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Edited Transcript of ZBH earnings conference call or presentation 1-Feb-19 1:30pm GMT

Q4 2018 Zimmer Biomet Holdings Inc Earnings Call

WARSAW Apr 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Zimmer Biomet Holdings Inc earnings conference call or presentation Friday, February 1, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bryan C. Hanson

Zimmer Biomet Holdings, Inc. - President, CEO & Director

* Coleman N. Lannum

Zimmer Biomet Holdings, Inc. - SVP of IR

* Daniel P. Florin

Zimmer Biomet Holdings, Inc. - Executive VP & CFO

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Conference Call Participants

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* Amit Hazan

Citigroup Inc, Research Division - Director

* Bruce M. Nudell

SunTrust Robinson Humphrey, Inc., Research Division - MD

* David Ryan Lewis

Morgan Stanley, Research Division - MD

* Frederick Allen Wise

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

* Glenn John Novarro

RBC Capital Markets, LLC, Research Division - Former MD & Senior Analyst

* Isaac Ro

Goldman Sachs Group Inc., Research Division - VP

* Joanne Karen Wuensch

BMO Capital Markets Equity Research - MD & Research Analyst

* Kristen Marie Stewart

Barclays Bank PLC, Research Division - Research Analyst

* Kyle William Rose

Canaccord Genuity Limited, Research Division - Senior Analyst

* Lawrence H. Biegelsen

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Matthew Stephan Miksic

Crédit Suisse AG, Research Division - Senior Research Analyst

* Michael Stephen Matson

Needham & Company, LLC, Research Division - Senior Analyst

* Rajbir Singh Denhoy

Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst

* Richard S. Newitter

SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst

* Robert Adam Hopkins

BofA Merrill Lynch, Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, Friday, February 1, 2019. (Operator Instructions)

I would now like to turn the conference over to Cole Lannum, Senior Vice President, Investor Relations and IRO. Please go ahead, sir.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [2]

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Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet's Fourth Quarter and Full Year 2018 Earnings Conference Call. I'm joined by Bryan Hanson, our President and CEO; and by our CFO, Dan Florin.

Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Now actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward-looking statements, even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements.

Also, the discussions on this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within the earnings release found on our website at zimmerbiomet.com.

With that, I'll now turn over the call to Bryan. Bryan?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [3]

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Thanks, Cole, and thank you to everyone for joining us this morning. Today, I'd like to provide a little color on our fourth quarter and full year results as well as an overview of the progress we are making on our short-term priorities. Dan will then spend time talking about the financials in more detail and provide color around our 2019 expectations.

Looking at the business from an operational perspective, we generated 1.6% revenue growth for the quarter. Overall, the team is encouraged that we closed the fourth quarter strong in several product categories and geographies. We delivered solid o-U. S. results, driven by strength in our Asia Pacific and Europe, Middle East and Africa regions. The quarter also benefited from improved growth in our global Spine & CMF business.

When looking at the full year 2018, there are a few things I'd like to point out. First of all, our overall growth rate improved from 2017 to 2018, driven mainly by global large joint performance, improved growth in both our Americas and EMEA regions and steady outperformance from our APAC region. And inside the year, revenue growth improved from the first half to the back half of the year. In fact, the last 2 quarters in 2018 were the best quarters we've had in global large joints in the last 2 years, which allowed us to reduce the gap to market in 2018. And obviously, although none of us should get too excited about 1% growth, we are clearly making progress consistent with our turnaround time line.

Additionally, during 2018, we made significant progress across all of our communicated short-term priorities: Supply recovery, quality remediation, new product launches, driving a One ZB mission and culture as well as talent and structure. These are the priorities that will allow us to reshape Zimmer Biomet and begin to position the business for offense. I'd like to spend a little time discussing our progress across each of these.

First, we made solid progress on supply recovery. As a result of our sustained focus, we successfully reduced back orders in 2018 and increased safety stock levels. We also enhanced the talent and leadership of our manufacturing and operations teams. Importantly today, we no longer consider supply to be a barrier to delivering our financial commitments or stated turnaround time line. The next step will be in regaining the full trust of our commercial organization as we shift to offense, which I'm confident we will achieve together in 2019. To make our progress sustainable, this year, we will also start shifting our focus from just supply stability to initiatives aimed at increasing our overall supply chain efficiency.

In 2018, we also continued to make progress on quality remediation. We are executing a detailed remediation plan on the Warsaw North Campus and continue to have constructive communications with the FDA. We expect to complete the remediation plan and to be ready for reinspection by the end of 2019. Patient safety, quality and integrity are guiding principles of our organization, and we will continue to put resources behind this effort. As a part of that commitment, we have begun shifting our focus from just quality remediation to building best-in-class quality systems and driving a culture that will ensure the sustainability of those changes throughout the organization.

Turning to new product introductions. We are entering a phase of exciting innovations for the company. First, we are completing our flagship Persona personalized knee system with partial, cementless and revision knee offerings. In robotics, we just received FDA clearance for the ROSA Knee, and we look forward to the future clearance of ROSA Spine. Both of these robotic offerings will build on the ROSA platform already cleared for the brain, with more than 100 units installed around the world. We've also introduced mymobility, a unique digital platform for our customers and their patients.

While these are all promising individual product launches, going forward, our commercial strategy will increasingly focus on our unique ecosystem of differentiated solutions. For example, by combining Persona, ROSA and mymobility, we will be able to operate a more personalized robotic procedure with a digital health platform backed by Apple. These important new offerings will be in full swing by the second half of 2019, making this an exciting time for our pipeline, and more importantly, the value proposition we can bring to our customers.

Turning to mission and culture. When I joined the company a year ago, I wanted to tackle this right out of the gate. Since drafting a new ZB corporate mission, we've held more than 40 mission ceremonies in 13 countries around the globe, meeting with over 11,000 team members. I want every team member to feel connected to our mission and culture, including the direct impact they have on patients' lives, which is why this outreach will continue to be a top priority throughout 2019.

Finally, to deliver sustainable results, we need the right team and structure in place. That's why over the past year, we've enhanced the organization with new talent. If you look at our leadership team today, 70% of us are new to the position. I'm pleased to report that we're benefiting from broader diversity of expertise and viewpoints on the team. Last year, we also restructured our businesses to streamline reporting and decision-making, with team members at every level driving a more agile and results-driven organization.

These were obviously our priorities in 2018 and will continue to be our focus areas throughout 2019. As we have consistently communicated, 2018 and 2019 are part of a 2-year effort to reshape Zimmer Biomet and position us for offense and ultimately allow for durable weighted average market growth by 2020.

Our strategy for 2020 and beyond will have 3 pillars: First, we will become the best and preferred place to work. We want to make sure that people want to come to work every day because they believe in the organization and understand their direct connection to the One ZB mission and culture. Second, we want to establish Zimmer Biomet as a trusted partner to all of our stakeholders, including our customers, regulators, team members and investors. We want all of our stakeholders to know that they can count on us to do what we say and to do it in the right way. Third, we want to be a top-quartile performer in terms of total shareholder return. Once we stabilize the business and have began to deliver 2% to 3% growth in 2020, we will be well positioned to execute against a 5-year plan that will accelerate our revenue growth, drive margin expansion and increase free cash flow.

Although we will remain relentless on our short-term priorities during 2019, we have already started to better align our compensation structure with these metrics, focused on driving top-quartile performance. Over time, as we execute in each of these areas, we will increase our financial flexibility and our ability to drive shareholder value.

And with that, I'll turn the call over to Dan.

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [4]

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Thank you, Bryan. I will provide highlights of the fourth quarter financial performance and then go into a bit more detail on the 2019 sales and earnings guidance included in our press release this morning. Net sales totaled $2.1 billion in the fourth quarter, an increase of 0.1% over the prior year period, with an increase of 1.6% on a constant currency basis.

As Bryan noted, we delivered solid results in both Asia Pacific and in our Europe, Middle East and Africa region. Within the quarter, our EMEA region increased sales by 4.7%. Note that the EMEA region benefited from top line rebate adjustments. But even excluding these adjustments, the region still reported a growth rate of nearly 3% for the quarter, its best performance in almost 2 years. Our Asia Pacific region delivered another strong quarter, with sales growth of 7.2%; while our Americas region declined 0.9%, reflecting tougher comparisons in the quarter. In addition, our Spine & CMF business increased sales by 3.1% on a constant currency basis, achieving its highest growth rate in the last 3 years. With regard to pricing in the quarter, we experienced an overall decline of 2%. However, when you adjust for the rebate benefit in our EMEA region, pricing was in line with our historical norms.

Moving to the income statement. We reported a GAAP diluted loss per share for the quarter of $4.42. After adjusting for special items, our non-GAAP adjusted diluted earnings per share were $2.18. A reconciliation of reported earnings per share to adjusted net earnings per share is included in this morning's press release. Of note, we recorded a one-time noncash charge of $4.78 per share related to goodwill impairment of our Spine and EMEA reporting segments. In addition, we recorded a noncash accrual of $0.59 per share related to a negative development in a previously disclosed litigation matter.

As usual, operating margin for the fourth quarter was seasonally strong at 29.3%. For the full year, operating margin came in at 27.9%, which was in line with our expectations.

The adjusted effective tax rate for the quarter was 16.5%, which brings our full year adjusted effective tax rate to 18%.

Operating cash flow for the quarter amounted to $380 million, and our free cash flow was $260 million. For the year, operating cash flow was $1.7 billion, and free cash flow was $1.3 billion. We paid down $250 million of debt in the fourth quarter, bringing our full year debt paydown to just under $1.2 billion. During 2018, we reduced our adjusted net debt leverage ratio to 3.2.

Now let me turn to our 2019 guidance. In our press release this morning, we highlighted a number of specific items, which should help you in your modeling. Starting with revenue. For 2019, we expect reported growth to be in a range of negative 0.5% to positive 0.5%, which brackets the current consensus estimates. Included in our reported growth range is the negative impact of foreign exchange, which we expect will reduce reported sales between 100 and 150 basis points.

Importantly, there are 2 factors that will impact quarterly revenue phasing: Foreign currency and billing days. First, based upon today's rates, virtually all of the negative foreign exchange impact will be realized in the first half of the year, weighted much more heavily in the first quarter as compared to the second quarter. In addition, while there is no significant impact from billing days for the full year, there is about a day of headwind in the first half of the year, which is offset in the second half. On an operational basis, we expect our growth rate in 2019 to be better than our performance in 2018, reflecting progress toward achieving our 2-year turnaround goals.

Turning to profitability. We expect operating margin for the full year to be between 27% and 28%, reflecting the investments we are making to launch our new products. If you look across the quarters, the phasing of our reported sales will have a direct impact on operating margins and earnings. Therefore, you should expect the first half operating margin to come in closer to the lower end of the range, with the second half closer to the higher end of that range. We expect our adjusted tax rate to be between 17% and 18%, and we expect adjusted diluted earnings per share to be between $7.70 and $7.90.

For 2019, we expect to generate free cash flow between $1.1 billion and $1.3 billion. Note that this range includes the potential one-time payment of approximately $170 million for the litigation matter that I mentioned earlier. If you adjust for this potential one-time payment, we expect our free cash flow to be at or above the amount we generated in 2018. We expect to continue using the majority of our free cash flow to pay down debt and achieve our leverage goals.

Finally, you should expect interest expense to come in between $230 million and $240 million, with the quarterly number falling throughout the year as we continue to reduce our debt levels.

And with that, I'll turn the call back to Bryan. Bryan?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [5]

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Okay. Thanks, Dan. And before we move into Q&A, I just want to say that I'm very pleased with the progress we've made as a team. Our performance was better in 2018 than 2017, and we expect 2019 to be better than 2018. While we're halfway through the turnaround time line, importantly, we have retired more than half the risk associated with that plan. Although we still have a lot of work to do, we have a team that's ready to launch important new solutions for our customers and deliver on our near-term commitments to transition the organization to full offense and prepare for 2020 and beyond.

And now I'd like to go ahead and turn the call back to Cole so we can get started on the Q&A.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [6]

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Thanks, Bryan. (Operator Instructions) With that, operator, may we please have the first question?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Joanne Wuensch with BMO Capital Markets.

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Joanne Karen Wuensch, BMO Capital Markets Equity Research - MD & Research Analyst [2]

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I think one of the things that we've been talking to investors about is how this AAOS will be different for you than last year or the year before that, particularly with the launch of ROSA. Could you give us an idea of how you plan on launching ROSA into the market and what we can expect this year?

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Operator [3]

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Ladies and gentlemen, one moment while we check for technical difficulties.

(technical difficulty)

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [4]

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Well, that was interesting. Sorry for that. Right when we were closing up, our line went dead, but now we're back with you again. Thanks for your patience.

Operator, I believe you queued up the first question. Did you say that was coming from Joanne?

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Operator [5]

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Joanne Wuensch with BMO Capital Markets.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [6]

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Thanks, everyone, for your patience. Joanne, please go right ahead. We're all here.

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Joanne Karen Wuensch, BMO Capital Markets Equity Research - MD & Research Analyst [7]

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The question was just so good that I broke the system.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [8]

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What did you do?

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Joanne Karen Wuensch, BMO Capital Markets Equity Research - MD & Research Analyst [9]

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Anyway, this year's AAOS is positioned to be very different for you than last year or the last couple of years. And a lot of investors are focused on the launch of ROSA and how you plan to roll it out, not just in March, but throughout the rest of this year. Could you give us an idea of what to expect at AAOS and what to expect from ROSA?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [10]

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Yes. And thanks for the question. The -- and I don't think it was you. I think it was Cole, pressed the -- hung up on us.

But though AAOS will be very different for us of coming up, and one of the things that we're going to be doing very differently at the conference is to have an investor meeting. I think it's a couple hours, Cole, is what we're thinking about. And the idea behind that would be to give a view of both our spine as well as the orthopedic businesses. We'll have both of our group Presidents that manage those businesses at the event. It will give you an opportunity to get to know them in the investor meeting. And we'll have breakout sessions where we'll get into some of the more meaningful technologies that we'll be launching in 2019, or have already launched. ROSA, obviously, will be one of those things that we talk about, very likely both in orthopedics as well as spine and probably even, at least reference to some extent, what we're doing in brain. But it would not be the only thing. So again, we expect it to be a much different feel, AAOS this year. And certainly want to make sure that we spend additional time with our investors to give them visibility to our team, and probably very importantly for everyone, more insight into the innovations that we have.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [11]

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And Joanne, since you brought that up, let me also note and put a plug into this. We've sent the invitation out. Anyone who's on the call who has not gotten the invitation, send me an e-mail and let me know. And it is very important that everyone preregister because we've already gotten a pretty overwhelming response to that meeting. We want to make sure there's enough room for everyone. So please, if you are planning on coming, let us know. And thanks for the question.

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Operator [12]

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We will take our next question from Mike Matson with Needham & Company.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [13]

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I guess I would just like to follow up on Joanne's question about the actual robot launch. I understand you're going to have some investor events there. But can you just talk about how you're actually going to launch it? Are you going to be willing to place robots in exchange for increased implant sales? Are you building a capital sales force? And how should we think about the impact on your growth in 2019 and 2020?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [14]

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Yes, absolutely. I'm not going to get into specifics relative to our placement strategy, whether it be associated with ASP, the types of arrangements we might have outside of just direct sale. But just know that one of the primary focus points of robotics for us is to be able to drive share, obviously. So we're an implant company. That will be the primary focus of the organization, but clearly, we believe robotics is an important factor associated with being able to more share in implants. What I would tell you is we're going to -- as we've been saying pretty much all along, we're going to do a limited launch out of the gate. We want to be very disciplined in our approach to launching a new robotic system, to make sure that we do it right. We have the right education. We have the right service levels. And we will do that limited launch for, let's call it, 6 months. Post that limited launch is when we move into full launch. And that's when the organization gets unleashed and we utilize that technology in that full launch status.

And in the guidance that we provided for 2019, that is already assumed inside the guidance. So I guess just generally speaking though, I'm excited. One of our competitors presented just recently here and talked about the continued strength in robotics. That's perfect. I love to hear it because we're just about to launch our robotic platform in a market that is surging. And when you think about it and the underpenetration of robotics in general and you think about the number of surgeons that are doing procedures today with our implants, there's a very good opportunity for us. And we couldn't be more excited about the fact that robotics is getting good traction. And we're excited about our launch.

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Operator [15]

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Our next question is from Raj Denhoy with Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [16]

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Maybe, Dan, I could ask about the gross margin in the quarter. It was a little bit better. And I know there's some seasonality there. But when you think about the comments you've made now about moving beyond being supply constrained and the quality issues starting to fade, maybe you could offer some guidance or some insight into how gross margin should trend here in 2019.

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [17]

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Sure, Raj. Well, as we said in our prepared remarks and you just referenced, Q4 is typically our highest operating margin quarter due to the seasonally strong sales volume. And that seasonally strong sales volume also benefits gross margin rate. And if you look just back over history, you'll see not only operating margin, but gross margin rates for the company being usually the strongest in the fourth quarter. And really, the primary reason for that is that we're able to leverage certain fixed cost components that are inside of the cost of goods line, right? So that's why it's probably better to look at gross margin for Zimmer Biomet on a full year basis, which for 2018 was 72%. So as we look out to 2019 and contemplated in our guidance, our guidance of operating margin, 27% to 28%, while we're not going to give specific line item detail inside the 27% to 28%, as we've been saying, you shouldn't expect margin expansion until 2020. And really, when you think about gross margin and operating margin in 2019, the reasons for that include the continued higher production cost that we've been talking quite a bit about, but also the investments that we're making in our sales channel and the investments that we're making to support the new product launches that we're very excited about. So again, I think for 2019, as we've been describing, no operating margin growth, you'll see that in 2020, and our guidance contemplates that.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [18]

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Great. So just to put a finer point...

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [19]

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Thank you Raj -- yes, go ahead.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [20]

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No, I was just going to ask, so we should assume that both gross margin and operating margin should be flat in a sense. So gross margin could potentially tick up, as you noted, with better sales, but you'll probably be spending a bit more in SG&A, I guess, to keep that gross -- excuse me, to keep the operating margin flat. Is that the way to think about it?

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [21]

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Well, I mean, the guidance provide the range. And inside of that, there's obviously moving parts through the P&L. But I think that the message we're sending is that 2019 is a year of investment -- continued investment and top line acceleration in the back half. And margin expansion is more of a 2020 story and beyond.

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Operator [22]

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Our next question is from Bob Hopkins with Bank of America.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [23]

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Bob, are you on the same line that we're on? Are you there?

Okay, operator. Could you go to the next question, please? And if...

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [24]

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Oh, no, sorry. I'm here. I apologize. Can you hear me okay?

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [25]

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No problem. Yes, we can hear you now, Bob. Go ahead.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [26]

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Super. I just wanted to ask one quick question, and I'm going to keep it high level this time. I wanted to ask a question, Bryan, on U.S. knee market share. Because as -- trying to gauge the stability of your knee franchise, and as outsiders, all we can really look at is kind of relative revenue growth rates in knee. So it's hard for us to understand sort of volume share, given that mix can have such a big impact on revenue growth. So my question is this, kind of what do you think the Zimmer U.S. market share is in knees exiting 2018? And how does that compare to where you were a year ago? And again, the reason I'm asking that question, I'm trying to get a real sense as to sort of the true stability of your knee franchise over the course of 2018 in the U.S., where I assume you have the best data.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [27]

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Okay, yes, I appreciate the question, Bob. And so I've been thinking a lot about this as well, and I'm just going to try to paraphrase what it is you're asking. But I think what you're looking for is if you look at share, you can either look at it from a dollar perspective or you could look at it from a unit or procedure perspective. And what I would say is that, either way, if you look at where we are in 2018, whether you look at it for procedures or units or you look at it in dollars, we have closed the gap to market. It doesn't matter which way you look at it, we have definitely closed the gap to market. But inside of that, I believe that our unit gap or procedure gap is actually lower than the dollar gap and always has been. And let me just kind of explain why I'm saying that because I've been spending a lot of time on this, so it's a good question, actually. Really, 3 reasons or kind of vectors for share loss for the company that I see.

The first one is kind of the obvious, right? I mean, you lose a surgeon to the competition. This is something that would impact both unit share as well as dollar share. It may not be exactly because the price points might be slightly different, but it would impact both. The other one would be losing our patients to the competition's surgeon. And what I mean by that, if a surgeon's doing -- if a patient's doing an elective procedure and they decide to do research on where they're going to get that procedure done and they decide they want to go to a robotic surgeon, that's no longer a patient that's going to my surgeon. It's going to somebody else's surgeon. That also impacts both unit and dollar share. The third one is this idea of competitors that are increasing their revenue due to mix. In other words, in the same procedure they had with the same surgeon, they're just increasing the share of wallet they're getting in that procedure. Those are all 3 things that are happening. I really do believe we are losing surgeons. We're not winning the churn game right now. I do believe we're losing patients to our competitors' surgeons. But I think by far, the biggest contributor to share loss is third category, that our competitors are doing a very good job of going right to the surgeons they have in the procedures they already have and upsell in robotics, in cementless, in other areas. And so for that reason, I actually think that unit share loss that we've had is not as substantial as the dollar share loss.

And the reason why I think it's important, I think it kind of probably is getting to your question, the fact is, one of the biggest contributors to mix benefit inside of the space that we play is robotics. And you've got robotics surging right now, and here we come with our robotics platform. And let's not forget that when you look at the largest number of surgeries being done today in knees, it's our implants. It's our surgeons doing those procedures. And we're about to provide them an opportunity to have access to robotics in that largest segment of knees globally. And so that's pretty exciting. And don't get me wrong here. We're going to go after every single one of these areas to be able to close our gap to market and begin to get back to market or above. We're going to try to convert competitive surgeons. We're going to market directly to patients with a personalized robotic approach using our mymobility app backed by Apple, which we think has very strong consumer demand. But I think our biggest opportunity to close the gap is to be able to get the mix benefit in the procedures we already have with the surgeons that we already have. So we're pretty excited about it, obviously.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [28]

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Bob, thanks for the succinctness of the question.

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Operator [29]

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Our next question is from Kyle Rose with Canaccord.

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Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [30]

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Can you hear me all right?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [31]

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Yes.

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Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [32]

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So Bryan, for the last 12 months, and including this morning, you noted the importance of regaining the trust of both the sales force and the physician customers to really be able to go back on the offensive. Can you talk to us and just kind of give us an update on where both of those stand exiting '18 moving into '19? And what specifically needs to happen over the course of 2019 to get you to the position where you want to be exiting the year to get to 2% to 3% top line growth in 2020? Is it as simple as just hitting launch and your product availability? Milestones? Or are there other things that need to happen across the course of the year?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [33]

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Probably different depending on which constituent you're talking about. But if you're talking about surgeons, I think it's exactly what you just said. We've got to be able to continue to provide the product when they need it and what they want, and we need to bring these new product launches to market in a flawless manner. And my belief is, with the supply coming in and the way it is, with the new product launches that we have coming, I have a lot of confidence that our surgeons will build confidence in our organization throughout 2019. So that, to me, is, assuming we do what we are supposed to do, which I fully expect we will, our sense is we're going to see increased confidence from our surgeons, and we're going to delight them in 2019. From an internal team member perspective, I think there's more that goes into it. Obviously, having supply is a first step. No question. You've got to make sure that we can deliver what our commercial organization needs, but also, it's the support that...

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Operator [34]

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Ladies and gentlemen, please stand by.

(technical difficulty)

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [35]

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Hi. Thanks again, everyone. We're certainly going to have to talk to our AT&T folks after this, and we apologize for the continued snafus.

Let's go back. Bryan, you were responding to the question.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [36]

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Yes. I don't know for sure where I dropped off, but I think I was talking about how we get the trust and confidence of our team members at this point. And what I was saying is it goes beyond just supply. Obviously, that's a foregone conclusion. New products will absolutely contribute to the feeling that they have and the confidence they have in the organization. But the big one is to make sure that the leaders of the organization, including myself, Ivan Tornos, who now runs the orthopedics business, is directly engaged with that commercial organization so they know the leadership is behind them. The leadership understands the value they bring to the table and that nothing happens until they sell something. So we'll be the support that they're looking for. The compensation scheme is in place to make sure that we're driving offense versus defense. The other thing that I would say is we just had all of our kickoff meetings. And I was able to attend some of them. Obviously, gone to the Americas kickoff meeting, which is our largest. And the energy that I felt in those meetings was better than I've ever felt, and I'm not talking about just in this environment, in any meeting that I've ever been in. It was definitely a situation where the team was there. We had a bigger presence than we've ever had at that meeting around the world, and people are walking out the door excited about 2019. Now they've got to deliver, but the energy coming out of that meeting gives me the confidence that the organization's moving in the right direction relative to trust.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [37]

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So Kyle, hopefully, you heard, between the first part and the second part, enough of that complete answer. And again, everyone, thanks for your patience.

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Operator [38]

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Our next question is from Richard Newitter with the SVB Leerink.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst [39]

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Just to focus a little bit on the international strength we've been seeing here for a couple of quarters, my question is how sustainable is this? And as you answer that, can you maybe talk about some of the headwinds and tailwinds we should be considering that you face in APAC and EMEA?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [40]

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Yes. So first of all, I would be completely remiss if I didn't congratulate both regions. APAC just continues to be a force and overachieve versus market. And they did not disappoint us again in Q4. And it's just been a phenomenal year for that team, and we fully expect that they will continue to perform well coming into 2019. So just congratulations to that team once again.

In EMEA, it hasn't been as strong this year, but the fourth quarter was fantastic. And I got to tell you, I really want to call that team out because in the face of leadership changes that are pretty material, the whole -- the actual leader of the region has changed, and we've changed the structure of the team. And in the face of that, which could have been disruptive, they delivered their best quarter in the last 2 years. So they clearly benefited from the rebate adjustment when you look at the whole number that Dan talked about in the prepared remarks. But the fact is it was still, even outside of that, the best growth rate they've had in some time. So I'm happy about the performance. What I would tell you is if I look at EMEA specifically, I would fully expect, when you look at the full year 2018, for their performance to be better in 2019. I'm not necessarily saying it's going to look exactly like the fourth quarter, but when you look at the full year, I would fully expect them to be better in 2019. And so for Asia Pacific, again, I think we're going to continue to see strength. And with EMEA, I think we're going to see improvement, 2018 to 2019.

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Operator [41]

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Our next question is from Glenn Novarro from RBC Capital Markets.

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Glenn John Novarro, RBC Capital Markets, LLC, Research Division - Former MD & Senior Analyst [42]

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You guys highlighted your debt leverage at 3.2x. And my question is, is that a number that you feel comfortable with to start diving back and start doing acquisitions? And the reason I'm asking is your goal is to get to 2% to 3% market growth by next year. But I know you don't want to stop there. I know you want to be above that in the years thereafter. So talk about where the leverage is and talk about how important M&A is to getting to higher growth rates and the timing as to when we could start seeing M&A.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [43]

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So Glenn, why don't I take a shot, just at a top line kind of answer to this. And then, Dan, I'll pass over to you with more specifics on the debt leverage. What I'll tell you is that, clearly, our goal on the debt ratio is to be lower than where we are right now. And as Dan mentioned, we're going to continue to use a lot of our cash to be able to buy down that debt. At the same time, if there are targets that are attractive to us and make financial sense and strategic sense to the organization, and we think it provides good shareholder returns, that we would certainly look at those targets today. If I have everything done perfectly and sequentially as I would like, my preference would be to wait to the back half of 2019 to really start to do any type of real BD&L. Because BD&L, as much as it is beneficial, it can absolutely be distracting. And I want the organization to stay maniacally focused on the short-term objectives that we've laid out between 2018 and 2019. So if I can lay it out perfectly, I'd want to start moving more into active BD&L towards the back half of 2019 or 2020 and stay very focused our short-term objectives until then. But I -- just so we don't surprise anybody, if an opportunity ever came about, if something came out opportunistically in a period shorter than that and we thought it made sense, we would certainly take a look at it. But Dan, why don't you...

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [44]

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Sure. I would just add, Glenn, that when you think about our financial flexibility and what we're trying to accomplish on the leverage side, it fits perfectly with the timing that Bryan just described. In other words, we're entering 2019 at the 3.2x. Our communicated goal has been to make progress beyond that, net leverage in that 3x type range or better. And I think that, based on our guidance that we provided, the free cash flow that we'll generate in 2019, we said the majority of that will go towards debt paydown. I think that fits perfectly with what Bryan just described on the strategic front and the BD&L side of things. So we're excited about the ability to, as we enter 2020, to have financial flexibility and firepower to do the things to supplement the organic growth of Zimmer Biomet.

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Operator [45]

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Our next question is from Matt Miksic with Credit Suisse.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [46]

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So I'll focus, if I could, just on, Bryan, your comments on growth and the gap to market, closing the gap to market, which I take to mean the degree to which you're growing below market, so kind of narrowing that growth gap, if I understand it correctly. So if the U.S. market is growing maybe 2%, the U.S. knee market, say, and your Americas knee growth is down 1.5% to 2%, my question is now that supply issues are kind of behind you, as you talked about in your prepared remarks, no longer a challenge growth. When should we expect to see you sort of get to that market or exceed that market growth rate over the next several quarters? And how does that work?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [47]

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Yes. So the way you're reading my description of our gap to market is accurate. Unfortunately, it's not talking about the gap above market, it's talking about the gap closing below market. But the way we've been describing it is that this 2-year kind of reshaping and positioning for offense is to allow us, in 2020, in a durable manner, to be able to get to market. Or that's the weighted average market growth that we've been describing in that kind of 2% to 3% in 2020. So if you kind of just read into that, knee being a very large portion of our business, that would indicate that our expectation would be that we would continue to cede share, unfortunately, in 2019. But in 2020, that would no longer be the case. And the thing that gives us confidence in that is that we've got innovation coming that we have not had in a long time. And most of that gets into full swing, in full launch in the back half of 2019, which gives our organization, that commercial channel that we were just talking about, the opportunity now to go on full offense.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [48]

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Just to clarify, I guess, if I could. And so the supply -- the return to supply is sort of a component, but not sufficient, in your view, to sort of start rolling that back -- start rolling those share losses back. It'll be the products, it'll be the ROSA launch, all these things together kind of maybe in the back half. Is that -- am I hearing that right?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [49]

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I 100% agree with that. Because if you think about the comment that I made when -- it was Bob's question, I believe. Bob's question on unit versus dollar market share, one of the biggest contributors to revenue growth right now in our space is increasing the mix, right? So in other words, getting a higher share of wallet inside the procedure you already have. That comes through new technology, not just from recovery. It comes by keeping the surgeons you have, obviously, being able to supply them, but being able to upsell because of better technology and get more share of wallet through those procedures. That doesn't really happen for us in full swing until we get into the back half of 2019. So it is an extremely important component for us to get back to market or potentially even exceed market.

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [50]

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And certainly, the full launch of cement -- Persona Cementless, which is happening now and then Persona Revision in the back half of the year, both that premium price will contribute towards that.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [51]

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Yes, agree.

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Operator [52]

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Our next question is from David Lewis with Morgan Stanley.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [53]

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Bryan, just one for me, and maybe I'll shift focus to spine. So this is an area where you had a fair amount of enthusiasm last year. It was mostly targeted on your confidence, sort of the spine integration and distributor transition that was ongoing. Obviously, it was better quarter here in the fourth. So 2 related questions are: One, how confident are you feeling in that, a continued improvement in the spine business in 2019? And there's been a lot of commentary on robotics in knee on this call, but obviously, the debate in spine for '19 will be robotics in spine. Where are you with spine robotics? And how important is that as a factor here in '19?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [54]

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Yes, yes, thanks. So real quick on the -- just I'll hit the spine piece on ROSA. The -- we are waiting for FDA approval on that. And I don't want to give a specific time line, but it would be great to have that before AAOS. There is a possibility of that, but we do think that sometime in the second quarter, we'll have it. The hope is we get it before, and we can talk a little bit more about it at AAOS. So that just gives you a little sense of where we are with spine. But we have submitted the approval -- or the request.

I also want to call out the team. I mean, this is the best quarter, I think Dan said it in his prepared remarks, that this is the best quarter we've had in a few years in this combined business. And it's a testament to the team getting the job done. I also want to make sure that it's clear that it was both businesses that had a better quarter. Spine continues overall to be negative for us. And I don't know if we've ever called that out. It is negative for us overall, but it improved. So we talked about that gap to market before. The gap to market reduced, but it's still a negative number. But it did improve, which is a big part of that improvement in the fourth quarter. And then the CMF business continues to show strength and had a really strong close to 2018. And a portion of that, which we haven't really been talking much about was our sales in ROSA Brain. So remember, it's not just ROSA Knee application, it's not just the spine application, and we also have an application in brain and we had pretty good sales in the fourth quarter, and that helped the number as well. So overall, congratulations to the team, best quarter in a while. And I feel like we've got the right leadership, we've got the right structure in place and we've got a nice product portfolio that's coming in 2019. So when I look at that total business, I'll be very surprised if we don't do better in 2019 than we did in 2018.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [55]

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Thanks for the question, David.

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Operator [56]

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Our next question is from Larry Biegelsen with Wells Fargo.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [57]

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I wanted to focus on ROSA for total knee since that's such an important product for you guys. So my question is, Bryan or Dan, how derisked do you think the full launch is in 6 months? How broad is the limited launch going to be? Are you confident you've kind of worked out the major kinks? And if you could give us any color on how many implants have been done so far and what you think the unique features and benefits are of the system, that would be helpful.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [58]

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Yes. So I don't want to get too much into the unique feature set associated with ROSA. We've talked a lot about it, probably even more than I would like, to be honest. Because in reality, anything we're saying here goes right to our competition. And until we're actually getting more into full swing of the launch, why would we do that? I will tell you that you're going to get much more insight on what we believe the value is of ROSA for our surgeons, which is the most important constituent that we have. And you're going to see that at AAOS. What I would just say, generally speaking, is I think we have a very competitive robotic system. One of the key things that we've tried to focus on is to be able to get high-volume surgeons to be able to use robotics. Remember, when we talk about the play here, there's an opportunity for share of wallet gain in every robotic case. Every robotic case provides an opportunity for better mix. So the better throughput we can get on our robotic system, the better off we are as an organization to take advantage of that mix. And high-volume surgeons just historically...

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Operator [59]

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Ladies and gentlemen, please stand by.

(technical difficulty)

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [60]

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Okay. Third time's that charm. And sorry about that again. We're going to continue where we left off.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [61]

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So this is reminiscent of our supply problems in 2016 and 2017. No longer. No longer are supply problems going forward.

But I think I was just getting into think about high-volume surgeons. High-volume surgeons typically have stayed away from robotics because it slows them down and they can't keep the volume of patients that they would like to have. Our goal is to eliminate that, to be able to get all the accuracy that you get with robotics, but not change the flow of the procedure in a way that would reduce the throughput they can get on patients. That's a big deal because the high-volume surgeons is who we want because you get that mix benefit for every procedure. So that will be all I'd say about the differences of us versus the competition. You'll see more at AAOS. I feel like we're in pretty good shape relative to confidence in being able to roll this out effectively. Remember, we're not new to robotics. We have the brain robotic system that's been out in the market. We have over 100 units out in the world today. We understand the service associated with these units, we understand the education that's required, and we have expertise in the organization that is not new to robotics. So that gives me a lot more confidence than if we were an organization launching our first robotic system.

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Operator [62]

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Our next question is from Isaac Ro with Goldman Sachs.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [63]

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Wanted to ask a question related to the guidance, specifically with regards to spending that you're doing on the supply and quality remediation work. Just curious what's baked into the guidance. I think you guys have called for flat margins, more or less. And I'm wondering, within that, if the spending on quality and supply remediation is going to be flat, up or down, and in what areas. Just any context there to help us think through what's going on under the hood would be great.

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Daniel P. Florin, Zimmer Biomet Holdings, Inc. - Executive VP & CFO [64]

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Sure, Isaac. Well first, let's talk about within the adjusted earnings per share guidance, which was $7.70 to $7.90. What I was describing before, the operating margin of 27% to 28%, inside of that operating margin continues to assume pressure at the cost line as we've been describing. So those elevated production costs, the capitalization of those costs and to expect that pressure to continue through 2019, with improvement coming in 2020. So that's on the adjusted P&L side of the house. Within our cash specials is where we've been capturing the pure remediation cost for quality remediation. And as we continue to progress on that program, as we prepare for FDA inspection by the end of 2019, that quality spending, that quality remediation spending, will be ramping down as we progress through 2019. So in our free cash flow, that does contemplate a reduction and a ramp-down in quality remediation spending which I think is a good setup for 2020 in terms of, again, cash specials continuing to ramp down. Also, within the free cash flow is investment in the new product launches. So the instrumentation, the inventory associated with all the new products, that's all contemplated inside our free cash flow range as possible -- as well. So again, just to reiterate, within the adjusted P&L, continued pressure at the gross margin line for the reasons we've discussed and then on the cash flow guidance, an expectation that quality spend will be ramping down.

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Operator [65]

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Our next question is from Amit Hazan from Citigroup.

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Amit Hazan, Citigroup Inc, Research Division - Director [66]

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I want to come back to guidance for a second and just set up the top line as a question for you and try to gauge if this is indicative of increased confidence or if I'm reading too much into it. But if I kind of take the upper end of your ex-FX guidance, you obviously get to about 2% growth, so you're into that 2% to 3% weighted average market growth. And we talked before in the past -- the recent past about bone cement being an impact of 50 to 75 basis points. And so that gets you well into kind of the mid-range of your weighted average market growth. So that seems to be an increased confidence versus what you guys were talking about in the last few months of 2018. Just help me out in thinking about that and whether that's the case or whether I'm reading too much into it.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [67]

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I think one thing I will mention to you, Amit, is what you're doing there is you're taking the very high end of our ranges. And that's fair. I mean, that's within the range, but your assumptions would be that everything goes right and pushes to the high end of the range. That's certainly a possibility. But I think in order to do that, you need to also understand that a range is a range, and there are things that could push us to lower in that realm as well.

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [68]

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Yes. But I think the -- when you look at the performance in the back half, when you look at all the things we're stating relative to the innovation pipeline that we have not had in a while as an organization and you look at some of the momentum we're getting relative to the way the field is reacting to what they're seeing, it does give us confidence. I mean, the fact is we're halfway through the 2-year time frame that we've referenced, but as I said in my prepared remarks, I truly do believe we retired more than half the risk. It doesn't mean there aren't still challenges ahead of us. It doesn't mean that there's not a lot of things we still need to do. But the fact is we're feeling as bullish as we have. But we've given you a range for a reason. As Cole said, there are things that we think can help us get to the top end of that range, but there are also things that we need to manage through as we roll out the year to ensure that we don't move to the bottom end of that range. So we've really spent a lot of time trying to give you a balanced view of what we think we can do in 2019. So I hope you're reading into this more confidence as I'm feeling it, but the range is still reflective of that confidence.

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Operator [69]

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Our next question is from Rick Wise with Stifel.

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Frederick Allen Wise, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [70]

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Is product portfolio optimization a priority for you, Bryan? Maybe it's a question for you and Dan. When I think about optimizing the business and typically in turnarounds, many times, redundant product lines, older product lines are involved in a turnaround, SKU reductions, phasing out the older products, making room for the newer ones; all of which I assume would benefit over time, throughput, margins, working capital, cash flows, et cetera. How are you thinking about that? And where are you in that kind of a process? And just what impact would that kind of a process have on growth outlook, execution, et cetera?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [71]

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Yes. You're right on. I mean, it is an important part of what we need to do as an organization and for a number of reasons. But if I just think about supply and I think about quality, just thinking about those vectors by themselves. As we begin to rationalize, over time, the portfolio, we clearly have an opportunity to increase our service levels from a supply perspective. The fewer categories we have, the better supply guarantee we're going to be able to provide and the better service levels we're going to have. From a quality perspective, as you start to reduce SKUs, obviously, you have less risk in holds, in recalls, in the process of getting regulatory approvals. So all those things benefit the organization. And guaranteed, when we talk about moving from just supply stability to truly getting into supply efficiency, this is on the radar. I don't want to scare anybody, though, at the same time, because whenever I talk about this, everybody gets scared that we're going to do this and we're going to risk top line. That is not going to happen. Top line's the primary focus of the organization, but over time, we have got to be more disciplined relative to the portfolio optimization that we have. The other thing that's going to drive us in this direction is we will be a more focused organization. There's no more shotgun. It will be a rifle approach this year. We need to make sure that we look at the very specific areas that could drive mix benefit in our business and make sure that the organization, collectively, is focused in those areas. That gives us an opportunity to clearly start driving momentum in those specific areas. It gives us an opportunity to get better signals to the operations team so that we have better demand planning and ultimately direct traffic in specific areas so we get better results. So for all those reasons that I see us moving more in this direction, I just don't want anyone to be concerned that we're going to move too aggressively here and risk the top line.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [72]

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Look, folks, we're coming up on the bottom of the hour, and I want to -- we need to wrap it pretty soon. But I know we've had a couple of delays here. Operator, let's try to see if we could sneak 2 more questions in, then we'll have to wrap it up.

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Operator [73]

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Our next question is from Bruce Nudell with SunTrust.

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Bruce M. Nudell, SunTrust Robinson Humphrey, Inc., Research Division - MD [74]

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Bryan, I just want to talk about the mix benefits associated with the robot and assure that I'm thinking about this right. So just in the context of about a $5,000 implant, you have $250 to $500 of robotic disposables. Going forward, past that, you've got added value, both in terms of planning and robotic technician support, which helps stabilize price. And then going forward beyond that, you have robots facilitating higher-end products like cementless knees, and ultimately, bicruciate. And so am I thinking about that right? And then also, might the robot, when it's broadly used across the industry, might we see real stabilization in knee pricing?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [75]

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I'm not going to -- so I wouldn't verify the specific elements relative to the disposable value or anything like that. But all the elements that you just referenced are exactly in line with the way we're thinking about mix inside of robotics. And my guess is, is anybody else in robotics is thinking about it the same way. Another factor associated with this beyond just mix that I don't want to lose because I do believe that we have an advantage, is when we talk about Persona, which is personalized medicine. It is personalizing the knee anatomically speaking and size-wise for the patient. We start talking about personalized robotics with digital platforms that have the consumer appeal of Apple, that is a pretty unique solution that we can begin to communicate to patients who do their homework on these procedures, and potentially begin to steal in some of those patients to our surgeons. That will definitely be an area that we concentrate on. So it's not just robotics, not just mix. We clearly want to take advantage of that because we think it's a real opportunity. And the elements that you've referenced are exactly right, but we don't want to lose the other either.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [76]

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Absolutely, thanks. And let's do one last question, operator, then we need to wrap up after that.

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Operator [77]

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Our last question will be from Kristen Stewart with Barclays.

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Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [78]

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Bryan, I know I've kind of touched on this last quarter, but I wanted to get your updated thoughts. Just as you're thinking about the longer-term kind of earnings power in this company, how should we kind of think about how you're framing this? It sounds like, from the guidance, the second half, from an operating margin perspective, will be towards the upper end of the range. It sounds like gross margins could be in a position to start to maybe expand again in 2020. Not to kind of get too far ahead, but how should investors just kind of think about what type of power this company has today kind of absent any M&A?

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Bryan C. Hanson, Zimmer Biomet Holdings, Inc. - President, CEO & Director [79]

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Yes. So I think it's a great question. So first of all, you're thinking about it exactly right. We've communicated pretty clearly, don't expect margin expansion in 2019. I think the range indicates that. We've been saying that all along. But we will expect to start to see movement in that direction in 2020. And very clearly, as we say the 3 pillars of the organization, one of those pillars is going to be top-quartile performance for total shareholder return. That would indicate that we clearly believe, not just top line, but also margin expansion and increasing cash flow are all things that this organization is capable of doing. Because there's no way that we can have that as a primary pillar of the organization if we didn't think, in each of those categories, we can improve. And I do believe that the stabilization that we've been talking about, just in the businesses that we play in today, is very real, the target that we should have in 2020. But when I think about the mix benefits of some of these categories, if things go well and we can get deeper penetrations at things like robotics or cementless or Sidus stemless, which all have premiums to them in those procedures, then there is that opportunity, even without acquisitions, to outperform the market. Now my feeling is, going forward, we want to do both if we want to durably be a contender for top-quartile performer in total shareholder returns. But don't think that today, given the portfolio, if things go right, we wouldn't have a chance of outperforming the market.

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Coleman N. Lannum, Zimmer Biomet Holdings, Inc. - SVP of IR [80]

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Thanks for that, Kristen. Thank you, Kristen.

With that, we're going to close it down. Just as a couple of quick notes before we wrap up. First of all, I know the sign of a good team is someone who can react quickly when something unexpected goes along. So hopefully, we were able to come back and still work through and answer most of your questions. If for some reason, and again, I apologize for the technical snafus, that was not the case, please do come back to me so we can make sure that we could help you understand what's going on.

As a reminder, a replay of this call is going to be available later today. You can review it on our website, zimmerbiomet.com. And have a great Friday and a great weekend, everyone. Bye-bye.

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Operator [81]

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Ladies and gentlemen, thank you again for participating in today's conference call. You may now disconnect.