Robert Marcus

Robert Marcus asked about concerns regarding U.S. EP and U.S. Watchman performance in Q4, specifically addressing fears of softness and missed expectations, and sought clarification on what transpired versus market trends and how to set expectations for these key growth drivers in 2026.

Answer

CEO Michael Mahoney expressed satisfaction with the overall Q4 and full-year performance, highlighting that EP results exceeded internal targets with 35% growth, outpacing competitors. He estimated the Q4 EP market growth at 18-20%, not 25%, and affirmed confidence in the PFA business. For Watchman, he noted 29% growth, similar to Q3, as the company lapped concomitant reimbursement anniversary. Mahoney emphasized Boston Scientific's ability to beat guidance and consensus due to broad portfolio strength.

Robert Marcus asked about concerns regarding U.S. EP and U.S. Watchman performance in Q4, noting U.S. EP was flat sequentially and U.S. Watchman slightly missed expectations. He inquired about what happened versus expectations and the market, and how to level set expectations for these key growth drivers in 2026, especially given the Street's 25% EP growth estimate versus the company's 15% outlook.

Answer

CEO Michael Mahoney expressed satisfaction with overall Q4 and full-year results. He stated that EP grew 35%, exceeding internal targets, and estimated the market grew 18%-20% (not 25%). He acknowledged potential for some share loss due to new competitors but was confident in maintaining market leadership. Watchman grew 29%, similar to Q3, as the company lapped concomitant reimbursement. Mahoney emphasized that Boston Scientific exceeded its guidance and analyst consensus due to the strength of the entire company.

Robert Marcus from JPMorgan Chase & Co. asked about the drivers and durability of the exceptional 28% growth in the WATCHMAN franchise, particularly the impact of the OPTION trial and concomitant procedures. He also inquired about the Q2 gross margin, seeking clarity on the underlying performance excluding the ACURATE valve discontinuation write-down.

Answer

CEO Mike Mahoney attributed WATCHMAN's success to the trusted safety profile of FLEXPRO and the breakthrough opportunity of concomitant procedures with Farapulse. CMO Dr. Ken Stein added that 60% of EP implanters are already performing concomitant procedures. CFO John Monson clarified that a ~$100 million charge related to the ACURATE discontinuation impacted adjusted gross margin, which was offset by strong sales and spending controls. He noted that for the full year, favorable product mix from WATCHMAN and Farapulse is expected to largely offset the ACURATE charges and tariff headwinds.

Robert Marcus of Goldman Sachs asked about the financial impact of new tariffs, inquiring how Boston Scientific plans to offset the headwind and whether there are plans to adjust its global manufacturing footprint.

Answer

Daniel Brennan, Executive Vice President and CFO, explained that the $200 million tariff headwind will be fully offset in 2025. The offset will come from the company's increased revenue performance, targeted reductions in discretionary spending, and a minor FX benefit. Brennan stated that there are no current plans to alter the company's optimized global supply chain, highlighting recent significant manufacturing investments in the U.S.

Robert Marcus inquired about the Q4 performance and 2025 outlook for the FARAPULSE and WATCHMAN franchises, particularly the impact of the new concomitant procedure reimbursement for WATCHMAN.

Answer

CEO Mike Mahoney highlighted the excellent and increasing momentum for both products. He noted that the concomitant reimbursement for WATCHMAN, effective in October, provided a slight uptick in Q4 and reinforces the 20% market growth forecast for 2025. For FARAPULSE, he described its growth as a major market transformation, surpassing $1 billion globally in 2024 with strong U.S. execution and no anticipated supply constraints.

Robert Marcus from JPMorgan Chase & Co. inquired about the potential impact of the upcoming OPTION trial data and the new reimbursement for concomitant WATCHMAN and FARAPULSE procedures on both franchises.

Answer

CEO Michael Mahoney stated that the concomitant reimbursement is a positive long-term tailwind for both platforms. CMO Dr. Ken Stein added that with roughly half of the 350,000 annual U.S. ablation patients at high stroke risk, positive OPTION data could be highly impactful, with the CHAMPION trial providing further data in early 2026.

Robert Marcus asked about Stryker's pricing strategy for both its capital and implant businesses in 2026, and the company's expectations for the capital equipment environment in both the U.S. and international markets. He also sought clarification on the strong performance of Mako, Endoscopy, and Instruments, versus the softer results in Trauma and Extremities and Vascular, including any stocking or destocking impacts.

Answer

Preston Wells, CFO, Stryker, indicated that pricing in 2026 is expected to be similar to 2025, reflecting continued focus and muscle developed in price gains. Jason Beach, VP of Finance and Head of Investor Relations, Stryker, noted a strong capital environment entering 2026 with an elevated backlog. Kevin Lobo, Chair and CEO, Stryker, highlighted Mako 4, Endoscopy, and Instruments as 'on fire.' For Trauma and Extremities, he cited tough prior-year comps and new product launches like Incompass. For Vascular, he mentioned ongoing challenges in the ischemic sector, new product Broadway, and strong hemorrhagic business performance.

Robert Marcus of JPMorgan Chase & Co. asked for details on the drivers of strong margin performance that allowed the EPS guide to recover despite tariffs and dilution. He also inquired about the outlook for the Ambulatory Surgery Center (ASC) build-out beyond orthopedics.

Answer

VP & CFO Preston Wells attributed margin strength to a multi-year focus on pricing, manufacturing efficiencies, procurement initiatives, and G&A discipline. Chair & CEO Kevin Lobo added that the ASC trend is durable and will expand into other specialties like cardiology and general surgery, as it lowers healthcare costs and improves patient and surgeon experience.

Robert Marcus asked for details on the absorption and mitigation of the $200 million tariff impact and inquired about the sustainability of the strong growth in the Orthopaedics market.

Answer

CFO Preston Wells explained that the tariff impact will be offset by strong sales momentum, pricing actions, disciplined spending, and supply chain optimization. CEO Kevin Lobo added that the Orthopaedics market remains healthy with strong demand and surgeon backlogs, and Stryker expects to continue gaining market share driven by Mako, cementless knees, and its Trauma and Extremities businesses.

Robert Marcus asked for the key drivers behind the projected 100+ basis points of operating margin expansion in 2025, especially while absorbing the spine divestiture. He also sought confirmation on the health of the global ortho and capital equipment markets.

Answer

CFO Glenn Boehnlein detailed that margin expansion will be driven by purchasing efficiencies, low-cost manufacturing expansion, shared services optimization, positive pricing, and natural leverage from high sales growth. VP Jason Beach confirmed that procedural volumes and capital markets remain robust entering 2025.

Robert Marcus asked about the sustainability of the strong growth in Stryker's Medical division and questioned if the implied Q4 guidance was slightly below the recent trend.

Answer

CEO Kevin Lobo explained that the Medical division's high growth is sustainable due to a strong innovation pipeline including ProCuity, LIFEPAK 35, and recent acquisitions like care.ai, and he expects continued double-digit growth. Regarding Q4 guidance, he noted it's a reasonable increase against a tough prior-year comparison of 11.5% growth, but the company is aiming to finish at the high end of the new range.

Robert Marcus asked for a high-level assessment of GE HealthCare's progress against its long-range plan from the previous November's analyst day, including its confidence in achieving growth and margin targets, and any notable puts and takes. He also sought more detail on GE HealthCare's investments to streamline Fercato's workflow conversion and confidence in meeting 2026 goals.

Answer

President and CEO Peter Arduini expressed confidence in achieving mid-single-digit growth and 17-20%+ margin targets, despite tariff complexities, citing strong commercial execution and on-track product launches, many of which will be showcased at RSNA. Regarding Fercato, he affirmed confidence in meeting 2026 goals, noting a larger-than-envisioned opportunity funnel, clear economics, and improving supply chain yield. He emphasized the importance of a deliberate ramp-up to ensure a world-class customer experience, with processes in place for billing, reads, and software, and highlighted ACC guidelines as a tailwind for the potential billion-dollar drug.

Robert Marcus asked for an assessment of GE HealthCare's progress against its long-range plan (mid-single-digit growth, 17-20%+ margin) one year after Analyst Day, highlighting any puts and takes. He also sought more detail on GE HealthCare's efforts to streamline Flyrcado's workflow conversion and confidence in achieving 2026 goals.

Answer

President and CEO Peter Arduini expressed confidence in achieving mid-single-digit growth and margin targets, citing strong commercial execution and on-track product launches, with many new products to be showcased at RSNA. He affirmed absolute confidence in Flyrcado's 2026 goals, driven by a larger opportunity funnel, clear economics, and structured processes to support customer conversion and experience.

Robert Marcus of JPMorgan Chase & Co. asked for an update on the business environment in China and inquired about the expected revenue cadence for the second half of 2025, given the raised full-year guidance.

Answer

President & CEO Peter Arduini stated that while activity in China is picking up, the recovery pace is slower than anticipated, leading to a more conservative back-half outlook for the region. VP & CFO James Saccaro explained that the full-year guidance raise is supported by strong order growth and backlog conversion from other regions. He guided for Q3 growth of 2-3%, with an acceleration in Q4.

Robert Marcus asked about the launch progress of the radiopharmaceutical Flyrcado, the potential impact of China's anti-dumping allegations, and whether the Pharmaceutical Diagnostics (PDx) segment is included in the tariff impact calculations.

Answer

CEO Peter Arduini reported that the Flyrcado launch is on track for its ~$30 million 2025 revenue target, aided by a new CMS pass-through status. He also stated the China anti-dumping investigation is not seen as a material risk. CFO James Saccaro clarified that potential tariffs on the PDx business are not included in guidance as it's unclear if those products would be in scope.

Robbie Marcus asked for an outlook on the U.S. hospital capital equipment market given current pressures and what assumptions are baked into guidance. He also asked for the reason behind the year-over-year decline in free cash flow for 2024 and the outlook for 2025.

Answer

CEO Peter Arduini stated that the U.S. capital market remains robust, driven by underlying procedure growth, and that imaging equipment often serves as a profit generator for hospitals. CFO Jay Saccaro added that the company's quarterly customer surveys continue to point to a solid environment. Regarding cash flow, he reiterated that the 2024 decline was primarily due to an inventory build, which they plan to normalize in 2025, leading to expected free cash flow growth.

Robert Marcus of J.P. Morgan Chase & Co. asked about the sustainability of operating margin expansion and the forward trajectory of the China market. He sought clarity on the line of sight to future margin improvements after exiting transition service agreements (TSAs) and the company's visibility into China's stabilization and its impact on 2025.

Answer

CFO Jay Saccaro explained that while significant progress has been made on margins through pricing and productivity, there is a long way to go. Future improvements will be supplemented by benefits from exiting TSAs and launching differentiated, higher-margin products. CEO Peter Arduini and CFO Jay Saccaro noted the China recovery is slow, with stimulus coordination taking longer than expected. They anticipate limited market benefit through the first half of 2025 and have factored this into guidance, which now trends toward the low end.

Robert Justin Marcus inquired about the dynamics of Abbott's diabetes business, specifically U.S. versus OUS performance, market development, and the potential impact of the ketone sensor and CMS coverage for non-intensive Type 2 diabetes. He also asked for feedback on the Volt PFA catheter in Europe and its expected U.S. ramp.

Answer

Chairman and CEO Robert Ford clarified that U.S. diabetes growth was 19% in Q3, with year-to-date growth at 25%, attributing earlier higher growth to shelf restocking. He anticipates strong U.S. growth in 2026 driven by the new dual analyte sensor and continued basal segment penetration, noting potential CMS coverage for Type 2 non-insulin users. For EP, he highlighted accelerating growth, positive European feedback on Volt PFA catheter's efficacy, safety, and N-Site integration, expecting a U.S. launch around mid-2026 and improved EP performance.

Robert Marcus of JPMorgan Chase & Co. inquired about performance trends in Diabetes and Electrophysiology, specifically U.S. Libre growth, the upcoming ketone-sensing CGM, and the international launch of the Volt PFA catheter.

Answer

Chairman and CEO Robert Ford reported strong Libre performance, with U.S. sales up nearly 26%, driven by growth in basal and non-insulin segments. He highlighted the upcoming dual analyte (ketone) sensor as a significant advancement for intensive users. For Electrophysiology (EP), Ford noted continued double-digit growth and excellent feedback from the limited international launch of the Volt PFA catheter, praising its efficacy and design that facilitates procedures with less anesthesia.

Robert Marcus asked about the decision to maintain full-year guidance despite new tariffs and requested details on the financial impact and mitigation plans.

Answer

Chairman and CEO Robert Ford stated that strong Q1 results and business momentum were offset by the new tariff policy. He estimated a second-half 2025 impact of a "few hundred million dollars" but cautioned against simply annualizing this figure. Ford explained that mitigation will come from various levers, including FX and tax, but most sustainably from optimizing Abbott's 90 global manufacturing sites to align production with local markets over the long term.

Robert Marcus asked for details on the key drivers behind the 2025 guidance, including segment-level top-line contributions and the components of the projected operating margin expansion.

Answer

CEO Robert Ford explained that 2025 guidance reflects a return to Abbott's core identity of high single-digit top-line and double-digit bottom-line growth, now unclouded by declining COVID-19 test sales. He cited broad-based strength across all businesses, fueled by products like Libre and TriClip. Ford detailed that margin expansion will come from an 80-basis-point improvement in gross margin and renewed operating leverage, which together drive underlying EPS growth of 16% before accounting for FX and tax headwinds.

Robert Marcus of JPMorgan Chase asked for a bridge explaining what specifically changed in the two months since the last earnings call to cause the significant Q3 revenue miss. He also questioned how management gains confidence in its market growth forecast for next year given the current uncertainties and below-market performance.

Answer

President and CEO Al White attributed the miss to two factors: the unexpected continuation of weakness in the Asia-Pacific e-commerce channel and a sudden drop-off in Clarity orders late in the quarter as customers shifted focus to MyDay. Regarding market confidence, he pointed to long-term macro trends driving mid-single-digit growth, such as the increasing need for vision correction and the ongoing shift to daily disposable lenses. He believes Cooper's ability to now meet MyDay demand will enable it to match or exceed market growth.

Robert Marcus of JPMorgan questioned the fertility business's low 1% growth, asking for the size of the Q4 capital pull-forward and the basis for confidence in a return to double-digit growth. He also asked about the size of the China business.

Answer

CEO Al White characterized the fertility quarter as a 'blip' or 'anomaly' due to a tough comp from order pull-in to Q1 of last year and a capital pull-forward into Q4 2024. He expressed high confidence in a return to high single-digit or double-digit growth, citing a strong capital backlog and robust demand for consumables and genetic testing. He also stated that China represents a little less than 5% of consolidated revenues.

Robert Marcus of JPMorgan Chase & Co. requested specifics on the fiscal 2025 outlook for reported gross and operating margins. He also asked about the company's potential exposure to U.S. tariffs given its international manufacturing footprint.

Answer

CFO Brian Andrews expressed high confidence in achieving gross margin expansion in FY25, driven by price, productivity, and lower freight costs, which supports the 10-12% constant currency operating income growth target. He noted that even with FX headwinds, reported operating margins are implied to be up year-over-year. On tariffs, Andrews stated Cooper has no manufacturing in China, Mexico, or Canada, mitigating exposure to some commonly discussed tariff scenarios.

Robert Marcus sought clarification on the fiscal 2025 outlook, asking if the guided low double-digit operating income growth would translate to similar EPS growth. He also asked for specific drivers of the strong gross margin performance, particularly how the company is offsetting the mix shift to daily lenses.

Answer

CEO Al White suggested that after factoring in positive FX, interest expense savings, and a higher tax rate, the result should be "pretty decent EPS." CFO Brian Andrews explained that gross margin strength was driven by pricing, efficiency gains from infrastructure investments, and favorable product and geographic mix, which are currently offsetting FX headwinds and the mix shift to dailies.

Robert Marcus sought more detail on the new board structure, asking if it signals more profound strategic shifts in capital allocation, dividend policy, or portfolio management, rather than a simple continuation of existing strategy.

Answer

Chairman & CEO Geoff Martha described the changes as the start of a 'new chapter' focused on more aggressive value creation. He highlighted key themes, including pursuing more M&A to shift the portfolio to higher growth and increasing investment in transformational growth drivers like PFA and Ardian, noting these were areas of alignment with Elliott Management.

Robert Marcus questioned the sustainability of the FY27 high single-digit EPS growth target, asking if it could be achieved without the one-time benefits from favorable currency and the Diabetes separation.

Answer

CFO Thierry Pieton emphasized the strength of the company's underlying fundamentals, pointing to the 9% EPS growth in the second half of FY25 as evidence. He stated that durable growth from new products and ongoing cost leverage initiatives are the core drivers, and the team's goal is to achieve the target regardless of the transaction's impact.

Robert Marcus questioned the sustainability of the FY27 high single-digit EPS growth target, asking if it could be achieved without the potentially one-time benefits of favorable currency and the Diabetes spin-off.

Answer

CFO Thierry Pieton emphasized the company's strong underlying fundamentals, pointing to the 9% EPS growth in the second half of FY25, which was achieved without FX tailwinds. He stated that continued revenue momentum and cost leverage are the core drivers, and the team's goal is to deliver on the growth framework regardless of the transaction's accretion.

Robert Marcus of JPMorgan Chase & Co. asked how Medtronic balances the significant investment spend required for major growth drivers like PFA, Hugo, and Renal Denervation with its goal of delivering consistent margin expansion.

Answer

CEO Geoff Martha stated the goal is to achieve both by improving gross margin and ensuring SG&A growth remains below sales growth. He also highlighted tuck-in M&A as a tool for R&D investment. Interim CFO Gary Corona added that gross margin improvement is key to funding these growth drivers while delivering high single-digit EPS growth.

Robert Marcus questioned the margin implications of key new product launches like renal denervation, PulseSelect, Sphere-9 (Affera), and Hugo, asking about the cadence of growth and margin impact over the next 6-12 months.

Answer

Chairman and CEO Geoff Martha acknowledged that capital-intensive products like Hugo and Affera can have lower initial margins, but this is offset by positive pricing trends, cost-down programs, and higher-margin products like Neuromod and Ardian (RDN). Interim CFO Gary Corona added that these dynamics are fully contemplated in the company's guidance, which expects flat constant-currency gross margins for the year.

Robert Marcus of JPMorgan Chase asked for management's confidence that the recent slowdown is not due to reaching a market penetration ceiling and questioned how the path to cash flow breakeven has changed with the reduced sales forecast.

Answer

CEO Ron Kurtz responded that the company is not blaming the market but is instead focusing on leveraging its large installed base for growth through a new customer success organization. CFO Shelley Thunen added that while the revenue reduction pushes out the timeline for cash flow breakeven, the company's high gross margin product could enable a quick recovery once growth resumes, referencing Q2 of the prior year as a proxy.

Robert Marcus of JPMorgan Chase & Co. sought clarification on the outlook for Q2 revenue and questioned the assumption that competitive trialing would subside in Q3, given new product launches from competitors.

Answer

CFO Shelley Thunen clarified her earlier comments, stating she was not providing specific Q2 guidance but was being cautionary, with most LAL growth expected in the second half of the year. President and CEO Dr. Ron Kurtz addressed the competitive landscape, suggesting that with multiple players now offering similar fixed IOLs, the market will normalize. He also highlighted that three-quarters of LAL patients are converted from non-multifocal lenses, providing some insulation from direct competition.

Robert Marcus of JPMorgan Chase & Co. inquired about the drivers behind the updated organic sales growth guidance, the confidence in the second-half acceleration, and the expected cadence between Q3 and Q4.

Answer

Chairman, President & CEO Ivan Tornos expressed high confidence, citing a ~200 basis point benefit from the absence of selling day headwinds and favorable ERP comps from 2024. He also noted a strong July, new product ramps, and the shift of a large international order into Q3. Tornos projected Q3 organic growth to be "scratching 6%."

Robert Marcus asked for details on the financial impact of tariffs, the specific mitigation efforts being undertaken, and whether the 2025 impact serves as a reliable run rate for 2026.

Answer

CFO and EVP Suketu Upadhyay explained that the tariff impact is manageable due to Zimmer Biomet's significant U.S. manufacturing footprint. He detailed mitigation strategies including optimizing country of origin, adjusting sourcing, and moderating discretionary spending, resulting in a $60-$80 million headwind for 2025. Upadhyay cautioned that 2026's impact would likely be higher due to annualization and other factors, but noted the team is actively working on further offsets.

Robert Marcus of JPMorgan Chase & Co. inquired about the philosophy behind Zimmer Biomet's 2025 guidance, suggesting it appeared more conservative than the prior year's.

Answer

President and CEO Ivan Tornos characterized the 2025 guidance as "appropriate" rather than conservative, acknowledging a different philosophy from 2024. He noted that while there is one less selling day in 2025, the company sees more drivers toward the upper end of the range, including new products, investments in Ambulatory Surgery Centers (ASCs), and strategic adjustments in the U.S. market. Tornos expressed strong confidence in achieving the provided range.

Robert Marcus of JPMorgan Chase & Co. asked about the drivers of the double-digit growth in urology, questioning if there were one-time benefits, and the outlook for the broader interventional business. He also followed up on whether the increased Q4 SG&A investment level should be considered the new run rate.

Answer

Tom Polen, Chairman, CEO & President, confirmed the strong urology performance was not due to one-time items but a continuation of strong momentum from the PureWick franchise, which has a robust innovation pipeline. Christopher DelOrefice, EVP & CFO, added that the Q4 investment is a strategic choice to reinvest efficiency gains from BD Excellence to drive growth and build momentum into 2026, rather than a permanent new baseline.

Robert Marcus inquired about the specific drivers behind the ~100 basis point reduction in the full-year organic sales growth guidance, seeking to understand which parts of the business were softer than previously expected.

Answer

EVP and CFO Christopher DelOrefice explained that approximately 80% of the guidance reduction stems from market-driven factors. The two primary drivers are the Biosciences (BDB) business, impacted by reduced global research funding, and China, where the outlook was lowered from a mid-single-digit to a high single-digit decline due to VBP and research spending pressures. A third factor is the Diagnostics (DS) business, specifically a slower-than-expected recovery in BACTEC blood culture testing volumes following a prior-year supply disruption.

Robert Marcus requested examples of how the planned separation would enable a more streamlined and focused capital allocation strategy compared to the limitations of the current combined company structure.

Answer

Chairman, CEO and President Tom Polen explained that as a focused entity, the Life Sciences business could accelerate capital deployment into adjacent high-growth areas like single-cell analysis and oncology screening. For the 'New BD', the separation allows for a doubled-down focus on shifting the portfolio to higher-growth MedTech spaces via tuck-in M&A, funded by its strong cash flow profile. He noted that historically, over 99% of M&A capital has already been directed toward building the MedTech side of the business.

Robert Marcus asked about the underlying, sustainable growth of the business into fiscal 2025 and 2026, after stripping out the current macroeconomic dynamics and the one-time effects of the Alaris recovery.

Answer

Chairman, CEO, and President Tom Polen expressed confidence in the company's durable growth profile, noting the core business has grown north of 6% excluding COVID testing. He highlighted multiple growth platforms that position BD for long-term growth, including biologics drug delivery (now a $1B+ business), pharmacy automation, advanced patient monitoring, tissue reconstruction, and the PureWick platform.

Robert Marcus asked about the company's R&D spending strategy, both in absolute dollars and as a percentage of sales, as more innovative products are added to the portfolio. He also sought clarity on the underlying organic growth of operating expenses, adjusting for the recent business divestiture.

Answer

CEO Robert Claypoole described R&D spend as moderate but ramping up, with a focus on the Ultrasonics and PNS platforms, and expects it to increase further. SVP & CFO Mark Singleton added that while total R&D seems low, it is a material percentage of revenue for those specific high-growth portfolios. He also confirmed that revenue is growing faster than OpEx, which is key to achieving their 100 basis points of margin expansion.

Robert Marcus asked for management's level of confidence and visibility into the expected acceleration of organic growth and EBITDA from Q2 through Q4, given that Q1 organic growth of 5% was below the full-year guidance range. He also requested an update on the company's deleveraging progress and plans for the remainder of the year.

Answer

CFO Mark Singleton expressed high confidence in the second-half acceleration, citing seasonality in HA, a ramp-up in Bone Graft Substitutes, and recent account wins. He expects EBITDA to grow with sales, targeting 100 bps of margin expansion for the year. He also stated the net leverage ratio is around 3.25x and is expected to fall to approximately 2.5x by year-end. CEO Rob Claypoole added that growth will naturally accelerate as unfavorable first-half comparables roll off, highlighting the underlying strength in DUROLANE, Ultrasonics, and Exogen.

Robert Marcus asked if the transitory issues impacting Q4, specifically in Bone Graft Substitutes (BGS), would extend into early 2025 and create a growth disparity between the first and second halves of the year. He also requested details on the pathway to achieving a net leverage ratio below 3x by the end of 2025.

Answer

CEO Robert Claypoole clarified that the BGS distributor ramp-up is the primary issue that may cause a slightly softer start to 2025 but expects it to be resolved by Q2. CFO Mark Singleton outlined that the path to sub-3x leverage relies on continued business execution, accelerating cash flow in 2025, paying down the revolver, and growing EBITDA, which will naturally reduce the leverage ratio.

Robert Marcus asked for a reminder on the typical seasonality for EEG utilization and recent trends in both new and existing accounts. He also questioned the drivers of expense control in the quarter, particularly in sales and marketing, and the spending outlook for the remainder of the year.

Answer

CFO Scott Blumberg explained that Q2 and Q3 typically see reduced utilization due to lower ICU census, a consistent seasonal trend. CEO Jane Chao added that company initiatives to drive protocolization are independent of seasonality and are showing positive results. On expenses, Blumberg reiterated the strategy of investing for growth, noting that territory manager expansion is nearly complete, but investment in Clinical Account Managers (CAMs) will continue in line with account growth.

An analyst on behalf of Robert Marcus asked for an outlook on operating expenses in light of the goal to reach cash flow breakeven with current cash, and also questioned if the new pediatric Clarity approval would contribute to 2025 revenue guidance.

Answer

CFO Scott Blumberg stated that while post-IPO investments in R&D and sales are increasing OpEx, the company remains highly confident in reaching cash flow breakeven without additional capital. CEO Xingjuan Chao clarified that the pediatric Clarity launch will not impact 2025 guidance, with revenue contributions expected in outer years following a year-long limited commercial release.

Rohan, on behalf of Robert Marcus, asked for insights into operating expense trends for 2025 and beyond, given the company's goal of reaching cash flow breakeven. He also inquired about any revenue contribution from the new pediatric approval factored into the 2025 guidance.

Answer

CFO Scott Blumberg stated that OpEx investments in R&D and sales pilots are funded by IPO proceeds and are being made while maintaining a high degree of confidence in reaching cash flow breakeven with current cash. CEO Xingjuan Chao added that the pediatric Clarity approval will not have a material impact on 2025 revenue, as a full launch will follow a limited commercial release of about one year.

Robert Marcus asked about the drivers behind the strong Q4 gross margin performance and the outlook for both gross margin and operating expenses in 2025. He also requested details on the company's initiatives to drive deeper utilization within existing hospital accounts.

Answer

CFO Scott Blumberg stated that the 2025 gross margin guidance of mid-to-high 80s accounts for an increased tariff on materials from China. He projected higher OpEx driven by a 40-60% YoY increase in R&D spending, approximately $15 million in stock-based compensation, and the planned expansion to 55 territory managers. CEO Jane Chao added that utilization is driven by educating physicians, helping hospitals standardize EEG into protocols, and raising overall disease awareness.

Robert Marcus asked about CeriBell's P&L, focusing on the better-than-expected Q4 gross margin and the outlook for both gross margin and operating expenses in 2025. He also questioned the strategy for driving deeper utilization within existing hospital accounts.

Answer

CFO Scott Blumberg stated that the mid-to-high 80% gross margin guidance for 2025 accounts for an increased tariff on materials from China. He projected a 40-60% YoY increase in R&D spending and higher stock-based compensation. CEO Jane Chao addressed utilization, outlining a strategy focused on physician education, particularly in emergency departments, and working with nursing teams to standardize rapid EEG into hospital protocols, citing existing clinical guidelines.

Robert Marcus from JPMorgan Chase & Co. asked if the company expects to recover the revenue shortfall from 2025 in 2026 and questioned what specifically went wrong with the Inspire V launch plan since the prior quarter's call.

Answer

CEO Tim Herbert affirmed the company's intent to restore its high-growth trajectory in 2026, viewing the current headwinds as short-term. He attributed the launch challenges to the sheer complexity of the company's largest-ever product rollout, highlighting specific difficulties with initial inventory readiness, the timing of Medicare's billing system updates, and the operational lift required to implement the new SleepSync software at customer sites.

Robert Marcus from JPMorgan Chase & Co. sought more detail on the Q2 dynamics, asking about the balance between lower procedure volumes and inventory destocking. He also questioned the size of the pent-up patient demand and why, given the strong demand, the company was not raising its full-year revenue guidance.

Answer

CEO Tim Herbert (mistakenly identified as Richard Buchholz in the transcript) emphasized that the patient funnel remains very strong, which provides confidence for future growth. He clarified that Q2 involves a transition process of activating centers for Inspire V while burning down Inspire IV inventory. While there is a shift, the underlying patient demand gives the company confidence in its full-year outlook for the second half of the year.

Robert Marcus asked about the expected phasing of revenue and margins throughout 2025 given the Inspire V launch, and for the company's latest perspective on the impact of GLP-1 drugs.

Answer

Chief Financial Officer Rick Buchholz stated that after typical Q1 seasonality, the company expects sequential revenue improvement throughout the year and is comfortable with current Q1 estimates. Chairman and CEO Tim Herbert addressed GLP-1s, viewing them as a long-term benefit that can help patients lose weight and subsequently qualify for Inspire therapy. He noted that while they haven't seen a tailwind yet, they believe it is coming.

Robert Marcus asked about the sustainability of Inspire's recent profitability and margin upside, questioning the trajectory of operating leverage, particularly in DTC spending, ahead of the 2025 Inspire V launch. He also inquired about sequential utilization trends from Q2 to Q3 and the outlook for Q4.

Answer

CEO Tim Herbert stated the company aims for continued, consistent leverage across the entire organization, not just DTC, and plans to remain profitable. CFO Rick Buchholz noted that R&D expense was lower in Q3 but is expected to normalize to the mid-to-high teens as a percentage of revenue going forward. Regarding utilization, Tim Herbert confirmed it was consistent from Q2 to Q3 and up year-over-year, and that growing utilization remains a key focus.

Robert Marcus of JPMorgan Chase & Co. inquired about the financial impact of the Novum IQ pump pause on Q2 results and the rest-of-year guidance, and also asked for an updated outlook for 2026.

Answer

EVP & COO Heather Knight clarified that the Novum pause had no Q2 impact as it was a recent decision, and she expressed confidence in the platform's long-term value. EVP & CFO Joel Grade added that the low end of 2025 guidance conservatively assumes no further Novum shipments this year. For 2026, he anticipates margin expansion from volume recovery, stranded cost mitigation, and new product launches.

Robert Marcus of JPMorgan Chase & Co. inquired about the financial impact of the Novum IQ pump pause on Q2 results and the full-year outlook, asking how the company gained comfort in its guidance and what would happen if the pause became more durable. He also asked for a bridge for the lowered EPS guidance and its implications for the 2026 outlook.

Answer

EVP & COO Heather Knight clarified the Novum pause had no impact in Q2 as the decision was recent, emphasizing it was a voluntary, temporary measure to incorporate customer feedback on specific workflows. EVP & CFO Joel Grade stated the low end of the 2025 guidance assumes no further Novum shipments for the year, capturing the potential downside risk. For 2026, Grade anticipates margin expansion driven by volume recovery in fluids and pumps, continued efforts on stranded costs, and new product introductions.

Robert Marcus asked to quantify the amount of IV fluid stocking that shifted from Q2 to Q1, inquired about the sustainability of the strong performance in the HST segment, and followed up on the 2026 operating margin outlook.

Answer

COO Heather Knight estimated that distributor stocking pull-forward contributed about 1.5 percentage points to total company growth in Q1. She expressed confidence in HST's momentum, citing a strong order book and competitive share gains. EVP & CFO Joel Grade reiterated the company's commitment to margin expansion but did not explicitly reaffirm a prior target for 2026, noting the evolving tariff situation.

Robert Marcus inquired about the confidence in achieving the 16.5% operating margin for 2025, asking if it's a target or a floor, and requested details on initiatives to offset stranded costs and the future loss of TSA income.

Answer

CFO Joel Grade described the 16.5% margin as a solid 'anchoring point' for the post-separation company and a base for future expansion. He detailed initiatives to offset stranded costs, including rationalizing the U.S. distribution network, rightsizing the organization, and proactively planning cost eliminations to align with the eventual decline in TSA income, with a goal to fully offset these costs by the end of 2027.

Robert Marcus of JPMorgan Chase & Co. asked for a breakdown of the drivers behind the strong gross and operating margin performance, seeking to distinguish between the impact of lower tariffs and underlying business improvements, and requested insight into the margin cadence for the rest of the year.

Answer

CFO Raul Parra attributed the strong performance to high execution from the sales force, favorable product and geographic mix, and disciplined pricing. He noted that about half of the gross margin upside was due to a lower-than-expected tariff impact. While not providing specific gross margin guidance, he pointed to the raised full-year non-GAAP operating margin guidance of 19% to 20% as a key indicator of sustained profitability, supported by the company's Continued Growth Initiative (CGI) program.

Robert Marcus questioned the potential for pulling back on operational spending to offset tariff impacts and asked how the company could maintain its free cash flow guidance despite the significant EPS headwind.

Answer

EVP and CFO Raul Parra indicated that the company has a game plan centered on its existing CGI program rather than detailing specific spending cuts. He explained that free cash flow guidance is maintained through a good Q1 start and various working capital levers, such as inventory management, which are expected to mitigate the cash impact of the tariffs.

Robert Marcus of JPMorgan Chase & Co. asked for a breakdown of the margin progression through the rest of the year, noting the Q2 gross margin and seeking clarity on the puts and takes to reach the full-year guidance.

Answer

EVP & CFO Jereme Sylvain clarified that the Q2 gross margin was impacted by a ~100 basis point charge for a receiver recall. He expects sequential improvement in Q3 and Q4 to reach the full-year target of 62%, driven by rebuilding inventory, which enables more efficient shipping, and increased manufacturing plant efficiencies.

Robert Marcus requested insight into the expected cadence of financial performance through 2025, considering factors like the G7 15-day launch and the lapping of pricing headwinds.

Answer

CFO Jereme Sylvain projected a better-than-historical sequential Q1 performance, followed by a stable cadence of improvement throughout the year, aided by easier comps in the second half. He anticipates gross margins will improve over the course of the year, driven by manufacturing scale and G7 conversion, with a smaller benefit from the 15-day sensor launch in the second half.

Robert Marcus asked for details on the actions taken to stabilize the DME channel, questioning if price was a factor and whether Dexcom could regain its previous standing with DME partners.

Answer

CEO Kevin Sayer explained that the primary issue was disrupted field relationships from the sales force reorganization, not price. He said conversations with DME leaders have focused on increasing patient volume. Actions include encouraging a 'channel agnostic' approach for reps and offering Stelo to DME partners, though he cautioned that rebuilding the relationships will take time.

Robert Marcus of JPMorgan Chase & Co. asked for quantification of the margin impact from the sales force expansion and inquired about the underlying end-market growth rates for stroke and peripheral thrombectomy.

Answer

CFO Maggie Yuen stated the commercial team investment did not impact gross margin and the full-year margin guidance is maintained. CEO Adam Elsesser added that the VTE market is growing around 20%, while Penumbra's growth is over 40%, and noted the overall neuro market was softer, though Penumbra gained share. He attributed the guidance to a degree of caution.

Robert Marcus asked for more detail on the drivers of the strong U.S. thrombectomy growth, specifically the performance of the stroke versus peripheral segments, and inquired about the factors behind the P&L performance, particularly the lower-than-expected R&D spending.

Answer

CEO Adam Elsesser highlighted that the stroke business grew significantly above the market, aided by the new RED 72 catheter, and the arterial business met or exceeded expectations. He explained that R&D spending is non-linear and was lower partly due to anniversarying the wind-down of the Immersive Healthcare business. CFO Maggie Yuen confirmed that about half of the savings from the wind-down were realized in the R&D line.

Robert Marcus of JPMorgan Chase & Co. questioned the outlook for the embolization and access business, noting that guidance implies flat to negative growth for 2025, and asked for color on the U.S. versus international dynamics driving this forecast.

Answer

CEO Adam Elsesser affirmed that embolization and access remains a strong, market-leading business with continued innovation planned. He noted that as the company's focus on CAVT expands, they are ensuring dedicated commercial focus. He mentioned retrenching in some international markets while seeing growth opportunities in the U.S. and leveraging the new Costa Rica facility for a more favorable cost basis in certain markets.

Robert Marcus asked about the sustainability of Penumbra's operating margin expansion and whether the guided 100-200 basis point improvement is a reliable range going forward. He also sought commentary on the potential market impact of a competitor's PEERLESS trial data presented at TCT.

Answer

CEO Adam Elsesser affirmed the company's ability to continue expanding both gross and operating margins. He explained that gross margin improvement is driven by product mix shift to CAVT and efficiencies, while operating margin expansion will outpace it. Regarding the competitor's trial, Elsesser noted a "muted reaction" from physicians and expressed confidence that the data highlights the advantages of Penumbra's faster Flash 2.0 technology.

Robert Marcus of JPMorgan Chase & Co. asked about the drivers of the strong U.S. TAVR performance and whether asymptomatic patient treatment was a factor, as well as TAVR trends in Europe and Japan following a competitor's exit.

Answer

CEO Bernard Zovighian and outgoing TAVR head Larry Wood attributed U.S. TAVR strength to a renewed clinical focus on managing aortic stenosis post-early TAVR trial, not yet a significant asymptomatic patient influx. Incoming TAVR lead Dan Lippis noted that in Europe, the SAPIEN 3 platform and asymptomatic indication are key long-term drivers, while in Japan, the focus is on regaining market position.

Robert Marcus from JPMorgan Chase & Co. inquired about the drivers of the strong U.S. TAVR performance and whether asymptomatic patient treatment was a factor. He also asked for an update on TAVR trends in Europe and Japan, particularly following a competitor's market exit.

Answer

CEO Bernard Zovighian attributed the U.S. TAVR strength to a renewed clinical focus on managing aortic stenosis patients, sparked by the early TAVR trial data. Corporate VP Larry Wood clarified that significant asymptomatic patient volume has not yet materialized. Incoming TAVR leader Dan Lippis noted that in Europe, the competitor exit provided a modest sales contribution, while in Japan, the focus is on regaining market share.

Robbie Marcus asked how Edwards is offsetting the significant $0.10-$0.15 EPS headwind and for a breakdown of the TMTT guidance raise between foreign exchange and underlying business performance.

Answer

CFO Scott Ullem explained that they are executing pre-planned cost mitigation strategies, including prioritizing R&D and managing discretionary spending, without impacting 2025 sales. He clarified that the TMTT guidance increase was driven roughly 50% by favorable FX and 50% by operational momentum. Daveen Chopra, Global Leader of TMTT, attributed the operational strength to strong adoption of both PASCAL and EVOQUE in the U.S. and Europe.

Robert Marcus inquired about the expected mix of SG&A and R&D spending in 2025 following the divestiture of Critical Care. He also asked for more detail on the 'few instances of regional pressure' mentioned in the TAVR business.

Answer

CFO Scott Ullem stated that the expected 200 basis point improvement in 2025 operating margin will come from roughly 100 basis points of leverage from both R&D and SG&A, with spending levels held flat from Q4. CEO Bernard Zovighian specified that Japan was a primary example of regional pressure, noting dissatisfaction with Q4 growth there but reaffirming commitment to the significant long-term opportunity.

Robert Marcus inquired about the TMTT segment, asking how physicians choose between tricuspid repair (PASCAL) and replacement (EVOQUE). He also questioned the TAVR market capacity issue, noting competitors have not highlighted it similarly.

Answer

Daveen Chopra, Global Leader of TMTT, stated that while the company is still learning which patients are best for repair versus replacement, having both options is crucial. Larry Wood, Group President of TAVR, explained that as the market leader, Edwards is more sensitive to overall market growth and capacity constraints, which are exacerbated by the rollout of new technologies like EVOQUE that demand significant cath lab resources.

Robert Marcus from JPMorgan Chase & Co. questioned if early data shows productivity improvements with the da Vinci V system and asked about the rationale for the recent share repurchase and the company's capital deployment strategy.

Answer

CFO Jamie Samath noted that da Vinci V's average system utilization recently surpassed the Xi's, which is a positive sign, but stated it will take time to build robust evidence of efficiency gains. CEO Dave Rosa added that case time savings can exceed 20% in some instances. Regarding capital, Jamie Samath explained that the share repurchase was an opportunistic move given market volatility and reiterated the company's consistent capital allocation priorities: organic investment, tuck-in M&A, and shareholder returns.

Robert Marcus from JPMorgan Chase & Co. asked about any observed productivity improvements with the da Vinci V system versus the Xi and questioned the rationale behind the recent share repurchase and the company's capital deployment strategy.

Answer

CFO Jamie Samath mentioned that average system utilization on da Vinci V recently surpassed the Xi, which is a positive sign, but noted it will take time to build robust evidence of efficiency gains. CEO Dave Rosa added that efficiency was a key design focus for da Vinci V, with early data showing time savings that could enable an extra case per day. Regarding capital allocation, Jamie Samath reiterated the company's consistent strategy: first, organic investment (R&D, CapEx), second, tuck-in acquisitions, and third, opportunistic share repurchases, which were exercised in Q2 due to market volatility.

Robert Marcus questioned the confidence behind raising the full-year procedure volume guidance so significantly after just one quarter. He also followed up on tariffs, asking about the potential levers the company has to offset the financial impact and the possible timing for seeing those benefits.

Answer

Executive Jamie Samath attributed the guidance raise to the company's standard forecasting process, highlighting that strong day-adjusted Q1 procedure growth of 18.5% provides momentum for the rest of the year. Executive Gary Guthart added that customer feedback indicates Intuitive is seen as 'part of the solution.' Regarding tariff mitigation, Executive David Rosa detailed a multi-faceted approach, including supply chain optimization, dual sourcing, USMCA qualification for products, and long-term adjustments to their global manufacturing footprint.

Robert Marcus inquired about the upcoming full launch of the da Vinci 5, seeking qualitative insights on the expected trade-in cycle and the future placement mix between the new da Vinci 5 and the existing Xi systems. He also asked for a general overview of the capital equipment environment in the U.S., OUS, and particularly China.

Answer

CEO Gary Guthart stated the broad launch is dependent on scaling the supply chain and releasing software updates. He noted the trade-in cycle's speed will be driven by the 'differential value' customers perceive in dV5. CFO Jamie Samath added that the trade-in cycle would be 'progressive' starting mid-year. Regarding the capital environment, Samath described the U.S. as 'strong,' but characterized China as 'challenging' due to competition and government policies, while noting budget pressures in the U.K. and Germany.

Robert Marcus asked about the future trajectory of gross and operating margins, considering the da Vinci 5 launch and recent heavy investments. He also inquired about the company's plans for repurposing and reselling refurbished Xi systems obtained through trade-ins.

Answer

CFO Jamie Samath explained that while the company's aspiration is a 70% gross margin in the mid-term, margins are expected to be slightly lower in 2025 due to significant depreciation from new facilities. He reiterated that management does not have an objective for operating margins to exceed 40%. Regarding trade-ins, he confirmed that refurbished Xi systems will be used for market segmentation, targeting different sites of care in the U.S. and cost-sensitive international markets.

Robert Marcus asked for clarification on the balance between top-line growth and margin expansion, given some market interpretations. He also requested an update on the U.S. launch and adoption trends for Omnipod in the type 2 diabetes market.

Answer

President and CEO Ashley McEvoy affirmed that the financial strategy of pursuing double-digit growth alongside continued margin improvement remains unchanged. Chief Product and Customer Experience Officer Eric Benjamin added that the type 2 launch is progressing well, driven by a three-part strategy of data dissemination, sales force expansion, and effective DTC advertising, noting that over 30% of U.S. new customer starts were for type 2 patients.

Robert Marcus of JPMorgan Chase & Co. inquired about the growth rate of Type 2 patients in the U.S. during Q4, which he estimated at 50% year-over-year, and asked about the expected trajectory for this segment throughout 2025.

Answer

President and CEO Jim Hollingshead confirmed a significant ramp in Type 2 new customer starts, reaching over 30% of the U.S. mix, but declined to provide specific growth rate breakdowns. He expressed a bullish outlook for 2025, citing the expanded sales force and positive prescriber response as key drivers for the Type 2 market, which he noted is a major growth opportunity.

Robert Marcus asked for clarification on Insulet's strong European performance, including its #1 new patient status, the magnitude of new patient growth, and the sustainability of pricing benefits.

Answer

President and CEO Jim Hollingshead confirmed Omnipod is the #1 pump for new users in the European markets it serves, with stable new customer starts despite summer seasonality. CFO and Treasurer Ana Maria Chadwick added that pricing accretion from Omnipod 5 launches is expected to continue into 2025 as the product rolls out to new countries, offsetting markets that have annualized their initial price bumps.

Robert Marcus asked for clarity on the second-quarter outlook given seasonal patterns and prior-year integration comps, and also questioned the progression of free cash flow and the expected year-end leverage.

Answer

CFO Phillip Berry noted that while Q1 had a tailwind from extra selling days, the overall first-half/second-half revenue split remains consistent with prior guidance. He expressed high confidence in achieving positive free cash flow for the year, explaining Q1 is a seasonal low point. He projected year-end leverage would be in the 3.0x to 3.5x range.

Robert Marcus requested an overview of market dynamics across U.S. vs. OUS and large joint vs. extremities, including 2025 expectations. He also asked for details on the expected 2025 free cash flow improvement and year-end debt targets.

Answer

CEO Matthew Trerotola detailed that OUS markets finished 2024 strong but are planned to normalize, while the U.S. business is gaining share with new products. CFO Phillip Berry projected a significant positive step in 2025 free cash flow and expects the leverage ratio to decrease from ~3.5x to the 'low 3s' by year-end.

Robert Marcus asked for a distinction between the Lima integration progress and the health of end markets, questioning the confidence in a 2025 acceleration given lowered forward guidance. He also requested more detail on Extremities growth, specifically in shoulder and ankle.

Answer

CEO Matthew Trerotola stated that the integration is on track, but international recon markets have normalized and U.S. markets have been just 'fine.' He expressed confidence in 2025 acceleration as integration headwinds clear. He highlighted extremely strong Foot & Ankle performance and improving Shoulder growth, which will be boosted by the new ARG product ramp.

Robert Marcus of JPMorgan Chase & Co. asked for a reconciliation of the tariff impact math from the previous call, particularly for China, and inquired about mitigation efforts for the significant Q4 impact and its annualized run rate into the next year.

Answer

EVP and CFO Todd Garner clarified that the tariff outlook improved significantly because products from Mexico are now exempt, which was the largest component previously discussed. He explained the new estimate reflects a clearer understanding of how tariffs on Chinese goods will flow through inventory, impacting the P&L with a delay. For mitigation, Garner outlined several strategies: rerouting logistics to bypass the U.S., considering price adjustments, exploring long-term vendor changes, and re-evaluating accounting and transfer pricing structures.

Robert Marcus of JPMorgan Chase & Co. inquired about the confidence in the 2025 guidance cadence, given past supply issues, and asked if 2026 could mark a return to stronger EPS leverage and faster bottom-line growth.

Answer

CFO Todd Garner acknowledged past disappointments and framed the 2025 guidance as a realistic starting point that doesn't get ahead of the necessary operational improvements and currency headwinds. While not guiding for 2026, he affirmed the company's long-term model is to grow adjusted EPS at approximately twice the rate of revenue growth, suggesting a potential return to that leverage in the future.

Robert Marcus questioned the decision not to include the tariff impact in guidance, given it represents a significant potential headwind to EPS. He asked about the company's confidence in its ability to mitigate the impact and whether there was a risk of tripping debt covenants.

Answer

Chairman and CEO Brenton L. Saunders explained the exclusion was for transparency and to avoid constant updates in a fluid policy environment. CFO Osama Eldessouky emphasized that the 120 bps impact is a point-in-time estimate and does not include all mitigation levers being evaluated, which they believe can 'meaningfully' offset the exposure. He also confirmed that the company is in full compliance with its debt covenants and does not foresee an issue.

Robert Marcus asked about the outlook for free cash flow in 2025, questioning if it could turn positive. He also asked for confirmation on the implied EPS growth from guidance and how the company plans to drive future EPS and free cash flow.

Answer

CFO Osama Eldessouky stated that the momentum in adjusted cash from operations seen in 2024 is expected to continue, and he expects the company to be free cash flow positive in 2025, based on continued cash generation and a CapEx forecast of approximately $280 million. Regarding EPS, he confirmed year-over-year growth is expected from the $0.63 reported in 2024, but highlighted headwinds from a higher guided tax rate (15-17%) and a $20 million currency impact on EBITDA.

Robert Marcus questioned the rationale for including provisions for future, unknown ship holds in the 2025 guidance and asked for expectations regarding the free cash flow conversion rate and absolute dollar amount for 2025.

Answer

CFO Lea Knight explained the provision for future ship holds is due to the ongoing, systemic assessment of the entire manufacturing network under the compliance master plan, which carries inherent risk of uncovering new issues. She expects free cash flow conversion to improve and step up above 20% in 2025, with leverage remaining flat to slightly down.

Robert Marcus asked for an update on staff retention across quality, manufacturing, and sales, and questioned the outlook for free cash flow conversion and the path back to the previously stated 90% target.

Answer

CEO Jan De Witte noted that overall retention is normal, with a minor uptick in turnover in the surgical reconstruction sales force. CFO Lea Knight explained that due to supply challenges, the 90% free cash flow conversion target is not expected in the near term and will be re-evaluated in a future long-range plan update.

Questioned the significant reduction in R&D spending and how the company balances cost-cutting with the need for future innovation. Followed up by asking how the company plans to grow revenue in 2025 after substantial expense and headcount reductions in 2024.

Answer

Executives stated they are focusing R&D investment on projects with a clear ROI and that some of the spending reduction was due to the natural timing of clinical trial enrollment. To drive growth with a leaner structure, they are reinvesting in key areas like DTC advertising and believe the new AdaptiveAI technology will create significant operational efficiencies, allowing them to support more patients without a proportional increase in headcount.

Robert Marcus questioned the go-to-market strategy for the new Nanoplasty MIS osteotomy system without clinical data, contrasting it with the data-led launch of Lapiplasty. He also inquired about the 2025 outlook, specifically regarding the path to adjusted EBITDA breakeven and early thoughts on top-line growth.

Answer

CEO John Treace explained that like Lapiplasty initially, clinical data for Nanoplasty will be gathered post-launch. He noted that Nanoplasty incorporates a well-documented rotational correction component, which should drive surgeon interest. CFO Mark Hair reaffirmed the company's goal to reach adjusted EBITDA breakeven in 2025 through operating leverage, stating it was too early to provide 2025 revenue guidance until the adoption of new products becomes clearer.