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ZB

ZIMMER BIOMET HOLDINGS, INC. (ZBH)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 net sales were $2.001B (+9.7% YoY reported; +5.0% organic CC) and adjusted EPS was $1.90 (+9.2% YoY); GAAP EPS was $1.16 .
  • Versus S&P Global consensus, ZBH delivered a modest EPS beat ($1.90 vs $1.86*) and a slight revenue miss ($2.001B vs $2.010B*); U.S. organic growth accelerated to 5.6%, offset by late-quarter weakness in Latin America, Emerging Europe and restorative therapies .
  • FY25 guidance: maintained adjusted EPS ($8.10-$8.30) and reported revenue growth (6.7%-7.7%); narrowed CC (6.2%-6.7%) and organic CC (3.5%-4.0%); FX tailwind now 50–100 bps; Paragon 28 contribution ~270 bps .
  • Strategic catalysts: completion of Monogram acquisition (semi/fully autonomous robotics), Japan PMDA approval for iodine-treated hip system, and new foot & ankle launches (Paragon 28) underpin medium-term growth narrative .

Note: Values marked with * are from S&P Global; Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • U.S. organic performance accelerated to 5.6% in Q3, the best U.S. quarter in over two years, driven by “Magnificent Seven” product adoption (Persona cementless total knee, Oxford cementless partial knee) .
  • Robotics momentum: strongest ROSA capital sales in over a year; U.S. Technology & Data/Bone Cement/Surgical up 20.3% with increased robotic utilization and >50% of knee implants performed robotically in ROSA accounts .
  • Strategic pipeline: Japan PMDA approval for iodine-treated hip system (first-to-world implant technology) and completion of Monogram acquisition to offer semi- and fully autonomous robotics; management highlighted strong surgeon feedback and path to commercialization .

What Went Wrong

  • Late-quarter revenue headwinds (~120 bps): distributor order cancellations in Emerging European markets, restorative therapies shortfalls (U.S. HA injections), and Latin America distributor challenges (~15% miss) .
  • International slowdown: Q3 international organic CC growth 4.2% lagged U.S., with emerging market weakness and lower growth in China; non-core restorative therapies declined low-teens .
  • Sequential softness vs Q2: revenue fell to $2.001B from $2.077B and adjusted EPS to $1.90 from $2.07, reflecting mix/international headwinds and higher interest expense tied to Paragon 28 .

Financial Results

Revenue, EPS and Margins (Q1 → Q3 2025)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.909 $2.077 $2.001
GAAP Diluted EPS ($)$0.91 $0.77 $1.16
Adjusted Diluted EPS ($)$1.81 $2.07 $1.90
GAAP Gross Margin (%)63.3% 63.8% 63.2%
Adjusted Gross Margin (%)71.5% 71.6% 72.6%
GAAP Operating Margin (%)15.3% 14.4% 17.6%
Adjusted Operating Margin (%)26.2% 27.8% 26.5%

Q3 2025 vs Estimates (S&P Global)

MetricConsensusActual
EPS ($)1.85975*1.90
Revenue ($USD Billions)$2.010*$2.001

Note: Values marked with * are from S&P Global; Values retrieved from S&P Global.

Geography Net Sales (Q1 → Q3 2025)

Geography ($USD Millions)Q1 2025Q2 2025Q3 2025
United States1,113.6 1,173.8 1,164.0
International795.5 903.5 837.3
Total1,909.1 2,077.3 2,001.4

Product Category Net Sales (Q1 → Q3 2025)

Category ($USD Millions)Q1 2025Q2 2025Q3 2025
Knees (Total)792.9 826.0 792.4
Hips (Total)495.8 536.1 506.2
S.E.T.470.5 550.6 541.5
Tech & Data, Bone Cement & Surgical149.9 164.6 161.3
Total1,909.1 2,077.3 2,001.4

Cash Flow and Net Debt KPIs

KPIQ1 2025Q2 2025Q3 2025
Cash from Operations ($MM)382.8 378.2 418.7
Free Cash Flow ($MM)278.5 247.7 277.6
Net Debt ($MM)5,791.8 7,015.6 6,819.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Reported Revenue GrowthFY 20256.7% – 7.7% 6.7% – 7.7% Maintained
FX Impact to GrowthFY 20250.5% 0.5% – 1.0% Raised
Constant Currency Revenue GrowthFY 20256.2% – 7.2% 6.2% – 6.7% Narrowed (lower top end)
Organic CC Revenue GrowthFY 20253.5% – 4.5% 3.5% – 4.0% Narrowed (lower top end)
Adjusted Diluted EPSFY 2025$8.10 – $8.30 $8.10 – $8.30 Maintained
Free Cash FlowFY 2025$1.0B – $1.2B $1.0B – $1.2B Maintained
Adjusted Tax RateFY 2025~18% ~18% Maintained
Adjusted Net Interest & OtherFY 2025~$290MM ~$280MM Lowered
Operating Margin vs 2024FY 2025Down ~100 bps Down ~100 bps Maintained
Tariff Headwind (Operating Profit)FY 2025~$40MM ~$40MM Maintained
Paragon 28 Sales Growth ContributionFY 2025~270 bps ~270 bps Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/Robotics strategyDefinitive agreement for Monogram; ROSA pipeline; Think Surgical partnership; semi/fully autonomous plan; robotics adoption growing Monogram acquisition completed; strongest ROSA capital quarter; surgeon feedback positive; path to semi-autonomous launch in early 2027 and fully autonomous by late 2027/early 2028 Accelerating
Product performance – Knees/HipsQ2: U.S. knees +1.7% with Persona cementless; U.S. hips +5.2% with Z1/HAMMR/OrthoGrid U.S. knees +3.5%; U.S. hips +4%; Z1 ~25% of hip stems; Oxford adoption above expectations Improving in U.S.
Supply chain/tariffs/macroTariff headwind cut to ~$40MM; ERP headwinds eased; FX tailwind ~50 bps FX tailwind 50–100 bps; tariff headwind unchanged; emerging market distributor cancellations late-quarter Mixed: FX better, EM weaker
Regional trendsQ2: Intl organic +3.4%; EMEA timing helped; China slower U.S. organic +5.6%; Intl organic +4.2%; weakness in Eastern Europe, LATAM, China U.S. improving; EM soft
Regulatory/LegalFDA 510(k) Persona Revision SoluTion Femur; Board changes Japan PMDA approval for iodine hip; U.S. breakthrough designation noted; litigation/MD(R) costs excluded in non-GAAP Positive regulatory traction
Diversification/M&AParagon 28 integration on track; plan to diversify WAMGR via M&A Paragon 28 stable; Monogram closed; optionality for buybacks; focus on faster-growth segments Ongoing execution

Management Commentary

  • CEO: “Our third quarter performance was anchored by 5.6% organic revenue growth in our critical U.S. business, driven by accelerated adoption of our key new products referred to as the ‘Magnificent Seven’.”
  • CEO on robotics: “We now look forward to… launch the world's first semi-autonomous robot… in early 2027, swiftly followed by the fully autonomous platform at the end of 2027 or early 2028.”
  • CFO: “Adjusted gross margin was 72.6%… Adjusted operating margin was 26.5%… partially offset by increased commercial investments and the addition of Paragon 28.”
  • CEO on late-quarter miss drivers: “Three things happened… last-minute cancellation of distributor orders in emerging markets of Europe… restorative therapies… and in Latin America… north of 15%… around $24 to $25 million… ~120 basis points.”
  • CFO on outlook: “We are maintaining our 2025 reported revenue growth guidance of 6.7% to 7.7%… adjusted EPS… $8.10 to $8.30… FX to contribute 50 to 100 basis points of growth in 2025… Paragon 28 to contribute around 270 basis points.”

Q&A Highlights

  • Guidance philosophy and surprise drivers: management acknowledged prior “scratch 6%” comment and adopted a more measured tone; detailed ~120 bps headwind from EM distributor cancellations, U.S. HA injections (restorative therapies) and LATAM distribution issues .
  • Capital allocation and leverage: >$1B FCF expected; adjusted EBITDA ~$1.6–$1.7B; net debt leverage “very low three” and optionality for buybacks; continued disciplined M&A in faster-growth segments .
  • Robotics roadmap: strong confidence in semi/fully autonomous regulatory path; semi-autonomous commercialization with ZB implants targeted for early 2027; fully autonomous late 2027/early 2028 .
  • Paragon 28 integration: organic upper-single-digit growth; no material turnover in sales channel; “rinse and repeat” platform approach for future deals .
  • Restorative therapies clarity: primarily U.S. HA injections; budgeting, commercial focus, and CMS pricing pressures were issues; expect more measured expectations going forward .

Estimates Context

  • EPS beat: Actual $1.90 vs consensus $1.85975* (+$0.04), driven by higher revenue, improved gross margin and lower share count, partially offset by higher interest expense tied to Paragon 28 .
  • Revenue miss: Actual $2.001B vs consensus $2.010B*, reflecting late-quarter EM and restorative therapies headwinds despite strong U.S. growth and ROSA placements .

Note: Values marked with * are from S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

  • U.S. acceleration is real: 5.6% organic growth, stronger knees/hips adoption and ROSA momentum underpin near-term support; watch for sustained improvements into Q4 and FY26 .
  • International/emerging markets are near-term risk: distributor dynamics and EM volatility pressured Q3; management removed these from near-term guidance, signaling prudence .
  • Guidance quality improved: EPS maintained, revenue ranges narrowed, FX tailwind raised; free cash flow robust ($1.0–$1.2B) provides buyback/M&A optionality .
  • Medium-term catalysts: Monogram autonomy roadmap and Japan iodine hip launch should enhance competitive positioning and pricing/mix, supporting margins and growth in 2026–2028 .
  • Non-GAAP profile strong: adjusted gross margin 72.6% and operating margin 26.5%; intangible amortization, restructuring, and EU MDR costs are material exclusions—track conversion to cash via FCF .
  • Segment mix: S.E.T. remains a growth engine augmented by Paragon 28; watch restorative therapies (U.S. HA) for stabilization under revised expectations .
  • Trading implications: Modest EPS beat vs slight revenue miss with cautious tone could cap near-term multiple expansion; catalysts (robotics, iodine hip) and U.S. strength vs EM risk argue for selective accumulation on weakness .