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

Good morning, everyone. I'm Robbie Marcus, med tech analyst at JPMorgan. Really happy to introduce our next speaker, CEO of Zimmer Biomet, Ivan Tornos. He'll do a presentation followed by some Q&A. Ivan.

Thank you. So good morning. The morning already started in an interesting way because I was getting my microphone on, and I was talking to Cesar, the guy in charge of IT and immediately detected the accent. Asked me where I'm from, I see Madrid, and he proceed to talk to me about how Barcelona beat Real Madrid over the weekend. So at this point, everything has to go uphill. Look, I know that this is a busy week. I know that in the next 3 to 4 days, all of you probably will pay attention or will try to pay attention to no less than 40 or 50 presentations. So I'm going to try to summarize my entire presentation in the first minute, and then we'll go through the slides in, let's say, 10, 15 minutes, and then the most important part, I'd like to get going with the Q&A. And hopefully, we'll get some questions from the audience as well. So everything you need to know about Zimmer Biomet in 2026, hard to believe we already are in 2026. Look, we are very pleased, very encouraged with the progress we made over the last 5 years. It was 5 years ago that we changed the company in many ways. I'm going to cover some of those ways here in a second. But we chose to transform the company from a strategic standpoint, moving from products to solutions from an operational standpoint. And most importantly to me or for me, for us, from a cultural standpoint. And here we are 5 years later, if you go back to 2021, we're not going to talk about how we closed 2025. We've been growing mid-single digit or above for '21, 10% revenue, that is -- probably that comes from COVID help. In '22, we grew 6.5%. In '23, we grew 7.5% with adjusted earnings per share of 9.5%, nice leverage of 200 basis points. And then in 2024, the year we had the ERP blip, we actually delivered 5% growth, nice adjusted EPS leverage and solid free cash flow. This is not a victory lap. This is to say that we do have a track record of delivering revenue commitments from a yearly standpoint. And yes, we're going to do a much better job when I talk about it in making sure that quarterly, we are creating the right expectations and deliver on those expectations. But again, going back to '21, '22, '23, '24, look forward to talking about '25 in a month. We've been transforming the company and the results at a CAGR of 6.5% over the next last 5 years, the results do show that the transformation or the turnaround is real. Now as we enter 2026, there are 2 things that we got to work at -- we got to work on. Number one, we have to go faster in the transformation of the sales model here in the U.S. Some of our Board members tell me don't use the word faster, use the word at deliver speed. You choose whatever word you want to choose. We got to go at it. We cannot run a company where we have the hiccups that we had in the U.S. And again, we'll talk about it here today. We have to have the right go-to-market model in the U.S. specialized direct when it matters, full accountability, ownership of the ASC, and we're going to accelerate those changes in the year 2026. The U.S. is 63% of the revenue and is north of 51%, 52% of EBITDA of the company. If the U.S. doesn't work out, we'll have conference calls talking about emerging markets and all the stuff we talked about in Q3 of 2025. And the second change, we have to build more durable go-to-market models outside of the U.S. So again, pleased with the progress, encouraged with the turnaround and transformation of the company as we enter 2026, 2 key takeaways: make sure that we go faster in the transformation of the sales model in the U.S. and build durable models outside of the U.S. in key markets. With that, we can go into the presentation. The presentation has 3 parts: past, present and future. Stand with the past, I will not revise. You know what it stands for. So let's talk about Zimmer Biomet in 2018. And I know that 2018 seems like Eons ago. But it's important to go back and reflect on what this company looked like in the year 2018. June 24, 2015, we merged 2 great companies, Zimmer and Biomet. Strategically made a lot of sense. Operationally, it's been somewhat chaotic. We entered what we call the remediation stage of the company. You can read the slide better that I can pronounce it. We ended up with 3 FDA warning letters. We had a monitorship from the Department of Justice working with us. The result of that is we could not innovate because we're remediating. You see there that we launched 8 products in the year 2018. We're losing people left and right. We had 20% to 0 turnover in the U.S. in customer-facing positions. And as a company, it's somewhere north of 10%. So whether it's innovation, whether it's quality, whether it's compliance, whether it's customer centricity, we didn't have it. I'm really proud of the work that the management team did. And as you look at 2025, again, not a victory lap, it's a different company. I guess what I'm saying that the turnaround is behind. The transformation is probably in the early innings, but the turnaround of the company, when you look at the hygiene level elements, ingredients of solving the challenges of the integration are behind. We are not losing market share at the pace that we were losing before. We did divest Dental and Spine, increasing our WAMGR weighted average market growth rate from 3% to 4%. We've gone from launching 8 products in 2018 to launching north of 50 over the next 3 years. In 2025 alone, we actually launched 22 new products, 7 of them, we call the Magnificent Seven, were quite meaningful. We come from losing 20% of our U.S. sales organization and north of 10% of all employees per annum to making it in the year 2025 for the first time to the Forbes on Fortune List for Best Employers in the World. Our engagement scores are higher than ever. We compare those to other S&P 500 companies, we're always in the top tier. So again, remediation behind. Innovation is now a competitive advantage. We've done the portfolio management work that we had to do around Dental and Spine. We continue to evaluate whether there are other opportunities for portfolio management. The turnaround is behind. So now we move from the past to the present. If I'm an investor, and I am an investor, I'm an internal investor of Zimmer Biomet, I'm thinking of an investment thesis in 3 ways: Market. This is a healthy market. It's going to continue to be a healthy market. Innovation. Can this company change the standard of care? Is this company going to be solving meaningful problems in this market? And then lastly, do they have the right to win? Can they execute? And by the way, that algorithm I just went through is the same algorithm we use internally. Are we in the right markets? Are we allocating capital towards the right markets, both organically and inorganically? Are we solving meaningful problems through our R&D platforms? And then lastly, can we execute? When you look at the market, look, the market is here to stay. And every once in a while, I get my vice presidents and commercial leaders in the room telling me the market is slowing down. And then all publicly traded companies report, and then we see that the market continues to grow. And you know all the reasons why, demographics, GLP-1's tailwind to why the market is growing. Shift to ASC here in the U.S. Pricing continues to be a good guy or at least not as biased before. The market is at least 4%, if not 4.25% for WAMGR. So that means that when Zimmer Biomet is north of 4%, we're doing okay-ish. And when we're below 4%, we're not doing okay-ish. That's the definition of winning for us. And that's how we -- a year ago, we were talking about LRP being mid-single digit or above. And we'll talk about some of those considerations. So that's the market reality. When you look at innovation, I am very proud of the fact that we did get caught up with the sins of the past. Again, I'll bring you back to 2018, 8 new products, deep into remediation. When you're remediating with the FDA with 3 FDA warning letters, almost a consent decree, you don't have the new product development capabilities. You're not investing in bringing more products to market. As a matter of fact, our North Campus facility in Warsaw, Indiana actually was pretty much shut down for a period of time. With all of that behind, there is not a single gap in our core portfolio. I'll say that again, so the action doesn't get in the middle. When you look at the core portfolio of Zimmer Biomet, we've gone from having gaps in cementless knees, revision knees, robotics, we're 5 years late to robotics, partial knees, SCT, we've gone from those days to having 0 gaps when it comes to the core portfolio. So we can't blame lack of products for losing market share. Now we're not satisfied. We're just catching up with innovation from the past. We're moving from what we call competitive-centric innovation. Let's make sure that we don't have those holes. to customer-centric innovation. What are meaningful problems that our customers have, patients, physicians, providers and how do we solve those problems. And again, in this slide, you can read those problems. One is nonclinical awareness, 5% of the people that have arthritis, 600 million people on earth will actually go see a primary care doctor and eventually get an implant. I'm not here to tell you that 95% of the world that has arthritis, the other 570 million people still get an implant. But I am here to tell you that many of them deserve a better quality of living. So we are focused on bringing those patients into the funnel. That's how we do DtP, Direct-to-Patient. That's why we're investing meaningfully in awareness campaigns to bring those patients to primary care facilities. So that's the nonclinical one. And you got 3 very compelling problems that we aim to crack before others do. One is infection, a $20 billion problem. Infection kills people, flat out. You're going to get your hip, your knee replace. Yes, it's a low probability. But once you get the PJI, periprosthetic joint infection, there is a high probability that something is going to happen to you. As a matter of fact, the mortality rates associated with PJIs are higher than breast cancers, prostate cancers and melanomas. We want to be the company that predicts, prevents, diagnoses infection and treats infection. And in 2026, we're launching the very first Iiodine-coated device in the world. Launching in Japan in late 2025 is going to be one of the most transformational products in the year 2026. Japan is a $1.3 billion market, huge opportunity. Yes, at the right time, that product will come to the U.S. But it's not just coated implants. It's how we leverage AI to again predict and prevent infection. It's how we diagnose with platforms like Synovasure, proprietary to Zimmer Biomet, et cetera, et cetera, et cetera. The next problem is efficiency. Orthopedics is a great space, is a $50 billion, $60 billion market. We're taking care of patients in a meaningful way, but it's very complex. The episode of treatment are way too long. The time in surgery could be less. The rehab could be shorter. I can go on and on and on. How can accompany Zimmer Biomet through smart robotics, through great products, through great surgical algorithms, make everything smarter, faster and better. Today, we have the most comprehensive suite of solutions in robotics, whether it's handheld devices, whether it's CT scan robotics, whether it's image less robotics, soon, semiautonomous and fully autonomous robotics. We're looking at smart implants in a different way. All of that will bring speed, accuracy and efficiency to the episode of treatment. And then the last problem we're trying to solve is outcomes. Modern orthopedics has been around since 1967, as the very first implant in South Africa. In the early '70s, there was a lot of innovation around products. Here we are, whatever it is, 50 years later and we still have patients reporting dissatisfaction when it comes to knee replacement up to 20%. You cannot call yourself a mission-centric company and don't deliver high satisfaction rates. So awareness, infection, efficiency and best-in-class outcomes is what we call customer-centric innovation. We're working hard at it. So now you're telling me that the markets are healthy, which they are, both volumes and price. Now you're telling me that you're satisfied with your innovation. I'll tell you I'm never satisfied, but I'm satisfied with what we've done in the last 10 years. What's the challenge here? Why can you guys not grow in a steady fashion? Why do you have those hiccups like the one that you had in Q3 of 2025, it's called execution. We have to do a better job in making the right commitments and deliver on those commitments. It cannot be a 2% growth rate 1 quarter, 5% in the next quarter. I tell you we're going to do 6% in the quarter, then we do 5% then the next quarter is better. We have to have solid, durable and steady execution. And as I mentioned, that comes down to 2 things. We have to go faster or move at deliberate speed when it comes to the sales model here in the U.S. We got 2,500 reps in the U.S. Not all of them are direct. Many of them are not specialized. Until very recently, we did not have presence in the ASC, where roughly 20% to 30% of the cases are going. We've invested in technology, but we didn't have dedicated technology people. We're going to change all of the above. And again, we're going to go faster. From 2015 through 2025, we changed 1/3 of our U.S. sales model. Over the next 2 years, we're going to change the entire U.S. sales model. We already started. There's going to be some short-term disruption. It's going to be very well managed, but we aim to be the company that truly owns the customer. And to truly own the customer, we need to own the channel and we have to have the right specialization. So that's the bullet point there. The average sales rep in the U.S. that 7 cases per week, 7 cases per week, go back to the 2,500 reps, 7 cases per week. All competitors are doing between 14 to 16. I don't need to tell you that, that's one of the main reasons of why we're not delivering the consistency we need to deliver. Very pleased with the work we're doing in the ASC. We're going to double down. Why are you doing it not before? Because we had the portfolio. We acquired 3 companies in sports medicine. We acquired Paragon 28, which is a great trojan horse into foot and ankle procedures that happen in ASC. We have smart robotics. We had the right to play and win in the ASC. We got to have dedicated people. And then when it comes to international, it's about making sure that in those core 10 countries that account for 95% of the revenue -- potential revenue of the company, we have the right go-to-market model. Those being the U.S., Canada, Brazil and Latin America, U.K., France, Germany, Italy, my home country of Spain. Then the Middle East, we had a couple of countries we treated as one and then China, Japan and Australia and New Zealand. Those 10 core countries is 95% of the revenue. So instead of depending on 90 countries with tenders, with things that can happen left and right, let's be best-in-class in those 10 to 12 geographies. So that's some of the changes we're implementing in 2026. We're here to invest. I don't want to invest for 2026. I don't want to solve the challenges of the next quarter. I want to build -- we want to build a best-in-class company. And we're going to be investing in core geographies. So again, you can look at the level of investment. But if you look through '24 to '27, you're going to see pretty significant increases across the board. We're increasing the number of robotic specialist sales force, whatever you want to call them associates by 3.5x. 4x the number of people dedicated to ASCs. That's contracting, that salespeople, that support people, people that used to be in inpatient HOPD, fully dedicated to ASCs. The same applies to CMFT, Craniomaxillofacial Thoracic. This is a business that we started to build 5 years ago, going back to the things that I'm proud of. It's gone from $100 million of revenue to have $1 billion of revenue today, growing in the upper teens, if not north of 20% as it did in Q3 of 2025. We're going to continue to throw fuel to that fire. We're going to build that business we're going to scale it up. When it comes to sports and extremities, again, 5x the number of people. And then this number for an ankle actually excludes Paragon 28. We already added 250 reps in the U.S. channel through the acquisition of Paragon 28. We're going to increase the number 1.5x. So again, really excited about the transformation of the U.S. model. All of this is obviously embedded in the guidance. And I like the fact that now we have the products, we get the people, we'll build a long-term durable business here at Zimmer Biomet. What does all that mean? We're not here to give guidance. We'll talk about guidance in 2020 -- February 10, 2026. But we're going to temper the enthusiasm, and we're going to make sure that we provide guidance that aligns to the level of transformation that's going to take place in 2026. Those 2 factors, the U.S. evolution of the model and the fact that we're going to build some durable businesses in key geographies outside the U.S. So 10% sales growth outlook. EPS will grow. We will invest in U.S. go-to-market capabilities. We invest in those international markets, but earnings will grow at least in line with sales. Free cash flow continues to be a great story. It grew double digit. We guided double-digit growth for 2025. We continue to see an amazing and meaningful opportunity when it comes to free cash flow generation. Free cash flow will grow 70% over the next 5, 6 years in the strat plan. And in 2026, you should expect free cash flow to grow faster than EPS. And in 2026, people are asking, again, are you going to be buying companies? Are you going to do more M&A? Look, we bought 3 companies in the last 14 months, 3 companies in the last 14 months. We bought a company called OrthoGrid, which is a direct and clearer surgical AI platform that is already one of the fastest technology products at Zimmer Biomet. We acquired Paragon 28 on January 28, 2025, deep in the integration of that company. And then we announced that we will be first to market with Monogram Orthopedics. You may think that integration is not complex because it's not a sales force, but it is complex because you will launch a product that potentially would change the standard of care. And the level of clinical evidence required, the thinking around segmentation, around who's going to do semiautonomous, fully autonomous, CT scan, non-CT scan is very complex. And we want to get that right. So in the last 14 months, we acquired 3 companies. We're going to integrate those companies. We're going to prove to you that we know how to do M&A, and then we worry about doing M&A at the right time. So in a year where we're integrating 3 companies, the cash flow generation, we're going to return it to you in different ways. We've spoken about being opportunistic when it comes to our buybacks. We have Board approval to go up to $2 billion. We're going to take a very hard look at that. We'll talk about it coming February of 2026. But if you ask me what one company would you like to buy? That company is called Zimmer Biomet. In closing, we spoke about the past. 2018 company was disrupted. The turnaround got done. There is no excuses when it comes to innovation. There's no excuses when it comes to FDA knock on wood, there's no excuses when it comes to compliance. There's no excuses when it comes to anything. That turnaround is behind. In the present, the markets are healthy. They're going to continue to be healthy. It's execution. We -- I have to do a better job in driving a company that executes steadily, consistently every single quarter. And the only way that's going to happen is building a durable international market model and delivering here in the U.S. So as we look at the future, 2030, we're still going to talk about the same 3 priorities: people and culture, operational excellence, innovation diversification. People and culture. We want to make sure that our people and our culture remains the key competitive advantage for Zimmer Biomet. 71% of the money we spend in this company is on people. We want to make sure we have the right people in the right jobs within the right culture. We want to make sure that Zimmer Biomet remains a destination workplace, a place where people want to come and end their careers at. In the bucket of innovation and diversification, done with the core problems, moving in the present towards awareness, inflection, efficiency and outcomes. But by 2030, we want to be a totally different company. I want to put Zimmer Biomet out of business. I want to be the company that at some point, cracks the code on cartridge repair. I want to make sure that one day we're talking about not everybody needs to have metal and plastic in their bodies. I want to be the company through a combination of partners that we already are elaborating, cracks the code on restoring versus replacing, keeping what Doug gave you versus the implant that I'm selling you. I want to be able to leverage the fact that we already collect more data across the episode treatment than any other company in orthopedics. We collect data before surgery through our partnership with Apple. We collect data during surgery through smart robotics and other methodologies. And with the only smart implant component that truly stays with the patient, we are the only company that continues to track data after the surgery is done. As the #1 player in orthopedics globally, we collect more data through this conduit than anyone else. And we have to do something with that data. And vision at day work through foundational models and through collecting data in the way that we're collecting, we can predict the right surgery for the right anatomy with the right technique for the right patient. And we're working really fast in making sure that, that vision becomes a reality, again, with the right patients -- with the right partners. And then lastly, by 2030, we'll be more than a core musculoskeletal care company. Once we solve some of the remaining challenges, once we go boldly into restoring versus replacing, leveraging AI, yes, I envision a company where responsibly, we will diversify out of orthopedics into other areas. And we already got some adjacency plays that make a lot of sense and at the right time, we'll move responsibly into those adjacencies. And then lastly, yes, a best-in-class company delivers mid-single-digit revenue growth or above. It delivers leverage EPS and continues to drive free cash flow in a meaningful way. So that's 2030. I want to thank you for your attention. And with that, we can go into Q&A. Thank you.

Great. And we have CFO, Suky Upadhyay folks...

Yes. Thanks, Robbie.

Joining us for questions. Ivan, maybe just a couple. You talked about a tempered outlook for 2026. Maybe just give a little more color behind that. What exactly is tempered? Is that you don't feel like the business can perform in 2026? Or any reasons you can help us out with?

First of all, I had to Google the word temper 6 times to make sure that I understood the word temper because there were so many that were using measure realistic, whatever. But -- sorry. What temper means is that it's going to be in line with the level of transformation that we want to take in 2026. That's what temper means. Is the business performing, not performing? Look, in God, we trust, everyone else needs to bring data. I just went through 4 years of data, 10% growth in 2021, again, comps potentially, then 6.5%, then 7.5%. The latest guidance for 2025 is 3.5% to 4%. If we came in at midpoint, that's very close to that mid-single digit. If we came in the upper range, that's mid-single digits. So this is not a business, this is not a company that is not performing. It's a company that has a cadence of not doing things as steady as we want to. So temper means, look, there's 2 things we got to address. We're going to address those, and we'll provide guidance that is realistic in alignment with those 2 things that we had to change.

Got it. One of the questions that I think has med tech down so far in the conference and getting a lot of questions in the hall is people are concerned there's some third-party data out there, and we love and hate third-party data. Shown volumes came off a lot in December, not just for Zimmer Biomet, but hospital procedure volumes. You talked about a healthy market. I know it's on February 10, we'll get the earnings call. But anything you can comment on just December and how your orthopedic markets held up?

It's only been 2 minutes. We're already talking about Q4. We'll report Q4 in a month. All that I will say, general statement is that in line with 2024, our seasonality in Q4 was very strong. Similar to 2024, Q1 and Q4 of 2025 were the strongest quarters. And I won't comment on December and level of volumes and whatnot. We'll talk about that in February.

So maybe as we just think about top line, bottom line for Zimmer Biomet, there's a whole lot of new products that were launched in 2025, more to come in 2026. Orthopedics is not typically the type of market where one product makes or breaks the company, but a whole portfolio can help move the top line in the right direction. So you gave us a lot here. What are some of the ones investors should focus on and prioritize their diligence on as it can impact Zimmer Biomet?

Yes. So there's a lot to your point, Robbie, but I'll always go back to the Magnificent Seven. There are 7 products that account for most of the growth from an innovation standpoint. Persona OsseoTi, which is our cementless knee. Every time we switch a customer from a cemented knee to a cementless knee, we get immediate revenue uplift. So we don't need to go there and conquer somebody else's accounts. We just got to go to friends and family and just bring the mix from what it is today to something else. And today, it's around 30%, 35%. So Persona OsseoTi is #1. Oxford Partial cementless is the only FDA-approved partial cementless knee in the U.S. That's a $1 billion market that has limited penetration. So that's number two. Number three is going to be Persona IQ. We remain the only company with a smart implant. And given the IP protection that we have, I don't see any competitors entering that space in the short midterm. And then lastly, Persona Revision in Europe. We are the #1 revision company in the U.S. with a 50% market share, and we're bringing that technology to Europe. So that's on the knee side. The other 3 products are 2 hip products, Z1, a triple tapered stem HAMR, which is the surgical impactor to drive efficiency into the operating room. And then lastly, it's a bucket of technology, ROSA Shoulder, OrthoGrid and whatnot, what we call the navigation and components. So those 7 categories account for 80% of the innovation growth. In 2025, we saw a meaningful acceleration towards the second half of the year. And as we enter 2026, we got a full year to deploy those launches.

So as we think about top line, obviously, there's volumes is the primary driver, but mix and price are the 2 others. And to me, it seems like there's a potential for volume gains with a lot of these products, but also particularly with revision mix gains as well as you have much higher ASPs than some of the products you typically sell. So maybe you could speak to how Zimmer Biomet is doing on volumes, how these products can help with mix? And then how you expect price to hold up going forward? Because it's been in a pretty steady robust for orthopedics environment in the past 2, 3 years.

Sure. I'll try a couple of soundbites and please jump in here, Suky. So Q3 2025 was the seventh consecutive year -- or seventh consecutive quarter that we achieved -- we were price positive. That's something that you would asked me 3, 4 years ago, I would have never envisioned that in this environment, with some of the external noise, we will continue to deliver price positive quarters. And I think a lot of this has to do with the fact that we are bringing meaningful innovation to market, and we contract in a more strategic way. As we enter 2026, we're going to continue to go back to the guidance we provided a year ago for the 3-year LRP. We believe we can be between flat to 100 basis points of price erosion. We'll see where we land once we get into specific guidance for the year 2026. So price, we have 2-year data, 80% of the book of business contracted. We feel very confident that we know where price is going to land. On the mix, you hit it. Look, every time that we do a revision case, we get $22,000 on ASP. We've been very public about that number versus primary care, which is around -- primary knees, which is around $3,500. So when revisions go up, as we have a 50% market share, that moves the needle for us. And we've spoken about how the market has been up and down here in the U.S. Cementless, repeating myself, you get a 15%, 1-5 uplift every time you move from cemented to cementless. When we go from non-navigated solder procedures to navigated solder procedures, that's another 10% to 15%. When we do robotics, that's another 15%. And there's probably another 4 to 5 mix plays that we're looking at. So yes, we are focusing on market share gains, but the share of wallet opportunity in orthopedics is pretty massive. And that's something that in the past, we're not able to realize because we didn't have the portfolio, and we have the portfolio now. Anything else to add?

The only thing I would add is there's a lot of room and opportunity in everything Ivan said. We're not completely happy with our penetrations in cementless as well as robotics. That's why we're going into investment mode, as Yvonne talked about, specialization with ASCs, with data and technology. And that gives us a pretty unique and special opportunity to take advantage in a bigger way on that mix.

You spent some time in the presentation talking about the sales force and moving from 1099 to direct over a time frame. What are some of the tangible improvements Zimmer Biomet might see? How do we think about this impacting maybe the sales focus, the P&L because it is a different payment structure. And what's sort of the time frame we can expect on the progress here?

Let me start with the last part. We're going to do this over the next 8 quarters or next 2 years. This is not something that one day we got up and say, "Hey, let's do it." We've been working on it since 2015. We started to go faster at it in '24. And in '25, as we highlighted in the Q1 call, we said we're going to go even faster, and we've done that in the year 2025. What should you expect? Look, there may be some -- there will be some short-term disruption, but there will be a mid- to long-term acceleration. In those territories where we go from nonspecialized to specialized, we're already seeing the growth. I mean it's common sensical, right? I mean if you are selling hips, knees, shoulders, trauma and whatever else, you're not going to have the focus, the word that you use. In those territories where specialized, you have somebody waking up doing shoulders, maybe shoulders and something else, somebody is doing foot and ankle, the growth is real. In those territories where we have a W-2 model versus 1099, it's mix. It depends on whether the 1099 is fully dedicated to Zimmer Biomet or specialized. But we'll come out with data points that we can set externally that shows that we're moving at the right pace, eliminating or reducing the risk and driving the growth. But we think this is the single largest opportunity for the company to have a fully dedicated channel, specialized who each and every day is thinking Zimmer Biomet, huge opportunity.

If that's number one, where does robotics slot in. And let's spend a minute on robotics because you're coming out it with a portfolio approach. You bought Monogram recently and closed on that. It complements ROSA. You have some other robotic investments through partnerships. Just maybe give us a deep dive in how you're thinking about robotics, how these different platforms all complement each other and where you stand on the progress?

So they're related, right, Robbie. I mean, you cannot have great technology, but don't have dedicated people send the technology. So you got to do both. And when I say the transformation of the channel is the single largest opportunity, I'm just using mathematics. I'll refer you back to the data point I shared earlier. The average rep in the U.S. is doing 7 cases. So my competitors are doing 14 to 16. If I just increase that by 2, 3 cases, you know where the math goes. In robotics, our vision is to be the most comprehensive company when it comes to using technology. We're not a robotics company. We are a solutions company. We believe in navigation with or without the robot. We believe in fast, inexpensive surgical AI for some customers. We believe in non-CT robotics. We believe in CT robotics. We want to be -- we want to meet customers where they're at. So I'll throw in some data points, and I can talk about this for an hour, and I'm pretty passionate about this topic. If you look at the U.S., penetration of robotics in the U.S. is 20%, 2-0. Kudos to Stryker, they had the vision in 2015 to get meaningfully into robotics. 10 years later, now 11, I guess, the penetration of robotics in the U.S. is 20%. 80% of people in the U.S. customers, 29,000 surgeons in the U.S. are not using a robot. And we do plenty of voice of customers to understand why. And there is a variety of reasons from it's too expensive to slows me down to I may not like CT scan or I might like CT scan or I don't like to change my surgical algorithm or I don't want to use that implant with a robot. We want to have that optionality so that 100% of users who want to use a robot are able to use it with the right implant, with the right surgical algorithm and the right way. So in that regard, yes, we have handheld devices through Think surgical. We have CT scan based, Think surgical, imageless ROSA, #1 robot outside the U.S. And now we're going to have fully autonomous, semiautonomous in addition to other forms of navigation. We are the only company in the U.S. with FDA-approved mixed reality navigation through HipInsight. And again, we are now the owner of OrthoGrid, which is the faster direct anterior navigation platform in the U.S. So it's a comprehensive solution so we can appeal to every customer and meet where they're at.

How do you think about the cost to support that? Robotics generally aren't associated with being inexpensive, and you have multiple avenues here. How should we think about the cost? And is that something that's contemplated?

If you look at orthopedics, and I'll challenge everybody in this room to fact check me on this, but in the U.S., I don't know the data outside the U.S. But when you look at the bundle of care of orthopedic treatment in the U.S., 15%, I think it's 14.5% to be exact, but 15%, let's round it up, of the cost is we, the bad guys, implants, medical supplies, pharmaceuticals. The other 85% is surgical time, anesthesia, potential complications, remission rates, staying at the hospital and other stuff. So if you can partner meaningfully with the institutions, with the customer in reducing that 85%, you're winning. This changes the contracting conversation. If I can bring technology that makes you faster, more efficient, using less labor, semi autonomous, fully autonomous, if I can bring more intuitive surgical tools into your navigation protocols, and I can have that 85%, you and I are not going to be arguing about that 15% that cost going up, down. And I think that's part of the reason why already in the last 7 quarters, we've seen the environment to be more receptive to not lowering the implant cost. So health economics, data, efficiency, I'm pretty bullish about this conversation if you bring the right data and you can demonstrate reduction of that 85%.

Question came in just following up on 1099 versus W-2. How do we think about the cost of each of those?

Yes. So the cost of going to a W-2 with full benefits, let's say, relative to a 1099 that doesn't have all the fringe benefits, remarkably is relatively similar, Robbie. It might be depending on what region you're looking at and case by case, it could be slightly higher. But the gains that you get through that specialization, through the dedication, we believe, more than offset even a marginal increase in that cost profile.

There were some comments in the slides about 2026 on guidance. How should we think about some of the puts and takes as we think about the P&L in next year?

So overall, what you see, as Ivan showed, earnings growing in line or potentially better than sales is a profile of significant efficiency, coupled with significant investment. And I think Ivan showed you the investment side of that. As we work down the P&L, we do expect gross margins to be modestly down. We've talked about that, and I think the Street has embodied that into their models. Underlying that, that's mostly due to some foreign currency hedge gain losses or not losses, but tapering of foreign currency hedge gains. We're actually driving cost of goods improvement through rationalization of our of our manufacturing force through rationalization of our portfolio, sourcing wins, et cetera. So we're doing really good work there, and I expect that to continue over the mid- to long term. So with gross margin down, we are finding significant efficiencies throughout SG&A while still reinvesting back into the business. When you take those 2 components and a return of capital, those are really the big building blocks that get you to that earnings growing in line, if not better.

Got it. Let's see if you'll comment here. I think the Street is roughly 4% organic growth on the top, 3% on the bottom. I'm closer to 3% on the top, 2% on the bottom.

We're not going to comment on it. You need to fix the question. We're not going to comment on it. Good try though.

I tried. Free cash flow. I know there's been a lot of progress over the past few years, and this is a point for Zimmer Biomet. How much more is there to go in 2026? And then I'll tie it in given the time, priorities have used.

Free cash flow has been a great story. I think over the last 3 to 5 years, we've consistently grown free cash flow in the high single digits to low double digits. Every year, we've made significant progress and step change in free cash flow conversion. I would expect that profile based on our guidance for '25 to continue and all of the same building blocks should translate into '26 and beyond. I'm pretty excited about where we can take free cash flow as we sunset foundational investments, and there's still more work to do around working capital, which has improved significantly. So I'm pretty bullish on where we can go on free cash flow.

We'll see maybe tomorrow, we get an answer on tariffs from the Supreme Court. If it happens to be struck down, does that get reinvested in the business?

We'll make that decision once we know more about it.

Okay. Well, great. We're just about out of time. Thank you for a great discussion. Thanks, everyone, for joining.

Thanks a lot.