Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, July 27, 2018. [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.

Thank you, and good morning. Welcome to Zimmer Biomet's second quarter earnings conference call, Friday edition. Joining me this morning is our President and CEO, Bryan Hanson; and 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. 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 during 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 zimmerbiomet.com. With that, I'll now turn over the call to Bryan. Bryan?

Thanks, Cole, and thanks to everyone for joining us this morning. Before we get into specific update on our short-term initiatives, our Q2 results and update to 2018 expectations, I would like to just spend a minute on my view regarding our progress as a company and team. As you may remember during our fourth quarter call, I described the business is having more risk than opportunity due to the status of our supplier recovery efforts and quality remediation work as well as our culture building process. On our first quarter call I changed my prospective to a more balanced view of risk and opportunity. Thanks to the early progress we made on the supply recovery milestones and meaningful engagement with the broader organization focused on culture building, including very specific interactions with the field sales organization. As we come into Q3, my current position is one of cautious optimism fuelled by further progress on supply recovery, field execution improvements as reflected by the team's overall Q2 revenue performance and continued traction around the one mission, one culture focus of this Zimmer Biomet team. It's important to recognize that my current sentiment takes into account the headwinds of excess pressure we need to offset and the continued heightened state of risk we must manage while executing our quality remediation efforts. There is fairly much work to be done but I like the progress that has been made and look forward to the team driving towards continued traction. With that said, let me provide a bit more detail for each of our previously stated short-term priorities, which are the ongoing quality remediation, our supply recovery efforts, new product introductions and our culture enhancement activities. Turning first to the status for quality remediation. As we communicated previously and also shared publicly, we…

Thank you, Bryan. Before we get started I'd like to note that this quarter, we are changing the presentations of our GAAP income statement to provide additional transparency. We no longer will use the special items, operating expense category, instead, we will now provide more specific details on the items formally in that category. Importantly, there is no change to our historical or future GAAP or non-GAAP earnings per share. Turning to our performance. Net sales totaled $2,008,000,000 in the second quarter, an increase of 3% over the prior year period, which represents an increase of 1% on the constant currency basis. On a similar basis, in the Asia Pacific region, our sales increased by 5.4%, while our Americas sales increased by 0.9%, and our Europe, Middle East and Africa sales decreased by 1.8%. Our adjusted gross profit margin came in at 71.9%, reflecting a benefit from mix, offset by continued incremental manufacturing and inventory costs as well as the impact of price declines. Our GAAP diluted earnings per share for the quarter were $0.90. Our adjusted results exclude $265 of expenses in the quarter, approximately $110 million of which are cash outflows for quality remediation, business integration and other items. The non-cash charges are primarily related to intangible amortization. Adjusted operating profit in the quarter amounted to $562 million or 28% of sales. Our adjusted effective tax rate for the quarter was 18.9%. Adjusted diluted earnings per share for the quarter were $1.92. A reconciliation of reported net earnings to adjusted net earnings is included in this morning's press release. Operating cash flow for the quarter amounted to $393 million and our free cash flow was approximately $300 million. Our year-to-date free cash flow totaled $704 million. I would like to now turn to our updated 2018 guidance. We…

Before we're going to Q&A, I just want to reiterate the fact that our second quarter results reflected improved overall performance, as well as continuing progress on our operational and manufacturing goals. I want to emphasize that our second quarter achievements strengthened our confidence that we are focused on the right immediate priorities and that over the long term we are well-positioned to client back in the positive market share of growth. As I've said before, our turn around will take time to complete, and we won’t declare success until we’re consistently delivering top line growth at or above market rates with a competitive operating margin. From where we stand today, I can tell you we still have a lot of work to do to achieve these goals. But as we enter the second half of 2018, I’m encouraged by the progress we're making and I’m confident that we're building a strong foundation to deliver sustainable, long-term growth and ultimately value creation. With that, I’m going to turn it back to Cole, so we can enter into the Q&A.

Thanks, Bryan. We try to reserve the majority of the time on the call this morning for your questions. Before we get into the Q&A session, I would remind you to please limit yourself to a single question with a brief follow-up if needed. I really appreciate if you'd respect the process. Please don’t make me have to cut you off. You can still free to put your step back into queue, if you further questions after that. And that will allow us to get into as many different questions as possible. With that Lauren, may we please have the first question.

[Operator Instructions] Our first question comes from Mike Mattson with Needham & Company.

Bryan, it sounds like you're planning to take sort of a portfolio management approach here at Zimmer similar to what you did at Covidien. And I guess what I'm wondering is Covidien had a kind of much wider mix of businesses when you look at growth and margins and things like that. And at Zimmer, it seems like there is more consistent margins and growth rates across the various businesses. So that's the first part of my question. If you can just maybe comment on how you can implement that here. And then the second thing would be just with regard to M&A, are you looking at opportunities more within the existing markets? Or would you consider going more of a diversification drop similar to what strikers done within the recent years? Thanks.

Yes, absolutely Mike. I just want to make sure the first part of your question I understood, could you just give me a little more color around what you are referencing there?

Yes, so I mean you've talked about portfolio management in order words shutting maybe lower margin, lower growth businesses, why you are looking to acquire things that are higher growth and higher margin. In the businesses like Covidien, there was more of a fix of -- we had some really low margin, low growth businesses and really high margin and high growth businesses. So could you please review that, it seems like the businesses is here of more similar. So that's my question essentially?

I got you. Understood. So when I think about active portfolio management, I guess first and foremost is, it is another opportunity for us to be able to drive consistent shareholder value. Clearly, organic growth is the primary focus of the organization and we have to get to a place where we are at market of better. But I want to be able to compliment that by ensuring that we're waiting into businesses and markets that are more attractive in the places we're in today. And let me just kind of really put an explanation mark on that. First and foremost, I'd like to scale in some of the areas that we already play in that have better growth profiles in some of our larger businesses. Some of that would be in the set businesses obviously. So our first area of focus will be to add scale in areas where we already play in faster growth sub markets where we have an opportunity to take advantage of the brand that we have in the commercial organization to be able to drive attraction in those places. And ultimately as a result of that, bring our weighted average market growth up. So that will be the first kind of leg of this process. I really want to make sure that we're doubling down in spaces we already play in, build more scale and make sure that we increased the weighted average market growth, and there is plenty of opportunities to do that. I'm not at all opposed as we go into the active portfolio management process and we have more fire power to do so in diversifying the business even beyond some of the areas that we currently play. Again with an eye towards driving the mission of the organization, making sure…

Thanks, Mike. Next question please.

Our next question is from Bruce Nudell with SunTrust.

Bryan, just looking at major joint market year to date, it looks like it's around 1%, last year is around, and historically, people have thought of major choices 3%. Is there something secular going on? And if there is, is that putting more alacrity in your diversification efforts? Thank you so much.

Sure. First of all, nothing that's happening right now would have changed our opinion or aggressiveness or stance on diversification. As I wouldn’t read anything into what you may be seeing relative to large joints market growth. And to be honest, as we said in the first quarter as well, because there was a lot of discussion around, are you seeing pressure on volumes in the first quarter, we really aren’t. The fact is when you work the numbers based on everybody's performance over the last two quarters. Clearly, what you're saying about the growth rates is accurate. But what’s interesting about it is you’re not really hearing any company complaining about this market growth. And what's interesting for me too is I’m not hearing my own organization complaining about volumes out in the marketplace as a reason why they can't obtain or drive past the goals that we set. So that tells me that even though we’re seeing maybe a little more pressure than normal, please stay it on the math. We’re not actually seeing an impact in our ability to drive the goals that we have for the year. So, again, I don’t want to read too much into the market growth over the last two quarters. I think it is not a perfect science in the first place associated with looking at these things in a view add up to the major players and there are differences in a lot of things to go into those numbers that I don’t always stated their perfect science on this. But at the end of the day, it's not going to change our opinion on how quickly we’re going to look to diversify. The diversification is a strategy that we had and we will continue to move forward. And again anything that we've seen relative to market growth in large joints does not change our opinion in what we’re going to be able to accomplish this year or beyond that.

Next question please.

Our next question comes from Chris Pasquale with Guggenheim.

Bryan, can you give us some more color on the supply situation and where things stand today relative to what you were hoping? When you talked about being back to full capacity by the start of 3Q, are there particular categories where you're in good shape today, but others where you still having issues or is it broader than that?

Thanks, Chris. I'd say, I don’t want to speak to specific categories just for competitive reasons, but and I'm just kind of pretty transparent person. I'm pretty happy with progress that we didn’t hit all the goals that we had set for the first part of Q3, some of its split. And so with that that's won't be transparent with that. That's said we've obviously made great strides in making progress here. And ultimately we're seeing that reflected in the results in Q2. And we're going to, obviously, we’re seeing it in our cautious optimism here because we're seeing supply is not going to be a barrier for us to accomplish what we said in 2018 and we turnaround itself. But before I get into any more detail, I do want to just call out a couple of groups and team members that we have that have made this a reality. Again we're not where we want to be, but the progress is real. And our manufacturing team has done a yeoman's work here. I spent a lot of time on the floor talking to folks that are actually working on the manufacturing floor. I guess that these people are putting in a lot of time, a lot of extra hours to get this company back to where it needs to be. Again still work to be done. But the attitude and work ethic of these folks is absolutely inspiring. When I'm having a bad day, I will go out to the floor, and talk to some of those folks and it turns my day around. So I want to make sure that I call them out because they've been a big part of the progress that we've made. And the group is our sales organization. I've spent a lot…

Our next question comes from Glenn Novarro with RBC Capital Markets.

Bryan, a question on the North facility observation. So fewer observations this inspection relative to the last, but they were eight repeat observations and this is made some investors worried at the North facility could receive a warning letter. So could you provide your view on the repeat observations? How fixable are these observations? And your confidence that the remediation plan on the observations will be acceptable to the FDA? Thanks.

Well, what I would say first is I don't want that get into any specifics relative to any of the observations or how I feel about the observations. We've been pretty transparent in the entire process relative to our quality remediation and interaction that we've had with the FDA. So everything that we provided in our responses to the observations is public. We make sure that you could see that. Not every company would do that, we did it. And so I think you've got what you need in the public domain on how we feel about the observations and our responses to those. What I would tell you is, I think, this is really important. I just want to reinforce that JD as well as myself, we take our commitment to quality and ultimately patient safety very, very seriously. It is the commitment that we make as an organization as a matter fact the new mission that we created. Our monetary right now around the world communicating this mission live and in color to our team members isn’t just an inspirational mission. There are principals inside the mission that define who we are going to be. We are and we’re going to continue to be. One of the primary principles talks about quality, patient safety and conducting ourselves with integrity period. These are not just words in a mission statement. These are things that we will actually define ourselves by. And when I present to the organization and these mission ceremonies, we talk extensively about what that means to each and every one of us. So I just want to make sure that that's clear. Relative to where we are right now, I feel good about the responses that we've had with these observations. I’m 100% committed as is the team to resourcing appropriately to quality remediation in the North campus. I do not like to have an open checkbook policy on anything. But in this particular situation it is an open check book. If resources are needed, the resources are retained and we’re going to move this thing forward. So again, I don’t want to comment on anything specifically. We don't -- we can’t relative to respond into the observations. And now it's just -- the process has just got unfold.

Next question please, operator.

Our next question comes from David Lewis with Morgan Stanley.

Bryan, I wanted to ask about the status share across the business. And specifically, where is share better, where is loss more pronounced? I wonder how is it trending at customers that have historically been through higher Zimmer customers versus where your share has been lower. At this point, how much of your share loss you think is supply related versus the product positioning? Thank you.

I tell you it's always tough to actually speak specifically to the reasons where we have deficiencies in share. When I say share, I think, what you're talking about is just growth versus market growth and that's specifically where our current stage is relative to overall market share, but a lot of our categories that's basic. We have been growing below market. And that's the very thing that we're concentrating on is a matter of fact we define the turnaround in this organization as overall getting back to market or above market growth in a sustained way. That will require us in our major categories to be able to get to market growth and sustain it. Now we're making progress. And I think some of the progress that we've made in certain categories has everything to do with the fact that we have a great sales organization that is prepared to sell. We have a combination of Zimmer portfolio and the Biomet portfolio, which is second to none. We've been saying that all along. We just got to be over supply it. And the fact is we have the manufacturing team increased the capability in supplying that product. So all those things coming together on some of the culture building as well, has been able to help us start to close the gap where we've had gaps in our performance versus market. We're not there yet and we're clearly not there. I mean that's basic even though we beat our expectations in the second quarter, we're far from being at overall market growth. We need to get there. That's the goal. The things that need to happen for us to feel confident that we can do it is that steady state supply, what we maintain it and we get that sentiment of the sales organization up and translated into revenue growth. We forgot to launch the new products where we have product assets we've talked about in the past and get those in the full launch that needs to happen. And then ultimately we got to continue to drive the culture of the organization to make people believe we can win. And those are the things that we have to accomplish to be able to ensure that when you ask this question in the future, we can confidently and comfortably say we are at market or better in the major categories that we have.

Thanks David. Laura, next question please.

Our next question comes from Matthew O'Brien with Piper Jaffray.

Bryan, there has been a lot of discussion on the call about diversification or maybe into the faster growth areas, you've got very good free cash flow, the leverage ratio, I think, is less then 3x now. But you've got this manufacturing issue. So is that the biggest gaining factor to you going out and doing some more deals need to get you into faster growth areas that are already in or other areas? Is that something where we should think of you getting more aggressive maybe six to nine months after you feel better about where manufacturing is at?

John, first of all I just made a quick correction that we're not yet from a leverage perspective under 3. It was still 3, slightly above 3. The goal would be to be below 3 and we expect to be able to do that in 2019. But John, what I would tell you is in a perfect world if you are sequencing this, we would do exactly what you just said. We would focus first on our short-term priorities as we've previously stated. Those short-term priorities would get us to the point where we were steady state as a business, which would mean in the spaces that we already play with the businesses that we already have in our major segment that were growing at or above market. Once that's stabilized, then we would start to get into more active portfolio management. But in reality, what we know is you can put best way plan never survives first contact with the enemy, right. And so that plan, in the realistic world, says if we are opportunities in spaces that we know are attractive to us become available and opportunistically we can wait into those we're not going to ignore them. And we do have the fire power now to do smaller tuck-ins. And so if those opportunities become available to us, even if we haven't gotten to the place where we're defining our business as steady state, we would take advantage of those opportunities, if again they maybe on extent and we thought they could drive shareholder value and importantly we drive the mission for the organization. So if we can sequence it perfectly would be the way you said putting the real world, it doesn’t always happen that right.

Thanks, Matt. Next question please.

Our next question comes from Larry Biegelsen with Wells Fargo.

So by my math the guidance implies about one 1% to 1.5% constant currency growth in the second half. The question is do you expect that sequential improvement in the constant currency growth rate in Q3 and Q4? And what are you assuming now for resolving the supply constraints are not drivers that any response by to Chris' question earlier. Thanks for taking the questions.

Dan, why don't you take the first part of the question? And then I'll handle the second one.

Sure. So Larry the second half implied constant currency growth rate about 1% as you are suggesting. The Q3 to Q4, we’ve not given specific guidance on the phasing of Q3 to Q4. The comps are different. The seasonality has been difficult to the nail precisely Q3 to Q4. But feel good about that about 1% second half constant currency growth that’s implied in our guidance.

One lab that you would expect that giving typical seasonality Q3 would be more pressure than Q4. What I would say on the supply recovery, I think why I want to answer it is, there's work to be done in certain brands, but we feel confident given where we already are. And that where we nowhere going to exit in Q3 that this is not going to get in the way of us delivering what we just said in 2018 and will absolutely not getting the way if the turnaround time that we've communicated in the past. To me the most important thing at this point is to get the sentiment of the organization up to be the sales organization so that the translating that supply into revenue acceleration. But again I just want to reiterate, we do not see supplies being a barrier to our ability to deliver what we said.

Thanks Larry. Next question please.

Our next question comes from Richard Newitter with Leerink Partners.

Just wanted to focus on the S.E.T. business. This was a little bit representative narrowly of underperformance relative to our forecast was, obviously, your recon was better. I'm just curious, with respect to an earlier question that was asked how much is supply versus product gaps driving that within the S.E.T. business. Can you talk a little bit about whether that's more impacted perhaps from a supply issue relative to recon? And I'm also going to just ask if you can comment on the stemless shoulder launch. I would have thought if it's not supply that might have helped that division. Thank you.

So first of all stemless shoulder going well. As a matter of fact we're just talking to shoulder surgeon last night at dinner, and that he was commenting how excited he is about the launch. He is using the product already and he has had very good results. So I would just tell you that we remain confident and comfortable with our expectations around our stemless shoulder in just the shoulder space in total. What I would say is you're accurate. The S.E.T. business -- first of all, not all of our brands are impacted equally relative to the speed at which were recoveries supply. And in the second quarter, the S.E.T. business was pressured a little more than large joints when it comes to supply recovery. So that was part of -- some of the performance of the business in the quarter. But the other thing too is we decide some timing quite frankly of capital that will benefit us in the back half of the year that just didn’t translate into the second quarter, so that's some of it as well. In the final pieces, we've actually has some good convergence in the set business. I'm not going to speak specifically to where, but across the S.E.T. business. And a lot of that's not going to translate until Q3 and Q4. So I feel good about our progress in S.E.T. I feel good about the supply recoveries we come into Q3. And I think what you're going to see in S.E.T. is our ability in the back half to have better performance than we did in the first half.

Next question please.

Our next question comes from Rick Wise with Stifel.

Maybe highlight some if you would give us little more color on the challenges you are facing in the EMEA region. You called out the weakness there. Maybe help us understand some of the softness drivers. Is there a specific geography? What's the pathway timeline for recovery? Is it a small fix? Is it portfolio? Is it people? Anything to help us understand find that would be helpful.

So what I would say is if I may, it was a little wider than what we have contemplated for the second quarter not dramatically. So to be honest, that a little wider than what we had thought. And a few reasons that I would point to you, I think, first of all, supply constraint was renowned in Q2. It probably impacts Europe a little more than other areas just given the tendering process that occurs to be able to get in certain tenders and win those tenders you have to have a full portfolio available. It has been always the case and other regions in the world. So it does intend them maybe a little differently strictly depending on where you are in Europe. That's one thing. The other is we have some tender timing, not lost tenders, but just tender timing that's going to push us towards the back half of the year where we thought we're going to get those earlier in the year and that's real. And then noticed being honest, we had Katarzyna lead the organization. She has been in place for a long time. Whenever you have a senior leadership shift like that, there's always a risk for some level of disruption. And so I don’t want to say that there isn't that. I don’t see it is being material. But the fact is -- that there's some level of disruption that you got to assume is happening. At the same time I've spent a lot of time in Europe with the team underneath Katarzyna and we have strong players. I have a lot of confidence in the team. I feel very confident that they are going to continue to be able to steward the business, and I don't see us having a falling knife situation here at all. At the same time I don't necessarily believe we're going to see a quick turnaround either. I would say that the back half of the year was look pretty similar to the first half of the year when we're talking about that region of the world. So again not a major concern. It's not far-off of our expectations in what we assumed so far of the year. And the performance of EMEA throughout the rest of the year has already contemplated in the expectations that we just provided.

Laura, can we have the next question please.

Our next question comes from Isaac Ro with Goldman Sachs.

Quick question just as a follow-up to [Indiscernible] Bryan can you talk just a little bit about how much time you're spending when it comes to recruitment whether it would be in sales force or leadership team? Just kind of adjusted in the progress there some of the things that you're doing there put into place that the people who you want maybe are harder for us to see on the outside. Thank you so much.

For me it’s a big part of what we need to do in the organization is just to increase this kind of one Zimmer Biomet mission and culture. And I don’t want to -- sometimes people put this as a secondary thing, but to me, culture and mission any organization is absolutely critical -- it's absolutely critical. We have great people in his organization. I don't need a wholesale change of leadership or folks in the organization, I have confidence in the team. What we need to do is to create a framework. And in an environment where these individuals can perform and the way that I know they can. And talking about the mission of the organization, getting people excited about the culture of the organization he fact that it's one team, one five goes long way to unleashing the capability of the people we already have on this team. So I just don’t want there to be a sense out there the investment community or anywhere else that we don't have the team members needed to be able to make this business turnaround. I feel confident that we do. We just got to create an environment that allows them to do it. At the same time, in certain critical areas, we have added talent from outside the organization that I think will help increase the capability of the organization that turn things around. Our Head of Operations, as I said in the past, is new. That individual is bringing additional people in that I think will help us in capabilities where we have certain gaps today. Again not that we don’t have a great team already but we’re adding additional capabilities that I think will only help. We’ve done the same thing in our portfolio management strategy area. We upgraded talent there. We’re going to continue to do that. And my senses will continue to see additional folks come onboard underneath Rachel and that gives me more confident that we are going to have a sound strategy and even more focus in this organization to ensure that we're applying our resources to the areas that kind of bring the most value to the organization and ultimately our shareholders. So we’re making changes in addition where we need to but make no mistake. We have a very good team and we’re creating the environment where that team can be unleashed.

A follow up on …

No, no. Isaac, one question. Get back into queue and we will put you back in the queue if we have time. Okay? Next please.

Our next question comes from Robbie Marcus with JP Morgan.

Dan, two very quick financial questions for you. One on EPS spacing for the back half of the year. Historically, Zimmer had a drop of 15% in EPS from second quarter to third quarter. How are you thinking about that with this year? And then maybe just give us an update on I know your FX hedges will flow through gross margin. What are you thinking of the impact gross margin in the '18 and '19? And any color on EPS impact form FX next year would be great? Thanks.

Sure, Robbie. So first on phasing Q3 to Q4, it's certainly appropriate to look back over the past number of years and look at that seasonality its significant in our business and you see it every year. In particular, when you look back at Q3 of last year from an earnings perspective, recall that we made some bonus accrual adjustments in Q3 of last year, which was a benefit to the P&L as we trued up those bonus accruals. So we came into this year from a full year guidance perspective and talked about that as a significant year-over-year headwind and there is a significant item in Q3 about the headwind. So I think, as you model Q3 versus Q4 just know that inside of Q3, you've got this big credit in Q3 of last year that won't be there in Q3 of this year because thus far we're performing. So while I'm not going to give you the precise phase in Q3 and Q4, I would just remind you to look back at revenue seasonality of the corresponding OpEx that is expect various variable and then just know that the prior year Q3 had that credit inside of it. With respect to hedges, in my prepared remarks, I talked about a total FX headwinds earnings of about $0.10 in the second half of the year, given the sharp move in the U.S. dollar since our call in April, so that movement about 5% strengthening of the U.S. dollars while we have a very robust hedging program, the sharpness of that move really prevents us from completely offsetting that in the P&L. So the $0.10 headwind would have been significantly worse if we didn’t have a heading program. And the offset for the heading program will flow through 2019 as well. So last piece would be when you think of gross margin 2018 to 2019, we've talked a lot about the headwinds in 2018, we talked about the incremental production costs that were still incurring, the capitalization policy that's associated with that. And therefore when you think about '19 versus '18 you're still going to have a bit of a headwind on the gross margin rates due to pricing and then also that that incremental pause that would still be followed through the P&L.

Robbie, let me add one more thing on the sequencing thing. You mentioned the 15% number. I won't be clear and Dan just had said this as well. There is a mean of necessary we're going to have an exact 15% kind of impact. We're not going to talk about specifics there. It could be higher than that, it could be lower than that. I think the reason why it's important to know that we pointed out is a lot of people on the street have got that right. It's very, very straight forward it's how it happens every single time, a lot of surgical oriented companies see that seasonality shouldn’t be a big deal. And if you want those people than you are in a good shape. We have already receive three people out there though that may have not fully understood this SG&A dynamics again we're talking about and we just going to highlight this so that when you do the models you go back you take a look at that you understand that's SG&A in particular comp has a real impact there. And of course happy to go through all this offline with anyone if there is any confusion on that okay. Thanks a lot Robbie. Next question.

Our next question comes from Joanne Wuensch with BMO Capital Markets.

I want to fast forward to a year from today. And I think, everyone on this call understands that this is a shift, a progress, a gradual improvement, pick any out to you want. But a year from today what is a win and what will you be saying or could be saying that will be deemed to disappointment? And the second question to that is when you think you stop losing market share?

Well, the sister question is kind of buried in the first question anyway. So what I would tell you is a year from today, I hope we're not saying anything, that’s a disappointment to where we thought we would be. Here is the imperfect timing actually to be a year. A year from today what we need to be saying and this is our short-term objective is number one we have gotten to the place where steady state in our supply has been maintained in the sentiment of our organization, particularly the commercial organization, realizes this and does not have concerns with pursuing new business as result of supply constrains. That has to be in place. Second piece that we talked about, we've got to launch the products that we've been openly communicating are important to the portfolio to get our reps back on full offense and we need to get them into full launch, which by the way around the year from now would be the timeframe that we should be in full launch of that full portfolio. So if we’re at that place with supply recovery and we continue to make progress on the culture of the organization, particularly, again, around our commercial organization, I think we’re in a position to begin to go on through often. Now what I do know about being in a position going to offense and actually realizing it, there's typically some period of lag between that. We’ve got to build up your bolt-in of offensive opportunities and ultimately translate that bolt-in build in into convert the business. So my feeling is as we’re coming into a year from now, those three things will be happening and will be able to talk about the offensive position that we’re in. And then ultimately, as we've talked about the turnaround to the business, we want to be at or above market growth in a sustained way and we truly do we believe that can happen in 2020.

Thank you, Joanne. Operator, can we have the next question please.

Our next question comes from Vijay Kumar with Evercore ISI.

Maybe going back to the guidance question. So I just want to understand the 3Q in 19 comments where it's a 3Q, obviously, there is seasonality. And what I think, I think there is also days impact make the composite easier supplies coming back up on. And I just want to understand how all of those things ready together. And I think relative to that the FX impact for 19 at current levels. I think, on the last call we said that we expect the operating leverage. I just wanted to understand that is still impact right given where rates are currently? Thank you.

Sure. I would just say that our guidance for the second half of the year takes into account everything that you just said. It takes into account the comps from the prior year, takes into account in improving some live situation that Bryan is referring to and the FX movements. So that’s all factored into the second half guidance. With respect to 2019 operating margin and Bryan talking about the comments on this as well, we’re going to stay focused on delivering what we’re talking about here in the back half of 2018 first and foremost. We’re going to see how that goes. And we will continue to have a bias for investment in areas that deliver returns from a growth profile perspective. So when we look out next year as we go through our budgeting process and see how the year is progressing, we'll look for additional opportunities to invest to drive growth. And I think it's fair to say that if we see opportunities to do that we will priority over that relative to driving operating margin expansion.

I don’t know if I have anything material to add, well said. I mean to me, I think to us as an organization and probably to you as well, the primary goal of this organization has got to be to get revenue growth up and get it up in a sustained way. That will be the primary focus, and that will be our Northstar. When we accomplished that then we can truly look at operating margin expansion, but I would give up on operating margin expansion in the short-term to be able to drive revenue growth. And when we do see those opportunities, where we getting traction in areas where we're making investment? We will double down in those areas and continue to push even if it impacts our ability to get that modest expansion we've been talking about in 2019 for margin.

It's a good point. I'm glad that you brought it up Vijay. Operator, next question please.

Our next question comes from Raj Denhoy with Jefferies.

Maybe a two-part question Bryan. The first would be on new products. You mentioned the importance there but you did have some launches in the quarter Partial Knee, the Tibia was out there and then you have two slated three year. And so what is now baked in there just from the --let's call the partial launch of those products and guidance. And the second question would just be on portfolio management. Dental was below our expectations. Just wondering what the strategy is there and what the company contemplate potentially a spin or a divestiture of that asset going forward? Thanks again.

So first of all when I think about the new product launches, I think the primary thing that I'm looking forward here just across the board, you forget for a minute new product which is across the board. Are we as an organization doing what we say we're going to do? It is very important to me. It's one of the culture pieces that we want to have as one Zimmer Biomet. When we say we're going to do something we do it. And if we get any challenges in the process we pivot inside of those and we make sure that we ultimately accomplish what we said how to accomplish. That's one of the things that I'm really concentrating well in the organization. And we're sending that message loud and clear. What I'm happy about on the new product side as we are delivering on what we committed. We've been hitting pretty much on target, all product launches that we had committed to. And I'm taking about internal commitments to timelines not just the external commitments that we've made to you. And we're delivering on the expected revenue growth associated with those new products. I'm not going to get into specifics. We just know that the revenue growth that we expect from those products is coming to bear. And ultimately it is built into the guidance and expectations that we set for the back half of the year and beyond. So I feel really good about that. I feel solid about where we are. Relative to specific new products, across the board where we've launched, the response from surgeons is extremely positive. I just can't wait on the cement less side to get the full launch because the response associated with that product so far is extremely positive. And…

Thanks to ask me although I would note that sounded suspiciously like more than one question that you asked, but I'll note that for you after the call. During the time shifts, I’m real quick, we’re going to have time for maybe two or three more questions we're going to try to get them through if we can. Operator next question please.

Our next question comes from Craig Bijou with Cantor Fitzgerald.

I wanted to ask on the spine stemless business. You guys obviously saw pretty good step up there in the quarter. So just wanted to see what the driver was there? And then maybe your overall thoughts on the spine market and the growth profile of your specific business going forward?

Yes, so I would say, I'm, again pretty happy with where we are right now with that segment of our business. Big part of it is we've just made, I just talked about the dental business, we've made some management changes and some structural changes to that segment of our organization. We got some new team members in almost across-the-board in spine. But also in other categories of our business that I think are setting a really strong strategy. They began to implement a channel strategy that provides risk because there's change in the channel strategy that is needed, but progressively moving that forward and having good success so far as indicated by the Q2 number. And we continue to feel confident that we’re going to be able to deliver what we expect in the back half. So I’m excited that some combination of a new team, new products that we’re launching and a channel strategy that we’re putting in the place that's all coming together to be able to allow that business to perform that plan or even slightly better.

Thanks for that. Operator, next question please.

Our next question comes from Kyle Rose with Canaccord.

Earlier in the call you talked about the rose in the application coming on track for launch. Just want to see if you can frame that out in terms of how you really define a control launches 10 robust to 20 robust? Is it similar customers? Is it competitive customers, the DeNovo robot users versus experienced robot users? And then just on the second part, from a rose prospective is when you anticipate the reengaging the spine market with the robotic application?

I'll start with that one first. The goal would be to have a limited launch either right at the time or just right behind the rose in the application for spine. So spine would follow directly the rose in the application. And when we define limited launch, we don't get into specifics about how many robotic systems, what kind of revenue are we talking about in limited launch, the whole idea behind limited launch is to learn. Particularly, when we’re talking about a robotic system, we want to roll this out in a safe and effective manner. We want to make sure that we have the right train that goes along with it and want to learn as we go. Are there any mishaps associated with product launch that we have and if so how do we correct those one a go forward basis. That usually takes us 5 to 6 months. And that's what we would expect probably that the further out piece of that and we’re talking about the robotic systems plus about six months post the time that we limited launch. And to me again, I like to concentrate on individual products because they are important, and certainly when we talk about robotics indeed it is an important area for us. But most important for me is to have that full portfolio that allows us to go on full offence. And to have a robotics platform that complements what I truly believe that the best knee system in the marketplace allows us now some differentiation versus everybody else. The others may have a robotic system but they certainly don't have the Persona Knee System that we have with a personalized capability that brings to the table. And it also differentiates us because with robotics and the segmentation we had in these kind of good, better, best also provides us with some differentiation at that time because much of that like to rose the platform. I like that the fact that we're going to have robotics. I think the bigger story is it is a piece of the puzzle that will allow us to be differentiated first to their competition.

Thanks for that. We are coming up at the bottom of the hour. We just got suite one more quick question. And then we're going to call it operator. So last question please.

Our final question comes from Jeff Johnson with Baird.

Bryan, that was hopeful to comment on the timing around the robot. But wondering on fetus just when do you think full launch there when will instrument set has to be built? You don’t talk things like that on that. And then on the revision knee, same question, is about a six month after last year prelim launch that we should expect instruments that the kind of the whole commercial launch then on the revision as well?

So on fetus, we're already in full launch. We've entered full launch. And again as that been out -- I've been lucky enough to be with a couple of really exceptional shoulder surgeons and have seen shoulder procedures. I have not yet seen a fetus procedure. But I just got the offer last night from the surgeon that I talked to visit his site and see a fetus procedure. But I can tell you that each of the shoulder surgeons that I spent time within the operating room, are excited about the technology. So we're in full launch and it is being accepted well. As far as revision goes, again, as group referenced, we're looking at a limited launch at the end of the year. I would give that same timeline when we build-up our capabilities to go in the full launch, learning as much as we can, build the supply that we need to be able to go to full launch and that would be towards the middle of 2019. And I would say again, the folks that have seen the revision system really I like it. We haven't gone in limited launch yet, but people have had exposure to it and the exposure to that system is governing very positive responses. And remember, when we do launch revision, it's an important category for us that product is important product for us. But ultimately there are folks that are sitting on the side line that would likely use persona but are waiting for a revision system, so not just the importance of launch in revision, but it's also getting some of the folks on the sideline into the Persona again.

And we're going to wrap it with that. Really appreciate the vast majority of you -- keeping to the one question on the call. We got through bunch of you and I hope this has been helpful. Really appreciate you joining us on the call. A replay of the call will be available later today on our website. And of course the IR team will be available throughout the day to answer any follow-up questions you may have. Have a great Friday and a great weekend. Take care. Bye-bye.

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