Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 7, 2022. [Operator Instructions] I would now like to turn the conference over to Keri Mattox, Senior Vice President, Investor Relations and Chief Communications Officer. Please go ahead.

Thank you, operator, and good morning, everyone. I hope you are all well and safe. Welcome to Zimmer Biomet's fourth quarter 2021 earnings conference call. Joining me today are Bryan Hanson, our Chairman, President and CEO; and EVP and CFO, Suky Upadhyay. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. Please note, 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. Additionally, 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 our Q4 earnings release, which can be found on our website, zimmerbiomet.com. With that, I'll now turn the call over to Bryan. Bryan?

All right. Great. Thanks, Keri, and thanks, everyone, for joining us this morning. I'm going to just give you an outline of how we want the call to proceed this morning. I'm going to spend the first part of the discussion briefly talking about our fourth quarter results, and I'm also going to spend a little bit of time talking about what we're seeing so far in 2022. I know it's early, but I want to give you a sense of what we're seeing already and then just speak more broadly about our views of 2022 as a whole. And then I'm going to turn it over to Suky, who's going to provide more detail on fourth quarter; and obviously, more detail on our guidance going forward. And then finally, it will come back to me before we move to Q&A. I just got a few things I want to close out the prepared remarks with, and then we'll again jump into Q&A. Okay. So first, let's start with Q4, and I'm going to break this into really three categories. The first will be around COVID impact in Q4 and how it compared to our expectations. The second will be around VBP impact and again, how that compared to our expectations. And then finally, just performance outside of those environmental impacts and how we performed there. Okay. So let's take a step back first. I think that will help. Just when we gave our updated Q4 guidance on our Q3 earnings call back in November, we actually outlined our expectations around how COVID and staffing pressure would likely impact our fourth quarter results, and unfortunately our assumptions largely played out in the quarter. As you probably remember, we felt that the pressure from the end of Q3 would continue into…

Thanks, and good morning, everyone. For this morning's call, I'm going to focus on 3 topics: first, our Q4 results, including commentary on the impact of COVID; second, how that translates into full year '22 financial guidance that we provided this morning; and third, I'll provide a brief update on our longer-term outlook. Moving forward, unless otherwise noted, my statements will be about the fourth quarter 2021 and how it compares to the same period in 2020. And my revenue and P&L commentary will be on a constant currency or adjusted basis. We've also provided changes versus the fourth quarter of 2019 or prepandemic results as we feel it is an important comparison. Net sales in the fourth quarter were $2.04 billion, a reported decline of 2.3% and a constant currency decline of 0.8% or down 4.4% versus '19. On a consolidated basis, we were about flat through November versus 2019 and declined in December due to the Omicron variant surge. Expectations for the fourth quarter had contemplated the impact of China VBP in hip and knee, and that was largely in line with expectations. Separately, we booked the sales adjustment related to channel inventory for China VBP in trauma of approximately $30 million, triggered in part by the Chinese government's announcement relating to a national trauma VBP, which was made on January 24. This adjustment was about a 650 basis point headwind to S.E.T. category growth and about a 150 basis point drag on consolidated Q4 growth. In short, excluding the impact of the China VBP on our S.E.T. results, the quarter was generally in line with the assumptions that we provided on our third quarter call and broadly consistent with the midpoint of our implied fourth quarter guidance range. The Americas declined 1.5% in the fourth quarter, down…

Thank you. We'll take our first question from Josh Jennings with Cowen.

Good morning, thanks, for taking the questions. Just wanted to start off on '22 -- 2022 revenue guidance and just make sure I understand the impact of VBP that you're baking into the range. I know you don't usually break out guidance for specific regions. But anything you can do to just help us think about what's baked in for Americas and EMEA versus Asia Pac into that down 4 to flat on a constant currency basis for 2022? And then just as a follow-up on the operating margin guidance, just the trajectory. I know as these pressures are in play, you've taken another look at that in that 30% target. But just as you're moving through these transformation programs and looking at regional profitability, infrastructure in smaller markets and other areas of cost reductions, I mean, how do you balance that with the top line growth projections? Is there any risk that you're going to be impacting revenue growth over the next couple of years by pursuing these transformation programs? Thanks for taking the questions.

Yes. Maybe, I'll just start real quick on that last portion of it, and then I'll pass it over to you, Suky. We actually feel more confident in our ability to invest for growth in the business because of the transformation programs. The transformation programs are not specifically associated with R&D and investment in those key growth drivers for us. They're more focused on finding efficiencies that do not impact our ability to spend in those growth areas. So they really actually bring more confidence that we'll be able to spend on the things that are actually going to drive growth in the future. But outside of that, I'm going to push it over to you for the other questions.

Yes. So Josh, thanks for the question. Regarding revenue guidance, so we talked some of the overarching assumptions in that guide on negative 2 to 2 on an ex-FX basis for the full year revenue is really around the concept of we expect COVID to continue for the full year and the impact of COVID on elective procedures and staffing shortages, again, to really be with us for the entirety of 2022. Now what we're saying is, broadly, we would expect to see procedural volumes consistent with 2021. And that's in the backdrop of COVID actually accelerating in the first quarter, right, where we expect the first quarter on an underlying basis to be down. So, we do expect to see some recovery in the later quarters within the year. Specifically, inside of that, the your question to VBP, we don't see VBP as a material headwind or tailwind at this time relative to large joints or trauma, given the charges that we've taken in the fourth quarter of 2021. Now, I would say that the cadence of that by quarter is going to be definitely different, even though it's not a full year headwind or tailwind. It will definitely be more pressured in the first half of the year than in the second half of the year. So that's how we think about VBP. Now I think your other question was regarding how do we see regional performance in that flattish growth. We're not going to comment on regional color at this time. There's a lot more that's got to play out relative to COVID and the recovery by region before we're going to talk about that. So, we'll give you more color as we get into the -- further into the first quarter on our first quarter call. But right now, consolidated level, we expect it at our midpoint to be about flat.

Great, Thanks for the detail.

Our next question comes from Vijay Kumar with Evercore ISI.

Hi, guys. Thanks for taking the question. My first one, Suky, is on the EPS guidance here. The base of Zimmer, right, ex the spin, I just want to make sure I have the right numbers. I'm getting to maybe something [indiscernible] $0.13 of earnings in 2019, 665 (ph) earnings on a comparable basis for the last year, fiscal '21. One, can you just walk us through the bridge [Technical difficulty] fiscal '22 guidance of 650 at the midpoint? What is the cause of line from '19 perhaps volumes maybe [Technical difficulty]

Vijay, I'm sorry to interrupt, but you're a little staccato. You're not coming in really well so we can't capture your question. I don't know if -- maybe if you can go on, if you're on a speaker, something, maybe you can change it. We can't hear you really well.

Yes, Vijay, it sounds like your line is just not a good connection. Maybe you can get back in the queue. Sorry about that.

Are you still there?

Yes. Sorry, guys. Can you hear me now?

Much better. Go ahead.

Yes. Apologies for the bad connection. But Suky, maybe on just EPS guidance, what is the comparable earnings in fiscal '19 and '21? I'm getting to 714 of earnings or 715 [indiscernible] 660 in '21. Maybe walk us through the bridge from '19 what caused the declines? And year-on-year versus '21, the guide implies flattish earnings, that bridge would be helpful.

Yes, sure. So, thanks for the question, Vijay. So first of all, I'm not really going to bridge back to 2019. By the time we get through 2022, we'll effectively be in 3 years removed from that in an COVID environment. So, it's really difficult to draw a lot of comparisons. But here's how I would think about how we arrived at our operating margin and our guide ultimately for EPS. And so, if you use 2021 as a starting point, we ended the year at 26% on adjusted operating margins. From there, we've got some tailwinds and some headwinds. Starting with the headwinds. We have been talking about incremental pressure coming in to 2022 really from 2 dynamics. One was the China VBP, and while the overall revenue impact will be roughly the same as what we saw in 2021, there is a greater margin impact in 2022 because the composition of that revenue downside between the years is a little bit different. The second headwind that we're seeing is really around inflationary input costs. Things like energy costs, metals, labor, freight, these are definitely being impacted and felt within our company. So if you put those 2 things together, that's roughly about 100 basis points, maybe slightly more. So using our '21 exit of 26% and those headwinds, you would normally arrive at about a 25% adjusted operating margin for 2022. However, we do have some tailwinds. We have the spin. And as we've talked about, prior to the spin, we said that, that would be about 125 basis points accretive to operating margins. It's actually a little bit higher, more like 150 basis points even after netting out stranded costs. And then we have another element. We've been deploying some additional restructuring activities within the company because of the continued pressure of COVID. That's going to be a tailwind of about 50 basis points. So when you add that spin accretion plus the other efficiency programs of 50 basis points, that's what gets you from an underlying 25% operating margin in 2022 up to a 27% at our midpoint. So hopefully, that gives you the big building blocks. Again, headwinds being VBP and input costs, tailwinds being spin and other efficiency.

That's helpful, Suky. Just one last one. What are you assuming for TSA revenues? I understand the stranded cost, I think, $70 million, $75 million-ish. Are there any offset from TSA that's being assumed in the guide?

Yes. We will get some TSA income. We're structuring those pretty much on a cost -- with a slight cost plus. But because we do not see them as core to our business or recurring, we're actually going to be non-GAAP-ing that benefit. So we do not have any benefit in our earnings per share related to TSA income.

So just -- I mean, TSA should be equal to the stranded cost rate, 75-ish, Suky?

I wouldn't say it's a complete 1 for 1 there, Vijay. It will be substantially lower than those stranded costs.

Our next question comes from Robbie Marcus with JPMorgan.

Great. Two for me. Maybe I'll just ask them both upfront. One, as it relates to the guide, you sort of touched on this, it's flat at the midpoint in a COVID environment. Bryan, should we be thinking that closer to that mid-single-digit growth is off the table as long as a COVID environment still exists? And then second question, as I think about RemainCo, how do we think about it if there's any way to give us before the full pro formas are out. Gross margin was a bit disappointing in the quarter. How do we think about the components of operating margin in 2022? Is it much more SG&A-driven? Or are there gross margin improvements as well?

Great. Okay. So I'll start with the question around COVID and our growth rate. And I think it would probably be pretty obvious to most. If we continue to see COVID pressure and staffing pressure kind of at the rate that we're seeing today, yes, it would be very challenging, obviously, for the company to get to mid-single digits. That wouldn't be something that we think is possible in an intense COVID environment. What we do believe is when COVID gets behind us that we absolutely have the building blocks to get there. But in a COVID environment, just given the pressure on elective procedures and given the fact that we have 80% of our revenue built into those elective procedures, it's just not a pathway to get there.

And Robbie, on your question related to the composition of the 27% adjusted operating margin or midpoint, it's going to be primarily driven by SG&A. The way we see overall gross margin is, as we talked about in the prepared remarks, we ended 2021 at or about our guide, which was roughly in line with the back half of 2020, so just below 71%. From there into 2022 on adjusted gross margins, you've got, of course, some headwinds, tailwinds. The headwinds being the VBP margin pressure I just spoke about with Vijay as well as the input cost inflation that we're seeing, again, that I just talked about. In addition, lower volumes will also be a slight headwind. Those will be partially offset by some accretion that we see related to the spin. But net-net, I would expect gross margins year-over-year from '21 to '22 to be down. So the bulk of our improvement in adjusted operating margins from '21 into '22, again, will be primarily driven through SG&A.

Our next question comes from Steven Lichtman with Oppenheimer & Company. .

Bryan, on ROSA, I was wondering if you could talk a little bit about the pipeline you see ahead. How are you seeing '22 placement opportunities versus '21? And where are we in terms of the build out of the opportunity to pull through of knee implants following those ROSA placements?

Yes. So the -- I would say that the pipeline is really strong. I mean that's one of the things that has been a positive surprise during this COVID pressure. There has not been a reduction in demand on robotics, which is, to be honest, when we first started, I thought it would be the case, but we just haven't seen it. We've seen continued pipeline gets stronger. And what we're finding is that, that pull-through is already happening. We always talk about are we placing robotic systems in a competitive account or a friendly account. What I always go back to is every account for the most part has some competitive flavor to it. It's not always homogeneous. So even in those accounts that we would consider our platinum accounts, when we place a capital system there, a ROSA system there, we absolutely have an opportunity to convert a competitive surgeon because there will be a competitive surgeon that exists in that platinum account. So that's what's exciting about it is the demand is strong. We continue to see it move in the right direction, and that pull-through is already happening. A big proof point to that is just the fact that in the U.S., we reached that 10% of total knees being done robotically. It doesn't sound like much because I know one of our competitors is much further along than that. But that feels like a pretty good start. And the fact is it's just the beginning of the journey. So yes, so the demand is strong, and I would tell you that the pull-through is real, and it's continuing.

Great. And then just a follow-up on cash. You're clear on the debt pay down expectations near term. Will M&A be muted as a result? Do you still see opportunities for tuck-in deals?

Yes. Unfortunately, as we get into the Phase III of our transformation, a big part of Phase III, as we've always talked about, is active portfolio management. And COVID has definitely put a dent in our ability to leverage as much cash as we were hoping to leverage to move that forward. At the same time, even in a pretty cash-constrained environment, we've done a good job of continuing our strategy there. As I mentioned in my prepared remarks, we've done a number of deals, either M&A or partnerships, to ensure that we're building scale in those important faster-growth areas. But we just have not had the amount of firepower we would like, and certainly that pressure is going to continue.

Our next question comes from Larry Biegelsen with Wells Fargo.

Bryan, just 2 for me, one on Persona iQ, one on the ASC strategy. Can you talk about what impact you expect Persona iQ to have to revenue in 2022? And the pricing strategy, just remind us again of kind of if you -- well, if you're planning to resubmit for the new tech add-on payment. And if not, why? And then just second on the ASC strategy. Just talk -- you've talked about being under-indexed there. What's the plan to change that? And can you grow at or above market in recon before you address this? Or will it be a headwind to growth in the near term?

Sure. So maybe I'll start with the ASC. And believe me, we are already shifting our focus here. We had planned to do it anyway. But obviously, with the results of COVID and pushing more patients to the ASC, we put that plan on steroids. We built a, I guess, first and foremost, a direct selling organization to ensure that we're contracting effectively in that setting. That was almost 0 to 100 people in a relatively short period of time fully dedicated to contracting in the ASC setting. That was probably the first big step. Also driving compensation, right? So operating mechanisms to drive focus there and also compensation to drive focus there. The other thing that we're doing is to make sure that we're filling our product gaps that will give us more presence inside the ASC. That would be like the Relign acquisition in sports, where we had that gap in capital, would be like Incisive where we got booms and lights to be able to give more infrastructure to the ASC. So those are the things that we're doing right now to be able to get further traction in the ASC, and we're making progress. Do we have more work to do? There's no question. But when I look at our growth in the ASC and I look at our expanding size of our business in ASC, I know that what we're doing today is actually working. So that's ASC. On the iQ side, I'll hit maybe the reimbursement question first. We're going to pursue everything we possibly can to try to get incremental reimbursement, but we're not counting on any of it. So our plan today assumes no incremental reimbursement that this would be captured under the DRG that exists today. And that even in that,…

Next question comes from Matt Taylor with UBS.

So I wanted to ask one about operating margins longer term. Obviously, you changed the timing of the '23 goal. Could you just talk about the trajectory of margins that you foresee occurring with your forward outlook? And Suky, I know you've talked about margins as being largely revenue dependent. Maybe talk about the importance of revenue growth for driving margins higher and then also some of the things that you're doing with regards to regional profitability and ERP and how those can play into margin growth going forward as well?

Yes, sure. So thanks, Matt, for the question. You're right. We did remove our 30% target by the end of '23 because of the ongoing challenges of COVID and the lack of revenue growth. And if you recall, that margin was largely predicated on 3 building blocks. One of the main one was revenue growth, which obviously we're just not seeing come through as we've been talking about. I think longer term, we still do have the opportunity in the near term to expand margins. We're not going to size that at this time because we do still think it's largely going to be revenue dependent because we have to balance in the mix of efficiency that we're seeing across the company and that we're driving forward with the right level of investment against the business for long-term growth because we do see COVID eventually it's temporal. And we want to make sure that we can continue to invest against the very strong pipeline we have in commercial execution to make sure that we can grow value over time not only in a pandemic world, but most importantly, in the post-pandemic world. Some of the key drivers that I would say beyond revenue growth that can help drive margin expansion in the near term is our establishment of global business services or large shared service regional centers, which we planned for in 2020 and actually implemented in '21. That's going to be a key component of that incremental margin expansion I talked about in '22. But then beyond that, the ability to leverage those beachheads are going to be important. You're right, we're making investments into ERP. Those are generally longer term in nature to actually play through and to get those benefits. So I would see that those benefits coming in post 2023. In addition, we continue to look at and our supply chain is always looking at opportunities to optimize and rationalize our overall manufacturing footprint, but also to continue to combat input cost rises through very aggressive procurement. So those are some of the levers I would think of as in the near term in the absence of revenue growth, but no doubt revenue growth is going to be the key driver to meaningful margin expansion over the mid and long term.

Our next question comes from Rick Wise with Stifel.

Maybe going back to COVID. Again, it's hard to ask this question because I know there's a million moving pieces. But as you're reflecting on the sort of early headlines of COVID headwinds clearly easing in the Northeast, I mean, new cases are down dramatically. How are you thinking about how the recovery, the post-COVID recovery unfolds relative to backlog and sort of delayed procedure volumes? Just how are you thinking about it now as you see the reality start to unfold?

Yes. So I'll give you a sense of how we built it into our forecast and the guidance that Suky just referenced. We actually try not to get too caught up into this whole concept of the cases are dropping from a COVID standpoint because we're still seeing cancellations that are as high as we've seen in a long time. And so there seems to be other reasons, as I referenced in the prepared remarks, on why we're seeing cancellations versus just ICU beds being taken up by COVID patients. So we really, at this point, are assuming that the 2022 impact from COVID will look a lot like the '21. Maybe different timing of peaks and valleys, but we expect at this point until we see something that tells us that it's going to be different that you're going to continue to see a peak come down like we're seeing now, and then it's going to go right back up given the new variant. That's the assumption that we have throughout 2022. Now if we set that assumption aside, and we say that we see a peak come down into a valley, if you will, and it never comes back, then that -- completely different game. That gives us an opportunity then to get back to those growth rates that we're seeing back in Q4 2019. Remember, those growth rates we saw back in Q4 2019 about 3.2% or so, that was really before Vitality index was picking up for us. That was just on the beginning of that Vitality index moving north. So that would be an exciting environment for us. There's no question about it. But just know that what we built into our guidance is that '22 from an overall impact standpoint is going to look a lot like '21 when it comes to COVID and staffing pressures.

Got you. And on ROSA, again, I mean, clearly, you had a terrific year despite some of the challenges. Where are we with the partial knee rollout? Where are we with the hip rollout both launched last year? And maybe as part of your comment, Bryan, about the new product pipeline being stronger than ever, I don't know whether there's a ROSA component there. What's next? What's coming? What are your priorities now to keep this momentum going?

Yes. So ROSA overall, as I've said before, our primary knee is going really well. The pipeline is as strong as it's been. The pull-through is there. The penetration in our overall procedures is coming up, moving in the direction that we had hoped. I think it will leave and unlock more value when COVID subsides because that is obviously impacting our ability to get procedures even in those accounts where we have ROSA, but it's definitely moving in the right direction. Partial is the same thing. I'll just step back there, too. The partial knee application was important one for us because I think as most people know, we have a very high market share position in partial knee. So to be able to bring a robotic platform with that application is really important for us, and we have a lot of opportunity then to go to those accounts that are using our partial knee and try to move them to robotics. And the hip is going well, too. It's really kind of a combination of ROSA Hip and Avenir Complete. One of the fastest growth subcategories of hip, I think everybody knows now, is direct anterior approach. And both of those, the Avenir Complete as well as the ROSA application that we launched first goes directly at that fast-growth submarket. Now later this year, we also have another application that we're going to launch in hip that will go after the posterior approach. So we'll have everything locked up from a hip standpoint. But those are the things that we're pretty excited about. Stepping back from that, just ROSA, I feel really good. I'm not going to get into a lot of the things we're launching that we haven't talked about already, but just some of the things…

Our next question comes from Chris Pasquale with Guggenheim.

Suky, I want to start just following up on the VBP impact to make sure we're thinking about this right. Are you saying that the dollar impact is going to be the same in '22 versus '21 across hips and knees, and now trauma is included in that as well. But it's just going to be spread out differently throughout the year. And maybe just help us with how the impact was recognized in '21. Did you have anything in the third quarter? Is it really all packed into the fourth quarter?

Yes. Good question. So we do see, to your first point, overall, the revenue impact, top line impact against recon or large joints and trauma being roughly about the same year-over-year. So again, no material headwind, tailwind based on where we stand today. The impact, I said, will be different by quarter. So you really didn't have any impact in Q1 to Q2 of 2021. And so therefore, you've got pricing impact in the first half of this year, '22, which is being compared to a non-VBP first half of '21. So the pressure is going to be more acute on that year-over-year comparison. As you move to the second half, you had a modest level of impact in the third quarter around some inventory contraction, but not material. The really big impact was mostly in Q4. If you think about all the numbers that we provided to you today in some of our earlier commentary, it was worth roughly about 400 basis points of growth in the fourth quarter. So that's where you're going to feel the biggest impact in 2022. This year, it will be more of a tailwind for us because we won't have to cross over that one time that we took in '21. So again, sorry, Chris, a lot of numbers there, if there's that in any way, it's confusing. I can help clarify.

The one thing I will say from a dollar standpoint relative to revenue, there's that consistency and differences in quarterization of it, but that's consistent. But in margin, it will be more of a negative impact in 2022. And as Suky referenced before, about 50 bps of headwind for us and margin profile due to VBP in 2022.

That is helpful. And then, Bryan, I just wanted to follow up on the cementless opportunity. This was really alongside robotics. One of the things you guys were highlighting a few years ago is a significant potential mix driver for you across the hip and knee businesses. And it seems like it's gotten off to a much slower start here than we would have thought at that time. What was it about the prior Persona cementless that really didn't allow you to gain as much traction there as you were hoping? And how does this next version fix that?

Yes, it is that, actually. We -- again, we have a form factor that we felt confident with that was already kind of in the mix. But when we get it out there in the -- and surgeons look at it, they don't feel as comfortable with the design that we want on a go-forward basis. And remember, when you're talking cementless, you want to make sure that you really get good contact between the implant and the bone. And as a result of that, we've changed the design of that connection, if you will. And that talking to surgeons already about the design that's going to be coming, they have a lot more confidence in the safety of that connection. That's the reason why we changed the form factor. So it's not so much our inability to sell cementless in concert in particular with robotics, it's more around that form factor and the confidence people have in that form factor to get the feel that they're looking for. And we feel very confident about what we're going to be launching later this year. And again, I look at it to say as much as I'm frustrated by the fact that we have not had the right design, I know one is coming. And I'd probably rather be at the 10% now, and I think of future growth opportunities and be able to increase that penetration over time when we do launch that product.

Our next question comes from Shagun Singh with RBC.

I was just wondering if you can talk about trends exiting January and into early February, especially since the U.S. it appears to have occurred around January 13, even though there were regional variations and they continue to be. You did call out seeing more cancellations and also that COVID pressures will continue throughout the year. So I'm just trying to figure out if you can provide more color and if your guidance is realistic or conservative.

Yes, Shagun. Thanks for the question. This is Suky. So as we said, we provided, I think, pretty good color on Q1, where we expect it to be about flattish, but that includes a 130 basis point tailwind from selling days. So on an underlying basis, it's really down year-over-year. January was definitely more pressure than what we saw in December exiting 2021. And we continue to see very high cancellation rates coming into the beginning part of February. So we think what we've seen so far continues to support that first quarter color that I talked about. And I think it's important to note that while Omicron cases maybe in some markets starting to -- people are characterizing that as plateauing, there is still a residual effect on staffing shortages, which, in some part, are linked to Omicron. But there are other factors that are driving staffing shortages. So just because we see a decrease in overall Omicron cases does not mean you're going to see a one-for-one reduction in staffing shortages, which continues to be a headwind for us. So short story, everything that we're seeing so far in January and the very beginning of February continues to support that first quarter call we provided.

I got it. And then just one other question on operating margins. Maybe you can help us with the cadence if you haven't touched on it. And I'm especially curious with respect to the 150 basis points benefit from the spin. How should we think about the time line there for you to achieve that, especially given the context that you do have higher corporate cost allocations in the near term?

Sure. So on the margin case, it's really -- our margin is very correlated and linked to revenue. And so as we said, revenue will be more pressured in the first half of the year versus the second half of the year, especially because of the pressure we're seeing in the first quarter. And so we would expect margins to follow that same cadence. It will be more pressured in the first half, most acutely in the first quarter not atypical from what we saw in 2021 regarding seasonality and the impact of COVID. So that's how we see the cadence of that operating margin, again, most acute down in Q1 and then recovery as we move through the rest of the year with revenue recovery as we talked about. Relative to the spin, I think you're going to see that 150 basis points start to manifest relatively quickly here in 2022. We have already started to attack some of those corporate stranded costs and are going to continue to fight our way through that. But that's how we see operating margins so far.

We'll take our next question from Matt Miksic with Credit Suisse.

Just one question if I could on the strength in EMEA knees was one question that I thought would be worth flushing out if you have just a minute, and I'll just leave it at that.

Yes. I would just say that we see almost right now that EMEA seems to be ahead of schedule relative to what we're seeing in the U.S. and other parts of the world. I'm not sure why that is. But you did see some relief that we saw in EMEA because you did see a kind of that downward trend in Omicron. And also, you're seeing some policy shifts, which I think is going to be really important on a go-forward basis where you've got countries like the U.K. and Spain and others that are looking at this to say, "Listen, Omicron is acting more like an endemic phase now, and we're going to change some of our restrictions associated with COVID." And I think that those policy changes are going to be an important factor in COVID eventually getting behind us. It's not just COVID itself, but it's going to have to be these policy shifts that we're seeing kind of led right now by Europe. That would be something we'd like to see across the world actually. But that's the only thing I could probably point out is that just a little bit ahead of the curve in COVID impact than the rest of the world.

That concludes today's question-and-answer session. End ofQ&A:

Yes. No, thank you. I think it was the last question. I can jump in here and just close out. So thank you, everybody, for joining. If you have questions that you didn't get asked or answered, please feel free to reach out to the IR team. I know we're speaking to many of you today, tomorrow and this week, but we're always available. Also, just a reminder that the ZimVie Investor Day is beginning at 11 a.m. Eastern Time. Information to join that webcast and the materials are posted on the IR page of our website. And of course, if you have any questions on that front, please feel free to reach out to the IR team as well. Thank you, everyone, for joining today, and have a good day.

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