in S.E.T., as you know. But our shoulders business, our upper extremities business delivered upper single-digit growth. Again, that's the outcome of the specialization changes that we're making, and we're growing across the board. Surgical had a great quarter. So again, across the board, the dedicated specialized structure is yielding results, 4.6% growth in the U.S. So you see that the changes that we're making are increasing productivity. The number of cases per week are increasing. And again, we're seeing the return on these investments. Beyond the financials, we look at all kinds of people metrics. Our attrition rates or people turnover rates are the lowest that we have seen in a while. And engagement is very high. We are on track to complete all of these by the end of 2027. So we're going at the right pace. We always said we're going to have three stages. The first one is done, which was the lower or lowest risk. We are now in the second stage, and we're taking our time to understand what is the pace, what is the level of investment that we need to secure. And then quickly, we're going to move into the third stage. And again, repeating myself, we'll be done with this project. We'll have a fully dedicated and specialized structure by the end of 2027. So everything is on track, and that's why you see us today raising our guidance. In terms of your second question, the SG&A question, look, we said from day one that we're not going to be penny-wise and pound-foolish. This is not a cost savings strategy, the go-to-market changes in the U.S. This is a growth strategy. We want to have the best sales force in orthopedics, and we're building just that. So to not be penny-wise, pound-foolish, we have retention agreements across the board. We locked in the top six independent distributors. We are adding 200 tech reps, and we are approximately at the midpoint of recruiting those 200 reps. We've invested heavily in sales excellence programs across the board. We have what we deem the best comp plan in orthopedics today, which is enabling us to recruit top med-tech reps from across the board. I'm really excited about the people that we're bringing here. So that's why SG&A is modestly up. We like this investment. We like these investments. We know they are going to help us go at pace, de-risking the go-to-market changes. And most importantly, we know that these investments in 2026 are going to yield better results in 2027. So I love what we see, everything on track, and thank you for your question.
We'll go next to Larry Biegelsen with Wells Fargo.
Congrats on the nice quarter here. Ivan, you know the Recon market question is coming, and you talked about healthy underlying trends. So when we aggregate the data, it looks like the Recon market did slow in the first half of '26. It looks like it slowed in the U.S. and outside the U.S. So my question is, what do you attribute that to? And you know there have been concerns about the ACA subsidies expiring and the Medicaid cuts. What are you assuming in the guidance? And I know you framed it as kind of low single-digit percent of your U.S. procedures for both the ACA exchanges and Medicaid, but that's still, call it, in the aggregate, maybe 5%. If those declines, say, 20%, it could still be a 1% headwind for you. So how are you thinking about this?
Thanks for the question. Look, this is my second stint in orthopedics, eight years now at Zimmer Biomet previously with DePuy for a few years. The one thing I've learned is that markets don't change one quarter to the other. So we don't look at one quarter dynamics. The second half of 2025 was stronger than the first half of 2026. Hips was very strong in the second quarter. We continue to see knees, the knee market in the U.S. around 3% or 4%. So again, we don't look at one quarter dynamics. We know that in Q1, there were some acute events. Some of that got resolved in the second quarter. I'm talking about some of the strikes. I'm talking about some of the external changes. We are not concerned about market health. We continue to peg the overall market at 4% to 5%. Otherwise, we would not be growing 4.6% in the quarter in the U.S. Relative to the ACA, we keep monitoring this. I'll tell you, for us, the exposure to ACA and exchanges is low single digit. Our single largest payer for Zimmer Biomet is Medicare. As you know, the patient age matters. The average hip patient in the U.S. is 65 years old. For knees, it's around 67. So these are Medicare patients. When you throw on top of that commercial, that covers virtually the entire payer ecosystem. So low single-digit exposure to ACA. We track all kinds of data as the largest orthopedic company in the world; we look at waiting lists, which remain unchanged. Average in the top 10 hospitals in the U.S. is three to six months for waiting times. We look at cancellation rates. This is a metric that we started to monitor during COVID. What percentage of times do patients cancel their procedure? At one point, this was 40% to 50%. For the last five years, it's been in the teens. That tells us that when a patient commits to a procedure, 85% to 90% of the time they will go through with it. So that's not changed. We look at referral cycles from the time you go to see a primary care doctor to the time you schedule the surgery, what is the waiting cycle? And again, it remains pretty much the same. So you may have some mix elements, Hips are stronger one quarter, Knees softer one quarter. Again, overall, we are not concerned. We like what we see as we look into the second half of the year 2026. And then internationally, there are all kinds of events, whether it's tenders, whether it's geopolitical dynamics in the Middle East. So we're not concerned about market health, and that's why we're raising guidance for the second half of 2026. Thanks for the question.
We'll go next to Matthew Blackman with TD Cowen.
Can you hear me okay?
Yes, we can, Matt.
Great. And Ivan, I just wanted to drill down a little bit on some of your latter comments in response to Larry's question and specifically on the hip market. It was a noisy quarter in the hip market globally, everyone's growth decelerated with the exception of Zimmer Biomet. So I was just hoping to get your perspectives. First on the U.S. market, anything notable in terms of volumes or share or mix? And then outside the U.S., obviously, you've got new products, particularly in Japan. I appreciate that outside the U.S. is a lot of different geographies. But just help us understand the opportunity outside the U.S. for the Zimmer hip franchise and the health of key underlying markets there.
Thanks, Matt, for taking the time this morning. Well, let me just piggyback on that first comment that Zimmer Biomet did grow in the quarter. Again, I'll tell you, that tells you that it's all about execution. The markets are not a problem. The innovation story is compelling here. So as long as we continue to execute, our expectation is that we'll continue to deliver the performance that we can deliver. Relative to new products, hips and the opportunity outside of the U.S. and here in the U.S., let's start with iodine. It's one of the most transformational products that this company has launched. Periprosthetic joint infections are the number one cost for readmissions. Infection is a multibillion-dollar cost to all health care systems. Japan is the second largest market outside of the U.S., roughly $0.5 billion in value. And the launch has gone much better than expected. Candidly, we are struggling to supply at the pace that we need to supply. The demand is very high. We expect to convert the lion's share of the entire market over to iodine-coated devices. We get a 40% premium every time that we move from a non-iodine-coated hip to an iodine-coated hip. We are converting not just Zimmer Biomet customers, but also competitive accounts. So the launch is going really, really well. We are in active conversations with the FDA to understand the pathway to bring this to the U.S. and we have a pipeline of countries all over the world where we're going to be bringing this disruptive technology. Here in the U.S., we don't have iodine today, but we do have the hip triple play: Z1, HAMMR the surgical impactor, and OrthoGrid. All three of them are taking market share. All three are doing better than expected. And that's why we delivered 5.9% growth in Hips in the U.S. this quarter. So that's on Hips. I'm not going to ramble through the rest of the portfolio, but we like the innovation story. And again, I'll leave you with one word: execution. We have to execute better. That's what we're making the go-to-market changes for, and then we'll be able to deliver quarters like this, if not much better than this.
We'll go next to Patrick Wood with UBS.
Ivan, you obviously said there's a lot to unpack in S.E.T. So I'd love to just drill into that a little bit better. Obviously, a bit of a sequential acceleration on that side. I know there's a lot going on between shoulder and sternal closure. So anything you can give us a sense for how — what drove that acceleration and how you're thinking about that for the balance of the year and moving into '27?
Thanks, Patrick. We love this business. We delivered a 4% plus in the U.S. We're slightly behind mid-single-digit growth globally in S.E.T., some timing with Sports Medicine that is going to move into the second half. As you heard in my prepared remarks, Paragon 28 is growing close to 15% and the upper extremities business is growing strongly, in the upper single digits. CMFT is growing in the teens, driven by our thoracic business. You know the opportunity here is $2 billion plus when you move from wires to rigid fixation for sternal closure. So it's a standard-of-care change. CMFT is growing in the teens. Shoulders are growing upper single digits. Paragon 28's growth has been stellar at almost 15%. We expect bigger growth in the second half. So we like where we are with S.E.T. We do have two headwinds. We've been very candid about those two headwinds: trauma and restorative therapies. Actually, if you take those out, the U.S. growth would be solidly in the upper single digits year-to-date. So we're addressing the changes that we need to make in those two businesses, trauma and restorative therapies. Net-net, the second half of 2026, we expect to have a much better S.E.T. growth profile. But again, very pleased with the progress. And congratulations to the team, especially Paragon 28 for a stellar performance in the second quarter.
We'll go next to Vijay Kumar with Evercore ISI.
I guess I'll focus on Bone, Tech and Cement north of 20%, really strong. How much of this is being driven by Zimmer's tech strategy resonating in the marketplace versus any one-time effect? Did you benefit from any Bone Cement competitors being off the market? If so, could that be a comp headwind when you think about '27?
Thanks, Vijay. Look, there's a lot in this Other category. I particularly don't love the name 'Other' for everything. The lion's share of the growth is Technology. Technology in the U.S. grew 30% in Q1. In the second quarter it grew 53%. As we look at the second half of 2026, the pipeline in Technology, both in the U.S. and outside the U.S., is very strong. So I'll tell you, the lion's share of the growth is Technology. Our Bone Cement business is a tiny fraction of that category. There were some one-time events in some international markets. But no, the growth here comes from Technology and surgical. I referenced surgical; the first and second quarters have been much stronger than the past. That is part of our ASC strategy. So no, it's certainly not Bone Cement driving the majority. It's Technology. And I'll tell you there are two different dynamics here, one external and one internal. On the external front with Technology, the CapEx environment is very healthy. As you probably heard from competitors, we all have a strong pipeline of robots that we're selling. The CapEx environment is very healthy, mostly in the U.S., but in some countries outside the U.S. The second dynamic is internal: we have the most comprehensive suite of solutions, whether it's handheld cordless devices, CT-based and non-CT-based systems, mixed reality, large-footprint robotics and small portable robotics. Whether it's the launch of ROSA OptimiZe, ROSA Shoulder, or TMINI, we have a best-in-class portfolio in Technology and we're in the early stages of gaining the market share that we can gain with our technology.
We'll go next to Travis Steed with Bank of America.
Congrats on the good quarter. I guess I'm looking at kind of comp-adjusted growth. Q2 was a nice acceleration. If you end up beating the guide in the back half, you'll have another acceleration in the back half of the year on the total company growth. Is that the sales force transition getting better and the execution getting better? Is it new products? Just curious what's driving that kind of acceleration over the course of the year. When you look at '27, what gets better, what gets worse? Does the sales force acceleration — or is the sales force less of a headwind in '27 or new products more of a tailwind? Or is pricing better or worse in '27? Just trying to think about the factors of '27. We can make our own call on market growth rates, but kind of the Zimmer-specific factors on '27 that you could call out what gets better or worse?
Travis, thanks for joining. Look, the numbers, when you see them without understanding the details, can mislead you. If you look at 2025, the first half of 2025, when you adjust for selling day impact dynamics, the growth in the first half of 2025 is 3.6%. In the second half of 2025, adjusted for ERP comparables versus 2024, the growth rate in the second half of 2025 is around 4% to 4.2%. So that's a 60 basis point acceleration from the first half to the second half. What gives us confidence that we're going to deliver that, if not more? We've seen great momentum with our go-to-market changes, again, as evidenced by the results. We continue to see an uptick in new product acceleration. Our S.E.T. business, as I referenced earlier during my answer to Patrick, is going to accelerate. We don't have the supply challenges we had with Sports Medicine. We continue to see Paragon 28 delivering strongly early in Q3; they continue to do really well. So a combination of commercial execution, innovation and the fact that the growth is not as acute as it may look at face value give us confidence on delivering in the second half of 2026. Relative to 2027, we're not going to get into detailed commentary around what 2027 looks like today. I will tell you, if you ask me now, we are confident that the performance should improve in 2027. To begin with, by then, we'll be mostly done with all the go-to-market changes. We will not have the struggles that we have in China today. China is only about 2% of Zimmer Biomet's revenue and about 1% of EBITDA, but it is a country that has been declining around 20% this year. So we will have favorable comps as we get into 2027. We also have some noise in emerging markets. Those noises disappear as we get into 2027. So again, the U.S. will perform better given the go-to-market changes; we're not going to have some of the headwinds that we have today in several international regions. So we do believe 2027 is going to be better, but we'll talk about 2027 when it's time to talk about 2027.
We'll go next to Robbie Marcus with JPMorgan.
Congrats on a good quarter. Ivan, I wanted to ask following up on — you were talking about all the different tech and robotic platforms you have. How do you think about coalescing that as a strategy to drive revenue growth and balance that? I have to imagine there's a decent amount of support dollars that go into having so many robotic platforms. So how do you think about all of those? Do you focus on a few? Do you keep the broadest offering? And how do you think about returns and support for those platforms?
Thanks, Robbie. Look, we've taken a very data-centric approach to what is the best pathway when it comes to technology. We don't call ourselves a robotic company. We call ourselves a technology company. So we segmented all kinds of technology within orthopedics. The percentage of surgeons that use robotics in the U.S. remains roughly 20%, so 80% of surgeons don't use a robot in the U.S. Outside the U.S., about 10% of surgeons use a robot and 90% do not. So we don't want to be just a robotic company; we want to be a navigation and guidance company. That's why in the U.S. we offer surgical guidance for non-robotic users. We have FDA-approved mixed reality. We acquired OrthoGrid for direct anterior and similar technologies outside the U.S. When you look at surgeons' preferences, some prefer CT-based workflows, some prefer imageless. Some prefer small portable systems to move from OR to OR. So we offer optionality: large footprint, small footprint, portable cordless solutions, CT-based and non-CT-based systems. As we launch Monogram and continue to track which products are doing better, and as we see standards of care evolve, we may prune the portfolio to simplify it. But right now, we like the optionality of having a comprehensive suite of solutions. And 53% growth in the second quarter tells us we're doing something right.
We'll go next to Matt Taylor with Jefferies.
So Ivan, I want to ask you about Other since you don't like that name. But let me ask another technology-based question. I'd love an update on ROSA Shoulder, how that is going. Maybe you could talk about the rollout, the uptake that you expect and how that's differentiated from other technology-driven shoulder solutions?
Matt, good to hear from you. First of all, I do like the category 'Other.' I just don't like the name because we do a lot of bold things within what we call Other. ROSA Shoulder is going better than expected. It's early in the launch, but it's a great opportunity. Shoulder arthroplasty is one of the fastest-growing areas within orthopedics. Today, only about 20% of doctors perform shoulder arthroplasties because it is a very difficult procedure. The anatomy is minimal and the required accuracy is very high. Reimbursement is actually among the highest of core orthopedic procedures, so there is meaningful commercial opportunity. Earlier this year, we received clearance for the next-generation ROSA Shoulder. We launched the original version about 1.5 years ago and executed a limited market release where we learned a lot. With those learnings, we reconfigured parts of ROSA and launched the next-generation version. It is the only system that can do both reverse and anatomic procedures, and it is also the only system that can address both the humeral and the glenoid sides of the joint. That combination yields improved accuracy, better outcomes and faster recovery. Generation 2 versus Generation 1 has a much simpler and improved user interface. We're moving into a full market release in the next couple of weeks. We're only a month into the broader launch, but we have seen great adoption and outstanding feedback. It's early to make long-term commitments, but if we do the work that I believe we're going to do, we expect the penetration of robotics in shoulders to go faster than it did when robots launched in knees 10 to 12 years ago. So it's a great opportunity and a great platform, and we look forward to updating you each quarter.
We'll go next to Ryan Zimmerman with U.S. Bancorp BTIG.
First, Ivan, I have to say congrats on the World Cup. I think we all have known you're a big fan there, and it's nice to see. But I want to ask about pricing in the quarter. If you look at pricing over the last three quarters, the headwinds have increased a little bit. It's still within the range of what you expect. But when you think about Medicare as your largest payer, the CJR-X program, the PFS rates that are proposed for '27, which are down potentially up to 20% right now, is it your assumption that pricing headwinds will increase in orthopedics because of these dynamics? It just seems like that it will increase the shift to the ASC and potentially put some pressure on implant pricing. I would appreciate your thoughts there.
Thanks for joining. And yes, Spain did send Lionel Messi into retirement. Before that, we also saw Cristiano Ronaldo retire. Relative to pricing, the ongoing question for several years now has been whether pricing will get worse, and it hasn't materially deteriorated outside of the normal dynamics. It is very much within the guidance that we provided of flat to 100 basis points of pressure. Pricing dynamics are not changing dramatically in the ASC environment. Most ASCs are owned by surgeons, private equity firms or experienced operators who understand that the implant is only around 14% to 15% of the overall cost of a joint episode. The conversation is more about reduction of surgical time, ensuring the patient doesn't require inpatient care, lowering readmissions, and the overall episode of care. We continue to track pricing dynamics across inpatient, hospital outpatient departments and stand-alone ASCs, and they're comparable. If you look at the data over the last 20 years, implant cost as a percentage of DRG remains near a low point. So I'm not sure there is much more to squeeze from implants. With the focus shifting to comprehensive episode management and outcomes, companies that drive efficiency and best-in-class clinical outcomes will be rewarded. We do not expect a step-up in price erosion in the second half. About 85% of our book of business is contracted, and we have good visibility into the second half of 2026 and into 2027. We're comfortable with our guidance of flat to up to 100 basis points of price erosion at worst. Thanks for the question.
We'll go next to Steve Lichtman with William Blair.
Ivan, you touched on M&A in your prepared remarks. With Paragon now fully in the fold, could you give us your latest thoughts on the type of deal that makes sense for Zimmer Biomet right now? Are you thinking about going further outside of your verticals? And any comments on size preference in terms of tuck-in or could we see something larger?
Thanks, Steve. It has not changed; our M&A strategy remains consistent across three vectors. First, we will focus on higher-growth segments of Recon — not all Recon is created equal. Segments such as data, technology and infection are higher growth, which is why we have acquired companies like OrthoGrid and made investments in Monogram and surgical impactors. That's vector one. The second vector is higher growth areas within S.E.T., including foot and ankle, sports medicine, upper extremities and CMFT — areas where we've seen strong performance, exemplified by Paragon 28. The third vector is adjacent opportunities that align with our strengths in ASCs or peripheral neuro or other perioperative technologies. In terms of criteria, we like assets in a similar profile to Paragon 28 — up to about $2 billion in acquisition price is our sweet spot, ideally assets that are immediately accretive to revenue and WAMGR, EPS accretive by the second year and delivering double-digit return on invested capital by year five. We will be bold but not reckless. We also believe a combination of organic work and M&A will help move our weighted average market growth rate toward our 5% to 6% by the end of the decade ambition. We've learned from Paragon 28 that we can integrate effectively, and we'll continue to look thoughtfully and patiently.
We'll go next to Joanne Wuensch with Citi.
Nice quarter. I'm a little curious how you're thinking about guidance philosophy and how you're thinking about the raise for the second half of the year and as you think about setting 2027. The company in a very short period of time has gone through a number of changes: the sales force change, your product pipeline, a couple of stumbles. How do you think about pulling all of this together when you do give the guidance? And should we think about your commentary in the phrase of conservative, realistic or hopeful?
Thanks, Joanne. I'd say our guidance philosophy is to say less and do more. We'll take a measured approach given all the variables we analyze, and that's what we're doing. We're confident on the guidance for the second half of 2026. There are many puts and takes, but we see more upside than downside when we look at where we finished the first half. We'll take it one quarter at a time. We'll take the same philosophy for 2027 — at the right time we'll provide guidance — but the philosophy will remain to say less and do more, as we did in the second quarter of 2026.
We'll go next to Vik Chopra from BMO.
Congrats on a nice quarter. Ivan, I wanted to ask where you are with your CFO search and what specific attributes you're looking for in a permanent CFO?
Thank you. We have a great interim CFO in Paul Stellato, who's been a stellar business partner for four years. A lot of the transformational work over the last four years has been led by Paul. I'm in no rush because we have a strong interim CFO. We're evaluating external candidates. We're looking for someone who wants to be part of this transformation — someone in the trenches who thinks like an operator, someone with experience in value creation, credibility with the Street and who will be a true business partner. We'll take our time with the search process. We have a great interim CFO and everything is on track.
This concludes the question-and-answer portion of today's call. I would like to turn the call over to Ivan Tornos for any closing remarks.
Thanks, operator. We started today with gratitude, and I'm going to close with gratitude. I want to thank again all the employees, 17,000 of you at Zimmer Biomet, who do so much every day. I'm grateful for your hard work, your dedication, the results, the progress and most importantly, for what you do for patients and customers every day. In closing, we're very pleased with the results in the second quarter. The transformation of the company is going as expected, if not better than expected. We are extremely confident on the guidance raise that we provided this morning. And most importantly, we're really excited about the changes that we're making in 2026. We always said it was going to be a transitional year. It will be a transitional year. And as we enter 2027 and 2028, we're going to have a totally different company. So very excited, very proud of the team, and I thank everybody for joining the call this morning.
This concludes today's call. Thank you for your participation. You may now disconnect.