Zimmer Biomet Holdings, Inc. (ZBH) Earnings Call Transcript & Summary

Okay. Good morning, everyone. We'll go ahead and get started here. Very pleased to welcome Ivan Tornos, Chairman and CEO of Zimmer Biomet; and Suky Upadhyay, Executive Vice President and CFO. As with all of these sessions, if you have a question, feel free to raise your hand. I certainly have plenty to keep us going here, but obviously, we want to keep this as interactive as possible.

So why don't we start with the topic that I think is on -- ebbs and flows, whether it's on people's minds, depending on how religious you are in following through social, but you seem very eager to talk about tariffs. So I'll turn it to -- maybe we'll start with tariffs and then we can go on to the actual business after that.

Happy to. We don't have any major announcements when it comes to tariffs. We didn't come to the White House. We got nothing to report when it comes to tariffs. But I do think -- we do think -- it would be great for Suky to maybe spend some time talking about how we've [ been addressing ] the tariff impact [ situation ]. These days, it seems like every company is reporting different things. We do have [indiscernible], Suky. Nobody understands me any way because -- I don't know, I don't need a microphone, but thank you. Maybe Suky can start summarizing the impact of tariffs and then I can elaborate.

Yes, yes. I think you can hear me okay with this, correct?

Yes. Good.

Excellent. So on our first quarter call, we had made a statement estimated our overall tariff impact to be somewhere between $60 million to $80 million for full year 2025 with most of that impact happening in the second half, just the way the tariffs were implemented from a timing perspective. Inside of that, the key assumptions were that you have the 10% baseline assumptions across the world. We had assumed that for Europe, the reciprocal higher taxes would go into effect at the end of the 90-day stay period, which would be early July. We also assumed that the higher taxes -- or higher tariffs, I should say, on product from China into the U.S. at 145% and product from the U.S. into China at 125% would go back to their higher levels at the end of the 90-day stay period. And we had no assumption of any benefit from the Nairobi Protocol, which seems to be the hot new item in our segment. So those were the assumptions that underpin that $60 million to $80 million impact for this year. We continue to evaluate the Nairobi impact and the applicability across our portfolio. We'll be in a position to give an update on that on our second quarter call. But sitting here today, I'm hoping that overall, our assumptions were conservative. The situation continues to remain fluid and dynamic. But again, those are the assumptions that underpin it, and we'll give an update in a short month or so.

Okay. The only thing that I'd add is that, again, if you look at how we're thinking about tariffs and you compare our position versus others, and I'm not going to name others, we're taking what I will deem a more conservative approach. We're not speculating on Nairobi Protocol. We're not speculating on 2026 because we don't know. So that's a key takeaway.

So I have to push a little because it's -- that's the deal here. So the guidance on tariffs that you've established so far, you would say, has taken the approach of this is what we know, but at the same time, we've left yourself room for upside. So if I think about what we know today versus what we knew at the time of your call is that we have a 10% tariff on products going into China. We have a 30% tariff on products coming out of China into the U.S. Those assumptions were not reflected in the guidance you had provided.

They were for a time being, but we assumed at the end of the stay period, they would go back to the higher level. So I think where you're going, David, is if those lower tariff levels stayed in effect for the rest of the year, instead of increasing at the end of the stay period, yes, there would be upside to our number.

And if Nairobi Protocol did end up being applicable to orthopedics, that would be a source of upside relative to the $60 to $80 million. And how do you figure that out? Like this Nairobi Protocol thing sort of -- I don't want to say came out of nowhere, but it is obviously an esoteric exemption from like the early '80s, which some companies like hearing aids and diabetes have been able to very clearly fall under. But what determines eligibility or applicability of that protocol?

So what you have to do is you obviously look at the actual protocol or the policy or law that's in effect, which is definitional. But beyond that, like with any policy or law, you then look at precedent, right, and what other products have been applied and have gotten exception under that. And then you draw parallels or similarities or dissimilarities relative to that case law and then take a position. We then get legal opinions inside of that. We talk to a variety of outside advisers and then make a determination as to where that standard applies and where it does not.

Okay. So it's not like USMCA, where you need to file and get approved as an exemption? It is just a judgment call?

It is.

And who makes the judgment, CBP or you, the Customs and Borders patrol or the companies?

The company will take the original position. We'll claim the exemption. And then CBP then has the opportunity to either accept it or to deny it or to adjust it.

And are you claiming the exemption now under Nairobi Protocol for products coming into United States?

Like I said, we're still evaluating the applicability of Nairobi across our portfolio.

I want to move on from tariffs, but is there any audience questions on the topic? Okay. We can come back to that if someone thinks of one. But maybe we'll switch over to the business here. And as we think about the balance of the year, we came into 2025 with a view that you have a series of new product launches that will start to impact the portfolio across the course of the year. I think as we look at the first quarter, one of the questions that I get a lot is how do we get confidence in the balance of the year when the first quarter growth came in, in line with what you had projected. But your second quarter guidance sort of implies a deceleration when you adjust for selling days. So how do we gain confidence in the ramp of these products and the impact that has on the balance of the year?

So maybe I'll start with the entire picture, 2025, and then we break it down quarter-by-quarter. So for 2025, we are extremely confident that we're going to be able to deliver on our guidance. We guided organic constant currency revenue growth of 3% to 5%. And we're very confident -- extremely confident we're going to get there. You may not like the phasing of the quarter, but it is what it is -- or the phasing of the year. Q1, it was roughly 2.3%, 2.4% growth. When you adjust for day rate, the number is closer to 4%. And we always knew that the quarter was going to look like that because timing of new product introductions, again, the day rate impact and some of the changes that we'll be making to our U.S. sales organization. We said that Q2 is going to be better than Q1, and it will be. But we said also that the second half of 2025 is where you're going to see that -- the solid growth rate, call it, in the 5% range in that direction, plus potentially. Why is that? Because we had the comps in the second half of 2025. We had a ERP malfunction in the second half of 2024. The comps are very positive. We do have the impact of all these new products. We launched what we call the Magnificent 7, and not all of them hit in the first half of 2025. And then you got less of an impact from a day rate standpoint. On top of that, not reflected as an upside in the guidance, we have opportunities when it comes to all the investments we made on direct-to-patient, all the investments we made around specialization of sales reps in the U.S. That's why our OpEx is higher in the first half. So again, those are the reasons to believe we're extremely confident that we're going to get there. And I hear you, the phasing, would love to have a solid first half and a weaker second half, less stress. It is what it is, and we're very confident we're going to deliver.

So I just want to make sure I understand the comments on the second quarter that do we compare a better second quarter to the 2.3%, 2.4% or to the 4%?

The second quarter is going to be better than the first quarter. And I'll leave it at that.

Okay, okay. So -- but in all seriousness, on the day rate basis dynamic, if you do like 3% in Q -- just I'm making this number up, Q2, why shouldn't people view that as a step-back in performance?

Some day rate dynamics as well in Q2, we're not going to get into now. We'll talk about it when we do report in Q2. There are new product introductions that materialize in a very significant [ way ] in the second half of 2025. Already in Hips, we saw a strong Q1 in the U.S. I believe we're going to see a very strong Q2 in that category specifically. But when it comes to Knees performance, Oxford partial cementless, opportunities with Persona OsseoTi and other products is more robust in the second half of the year. We spoke about the timing of some international orders as well. We've been very clear about it. We don't talk about timing of them. The fact we're talking about timings will tell you that it's pretty significant when it comes to our international business, and that gets realized in the second half of 2025.

And on the new product introductions, what are some of the leading indicators that you watch to give you confidence in the ramp? Is it contract signing? Is it physician training, instrument orders or set? Like how do you -- what are some of the things you use for either sales quota planning or other things that you watch internally?

All of the above. As you can imagine, we have pretty robust KPIs. We look at, first things first, how many trainees we're doing versus the committed trainings. And for the key products, I will tell you, those are going above expectations. We look at the percentage or the contract percentages. Are we in 10%, 20%, 50%, 90% of the contracts, again, per city, per region, per state? And so far, so good in that regard. We look at the list of what we call the early adopters. How many do we see getting into the funnel? And again, so far, the dynamics are where they need to be. And then we also look at the inventory that we have. Are we delivering the right amount of sets into the territory? Are we seeing the rotation that we expected, et cetera, et cetera? So there are customer dynamics, there are internal dynamics. And so far, everything that we see gives us the confidence I keep talking about that we're going to be seeing the new product acceleration in the second half of 2025.

And maybe we could go into some of those new products, starting with Hips, which we did see already in first -- in the first quarter. And one of the things that struck me when we went to observe cases with you in February was how -- was the enthusiasm for a triple-taper hip stem and just -- that seems to be an obvious market gap for you but also one that you can fill pretty quickly. And I think you are filling it pretty quickly. So maybe you can sort of give us your reflection on that product launch and then the extent to which we can sort of templatize that onto the other product launches or the extent to which there might be similarities or differences that we need to consider.

I love that word, templatize...

I don't know if it's a word, but yes...

You made it up?

Yes.

I'm going to use it. So we did gain market share in Q2 in Hips -- in U.S. Hips. We saw great momentum out of the gate with Z1 or triple taper; but also with OrthoGrid, which is AI navigation; and also with HAMMR or surgical impactor. I will tell you, that momentum has accelerated in the second quarter. And as we look at the second half of '25, we should see even greater acceleration in Hips. For Knees, repeating myself, we always said that the first half was going to be slower. But we're very confident that Oxford partial cementless, given the training adoption, given the contract situation, given the inventory that we have, is going to have very robust growth in the second half of the year. We said all along, David, that the single largest opportunity for us is actually Persona OsseoTi in conjunction with the ROSA. Our penetration of robotics is 20%, 23% in the U.S. Our penetration of cementless is north of 25%, approaching 30%. Just getting those 2 numbers to 50%, 60%, I know that's not going to happen in the year but is going to happen within the next 3 years, is a tremendous opportunity in Knees. So second half of 2025, given the introduction of ROSA 1.5, given ample inventory with Persona OsseoTi, which will see accelerated penetration increases for both robotics and Persona OsseoTi.

And if we sort of think about market size, I think on Z1, this is a multibillion-dollar segment that you're entering, where you really have no participation right now in the direct anterior approach. So that one -- and that does seem to be the increasingly preferred approach where I think J&J has done reasonably well. So that one seems to be one that has -- it is ramping quickly. It sounds like you're gaining traction further here in Q2. How about on -- I get the opportunity on robotics cementless. But one of the things that came up in some of our physician conversations is that when you think about cementless, it is maybe a narrower subsegment of the population where you have to have enough sort of bone integrity and tissue integrity already. Is there any -- how should we think about the ultimate sizing of that in terms of the population eligible?

It is underpenetrated, as you state. So I will tell you, single digit, if not double digit -- low double-digit, penetration is, of cementless in general. When you think about all knees done in the U.S., with the shift to the ASC, I think the number is going to increase dramatically. With all the data is coming out in terms of fixation rates, I think the number is going to continue to go up. As an example, Oxford partial cementless, this is the only partial cementless knee in the U.S. We got 20 years of data from outside of the U.S. that shows that 10-year joint survivorship, so how well is your knee fixated, is in the 95% range. So using less metal inside of your body, reducing your surgical time, which again is applicable into ASC, and getting better fixation rates equals pretty significant penetration. It's a market development opportunity. I don't foresee that we're going to go from the current rates to 30%, 40%, 50% overnight. But I do think similar to your example of direct anterior surgeries, this will become the gold standard in orthopedics, cementless knees; and within cementless knees, partial [ cementless knees ].

And as we think about contextualizing these overall new product launches, is the right way to think about this, Phase 1, maybe that's 2025, is utilizing these products to get mix upgrades within existing accounts next year or as you look beyond would be about gaining competitive share capture and then kind of year 3 might be about marketing? I mean, how can you kind of -- how should we think about the phasing of these products?

That's the sequence, right? So first is friends and family, share of wallet. I need to go to all my existing users of Knees, moving from cemented knees to cementless knees, ideally partial cementless for clinical and financial reasons for the company, same as we've done with Hips. And you've seen the numbers for Q1. Then it's again share gain, which is obviously more difficult than share of wallet; the right data, the right commercial strategy, you'll get there; And then it's market development and new entrants. We are actively involved now in fellowship, residency programs. We're doing a lot of great work from a clinical angle. And these investments will yield a return 3, 5, 7 years from now.

And then on the competitive front, obviously, everyone looks at different data. The best data, unfortunately, that we have access to is what companies are reporting publicly in dollars, which I appreciate may not be the full representation. But as I look at the first quarter, it looks like there was sort of a clustering of performance amongst you, Smith & Nephew and J&J, and then Stryker continues to be in share-gain mode. But I was a little bit surprised to see even companies like Smith & Nephew start to catch up a little bit in their relative performance. So how are you thinking about the competitive landscape right now?

So we respect our competitors. And the quarterly data, we don't pay too much attention to because it changes. 1 quarter, it looks like we gain a ton of share, and there may be contracts, there may be mix, there may be other elements. And the next quarter, it looks like we're falling behind. I will tell you, we remain the #1 knee company in the world, the #1 hip company in the world. And with the entry of these new products, we're confident that we're going to remain #1.

Okay. And then maybe it's a good segue to talk about the U.S. commercial leadership changes. I think you just announced a new Head of the U.S., former CEO of Nevro. Maybe talk about the commercial leadership changes you're making and if you could just sort of frame that for us. So you've been CEO now a little over 1.5 years or so. And then are you done making leadership changes? And do you have the right team in place?

So very pleased to have announced that Kevin Thornal, Nevro, but also Stryker and Hologic for 25 years. He's joining the company, July 1. He brings a level of commercial expertise that we need to have. Look, we're not doing radical things in the U.S. channel. And I think that was the message that came across in the earnings call. It's not that we're blowing things up left and right. It's more evolution than revolution. We've been adding specialized reps for a period of time. We're accelerating that. We've been adding people in ASCs, salespeople to focus on ASCs. We're doing that on steroids. We've made some changes in terms of how we pay people that for a variety of reasons, we had to suspend like in 2024 given the ERP debacle. And in 2025, we're not doing. So it's adding, it's accelerating what we're doing, it's putting robust incentive plans, it's bringing new talent. But this is not a let's blow the U.S. up and whatever happens, happens. And by the way, as we said in the earnings call and I'll say here today again, all these changes that we're making are contemplated in the guidance that we've given for the year [ 2025 ].

And as you think about your broader leadership team in the overall organization, are you confident that you have the right team in place to execute both the 2025 plan and also the LRP that you'd laid out last year?

Extremely confident. We did replace strategy, business development. We added obviously a new leader for our global businesses for the Americas. We're there, and again, contemplating the guidance for '25. And I actually think the talent that we're bringing into Zimmer Biomet, if anything, is going to help us accelerate our growth moving forward.

And maybe let's talk about Paragon 28 a little bit because I think there are multiple sort of pieces to that acquisition. One is the strategy to enter higher-growth categories. I think the other is also bringing in new capabilities, to your point about talent and leadership. But maybe talk to us a little bit about how Paragon is going and how we should both quantitatively and qualitatively think about the business.

So it's a great example of the right deal done correctly. So the model that we put in place has been executed, has been achieved. The integration, candidly, David, is going better than expected. We've not lost any of the talent. We've seen no disruptions, knock on wood, in the U.S. sales channel. Internationally, we have more opportunities than we thought. Paragon 28, before it became a Zimmer Biomet company, was minimally present in the ASC environment in the U.S., and we've seen a lot of good opportunities in that space. What Paragon 28 gives us is the confidence that we can do more deals that look like that, that increase our WAMGR, continues to amplify our position in an ASC space that create a platform to scale up. With Paragon 28, we can cross-sell trauma devices, biologic devices. We can have a better category leadership position in ASC. So we like this deal, and more deals to come that are similar to Paragon 28.

And can you talk about other ways you can leverage Paragon 28. I think you're keeping their facility in Colorado. Can that become another Zimmer R&D hub? How are you thinking about utilizing Paragon to accelerate performance in the rest of the business?

So I think you can leverage Paragon 28 from a strategy standpoint, from an operations standpoint, from a culture, the talent that we brought standpoint. But to your first point, yes, we're keeping the facility in Englewood, Colorado. We're going to do all the R&D for Paragon 28 there. And we're actually bringing some of the innovation platforms over to Englewood, Colorado. I believe -- I genuinely do believe that Paragon 28 is going to mark a before and after for Zimmer Biomet in terms how we do deals. We've got a playbook that is getting executed. Everything is isolated from Zimmer Biomet to preserve what they do well. So again, dedicated management, dedicated R&D, dedicated sales channel, and we're getting the synergies in other areas.

And is this the beginning of a period of a multiyear M&A strategy? How does -- how should we think about Paragon sort of in context?

So we said a year ago in New York at the Analyst Day that we had an ambition to reside in a 5% WAMGR, weighted average market growth rate, environment by the end of '27. I will tell you today, more than ambition is a very strong goal. I won't call it a commitment yet, but clearly, we need to get to a 5% WAMGR sooner rather than later. This does not mean that we need to buy our way into a 5% WAMGR. There is plenty in the pipeline organically that already diversifies us organically into a higher growth environment. But yes, it's going to require responsible M&A. You should not expect that we're going to be now going left and right doing deals every other quarter. But responsible M&A is the main source of capital deployment moving forward for Zimmer Biomet.

Okay. And then if I think about the LRP, you guided 4% to 6%. I think that was '24 to '27 growth or your first -- '24, you're in the middle of the range, -ish; 25%, depending on where you land in the guidance, you'll be potentially towards the -- below or at the lower end of the range, Maybe at the midpoint. So that starts to put increased onus on '26 and '27. So from where you sit today, does -- are you confident that you can be in the mid- to upper end of that LRP to reach the average?

Very confident. And you need to look at the past to believe the present and the future. So again, let's go to '21. In '21, we delivered 10% growth. Obviously, comps, COVID helped out. Then in '22, we delivered 6.5%; in '23, 7.5%. I'm talking about constant currency organic revenue growth. And then 2024, the year of the ERP malfunction, challenge, problem, debacle, whatever adjective comes to mind, we delivered 4.8%, almost 5%. So we're very confident that in '25 with all the new products and everything in place, we're going to get to the guidance, ideally, hopefully, at the upper range of guidance. As we look at '26, '27 and '28, the pipe -- twice the size of the pipeline in 2018. So there's plenty of ammunition to continue to grow organically, hence the commitment of delivering at least that mid-single-digit revenue growth. Putting the responsible M&A on top of it, I think it becomes a very exciting story.

And before we go to kind of margins and the financial story, you and I have had this debate several times about are you spending enough. And one of the things that we've looked at and asked you about is there seems to be a pretty high correlation between growth and how much -- the growth rate of spending and the growth rate in the top line and much less so the level of spending and top line growth. So why would Zimmer be different?

Yes. Well, first of all, we don't do spending. We do investment. I'm not trying to be cute, but we're really looking at every dollar we deploy, are we're getting a fair return. And I will tell you, at Zimmer Biomet, we don't have a quantity of investment problem. We may have an allocation challenge when it comes to the spending or the investment. Public information, our OpEx is 42.6%. I've been doing this for a while. I've not been around many companies that have been in business for 100 years, and they operate with 43% OpEx. So we're doing a lot of allocation of that OpEx from noncritical categories, noncritical geographies to new product development and commercial execution in the right geographies. When you look at our inventory position, there is a lot of cash tied to inventory. Our DOH is 375, is 365 days. Don't want to operate in that environment. So there's a lot cash that we put in other areas. But I will tell you, David, when you look at the dollars that we have, whether it's balance sheet dollars, whether you look at OpEx dollars from the P&L, we don't need to add more dollars. We just need to move it into other areas.

But some of this takes time. I think I get the premise of reallocating resources, but the whole idea of, okay, we have too much G&A, I'm making this up, Western Europe, for example. And we're going to put -- take those dollars and put those into R&D in the U.S. Firstly, it takes forever to execute that restructuring outside the U.S. And then unless you're going to have duplicative spending and hire the people first, there is a gap between the reallocation savings and the reinvestment. So how do you balance the timing of that?

Yes. I think we've been doing it all along for the last 5 years, David. In the top line that Ivan talked about going back to 2021, which is very healthy, robust, above-market growth, we've been growing earnings faster. And that's just because of this constant recycling and remix of our investment base. So you're right, it does take time, but it's not like we're just starting initiatives today. We've had initiatives that have been in the pipeline for several years that are coming due every year, just like any R&D pipeline. So I don't think there's a time delay because we're not starting here and now today.

Okay. That's helpful.

I just want to make a comment that we didn't start yesterday. And then again, to your question on are you investing enough, every year, we're investing roughly $1 billion in innovation: $0.5 billion organically out of the P&L, another $0.5 billion through acquisitions. OrthoGrid, Relign in sports medicine, Omni Suite in sports medicine, A&E, CMFT, craniomaxillofacial, thoracic. So I would say that we got plenty of innovation dollars.

Yes. Having said that, David, I think you're hitting on a keepment which is, look, top line growth gets rewarded in medtech when it comes to valuations, right? So if it does come down to a situation where we need to make investments to accelerate that top line, as we're doing with Paragon 28, we're effectively keeping that cost base there. We've not made any substantive changes to their investment levels in R&D, in commercialization because we understand that top line is important. We will make those disproportionate investments. And as we move forward, if we need to invest more as an organization, we will.

And on the earnings point, what does it take to break out of this $8 EPS cycle? I think if -- I know there have been ins and outs, but if you go back to -- your earnings have been $8-ish, ups and downs for like 8 years now. So how do you break out of this cycle?

I think we have been for the last 4 or 5 years, right? You take COVID off the table for a moment. You take the divestiture of Spine and Dental, which was a dilutive transaction but we think the right one strategically and from a growth perspective. You look over the last 4 years, I think we've been consistently growing at somewhere between 5% to 9% on earnings. We expect that on an underlying basis before tariffs, before Paragon 28 to again replicate that this year. So that moves forward. And it really goes back to our LRP, which I think is actually quite reasonable, right? If we're able to grow to mid-single digits on the top line organically, again, 4% to 6% between the -- just the sheer leverage of that top line on our fixed cost base in addition with stabilizing gross margins, which we've been able to demonstrate now even in the backdrop of a hyperinflationary environment and negative pricing, albeit slightly better lately. And through SG&A efficiencies, we've been able to grow that. So I -- it's there. We're going to continue to push forward on that.

And on the gross margin, I think at the analyst meeting last year, you laid out expectations for 2 years of gross margin compression before I think, flattening in 2027. Obviously, a lot has changed since then. Take tariffs out of it for a second. Currency rates have moved. You did an acquisition. Product mix is shifting. How should we think about gross margin from here?

Yes. So on an [indiscernible] basis, again, taking all those other components out, as you said, we said in our LRP that gross margins should be relatively stable even in a price-decline environment, which means you're getting efficiency in gross margins. And we continue to see that play out. I'm not going to put a marker as to where we think we can get to and where because it's going to depend on the mix of our business, volumes -- there are so many variables that to just pinpoint on one and say things will be up and down, I think, would be an incomplete story. But here's how we think about headwinds, tailwinds, right? So just from a headwind perspective, foreign currency can be a potential headwind as we move forward. Obviously, tariffs could be a potential impact. We'll see where that all [ nets out ]. Pricing, we've assumed negative pricing over our LRP period. So far, through the LRP period, we've been better than that. So we'll see where that actually nets out, potentially a tailwind. So -- and then, of course, you have annual inflation every year. And we'll see what inflation looks like in this new tariff -- global tariff environment. So that -- those are some of the headwinds. On the tailwind perspective, if we can deliver 4% to 6% from a volume perspective, the ability to leverage fixed cost is going to be a tailwind. Two, we've just gone through with our Board an opportunity to reposition a sizable piece of our manufacturing out of high-cost countries into lower-cost countries. That's going to take a couple of years to mature and matriculate, but that is going to be a tailwind.

Sorry, just for you, that's an incremental CapEx investment?

That will be incremental CapEx investment but already baked into the cash flow assumptions that we've made as part of our LRP. So you should not see anything extraordinary to what we've already stated from a run rate perspective. And then we've got other benefits where we believe decomplexifying, wrong choice of words, but making our portfolio less complex through portfolio rationalization is going to be another big tailwind. And we still spend about $175 million in excess in obsolescence every year. As we continue to show improvements on our inventory as we did from '23 into '24 and '24 into '25, that reduces that E&O burden. That's going to be another tailwind. There's a number of again, headwinds, but we've also been able to demonstrate and find and pull the tailwind levers to keep that gross margin stable. That's the LRP, and we still remain confident in it.

Okay. Maybe in our couple of minutes left, I just want to sort of -- maybe if I can recap a few of the takeaways here and make sure that we've kind of accurately captured what you're messaging here, which is first, second quarter total revenue growth should look better than the first quarter. You're not going to tell me whether better than the 2.3% or better than the 4% but...

We're not going to talk about the quarter.

Okay, okay. But to continue to be confident second quarter will be better than the first quarter. Second is you're seeing good pickup and traction in some of the new product launches, most notably Z1, which had a very strong performance in Q1 and even better performance here in Q2. Tariffs, they are what they are, but relative to the guidance that you provided, there tends to be more upside than -- there's more upside risk with tariffs than downside risk. And then lastly, Paragon 28 integration going well, have not seen any turnover thus far and continue to think that, that acquisition is increasingly additive over time and can help you get into the upper end of that LRP range as we go into '26 and beyond?

And I'm not disagreeing with you on investment levels. I just think there's a lot of reallocation internally we can do. Some of it, we already have done, some of it that we need to continue to do, some of it that is going to pay back 2, 3 years from now and some of it that pays back within the year.

Okay. Only last remaining question I have is, obviously, there's been quite a bit of volatility in the stock here. Historically, you have been good buyers and aggressive buyers of your stock in periods of heightened volatility. Have you been buying back stock here in the second quarter? And how should we think about that in context of your M&A prioritization?

We're always going to look at opportunistic buybacks that we need to do. We're not going to talk about what we're doing in the quarter. But when it makes sense to buy stock, we'll take a look at it and we'll see how that strategy compares to other capital deployment strategies, call it, M&A or other opportunities within the business.

And do you need to wait to integrate Paragon 28 before pursuing other M&A? Or you're at a point now where you think your operating mechanisms are supportive of multiple deals?

I think our operating mechanisms and our balance sheet are supportive of continuing a string of pearls sort of strategy.

Okay. I mean 2 quarters from now, our leverage ratio goes to the low 3s again given the revenue growth profile and the drop in this business. So...

Excellent. Well, with that, we'll wrap up. Ivan and Suky, thank you. Thank you for making it.

Thank you, David.

Thank you.