As a reminder, this conference is being recorded today, February 10th, 2026. Following today's presentation, there will be a question and answer session. At this time, all participants are in a listen-only mode. If you have a question, please press the star followed by the one on your push-button phone. I would now like to turn the conference over to David DiMartino, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. Welcome to Zero Biomass' fourth quarter 2025 earnings conference call. Joining me at today's call are Arvon Tornos, our Chairman, President, and CEO, and Sukia Patie, our CFO in EVP Finance, Operations, and Supply Chain. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. For 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 on these measures to the most directly comparable GAAP financial measures, and an explanation of our basis for calculating these measures is included within our fourth quarter earnings release, which can be found on our website, ZimmerBiomed.com. With that, I'll turn the call over to Yvonne. Yvonne?

Good morning, everyone, and thank you for joining today's call. I would like to start the way that I always do, by sharing my gratitude to our Zimmer Biomed team members around the world who move our business and mission forward each and every day. Thank you for your tireless work. Thank you for your dedication to solving the most pressing challenges in healthcare. And thank you for your relentless commitment to serving our customers and their patients. Today, Zimmer Biomed is a totally different company than it was just a few short years ago. And this is no doubt, thanks to your efforts. To do my prepared remarks this morning, I'll cover four key areas. I'll start summarizing our fourth quarter results and the results for the fiscal year 2025. Second, I'll provide an update on the plan, which we are executing upon to evolve our U.S. commercial organization. Thirdly, I'll introduce our 2026 guidance. And lastly, I'll briefly cover the progress that we have made across our key strategic priorities, those being people and culture, operational excellence, and thirdly, innovation and diversification. Starting with the year and the fourth quarter, I'm proud of how the team ended the year 2025, delivering on our commitments on sales growth, EPS, and free cash flow, while navigating quite a complex challenge in the year, tariff headwinds, and integrating three acquisitions within one year. From a constant currency organic revenue standpoint, we ended 2025 right at the middle of our initial yearly guidance, marking the fifth consecutive year for Simmer Biomed growing mid-single-deed or above. Looking at the fourth quarter results, we grew sales on an organic constant currency basis by 5.4% against a mid-single-digit growth comparable, with our critical U.S. business increasing 5.7% and international growing 5%. 5%. Healthy end markets, new product momentum, the ongoing evolution of our U.S. sales channel, and the recent leadership additions continue to drive an acceleration in our critical U.S. business. U.S. knee growth of 6% in the quarter was driven by increased penetration of persona osteotide, or total cementless knee, which ended the year roughly around 35% penetration. Our Oxford partial cementless knee continues to deliver above expectations, with adoption rates post-training continue to be very high, with great conversions from comparative accounts. Notably, our DTP, direct-to-patient awareness campaign, in partnership with Arnold Schwarzenegger, drove accelerated momentum in the second half of the year, with a personalized knee campaign yielding very meaningful results. Turning to our hips franchise, Z1, or triple taper stem, penetration fueled U.S. hip growth of nearly 8% in the quarter, with the implant, Z1, now representing over 35% of our U.S. hip stems and gaining meaningful competitive conversions. Next, our robotics and navigation strategy of offering a comprehensive suite of customer-centric technology solutions continues to pay strong dividends. Our U.S. technology and data, bone cement, and surgical sales increase over 10% in the quarter, driven by the strongest robotic capital sales quarter in over two years. Finally, in SET, our U.S. CMFT, cranial maxillofacial thoracic business, continues to perform strongly, growing mid-teams in the quarter led by a continuous shift in external fixation from wires to plating. Upper extremities had another great quarter of high single-digit growth in the U.S., where our identity shoulder and osteo-fit stemless shoulder continue to convert competitive accounts. Looking now at 2026, we are accelerating the transition to a dedicated and specialized US cells channel in order to drive more durable and consistent growth. By the end of 2027, we expect the vast majority of the conversion to dedicated CVH, CIMR Biomed employees, to be complete and also expect a substantial increase in the number of reps specialized in the higher growth areas, such as SCT, robotics, and in our ASC channel, Ambulatory Surgical Center channel. We have already addressed one-third of these organizational changes and have best-in-class plans and project management capabilities with third-party help to ensure a smooth transition for the last two-thirds of this evolution. With a robust innovation cycle in place, we feel it's the opportune time to move faster, and we will. With that context, we now expect full-year organic constant currency revenue growth for 2026 in the low single-digit range, or 1% to 3% growth, with an adjusted EPS earnings per share of $8.30 to $8.45, which includes the contribution from Paragon 28 beginning April 21st, the one-year anniversary of the deal closing. Suki will provide further details during his remarks. The evolution of the U.S. Salesforce represents the final core initiative in a transformation. And while it might create some short-term disruption across pockets of an organization, it is by far the most crucial step in order to convert Zimmer Biomed into a durable mid-single-digit plus growth company for the long term. Turning now to our three key strategic priorities for Simmer Biomed, starting with number one, people and culture, we remain committed to having the right people in the right roles to maintain our leading position in the key areas where we compete. By having a dedicated and specialized U.S. sales channel, we will now enhance our ability to consistently, and with no surprises, execute our strategy. This will drive increased productivity while enabling us to be more competitive in high-growth segments, as mentioned before, such as robotics, ASCs, and the growth drivers within SET, where we have tremendous opportunity ahead and we are still under-penetrated. Secondly, on the second priority of operational excellence, we believe our disciplined cost management and robust capital allocation strategy will enable EPS growth while allowing us to invest in the business for the long term. Further, given our operating rigor, we expect to continue to grow free cash flow in the upper single digit to double digit range in 2026, marking the fourth consecutive year delivering meaningful free cash flow growth. Against that backdrop, we plan to prioritize meaningful return of capital to shareholders over M&A. Lastly, on our third priority of innovation and diversification, we're making significant advancements. Over the past two years, we have closed all core portfolio gaps with the introduction of the magnificent 7 platform, And we now have the potential to change the standard of care with solutions such as the Oxford Partial Cementless Knee, Iodine Coated Devices, recently launched in Japan, or second largest market globally, Rosa Solder, and the MBOS Semi and Fully Autonomous AI-Driven Orthopedic Robotic System that we acquired via D-Monogram Acquisition. In addition to this, we continue to invest internally and partner externally to strengthen our pipeline of new product launches, which is today 3x what it was just a few short years ago. Given the strength of our innovation cycle, we feel once again that this is the right time to accelerate the evolution of our U.S. channel so we can fully capitalize on a dedicated and specialized sales force. I'll tell you, having traveled to all key sales meetings across the U.S. in the month of January, the excitement behind our innovation story is very high, and so is the engagement. It is now up to us to execute on the plans via this transformation. In conclusion, we are very proud of the progress in our organization, but we are far from being satisfied with where we are at today. In 2026, to close our core turnaround efforts, we are going to be laser-focused on the U.S. go-to-market commercial transformation, while we continue to showcase the strength of a robust innovation cycle across the globe. As we then enter 2027, we'll be ready to transform the musculoskeletal space with the launch of EMBOS and other disruptive technology platforms while responsibly accelerating or diversification strategy, gaining access to a higher growth market environment. And with this behind, in 2028 and beyond, Zimmer Biome will look and act like a totally different company. With that, I'll now turn the call over to Suki. Thank you. Thanks and good morning, everyone.

In the fourth quarter, we grew sales 5.4% on an organic constant currency basis and delivered adjusted earnings per share of $2.42, cents, which was up 4.8% year-over-year, despite dilution from the Paragon 28 transaction, the impact of tariffs, and continued investments in our commercial organization. On a full-year basis, we grew organic constant currency sales 3.9% and generated $8.20 in adjusted EPS and $1,172,000,000 in free cash flow. As we get into the details of these results, unless otherwise noted, my statements will will be about the fourth quarter of 2025, and how it compares to the same period in 2024. And my commentary will be on a constant currency and adjusted operating basis. 2025 organic constant currency commentary excludes the impact from Paragon 28 acquisition that closed in April of 2025. Net sales were $2,244,000,000, an increase of 10.9% on a reported basis and 5.4% excluding the impact of foreign currency and the Paragon 28 acquisition. Consolidated pricing was 50 basis points negative in the quarter. Our U.S. business grew 5.7% on an organic, constant currency basis, which, as Yvonne mentioned, reflects continued momentum for our recently launched products, strong robotic sales, and end-of-year customer purchases and capital sales above historic levels. internationally we grew revenue by five percent on an organic constant currency basis driven by continued new product momentum and strong robotic sales turning to our p&l we reported gap diluted earnings per share of 70 cents compared to gap diluted earnings per share of a dollar 20 in the prior year quarter higher revenue and a lower share count were more than offset by a one-time charge related to a brand rationalization initiative and restructuring charges related to a reduction in workforce, as well as higher interest expense associated with the Paragon 28 transaction. On an adjusted basis, we delivered diluted earnings per share of $2.42 compared to $2.31 in the prior year quarter. This increase was driven by higher revenue, higher adjusted gross margin, and a lower share count, partially offset by an increase in SG&A and a step-up in interest expense tied to Paragon 28. Adjusted gross margin was 72.4%, higher than the fourth quarter of 2024, due to lower manufacturing costs and favorable mix. Adjusted operating margin was 29.1%, lower than the prior year quarter, as a result of increased commercial investment and the addition of Paragon 28. Adjusted net interest and non-operating expenses were $71 million, above the prior year driven by higher debt related to Paragon 28 and higher interest rates on refinanced debt that matured in 2024. Our adjusted effective tax rate was 17.9% and fully diluted shares outstanding were 198.1 million, down year over year due to share repurchases in 2025, including 250 million during the fourth quarter. Now turning to cash and liquidity, we had another strong quarter of cash generation with operating cash flows of $517 million and free cash flow of $368 million. We ended the year generating $1,172,000,000 of free cash flow, growing over 11% year-over-year, marking the third consecutive year of at least high single-digit free cash flow growth. We ended with approximately $592 million in cash and cash equivalents. Now regarding our outlook for full year 2026. works. Unless otherwise noted, my commentary will be on a constant currency and adjusted operating basis, and will include the contribution from Paragon 28 in organic growth beginning in April 2026, marking the one-year anniversary of the deal closing. We expect organic constant currency revenue growth of 1% to 3%, with growth roughly consistent throughout the year. In addition, we expect adjusted EPS of $8.30 to $8.45, with free cash flow growth of 8% to 10%, which would mark the fourth consecutive year of high single-digit or greater free cash flow growth, quickly approaching 80% free cash flow conversion. This guidance contemplates end market growth in line with 2025, the risk of disruption from the U.S. Salesforce transition, continued evolution of our international go-to-market models, up to 100 basis points of pricing erosion, and a stable tariff and policy environment. Now let's walk through the moving parts that impact our reported revenue guidance. At current rates, we expect FX to be approximately a 50 basis point tailwind to full-year revenue growth, which includes approximately 250 basis points of tailwind in the first quarter. We expect Paragon 28 to contribute around 100 basis points to reported sales growth in 2026, before being reflected in organic growth in April. As we have discussed previously, we expect our operating margins to be down about 50 basis points from 2025, which contemplates lower gross margins, dilutions from the Paragon 28 acquisition, and increased investments in our U.S. commercial channel. Operating margins in the first quarter are expected to be down about 100 basis points from the first quarter of 2025 before increasing sequentially by about 100 basis points into the second quarter. For the full year, we expect adjusted net interest and other non-operating expenses to be approximately $295 million, our adjusted effective tax rate to be about 18%, and to end the year with about 194 to 195 million shares outstanding. This share count reflects a share buyback program in 2026 of up to $750 million. I'd like to close by thanking the entire ZB team for their hard work and dedication. We continue to make meaningful, positive changes across the business while investing to accelerate long-term growth. And with that, I'll turn the call back over to David.

Thank you, Sookie. Operator, let's open up for questions. In order for us to take as many questions as possible, please limit yourself to one question. Operator, please go ahead.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Please limit yourself to one question and one follow-up. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Matthew Blackman with TD Cowan. Mr. Blackman, you're not up.

Yes, you can. You can hear me okay. Appreciate you taking my question. And Yvonne, we're obviously all focused on the near-term impact of the Salesforce optimization initiatives, but maybe take a step back. And you did touch on this a bit in the script, but tell us why now, how heavy the lift ahead is, and perhaps most important, what could the business look like if this is executed well, and where and when across the franchises could we see visible returns? Is it exiting it this year? Is it 2027? Just any color would be helpful. Appreciate it.

Absolutely, Matt. So what I'll do here, maybe I'll provide a longer answer than usual. And then maybe this saves some time in future questions this morning. But maybe start with what it is that we're doing, because I think some people are confusing the what. Then we'll talk about why we're doing it. I'll directly answer your question of why we're doing it right now. I'll talk about how we're doing it to reassure everyone that we're taking a very prudent approach that is very state-centric. And then when do we see the benefits? So I'll break my answer in those four to five key areas. So what it is that we're doing, we're moving from being a company or rather a channel here in the U.S. that has a lot of non-dedicated employees. but non-dedicated. This is not a legal 1099, W2, committed, not committed. We got people that have, you know, two, three jobs while working at Zimmer Biomed. It's part of the nature of the 1099 model here in the U.S. And that's not something that we want to keep. We want to have 100% of our U.S. sales force being dedicated. Again, not to be confused, W2, 1099, fully dedicated. So that's number one. We believe in a specialization, just like best-in-class companies believe in a specialization. You can have sales reps selling hips, knees, components of technology, shoulders, et cetera, et cetera. Today, our current specialization rate is around 25%. I won't quote what is the end number, but we're going to make sure that we specialize the sales force so that we can compete at the level that we can compete in the higher growth segments. To that end, we're adding something like 200-plus sales reps in robotics, countless reps in SET, ASC, et cetera, et cetera. So that is the what, moving from non-dedicated to dedicated. Why are we doing this now? Well, look, we got no gaps in the portfolio. We've done significant work when it comes to technology in data, robotics, and whatnot. We've added a ton of new products when it comes to SET. We just got to have dedicated people to leverage that great new product cycle. We couldn't do this three, five, seven years ago because, candidly, we didn't have the products, not to mention we're dealing with other challenges. So now that we have the products, we have to leverage the channel to sell those products at a higher rate. Our productivity rates in the U.S., we do a lot of third-party benchmarking, are roughly half of what some of our direct competitors have. So in plain English, we're doing half as many cases as some of our direct competitors, and that's something we're going to be addressing. So that's the why. We're doing it because of new products. We're doing it because of timing. We're doing it because we've got a pretty significant productivity gap here in the U.S., not to mention our penetration in ASC and SCT. It still is very high, so low penetration. How are we going to do it? We have third-party resources. We have a dedicated team. We have hard people that have done this in their previous life. I'm personally involved in the project. I'm going to continue to remain involved. So we're going to take a stage approach to getting it done. We've done one-third of this transformation already. We have logged in a significant percentage of the organization. so i feel that we've been very prudent when it comes to how we're doing it we learn a lot from the ones that we've done it's actually gone better than expected we did five conversions already late 2025 early 2026 those are going as expected if not better and then just to close this summary matt when are we going to get this done by we expect the entire transformation to be done as we exit 2027 so that is the what the why the how and the when and it is the final step in the in the transformation of the environment we address the operational challenges in the past we have addressed the leadership gaps that we had we have built a best-in-class portfolio remediating all the gaps and now with significant product launches to change the standard of care if we don't don't modify or use U.S. go-to-market structure, we're never going to have the durability and sustainable growth that are referenced in my prepared remarks. Thank you for your question, Matt. Appreciate it. Thank you.

We'll go next to Rick Weiss with Stiefel.

Good morning, Ivan. Thank you for all the comments. You highlighted in your comments, Yvonne, that obviously the reality that Zimmer has grown mid-single digits for four consecutive years, now you're offering tempered guidance and guiding to low single-digit growth. Help us better understand what's embedded at a high level in that thinking. I mean, clearly you're trying to be respectful of the uncertainties about the sales transition process. But that seems to be going well. So what have you baked in and maybe help us think about the year ahead in terms of is the disruption greater in the first half and therefore the second half could be better? Just maybe help us think through those factors. Thank you.

Thank you, Rick. Actually, it is five years of mid-single-DG revenue growth, not four. and we are very excited with how we exited 2025 growing in the second half, 5 plus. But we got to keep it or we got to make it durable. So to your question on what's embedded in the guidance, really we're looking at three things. Number one, obviously, is the U.S. Salesforce transition. That is the priority in 2026. If it goes better than expected, obviously, our number exiting 2026 will be higher. If we don't do the job that I expect we're going to do, then we may move towards the lower range of that guidance. So that's item number one. Number two, we're paying close attention to the new product cycle and the adoption of these new products, namely the Magnificent 7. If you look at the performance in Q4, very solid across hips and knees, similar performance in the U.S. in Q3. So now we need to make sure that we're going to be able to do the same or better as we enter 2026. So that's the second item we're paying attention to. And then number three, international. As we've been discussing, it has been a fragile business now for a couple of quarters. Since one quarter we do really well, the next quarter something happens. So again, we've got to pay attention in making sure that we do have the right go-to-market models. We are focusing the right growth areas in the right country. So those are the three things we're paying attention to. the U.S. Salesforce transition, the new product adoption cycle, and the international performance in key geographies. Thank you, Ray. Thank you. Thank you.

We'll go next to Patrick Wood with Morgan Stanley.

Beautiful. Thank you so much for taking the question. I'd love to just ask a slightly boring one, but on pricing, moving to a negative 100 base points of erosion in the 26 guide, You know, inflation is kind of at the same spot that it was before, and I'm guessing your customers are in a pretty healthy spot from procedure volumes. Just curious why you're thinking pricing, you know, stays in the negative territory. I know that's where it was historically, but any outlook on how you think about price makes it be super helpful.

Yeah, Patrick, this is Suki. Thanks for the question. So overall for the year 2025, we ended on flat pricing at a consolidated level. So taking all the regions into account, the fourth quarter, as I said in my prepared remarks, was down about 50 basis points. For 2026, you're right, we're saying up to 100 basis points of erosion, which is consistent with our annual state commentary almost two years ago. And as you noted, it is a significant improvement to sort of pre-pandemic price profile. Wow. The reason we expect to see some level of step down for between 25 and 2026, and we've talked about this a bit over the last few quarters, is we expect to see a moderation in some of the price increases we've been able to take across EMEA. We do expect Asia Pacific to be down year over year, primarily because of the Japan biannual price decrease, which happens. It's a normal part of our business. Also, we expect to be slightly down in China as we continue to reconfigure our go-to-market strategies. And the Americas are expected to be down sort of similar profile to what we saw in 2025. So when you put all those together, we do expect to see a modest step down into 2026. But again, well within our overall guidance that we provided at our annual stay. Appreciate it, Carla.

Thanks, guys. Thank you.

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

Hey, guys. Congrats on a nice execution, Q4 and free cash, and thank you for taking my question. Suki or Yvonne, can you give us a bridge from the back half, right, when you did mid-signals to 2% guidance at the midpoint for fiscal 26? How much of this is Salesforce Re-Org impact? And Ivan, you mentioned that you've already completed one-third of this transition. What's been your prior experience, right? Like when you look at the pacing of disruption, was it front-loaded? And when does productivity increase to offset this?

Thank you for the question. Look, for 2026, it's all about the Salesforce transformation. So, yes, we exited 2025, growing strong in the mid-single digit. As we provide guidance for 2026, we just want to be responsible in realizing that this is a significant transformation we're undertaking. I've made public commentary around the fact that in the U.S. we got roughly 2,500 reps across 34 territories. There's a lot of legacy issues in the channel that we're addressing, and we're going to be responsible. We're going to do it over two years. We believe there'll be some disruption. So that's why we're giving the guidance that we're giving today. So that's the answer on, you know, why we're going from, call it, you know, five plus in the second half of 25 to a midpoint of two here as we enter 2026. What we have learned as we go through these transitions is that disruption happens sometimes, you know, in the early stages, you know, you go and negotiate your contracts with your distributors and they say, no, We're not interested in the new model and rarely happens, you know, towards the end. You know, once they sign up, they sign up and they stay. And again, many lessons learned from the work we've done already, one third behind. As a reference in my previous answer to Matt, I believe it was, we already have done five additional distributor changes here in the last four or five months, and they've gone really, really well. and we have active negotiations going on with roughly 40% of the channel as we speak and those are going better than expected. In terms of the, when will we see the outcomes? You know, towards the end of 27 is when you start to see increases in productivity.

We'll go next to Robbie Marcus from JP Morgan.

Oh, great. Good morning and thanks for taking the questions. I know it's one, but I have two quick clarification questions I have a lot of investors asking, so I figure I get it out on the call here. First, really strong fourth quarter performance, particularly in the U.S. across large joints. Just want to make sure there was no one-time items or above normal sales there. And then, Suki, as you think about first quarter and first half, getting the cadence right has been really important, particularly over the past few years. And I know you've mentioned it in the script even. So just how do you want people to think about first quarter and first half, top and bottom line? You know, the guide is 1% to 3% on the top and bottom line, and you exit it at 5%. So help us bridge expectations, how much disruption is built in, and, you know, help us get the numbers set for the beginning of the year. Thanks a lot.

Thank you, Robbie. I'll start, and then I'll let Suki comment on the facing for the year. In terms of performance in Q4, the main driver behind the solid growth in the U.S., and I'm frankly very pleased with where we landed, all U.S., is new product acceleration. We did benefit from some additional capital sales in the quarter. We had some modest uptick when it comes to some of the sales that we do towards ASCs, But I would say the lion's share of the performance is better execution. We did ROBI benefit internationally in knees. If you look at the knee number, we grew 8.2%. That is some of the revenue in Q3. You may recall that Q3 within where we expected. Some Middle East revenue that got into Q4. But very, very, very pleased with the execution when it comes to new products, both in the U.S. and international. Suk, do you want to talk about facing?

Yeah, so thanks, Robbie, for the question. So on phasing, you know, it's very consistent with what I said in my prepared remarks, which we expect on the top line for growth to be roughly consistent, plus or minus from quarter to quarter throughout the year. And that takes into account what Yvonne's talked about relative to the sort of U.S. phenomenon on Salesforce and optimization there, as well as some of the elements that he's been teeing up for some time around international and go-to-market changes. So both of those have been reflected and sort of contribute to sort of that first last or second half of 2025 into 2026 step down. Relative to P&L, from an operating margin standpoint, some of the building blocks there are we do expect gross margin to be down for the full year. We've talked about that for quite some time. We're going to make a lot of that up through SG&A efficiency inside of operating margins, but we do expect that to be down 50 basis points, as I talked about in my prepared remarks. Overall earnings, we expect to grow in line with constant currency, organic growth. That's going to be assisted by some of the share buyback that we plan to do this year. Now, taking those building blocks into phasing, operating margins, we do expect to be down in the first quarter year over year by about 100 basis points. That's largely driven by Paragon 28, which was not yet anniversaried because we did the deal in the second quarter of 25. We're going to have higher commercial investments as part of this overall optimization in the U.S. As Yvonne's talked about, yes, it is specialization, but it's also augmentation where we're adding reps in a couple of key areas. And then, as I said, gross margin will be down in the first quarter. So again, operating margins down year over year in the first quarter, about 100 basis points. From there, we expect to see a sequential step up in the second quarter as the anniversary out of Paragon 28. That'll be an increase sequentially in the second quarter of about 100 basis points. And then as we move into the back end of the year, we expect operating margins to be roughly in line with 2025. So hopefully that gives you a bit, top line, roughly consistent growth rate throughout the quarters, plus or minus, and then the operating margins as I talked about.

Very helpful. Appreciate it. Thank you.

Thank you Rob.

Thank you.

We'll go next to Travis Steed with Bank of America.

Hey, just wanted to kind of follow up on Ravi's question in terms of on the margins, how you're thinking about the cost of the Salesforce transition. Is there what you kind of baked in on the margins from that? And then a question in terms of, you know, you've already done a third of this transition already.

So one question I get often is like, why does it actually take two years to do all this and you know when do you start to see some some green shoots here yeah um so thanks for the call or sorry for the question travis overall you know the the impact of the salesforce transition um there's a modest impact to overall operating margins inside of sgna i think start to see that in the fourth quarter or really the back half of last year you're going to see that continue into 2026. That near-term headwind has been accounted for in our guidance for 2026. But the opportunity, I think, is more attractive, as you think, mid to longer term. One, it does give us the opportunity to do some restructuring and offset some of that headwind through more productivity, as Yvonne talked about. We're at about half of some of our peers. And secondly, the whole idea behind this is that it generates better revenue growth, more durable sort of market, better than market growth rates. And at those levels, that provides a significant amount of leverage into our P&L. So near term, yes, headwind, modest headwind incorporated into the guide. Mid to long term, we do see being a benefit.

Then, Travis, relative to your question on why two years, no more complex, we're going to be responsible. As I mentioned, we don't want third, so 2,500 reps. Don't have third. That's, what, 1,600 reps that we've got to get through across multiple states. So we're going to take our time in understanding where's the right sequence, locking in the contracts. We have segmented areas by contract status, by market set status. So it's a project that we're not going to take lightly. So that's why it takes two years. And we're going to go slowly to then go fast later on. Thanks. Thank you.

We'll go next to Matt Taylor with Jefferies.

Hi, thanks for taking the question. I wanted to just follow up on gross margins. I know you said, you know, down for the year and we touched on pricing, but I was hoping that you could go through all the puts and takes on gross margin this year and also maybe just talk at a high level about the trajectory beyond 26 for gross profit. Sure. Thanks for the question, Matt.

Yeah, so we expect gross margins for 26 to be, you know, in the range of 70 to 71%. It is a step down from a pretty good year in 2025. We've been sort of telegraphing that. The key drivers are really the biggest one is around, you know, the lower growth profile, as you see in the revenue. We get a lot of leverage in our P&L when the revenue growth rate is at a higher level. And, of course, the opposite works at a lower growth level. So volumes are the biggest contributor to that step down. Secondly, we've talked a bit about the FX hedge gains that we've seen in 2025 tapering off in 2026 as we've seen a weakening of the dollar through 2025. The next big area, again, is around price and geographic mix, which we expect to be a headwind compared to 2025. And then the last piece is really on tariffs, which on a net basis year over year is not a significant increase, but it will be choppy through the quarters, primarily because of certain credits from 2025 that we expect to realize into 2026. So those are your moving parts that really step you down from 25 into 26. But I would say we're making up a very large percentage of that through our SG&A restructuring that I talked about in our prepared remarks. And so while gross margins will be down 100 basis points or more, we're making more than half of that up through SG&A efficiencies, even while we're incrementally investing in some portions of our commercial business. You know, it's too early to tell on gross margin outlook beyond 2026. And I think the largest component, which is driving this year, will drive future gross margin, which is really around volumes and sales levels. But beyond that, I can tell you we continue to emphasize efficiency, continue to make great progress in the areas of sourcing improvements. We continue to build out low cost manufacturing. I think you'll see that in the stepped-up P&E in 2025. And then lastly, I talked about a pretty large-scale portfolio rationalization charge we took in the fourth quarter. We believe that that's going to have significant, meaningful midterm and long-term results or benefits, I should say, into cost of goods. So longer term, a little bit too early to tell. Again, it will depend on revenue growth, but we continue to push very hard on a number efficiency gains and are making good progress.

Thanks for the question, Matt. Thanks, Steve.

Our next question comes from the line of Ryan Zimmerman with BTIG.

Good morning. Thanks for taking the question. I'm going to turn to Paragon, actually, because a lot of questions have been asked on guidance. And just ask, I mean, the contribution this quarter was lower than we expected. And if I look at the outlook for 26, I think it's about 100 basis points, which, again, is a little lower than we expected. So, Yvonne, can you just talk about kind of what you're seeing there? I mean, we have heard, obviously, you know, chatter about kind of the health of the foot and ankle market, you know, particularly in 25 being softer and kind of what you expect and where you're seeing, you know, specific parts of weakness versus maybe parts that are offsetting that.

Yeah, thanks for the question, Ryan. So, we've been at it for two quarters, right? So we've done two quarters as a consolidated company. They both came in in the upper single-digit range. Recall that for the year 2025, we said we'll get around 270 basis points of revenue accretion thanks to or due to Paragon 28. We came in roughly 20 basis points behind that, so not a huge gap. We have made a commitment that we're going to grow this business double digit in 2026 early in 2026 but we like what we see i would say mostly everything is going in line uh or revenue again is slightly behind what we anticipated but again only two quarters in terms of the eps dilution everything is on track if not better than expected committed to a three percent dilution in year one came in slightly better around one percent in the second year we expect to deliver on that and then the integration cost and everything associated with with Paragon is also better than expected. We're not seeing any dramatic changes when it comes to market growth. We continue to monitor that. If anything, we're seeing that the shift to the ASC continues to move in the right direction. So we're very excited about the business. Again, two quarters behind. I just left the sales meeting in San Diego a couple of weeks ago. I'll tell you, Ryan, that with eight new products being launched in 2026, with virtually the same legacy Paragon 20-year employees being now with Zimmer Biomed. The excitement is high, and we expect to deliver double-digit growth in 2026. Thank you, Ryan.

Thank you.

We'll go next to Daniel Intelfi with UBS.

Good morning, guys. Thanks so much for taking the question. Just on this Salesforce transition, I'm just curious sort of what gives you the confidence. I appreciate a third has been done so far. But just coming to the decision to make this move, was it best practices at competitors, market research, physician feedback? And then I appreciate you probably can't comment on 2027 right now, but should 2027 be conceptually a year of growth acceleration versus 26 wherever you end up, just given you'll be further along in the sales force transition? Or are there other factors we should be considering as we put a finer point on 27 on our models today?

Thanks so much. thank you daniel so let's start with the issue one we're not going to talk about 2027 so that's something we'll do later on in the year but right now we're going to focus on 2026 what gives us the confidence that this is the right time and the right project is data no more complex than that we look at productivity rates for zimmer biomed versus direct competitors that are fully dedicated fully specialized and again i mentioned when it comes to a caseload when it comes to overall productivity we're behind and given the strength of the new product portfolio the time to do it is now we do a lot of benchmarking in terms of those territories that are fully dedicated and specialized versus those territories that are non-dedicated and they're non-specialized and it's literally night and day we see a much greater productivity no surprise there daniel in those dedicated and specialized territories. If we don't get the U.S. right, and by that I mean if we don't get the U.S. to be consistently mid-single digit, at some point upper single digit, this company will never realize the aspirations that we have for this company. The U.S. is 62%, 63% of the revenue. It's north of half of the profit of the company. We've got to get it right. So we've got the leadership in place. We've made a lot of changes. We got the new product cycle in full motion. We're about to enter a new stage when it comes to innovation in 2027 with Monogram. We just have to do it. So it will create some short-term disruption, but it's going to set up the company very nicely as we enter 2027 and beyond. Thank you so much for your question, Daniel.

Our next question comes from the line of Larry Beigelson with Wells Fargo.

Good morning. Thanks for taking the question. So, Yvonne, I wanted to ask about capital allocation. It feels like a change in terms of prioritizing returning free cash flow to shareholders over M&A. So my question is, you know, why the change? I think there was a time not too long ago when you talked about, you know, diversification and any color on, you know, what percent of free cash flow you'll return to shareholders through buybacks each year. and what can we expect, you know, on M&A going forward? Thank you.

Thank you, Larry, and great to hear from you. I wouldn't say it's a change. I would say that it's a pause. Recall that we've done three acquisitions between Orthogrid, Late 24, Paragon 28, April of 25, and then a few months after that, Monogram. I mean, these are pretty significant projects. And then out on top of that, this transformation of the U.S. channel, This is not a time to add more complexity. This is not a time to run more projects. This is the time to be nimble and laser-focused on getting those three integrations right and ensure minimal disruption out of this U.S. transformation. So that is no more complex than that. At the right time, we'll continue to diversify responsibly. So, no, we're not throwing in the white towel. We aspire to have a higher weighted average market growth rate as we continue to evolve the company. But right now, it's all about focus on these three integrations and this project. As you might have read, we got approval yesterday from the board to do up to $1.5 billion in buybacks. We like where the stock of Zimmer Palmet is today. We acquired a quarter billion dollars of shares in the fourth quarter of 2025. We're going to continue to acquire shares of Zimmer Palmet, given the current valuation. I love the free cash flow generation of this business. You heard Suki in his prepared remarks, you know, upper single digit to double digit in 2026. This company generates tremendous cash flow. We got very solid, far power, a like or dead profile. So at the right time, we'll get back to doing the things that we need to do. But in 2026, those are the priorities. Thank you so much. Thank you.

We'll go next to Chris Pasquale with Nefron.

Thanks. Yvonne, you highlighted strong performances from CMFT, upper extremities, but organic growth for SET still did step down a bit. Can you talk a little bit about the other SET segments, how they perform in the quarter, and then how you're thinking about that business once Paragon becomes sort of part of the organic piece going forward? Thank you.

Sure. Thanks for the question. So net-net in the year SET delivered mid-single-digit growth again. So now there has been a cadence of quarters and years in what we've seen this business perform. To your point, CMFT, meetings, growth, shoulders, upper single digit, if not double digit, sports, in and out of the upper single digit territory. Obviously, foot and ankle is double digit given Paragon. But we do have two problem children, our trauma business and our restorative therapies business, HA injections in the U.S. So those are the two headwinds that we got. We spoke about that openly in the Q3 call, that our HA business in the U.S. has been struggling. We exited the year more or less in line with our expectations, but those expectations were very low. So as we enter 2026, we're going to continue to invest in the four key growth drivers. We are in a ton of reps in shoulder with expanding our CMFT, Cranial Maxillofacial Thoracic Salesforce. And we put in new processes, new people, to make sure that the true problem children, trauma and restorative therapies, don't become the headwind in 26 that became in 2025. Thank you.

We'll take our next question from Caitlin Roberts with Canaccord.

Hi, thanks for taking the questions. So how do you see ASCs as a part of your revamping strategy? strategy, and where did you end the year with ASC penetration in hips, knees, and shoulder?

Thank you, Caitlin. So, we ended 25 on knees and hips. I do not know, to be honest with you, the final number for shoulder, but we are actually 20-25 in the 20-22% range. So, 20-22% of all the hips and knees that we did in the U.S. were done in ASC. And I speculate the shoulder number is It's higher than that, but right now I don't recall the number, so I don't want to mislead you. In terms of our strategy, we've spoken about the fact we need to have dedicated people. We need to have the portfolio. We need to have the partnerships. And speaking of people, really excited about the additions that we brought to the team in 2025. A new president for ASC, who's a superstar, Greg Ziller. He's brought in great people across the entire U.S. with actively hiring people into the ASE channel. As Suki mentioned, it's not just specialization, it's also augmentation. So I think we are rapidly getting the right amount of people and the right type of people to win in ASEs. As far as the portfolio, there are no gaps whatsoever. We're really excited about the opportunity that Monogram will bring to an ASE environment where speed, efficiency, and accuracy matters most. But in addition to that, we got another, you know, seven to ten products that make a lot of sense in the ASE. And in the partnerships, we continue to see great momentum with our partnership with Geringa. We are doing new contracts. We got a couple of large groups that we are actively involved in final negotiations. So we're very bullish when it comes to our ASE strategy. And we'll follow up with you on the number for penetration for solder. Thank you.

Awesome. Thank you. We'll go next to Joanne Wunsch with Citibank.

Good morning, and thank you for taking the question. I'll put two right up front. I'm sorry, I'm only allowed to ask one. One, AOS, what should we be expecting there? And I suspect this is where you'll be showcasing the embossed system. How do you anticipate folding that into your robotics portfolio and platform? Thank you.

Thank you, Joanne. As far as I'm concerned, you can ask 50 questions if you want. But anyway, what should you expect at the Academy meeting in New Orleans? We're going to have a lot of new products there. We're going to showcase, again, the Max 7. We're going to show next-generation SET products. But to your point, the main event is going to be MBOS, the fully autonomous and semi-autonomous robotic platform that we acquired from Monogram. This is technology that we strongly believe that will change the standard of care. It's definitely the step of moving from guided robotics to smart robotics. It has best-in-class ease of use. The registration speed that we've seen in the clinical trials is better than anything that is in the market today. You can literally do the cases, and I hope you come to the booth, in a hands-free approach. The workflow is as streamlined as it gets. And again, it's highly accurate, extremely reproducible, and it's got all the right guardrails to make it the safest robot out there. So we'll be talking about all of that. We debuted in-boss at the HIPAA and E-Society meeting in Dallas. And since then, we've gotten just tremendous feedback. We expect to have a large group of surgeons when it comes to New Orleans. So looking forward to sharing this experiment with you and the other investors. But beyond that, we'll have, you know, our entire suite of technology, and we'll be describing why it makes sense to have these category depths. Second part of your question, how do you expect to integrate it? Look, we got the optionality of integrating all things into one platform if we choose to do that. But so far, the data and the feedback validates that since not all customers are created equal, not all technology should be created equal. We believe in optionality. We believe in large footprint robotics, small footprint robotics. Sounds like our competitors do as well now. We believe in CT scan for some customers that want to have a CT scan. But we also have a large percentage of customers, namely outside the U.S., that want to use imageless. We got some surgeons that want to be more in control of the surgery. And you got some that are okay with semi and fully autonomy. So we have the optionality to integrate at the right time. But right now, we like to have the category breadth that we have. And so far, as you saw in the results in Q4, it seems to be working out. Thank you so much, Joanne.

We'll go next to Matt Miksek with Barclays.

Hey, thanks so much for taking the question. Just maybe looking at some of the strength in knees and the core geographically, and maybe talk a little bit about pockets of strength. where you're seeing success, you know, the sort of cadence of the iodine-coated launch in Japan, sort of that geographic breakdown in any color you could provide would be great. Thanks so much.

Thanks, Matt. Look, great quarter. Q4 was a great quarter. So we delivered 6% growth in U.S. needs and 8.2 for international. In the U.S. is the combination of all the things that I mentioned in my prepared remarks. Oxford Partial Cementless continues to do better than expected and is really early in the journey. Recall is the only FDA-approved partial cementless knee, which is gaining tremendous adoption in an ASC setting. Or Persona Oseo Tie, or Cementless Platform, exited 2025, so at around 35% penetration, again, with very rapid adoption in an ASC setting as well. And internationally, we saw great momentum with persona revision in Europe, exiting 2025. Recall that this is only two, three quarters into the launch. So we think that the ramp up can be very compelling, as it has been here in the U.S. In terms of iodine, we had minimal sales of iodine in Q4. The real launch has happened here in Q1. This is a product that we've been working at for 10 years with robust data out of the University of Yokohama in Japan. We expect to have a very meaningful contribution out of this product in international in 2026. We're doing cases pretty much every day now. We get a 40% price uplift when it comes to iodine versus non-iodine. And again, the data around prolonged elution, the fixation stability, how this product reacts to bacteria is just very, very, very compelling. So really excited about iodine, and we look forward to bringing this product to other geographies down the road.

Thank you.

This concludes the question and answer portion of this call. I would like to turn the call over to Yvonne Tornos for any closing remarks.

Thank you. I'll close the way that I started with gratitude. Thanks to all of you for being here today, and thank you to the Zimmer Biomed team. Great exit to 2025. Love the performance that we saw in Q3 and Q4. Really encouraged about the opportunities we have ahead. Excited about 26. While there be some disruption associated with the U.S. go-to-market transformation, we strongly believe this is the right step to take at the right time so that we can create a company that we all aspire to create. Thank you for your time this morning.

Thank you again for participating in today's conference call. You may now disconnect.