Zimmer Biomet Holdings, Inc. Q1 FY2026 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded today, April 28, 2026. Following today's presentation, there will be a question-and-answer session. I would now like to turn the conference over to David DeMartino, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to Zimmer Biomet's First Quarter 2026 Earnings Conference Call. Joining me on today's call are Ivan Tornos, our Chairman, President and Chief Executive Officer; and Suketu Upadhyay, our Chief Financial Officer, Head of 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 details on these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements, please refer to our SEC filings. Please note, we assume no obligation to update these forward-looking statements, even if actual results or future expectations change materially. Additionally, the discussions on this call will include certain non-GAAP financial measures, some of which are forward-looking non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our first quarter earnings release, which can be found on our website. With that, I'll turn the call over to Ivan. Ivan?

Good morning, everyone, and thank you for joining today's call. I would like to start, as I always do, by sharing my gratitude to our Zimmer Biomet team members around the world. Your determination, your discipline and your dedication to customers and patients are what moves our business and our mission forward. We're off to a strong start to the year strategically, operationally and financially, and that momentum is a direct reflection of the strength of our team, the resilience of our business and the impact that we can have when we stay focused on innovating and executing for our customers. Once again, my sincere thanks to the Zimmer Biomet team members. During my prepared remarks this morning, I'm going to cover four key areas. First, I'll start by summarizing our first quarter results. Second, I will provide an update on our U.S. go-to-market changes. Third, I will discuss our 2026 outlook. And then lastly, I'll briefly cover the progress that we continue to make across the three key strategic priorities of the company: people and culture, operational excellence, and innovation and diversification. Starting with the first quarter results. I'm proud of how the team began the year, making strong progress to our 2026 sales growth commitments, EPS and free cash flow commitments. In the first quarter, we grew sales 2.9% on an organic constant currency basis at the upper end of our annual 2026 revenue guidance range. And we delivered adjusted EPS of $2.09, which was up 15% year-over-year. Notably, the first quarter saw a $0.20 benefit from tariff-related items relative to our expectations. As we get into the details of these results, unless otherwise noted, all statements on this call will be about the first quarter of 2026 compared to the same period in 2025 and all commentary will be on a constant currency and adjusted operating basis. First quarter 2026 organic constant currency commentary excludes the impact from the Paragon 28 acquisition, which we closed in April of 2025. Looking at the first quarter results in more detail. Our U.S. business increased 3.2% while international grew 2.5%. These results reflect healthy end markets, strong technology sales, which once again grew at strong double-digit rates, and continued momentum from our recently launched new products. Importantly, this performance was against the backdrop of changes to our go-to-market strategies in both the U.S. and some designated international markets. U.S. knee growth of 2.2% in the quarter reflects a greater than 20% increase in partial knee cells driven by our Oxford Partial Cementless Knee, the only partial cementless knee on the market in the United States. This performance was partially offset by pressure in our legacy knee implants, such as NexGen and Vanguard, which we continue to phase out as part of our brand rationalization strategy. International knees grew 1.3% for the quarter. Our U.S. hip franchise grew 5% in the quarter as we are seeing increasing traction of our hip triple play — Persona, OrthoGrid (our AI-based hem navigation platform), and HAMMR (our surgical impactor) — which now represents nearly 40% of our U.S. hip implants. International hip sales increased by 1%. While still early in its launch, we are seeing rapid adoption in Japan, the second-largest market for Zimmer Biomet, for our first-of-its-kind Persona IQ smart hip implant, which is designed to help address the risk of prosthetic joint infection after total joint replacement. Our technology and data, bone cement and surgical business grew nearly 12% in the quarter. Our strategy of offering a comprehensive suite of technology solutions is paying dividends as we are seeing continued strong ROSA and TMINI sales across the board. To further this one-stop-shop approach, at the American Academy of Orthopaedic Surgeons in March in New Orleans, we hosted technical evaluations of mBos, our fully autonomous AI-driven orthopedic robotic system, which we acquired via the Monogram acquisition. Surgeon feedback was overwhelmingly positive as the potential gains in safety, efficiency, ease of use, reproducibility and accuracy resonated very strongly with the customers that we engaged. We recently completed enrollment in our 102-patient clinical study. We continue to expect U.S. approval and the launch of the semiautonomous version in early 2027, followed by the fully autonomous version in late 2027 or early 2028. In anticipation of the mBos launch, we're increasing the number of robotic clinical sales representatives, targeting to hire over 200 by the end of 2027. Finally, SCP growth of 1.6% was once again led by our U.S. CMFT and Upper Extremities businesses, partially offset by continued challenges in restorative therapies and in our trauma business. Double-digit CMFT growth in the U.S. was driven by our external closure franchise which continues to perform very nicely above market. Upper extremities increased in the upper single digits in the U.S. as both our stemless shoulder and our Identity total shoulder platform continued to gain momentum. Moving on now to discuss the U.S. go-to-market changes. In the U.S., the transition to a dedicated and specialized sales channel is progressing as planned. While the quarter did see some modest disruption, it was in line with our expectations. And importantly, we are seeing rapid increases in productivity in those territories that we have transitioned. We remain on track to complete the transition by the end of 2027. Internationally, the evolution of our go-to-market models, particularly in emerging markets, is ongoing and also is performing in accordance with the plan and the expectations that we have. While we did see an impact on growth in the quarter, this was accounted for internally. Given that it is still early in the year, we are maintaining our full year 2026 organic constant currency revenue growth guidance of 1% to 3%, with growth roughly consistent throughout the remainder of 2026. Our assumption of up to 100 basis points of price erosion is unchanged. We continue to anticipate an approximate 50 basis points FX tailwind to full year revenue growth with the second quarter being a bit neutral at current rates and Paragon 28 to contribute around 100 basis points to reported sales growth in 2026 before being reflected in organic growth. As a result, our reported sales guidance also remains unchanged at 2.5% to 4.5% for the full year. We now expect 2026 operating margins to be better than anticipated, down slightly less than 50 basis points from 2025, which still contemplates lower gross margins, dilution from the Paragon 28 acquisition and increased investments in our U.S. commercial channel. We anticipate operating margins in the second quarter of 2026 being down roughly 200 basis points from the second quarter of 2025, and in the third quarter being down around 50 basis points sequentially from the second quarter. Our guidance for interest expense, tax rate and end-of-year shares outstanding, and our continued assumption of up to $750 million of share repurchases, remains unchanged. Given these dynamics, we are raising both our EPS and free cash flow growth expectations for 2026. We now expect adjusted EPS to be $8.40 to $8.55 from the previous guide of $8.30 to $8.45. And we expect our free cash flow growth to be in the range of 9% to 11% versus the previous guide of 8% to 10%. All in, the year is off to a very strong start, and I could not be any prouder or more excited about what the remainder of the year is going to bring to Zimmer Biomet. Turning now towards our three key strategic priorities for the company: people and culture, operational excellence, and innovation and diversification. People and culture remain the key competitive differentiator for Zimmer Biomet, and we continue to focus on placing the right talent in the roles to advance our strategy. With that in mind, I'm very pleased to share that Dr. Jonathan, a renowned surgeon from the Hospital for Special Surgery, has joined Zimmer Biomet as Chief Science, Technology and Medical Affairs Officer reporting to me. In this role, Dr. Jonathan will lead the strategy, delivery and management of our global portfolio spanning AI-enabled robotics, software and data, smart implants and connected technologies while also overseeing our global medical education. On our second priority of operational excellence, we continue to make great strides in improving operating efficiency through expanding our manufacturing footprint into lower-cost geographies. In addition, we're making very meaningful progress on reducing working capital by lowering our days of inventory on hand while at the same time accelerating a very robust SKU rationalization program. We expect these combined efforts to strengthen our industry-leading margins while continuing to meaningfully improve our free cash flow conversion rates. On pillar three, from an innovation perspective, we recently committed to becoming the exclusive orthopedic investor in the Mobility Revolution Fund, a musculoskeletal venture capital fund launched through our collaboration between Deerfield Management and the Hospital for Special Surgery in New York City. This will give us the opportunity to invest in technology that has the potential to truly change the standard of care, from AI and data applications to cartilage repair solutions. Speaking of the latter, we're also teaming up with some of the world's leading researchers in this groundbreaking opportunity. It is inspiring to see how rapidly we're advancing our commitment to solving some of the key challenges in orthopaedics, whether it's awareness, safety, efficiency and outcomes today and in the future. Lastly, on diversification, our recent acquisitions are all seeing positive momentum. Paragon 28 first quarter growth accelerated around 200 basis points from the fourth quarter of 2025 and is trending back toward double-digit growth performance. OrthoGrid delivered its strongest quarter to date, with significant growth and accelerated adoption, solidifying OrthoGrid as a core driver of our digital ecosystem and our hip triple play. Finally, with enrollment complete in the Monogram clinical study, we remain on track to bring this exciting, first-to-the-world technology to market. In conclusion, we are very proud of the progress that we're making so far in 2026. We continue to prioritize our go-to-market commercial transformation in the U.S., and we continue to focus on driving robust adoption of our new product innovation cycle. Before I turn the call over, I want to comment on the announcement that we made this morning regarding Suketu's decision to leave Zimmer Biomet for a new opportunity in the biotechnology space. For nearly seven years, Suketu has been a valued partner and disciplined operator, helping us improve our weighted average market growth rate profile through organic and inorganic portfolio optimization, driving a top-quartile margin profile for Zimmer Biomet, strengthening the balance sheet and significantly improving free cash flow conversion and growth. I'm thankful for his leadership and contributions, and we wish him continued success in his next chapter. Above all, I'm thankful for his friendship, which I know will continue for many years to come. During this transition, Paul Stellato, our current Controller, Chief Accounting Officer and Head of Corporate FP&A, will serve as Interim Chief Financial Officer. Paul is a seasoned business leader bringing more than 20 years of financial and investor relations experience to the role. Since he joined Zimmer Biomet in 2022, Paul has been instrumental in translating our strategy into disciplined capital allocation, including our share repurchase program and recent acquisitions, as well as leading the creation of global shared services around the world. I'm extremely confident that he is the right leader at the right time, and I'm confident he will provide steady direction and leadership as we continue to conduct a search for a successor, and I look forward to our continued partnership. With that, let me turn the call over to Suketu. Thank you.

Thank you, Ivan, and good morning, everyone. I'm proud of what we've accomplished together over the past seven years. I believe Zimmer Biomet has a clear strategy and meaningful opportunity ahead. I would also like to take a minute to thank the entire Zimmer Biomet organization for all of the hard work and dedication that you put into advancing our mission while delivering on the company's objectives. The dedication and resiliency are impressive. I wish you continued success. Now turning to the results. Reviewing the first quarter results, net sales were $2.087 billion, an increase of 9.3% on a reported basis and 2.9% excluding the impact of foreign currency and the Paragon 28 acquisition. Consolidated pricing was 40 basis points negative in the quarter, in line with our expectations. Growth in the quarter benefited from opportunistic end-of-quarter purchases above historical levels, continued momentum from our recently launched products, as Ivan noted, and strong robotic sales. Turning to our P&L. We reported GAAP diluted earnings per share of $1.22 compared to GAAP diluted earnings per share of $0.91 in the prior year quarter. Higher revenue and lower restructuring costs, the previously mentioned tariff benefit and lower share count were partially offset by modestly higher taxes in the quarter due to geographic mix. On an adjusted basis, we delivered diluted earnings per share of $2.09 compared to $1.81 in the prior year. This increase was driven by higher revenue, the aforementioned tariff benefit and a lower share count, which were partially offset by increased commercial investments. Adjusted gross margin was 73%, higher than the first quarter of 2025, driven by favorable mix and a benefit from tariffs. Notably, a portion of this tariff benefit included refunds that we had anticipated in the second half of the year. Adjusted operating margin was 27.3%. Adjusted net interest and nonoperating expenses were $71 million above the prior year driven by higher debt related to Paragon 28. Our adjusted effective tax rate was 18% and fully diluted shares outstanding were 195.8 million, down year-over-year due to $250 million of share repurchases in the first quarter. Now turning to cash and liquidity. Another strong quarter of cash generation with operating cash flows of $359 million and free cash flow of $246 million. We ended the quarter with approximately $424 million in cash and cash equivalents. As Ivan had covered the rest-of-year outlook, I would like to close by again thanking the entire Zimmer Biomet team for their hard work and dedication. And with that, I'll turn the call back over to David.

Thank you, Suketu. Operator, let's open up for questions.

We'll take our first question from Rick Wise with Stifel.

Going to miss you, Suketu. From my perspective, the year is off to a good start; you outperformed. You beat sales and had strong gross margin performance. But since I only have one question, you didn't raise the overall guide by the beat; you left sales unchanged and EPS less than the EPS beat. I appreciate you keep talking about being more balanced and tempered as you think about guidance. But it's the start of the year. Is there anything in the business or the market or competitively or in your sales transition that prompts that conservatism beyond, again, your desire to stick with tempered guidance?

Rick, thanks for the question. As you highlighted, we had a very strong first quarter. As I sit here looking at the next three quarters, the word that comes to mind is confident. I'm very confident that we're moving in the right direction. We continue to see the sales force changes progressing as planned. We had some disruption in the quarter early in Q2, but everything is going in accordance with plan. We have a solid pipeline in technology. You saw the growth in technology, we continue to see great momentum with new products. We've got a very robust list of new customer targeting strategies that are materializing. So from a revenue standpoint, I'm very confident that we are moving in the right direction. On EPS, we did not raise it by the full amount of the beat. We're also investing in a variety of fronts, namely in the sales force and model changes. And we did raise free cash flow. So again, very solid first quarter; everything moved in the right direction. So why are we not raising our guidance now? Because it's early in the year. This is a year of transition. We said so. We are making fairly substantial changes in a variety of fronts: go-to-market models here in the U.S., some changes in emerging markets, namely China. We're making investments in innovation at a rapid pace. We're hiring people. We're making talent changes. So we feel, even though the first quarter was very strong, it's prudent to wait, let's call it, 90 days and then have the conversation again. But again, I'll leave you with one word: confident — very confident that we are moving in the right direction. Thank you for the question.

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

Congrats on a nice print here. Suketu, I wish you the best. Maybe one high-level question, Ivan: you mentioned the U.S. sales force transformation is on plan. You're also seeing rapid increases in productivity in regions where you're doing this transition. Any further details that you can share on other metrics that you're tracking — perhaps things like attrition rates, what percentage of sales force is now dedicated or direct, and any macro impact that we need to think of outside of the sales force reorg, anything from the Middle East?

Absolutely. Let me give you some of the key public metrics that we've been sharing. At the beginning of the journey, early 2026, roughly 66% — so two-thirds of the U.S. sales force, roughly 2,500 people — were 1099 contractors. At the end of Q1, the number is already slightly below 60%, so roughly a 10% reduction in the number of 1099s. That implies these individuals are now fully dedicated to Zimmer Biomet, no longer doing Zimmer Biomet and one or two other jobs. We started the year with roughly 25% of the sales force being specialized — one of every four reps carrying a dedicated sales book. That number is approaching, if not exceeding, 30%. The top six independent distributors accounted for roughly 40% of sales, and those distribution arrangements had extensions of no less than seven years with Biomet, so that was a significant risk we have retired. Relative to turnover rates, we had a target of no more than 12% turnover given the changes and our turnover rate is in the single-digit range, so far around 9%. Everything is progressing in accordance with plan. To the point that we're thinking perhaps we could go a bit faster as we get into Q2, Q3 and the remainder of the year, but our commitment remains to close the entire transformation by the end of 2027. If you had a second part of the question, I'm happy to address it.

Just on the macro piece, Middle East — any impact?

On the Middle East, from a macro standpoint, we continue to monitor developments, but today we have seen no material supply disruptions and only a minor freight cost increase in the quarter that we're able to absorb. From a supply standpoint, most of our key products are dual source, if not three sources, and we have at least one year of poly inventory. So this is not something that we're concerned about. We have not seen any distribution challenges there, nor any market impact in the first quarter. We are monitoring various macro risks, but nothing has been impactful in the quarter or into the second quarter so far. Thank you for the question, Vijay.

We'll go next to Matthew Blackman with TD Cowen.

You hear me okay?

Yes, we can hear you.

Great. Ivan, Vijay asked this but I don't think you fully touched on it. You talked about seeing increasing productivity in geographies where you're doing the sales force work. Could you expand on that and talk about any green shoots from work done in late 2025 or early 2026 that give confidence in the lift ahead?

I appreciate the question, Matt. We track many KPIs given the magnitude of the project, but I'll give you three or four reasons to believe. In territories that we switched from nondedicated to dedicated reps, we've seen dramatic improvements in productivity. Nationwide the average caseload was around seven cases per rep previously; in the territories where we made the switches, case counts are already in the double digits. Along with productivity increases, we've seen sales improvement in those dedicated structures. Our extremities and shoulder numbers for the quarter were strong, directly correlated to the number of shoulder specialists we've added across inpatient, HOPD and ASC settings, and we continue to see great momentum in shoulder. We are also seeing lower turnover rates due to higher engagement once reps become fully part of the company. So there are plenty of reasons to believe we're moving in the right direction.

We'll go next to Robbie Marcus with JPMorgan.

Suketu, I'll add my sadness and congratulations on your next move. Ivan, I wanted to follow up on what you mentioned about one-time items in the quarter. It seems like there were some product discontinuations, maybe a little bit of end-of-quarter purchasing and perhaps some gross margin benefits. Could you size any of those one-time items and how to think about them resolving over the rest of the year?

Thank you, Robbie. I'll touch on U.S. knees and what happened in the quarter, and then Suketu can comment on gross margins. It wasn't the greatest quarter for U.S. knees, but it was in alignment with our expectations given the go-to-market transformation. The single largest reason U.S. knee growth was limited at 2.2% was the organizational changes we made; we lost two accounts in the quarter that were fairly large. We believe we can recoup some of that business over time, but we'll see as the year progresses. There was also a Kaiser strike on the West Coast, where we have high knee share, and that disrupted volumes for everyone but more so for us. Finally, as we move from legacy brands like NexGen and Vanguard to Persona, we saw some disruption. Regarding quarter-end deals and opportunistic purchases, those were in line with our typical activity; it was not a significant one-time event. Suketu, do you want to comment on gross margin?

Robbie, on gross margin we saw a very strong quarter, largely driven by the invalidation of certain tariffs, which contributed about $0.20 to results in the quarter. Beyond that, we had a bit better underlying performance as well. The way to think about the gross margin line is that of that $0.20 benefit in Q1, we had originally assumed about half of that would be credited in the second half, so Q1 was a pull-forward. The remainder of that $0.20—about $0.10—drops to the bottom line and is largely the driver of the EPS beat and raise. For the full year, we still expect gross margin to be modestly down versus prior year at around 71%, give or take, and the cadence should be roughly consistent for the remaining quarters. Underlying performance on gross margin is as expected; the biggest driver in Q1 was the tariff invalidation.

Our next question comes from Travis Steed from Bank of America.

Just to follow up a little on Robbie's question. Looking at U.S. knees specifically, comps get about 400 basis points tougher in the back half. How do you get confident you'll accelerate in U.S. knees in the back half? Also, did you say you saw some disruption early in Q2 or in Q1?

No, the disruption I referenced was in Q1. When you look at the changes we made in the first quarter, we did reduce nondedicated reps and we did lose two fairly large accounts. What gives us confidence in a back-half acceleration is the ramp-up of our new products and continued strong technology placement. Technology grew at very high rates in Q1 — the TMINI and other technology solutions — and when technology adoption accelerates, implants often follow. The account conversions driven by technology sales, the go-to-market changes and new product acceleration give us confidence that growth should increase in the second half.

We'll go next to Chris Pasquale from Nephron.

One of your competitors experienced an issue that impacted their ability to serve customers for a few weeks at the end of the quarter. It doesn't appear that you benefited much from that dynamic. Could you talk about what you've seen in the market and whether you think that has implications for your business either in Q1 or going forward?

First, it's unfortunate when any company goes through those dynamics. We did not see any material impact or benefit from that competitor's situation. It did not meaningfully affect our results in the quarter.

We'll go next to David Roman with Goldman Sachs.

Could you unpack some of the trends outside the United States? This is the first quarter in quite some time that OUS growth has trailed the U.S. Could you help us think through whether this was intermittent disruption versus a change in the trajectory of the international franchise?

A couple of points. First, comps in the first half for international are more difficult than in the second half, which is an important factor. Second, we've made distributor changes in certain geographies — particularly in emerging markets, parts of Europe, the Middle East and China — moving from a large network of distributors to select, true partners, and that transition has brought some disruption. Third, there were a couple of one-time events where orders in certain international geographies did not ship as expected. All that said, our expectation is that international will grow mid-single digits in the second half of 2026.

We'll go next to Larry Biegelsen with Wells Fargo.

I'd love to hear about the rollout of Monogram. Once you launch the semiautonomous system with Persona early next year, how should we think about the pace of the rollout? Will there be a limited launch initially at select centers and how might it impact ROSA?

Larry, thanks. We're very excited about Monogram. We completed the clinical trial and are focused on the 510(k) submission. We continue to anticipate launching the semiautonomous system in early 2027. Based on what we've seen, the system will enable very efficient procedures with fast readouts, high safety due to enhanced surgical boundaries, reproducibility and a short learning curve. We believe it can scale fairly rapidly. We're preparing a bold launch and are hiring more than 200 reps specifically to support Monogram in addition to our existing field force. We're investing heavily in clinical evidence and economic strategy. Regarding ROSA, we remain committed to a suite of technology solutions: ROSA, TMINI and Monogram will be complementary. ROSA remains the #1 robot outside the U.S. where CT is less preferred, and we believe the combination of these platforms will give us a competitive advantage.

We'll go next to Matthew Taylor with Jefferies.

I wanted to ask about the tariff impact and what you assume for the rest of the year. Also, what could happen with any 232 investigation?

Matt, we are assuming that certain tariffs remain invalidated into the second half of the year, and therefore we took the $0.20 benefit in the first quarter as discussed. As for Section 232, that situation is still evolving and dynamic; there are no material updates at this point. The overall situation remains fluid and we'll keep you posted as things unfold.

I'll just add briefly on Section 232: our assessments indicate it may not impact companies that operate under certain international protocols, and we feel reasonably confident we have pathways to mitigate that risk.

Our next question comes from the line of Richard Newitter with Truist Securities.

One of your most innovative differentiators is the Persona IQ smart implant with embedded Canary technology, but it doesn't get a ton of airtime. You had some positive clinical updates at AAOS. Can you discuss where you are on this product, why we're not hearing about it more, and how it could be leveraged as a meaningful differentiator into 2026 and 2027?

Thanks, Richard. Early on we probably talked too much about Persona IQ without having the data. We're taking a different approach now: collect and validate the data and then discuss. Everything is tracking in accordance with expectations. We did publish robust data showing Persona IQ's potential to lower costs and improve outcomes. With recent updates in inpatient rules and bundled payment initiatives, technologies that provide connected data before, during and after surgery and objectively track outcomes can be meaningfully rewarded. We continue to invest in clinical evidence and commercialization strategies for Persona IQ and are committed to the space.

We'll go next to Caitlin Cronin with Canaccord Genuity.

Just to touch on ROSA Shoulder: any updated color on the launch and when this will move to a broader launch?

We're now on full market release for ROSA Shoulder. We've been doing demos and the feedback has been very strong. ROSA Shoulder supports both anatomic and reverse techniques and provides solid accuracy and efficiency. We're working on version 2 to be even more efficient, and the platform is fully integrated into the ROSA ecosystem. We'll scale up deployments in the U.S. and other markets.

We'll go next to Matt Miksic with Barclays.

Follow-up on Paragon: you mentioned some acceleration. What's driving that, and do you expect to exit the year in double digits? Also, how should we think about the timeline for another Paragon-like strategic investment?

Paragon's growth accelerated about 200 basis points sequentially from Q4 2025 to Q1 2026 and was almost double-digit in Q1; early in Q2 it's in the teens. What's driving it is focus: investments behind the platform, launching products rapidly and hiring reps. We expect Paragon to deliver strong double-digit growth in 2026. On future M&A, we have a lot going on — the U.S. go-to-market transformation, integrating Paragon, launching Monogram — so we'll pause on large external deals for now and continue to buy back shares. At the right time we'll execute on additional strategic transactions, but timing will depend on focus and capacity.

We'll go next to Steve Lichtman with William Blair.

Where do you think the underlying hip and knee market growth is? Any incremental headwinds to market growth in the U.S. such as elective procedure volumes or hospitals' willingness to purchase larger ticket items like ROSA?

We continue to track a durable market growth rate north of 4%, roughly 4% to 4.5% for recon overall. We need to do better in knees, and we expect to accelerate in hips. We have not seen material impacts to elective volumes. Medicaid represents low single-digit percent of our revenue, and ACA-related cases are under 12% of our total. Top accounts continue to have long waiting lists, so demand remains healthy. Pricing dynamics are where we expected them: Q1 had 40 basis points of price erosion in line with expectations. We don't see market-level issues at this time.

We'll go next to Jeff Johnson with Robert W. Baird.

Suketu, best of luck. Ivan, a question on the sales transition: some of the reps that were not fully dedicated were given guarantees this year. Are those guarantee costs excluded from non-GAAP EPS and margins? How should we think about the disruption from the sales transition — is the impact mainly in 2026 or could it continue into 2027?

Thanks, Jeff. We go through sales force changes regularly; these are not excluded from our non-GAAP results. We're investing to make the transformation successful, so some of these costs are part of our operating expenses. We have offered guarantees in some cases for one to two years, and in select cases three-year guarantees, but the most important retention tool is the career opportunity and momentum at Zimmer Biomet. Many reps value being part of a company with meaningful technology investments and a clear strategic path. We believe money matters in the short term, but long-term opportunity is more important. In my conversations with reps across the country, the majority see Zimmer Biomet as the place to be for the long term.

We'll go next to Matthew O'Brien with Piper Sandler.

On pricing: Q1 was down 40 basis points, and you're sticking with a full-year assumption of up to 100 basis points of price erosion. Should we expect things to get progressively worse through the year, or is this conservatism in the guide?

The guide range of flat to 100 basis points has been our view for a while. In 2025 we did better than that. As we enter 2026 there are macro events and competitive dynamics that warrant conservatism. We like where we are at the end of Q1, and we'll update our outlook on pricing again on the August call.

This concludes the question-and-answer portion of today's call. I would like to turn the call back over to Ivan Tornos for any closing remarks.

Sure. I want to thank everybody for joining the call today. Most importantly, I want to thank the Zimmer Biomet team for the strong execution in the first quarter. I give you one word: confidence. I am very confident we are moving in the right direction, not just into 2026, but in how we are making the company future-proof with the strategy we have, how we are operating for the future and the commitments that we're making. I would like Suketu, my friend, to close the call, given that this will be the last time he represents Zimmer Biomet as CFO. Suketu?

Yes. I've learned a lot from you over our seven years together, and the most impactful lesson is your approach to gratitude. I'd like to thank Ivan, the ZB team, the Board and our many partners for an amazing seven years. We've accomplished a lot in a tough environment and built a strong foundation from which to grow. I'm confident that under Ivan's leadership and with the team's execution, the company will continue to succeed. I wish you all the success and I'll be cheering from the sidelines.

I'm going to miss you. Thank you. Thanks, everybody. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.