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Zimmer Biomet Holdings Inc  (NYSE:ZBH)
Q3 2018 Earnings Conference Call
Oct. 26, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, October 26, 2018. Following today's presentation, there will be a question-and-answer session. At this time, all participants are in a listen-only mode. (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.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thank you and good morning. Welcome to Zimmer Biomet's third quarter earnings conference call. I'm joined by 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 some forward-looking statements. And, of course, 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. and we urge you to take a look at those.

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

Bryan C. Hanson -- President and Chief Executive Officer

Thanks, Cole. And I just want to say thanks again for everyone joining us this morning. Overall, we feel pretty good about Q3. We delivered constant currency revenue up 2.3%, and I can tell you pretty much across the board when I talk to our team members, we are all encouraged by the progress we are making in a number of areas and I'll get into those in a second. But before I do that, with the idea of being fully transparent on the quarter, our results actually look a little better than they actually are, and for a couple of reasons.

First of all, and I think this is probably pretty clear to everyone, we had a pretty easy third quarter comp which bullied revenue growth in the quarter obviously. And unfortunately, that will not continue in this fourth quarter, we have a much more challenging comp in the fourth quarter. In addition to that, we experienced notable timing benefits in the quarter with regard to both tenders and capital sales. On the tender front, it happened both in Asia-Pacific for us as well as EMEA; and on the capital side, it was mainly in our S.E.T. business. Either way, just those bullied the third quarter results and will come as a result of that with some pressure to the fourth quarter.

Good news is we think the revenue which is the most important thing. So even though you're going to move those between quarters, I'd much rather have a sale. So, as much as we're happy with the third quarter. I believe it's important to highlight these factors because I think very importantly, I don't want my team or you to get too excited that we appear to be at a weighted average market growth of the business. While we're pleased with the progress we are making, we clearly are not declaring victory, and until we sustainably deliver that performance, we won't. And I still firmly believe, this should be a 2020 expectation.

So I guess the overall takeaway should be that our recovery timeline remains on track. But we are going to see some atypical quarterly timing and revenue phasing here in the back half. So my net message is, I'm maintaining this sense of cautious optimism as I expressed in the second quarter and feel good that we're progressing in the right areas.

So with that, I'd like to provide an update on the short-term priorities that we've been concentrating on since I joined the organization. Turning first to quality remediation, what I want to say here is that any time we think about quality remediation, I want to be clear that the number one priority we have as a business and I personally have is patient safety. So as we think about our process in remediation, we will always have patient safety first and foremost on our mind. If I think about the activities specifically, our ongoing efforts remain on track and we continue to keep the FDA updated on our progress. And as we stated before, at this time, our quality remediation does not restrict our ability to produce or ship products out of our factories. And as a result of that would not have an impact on our supply recovery sustainability. And importantly, we also continue to believe that with the work that we have in front of us, this will not put us in a position that will materially impact our financial forecast or projections. In the area of supply specifically, we are still not exactly where we want to be, but we're making progress and we're going to remain diligent in this area because we want to make sure that our service levels continue to come up, but our progress in this area continues to increase, and as a result of that, our confidence that supply will not be a barrier to accomplishing our 2018 guidance. And I think even more importantly our turnaround timeline is higher than ever. Throughout 2019 though, what we need to is to start to shift away from our manufacturing folks focusing on just triaging the product supply and we're going to focus more diligently on the rigorous approach through reducing costs in our manufacturing facilities, which will eventually lead to margin expansion for the business.

On the commercial side of the business, we have continued to build momentum. The combination of stronger sales force engagement is improving supply that I just talked about, the introduction of new products, all those pieces coming together, are giving our sales organization the traction they need and the traction we need to be able to keep the organization on pace with the recovery.

Relative to new product introductions, specifically, we are pleased to see the traction our newly released products are getting pretty much across the board with our surgeons. Notably, we are happy with the growth of Persona Partial Knee, which is an important space for us. And we're seeing very good uptake on the more recently released Persona TM Tibia. By the way, we've now surpassed 1,300 cases in our limited launch rocess and we still are getting very positive surgeon feedback. Our two large upcoming commercial projects, which I get questions on all the time, The Persona Revision System and The ROSA robotics knee application are progressing well versus timeline, and as a matter of fact, both are waiting on regulatory approval. Regarding ROSA knee specifically, we're excited to be ahead of schedule to perform our first case in Australia.

In other areas of innovation, earlier this month, we announced an exciting new collaboration with Apple and Zimmer Biomet mymobility. This technology, as you probably have already heard through some of the media launches that we've had on this, is really a digital platform that allows the knee and hip patients to be better connected to their caregivers. This is throughout the entire episode of care and what's unique about it, is you can do this by using the Apple Watch and the iPhone that the patients would have. What we're going to do inside of this, is to make sure that we also have a study that will look at the clinical outcomes as a result of using this technology. This will cross thousands of patients that will participate in the study. And as a result, this will be one of the largest evidence gathering clinical studies in orthopedics history. I can tell you through this study and in collaboration with Apple, we absolutely look at changing the patient journey for knee and hip procedures. And I think ultimately, as a result of this, set a new standard in digital healthcare for our space.

As these and other new products expand our clinical offerings, I feel even more confident that our portfolios' capability will be there to differentiate us from the competition and ultimately as a result of that help drive the future growth of the business. Because our primary goal is in fact driving revenue growth. I want to stress that we will continue to invest in appropriate growth initiatives and that we expect those investments to increase over the next several quarters, not decrease. These initiatives are already having an impact and will be crucial to achieving the goals that we have for consistent at-market or better growth by 2020. In addition, we continue to look aggressively at active portfolio management opportunities to further diversify our portfolio and ultimately as a result of that bring up the weighted average market growth of our business.

Turning to our culture building initiatives, we've been on an absolute tear relative to this area. We've held mission ceremonies with thousands of our team members over the past six months since we launched the new mission. And I could say that these are very impactful. We come in, do a mission ceremony and present in person the mission and guiding principles of this organization. To date, we've met with nearly half of the organization to personally engage with them on the One Mission, One Culture focus of this business. As much as I'm happy about that progress, I look forward to reaching every team member with this important message over the coming quarters.

So overall, though we still clearly have a lot of work ahead of us, we've made great progress pretty much across every one of our top priorities. And so with that, I'm going to turn the call over to Dan to get into our financials.

Daniel P. Florin -- Chief Financial Officer

Thank you, Bryan. To start off, in addition to Bryan's comments about our third quarter performance, I would like to point out a few other items that will impact your models. First, I want to highlight a couple of headwinds affecting our revenues including some specific pressure on our other revenue line in addition to foreign exchange. There are also a couple of items below our operating income that will benefit us over the next several quarters as we expect both our net interest expense and our effective tax rate to come in lower than previously expected.

Turning first to revenues. Our results will be impacted by disruption related to the pending termination of our US distribution agreement with a bone cement supplier. This matter is still evolving and is currently in litigation. At this time, we anticipate the termination of this distribution agreement may have a negative impact of between $10 million and $15 million per quarter on our other revenue line beginning in the fourth quarter. Importantly, we are actively working to mitigate this issue by transitioning our customers to our internally produced bone cement, but we still expect the net impact will be a revenue headwind over the next several quarters.

Regarding FX, the strengthening US dollar over the last several months will continue to put pressure on reported revenues and earnings. To put this in perspective, while our organic revenue growth in the third quarter was above our expectations, the negative FX impact was about 100 basis points worse than previously expected and we expect a similar impact for the next several quarters.

Turning to items below operating income, as you model our net interest expense, you should expect modest declines from the $68 million that we reported this quarter. In addition, we have taken advantage of further tax planning opportunities which is primarily why you see the third quarter tax rate coming in lower than expectations. Because of this, we now expect the tax rate for the full year to be below our prior guidance range.

While the points I just discussed will likely move some specific line items in your models, we do not expect dramatic changes to 2018 earnings. In other words, the positive effects of tax and interest will largely offset the negative FX impact that we are seeing in 2018.

Turning now to our detailed third quarter results. Net sales totaled $1.837 billion, an increase of 1.3% over the prior-year period, which represents an increase of 2.3% on a constant currency basis. On a similar basis, in the Asia-Pacific region, our sales increased by 7.6%. America sales increased by 1.7%, and our Europe, Middle East and Africa sales were flat.

Moving down the income statement. GAAP diluted earnings per share for the quarter were $0.79. Adjusted earnings per share were $1.63. Adjusted operating margin came in at 25.6%, including an adjusted gross margin of 71.6%. A reconciliation of reported net earnings to adjusted net earnings is included in this morning's press release. These adjusted results exclude $247 million of expenses in the quarter, approximately $148 million of which are non-cash charges primarily related to intangible amortization.

The adjusted effective tax rate for the quarter was 16.5%, which brings our year-to-date adjusted effective tax rate to 18.6%. Operating cash flow for the quarter amounted to $484 million and our free cash flow was $345 million. Year-to-date free cash flow totaled $1.049 billion. We paid down $300 million of debt in the quarter bringing our year-to-date total debt pay-down to $900 million.

With that, let me turn the call back to Bryan.

Bryan C. Hanson -- President and Chief Executive Officer

Thanks, Dan. As you've just heard, we're pleased with our progress and I think more importantly and more broadly, that the entire Zimmer Biomet team is coming together as one Zimmer Biomet. And I can't stress enough how important that is for us to be able to have sustained performance in the business. And overall, our achievement in the third quarter even though it looked a little better than it was, clearly is showing that we have confidence that we're on track with our turnaround and ultimately positioning the Company for long-term value creation. And so with that, I'm going to go ahead and turn it back over to Cole and move into Q&A session.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks, Bryan. Before we start the Q&A session, I want to remind everyone once again to please limit yourself to a single question with a brief follow-up if needed. In the past, I think that's worked very well to get as many people in and as many questions as we possibly can do, and that's our goal today. Obviously, feel free to put yourself back in queue afterwards, I promise we'll get through as many questions as possible and we get to you if we can.

With that, operator, may we please have the first question?

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, at this time, we will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Amit Hazan with Citigroup. Please go ahead.

Amit Hazan -- Citigroup -- Analyst

Great. Thanks, good morning, guys. So just a question maybe start with gross margin considerations for '19 and '20, is to leverage, thinking about leverage from volumes and costs, if I adjust the negative price headwind, it does appear as though you've had some positive volumes really all year in hips and knees, and if that's so, does that portend better gross margin next year? Just trying to get a sense of, where volume growth needs to be for you to start seeing leverage? And then relatedly, when do you expect to start seeing the benefit from the rigorous approach to reducing costs in manufacturing facilities that you mentioned? Can that be a 20019 event? Thanks.

Daniel P. Florin -- Chief Financial Officer

Okay, Amit, this is Dan. Let me first start by saying that we've talked extensively about the pressures on gross margin and the fact that we expect those pressures to continue through 2019 and that the primary driver of that is the same driver which is elevated production costs predominately out of the North Campus facility. And recall that we've talked about not only the incurrence of elevated production costs that is tied together with the quality remediation work that we're doing in that factory and the fact that our accounting policy is such that we capitalize those costs and they flow through the income statement as we sell that inventory. So there's about a one year lag between incurrence of variances and getting the full impact in the P&L of those variances. So that works the same way as we drive cost improvement. So as we drive cost improvement, that goes on the balance sheet and then it takes a full year before that's fully through the income statement. So that's why there is a delayed impact from benefit and a delayed impact from incurrence. So as we sit here through 2019, we're still going to be incurring the full run rate of those elevated costs throughout 2019. Now our new Head of Operations, Ken Tripp, continues to bring in additional resources and as that team triages away from focus on supply, recovery, the team will start to pivot toward significant cost reduction activity, we expect that pivot to occur next year and so I would not expect any gross margin benefit in 2019 through those efforts, that's more of a 2020 impact to the income statement.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks, Amit. Next question please.

Operator

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

Bob Hopkins -- Bank of America -- Analyst

Great, thank you. Can you hear me, OK?

Daniel P. Florin -- Chief Financial Officer

Yes Bob.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Yeah, loud and clear, Bob.

Bob Hopkins -- Bank of America -- Analyst

Great. Thanks. Good morning. So I'll just lay my questions out here. So quickly for Bryan, I was wondering if you just touch on two quick things for us. Just maybe be specific on when you think the supply issues will be fully behind you and also I heard some comments on the robot. But just to be clear, when do you expect a full launch of the robotic platform for total knee? And then for Dan, the one thing I'd love you to touch on is that, when you think about the things you've got to affecting the income statement going forward, you've got tax rate and your spending and clearly currency is an impact, but when -- you have -- the Street's modeling roughly 3.5% earnings growth for 2019, do you think the Street is accurately capturing all those moving pieces? Thanks very much.

Bryan C. Hanson -- President and Chief Executive Officer

All right great. So, Bob, I'm going to get started on the more than one question that you asked.

Daniel P. Florin -- Chief Financial Officer

We'll discuss that afterwards.

Bryan C. Hanson -- President and Chief Executive Officer

But let me start with supply. I think, first of all, I want to be very clear and just kind of reiterate something I've been saying, I absolutely do not see supply as being a barrier to achieving our 2018 targets that we have, and I think probably and most importantly, to getting to our turnaround timeline. So I don't see supply as being a barrier to these things. At same time, I'm not happy with where we are. The fact is, we need to continue to focus on bringing up our service levels to our customers if we need to be best-in-class in this area. And I got to say, to be able to do that, what I want to hear is my sentiment from the sales organization begins to match some of the back-order reduction in the inventory building that we're doing. Until I get that sentiment at a place where everybody feels confident that they have the inventory they need to go after offensive situations, we're not there yet. So that's where we are. In addition to this, we've got to start spending a little more time evaluating the portfolio that we have. You know one of the best things about our portfolio is the scale. It's absolutely unmatched. It's the best portfolio, largest portfolio out there. But the problem with that is, it also inhibits our ability to have best-in-class service levels. The fact is, we've got to start reducing the size of the portfolio because it creates a very complex supply chain for us. And I'm not going to say that we're going to be able to do this out of the gate because we still have to focus on our short-term priorities, but we have got to look at reducing the number of product families we have because the number of SKUs attached to those product families is extremely cumbersome. So -- and by the way when we do this, not only does that help service levels, it also has peripheral impact to other financial benefits and efficiencies for the organization. So again, I don't feel like that we're ever going to get to where I want to be on service levels until we start to call back the portfolio that we have. And as Dan mentioned before, it is critical though that as we come into 2019, this whole triaging activity that we have around making sure supply is there has got to be shifted, that focus has got to be shifted to cost reduction activities, because as Dan mentioned, the capitalization cycle says that, once you start those projects, you don't get full advantage of them for a year. So 2019 has got to be that pivot period for us to be able to get after cost reductions and stop focusing so much on this triaging of product supply.

So on the robot, I mentioned that we're ahead of schedule actually, and I'll give you a little more color on that. We actually had five cases that we were able to do in Australia. And I want to be clear that this is the beginning now right of us getting out and actually doing cases -- actual surgical cases, and this is ahead of schedule. No question, it's ahead of schedule. First of all, I just want to say that when I reference ahead of schedule, I want it to be clear that gives me confidence that the overall project is on track, that we don't have a lot of risk in the project, but I wouldn't get too excited about the fact that it's ahead a schedule, you know I've said in the past, whether we've limited launch in the fourth quarter or the first quarter, it doesn't really make a big difference to the roll-out plan and I don't think it'll have a material impact on our revenue results, but I'm pretty happy with the fact that we're ahead of schedule right now because that clearly tells us we're in the right place and now we're waiting on regulatory approval in the US.

Also, a little more color on the procedures in Australia, we did five procedures in one surgical day with one surgeon. So think about that. And that's five procedures which is pretty decent load for a surgeon, any typical surgeon in a surgery day with one surgeon. And that would speak to the efficiency that we're looking to bring to the table with our robotic system. And this is the first time that this surgeon has used the system in the operating room.

So not only we're ahead of schedule, but that's a pretty good stat that we feel good about. The thing I do want to concentrate on though in answering your question specifically is, I do want to think about this as being kind of a back half full launch of 2019. This is consistent with what I've been saying, we're going to have the full product portfolio in the back half of 2019 that then positions the sales organization to go on 100% offense and then ultimately that keeps us in line with that 2020 turnaround which is where we're going to be at weighted average market growth consistently. And I think that that's important. One other thing I will say though is, that full offense I'm talking about, I don't expect this to be in full offense with a similar portfolio offering as everybody else. I truly do believe, as we continue innovations like the collaboration with Apple, as we leverage the differentiation we already have with things like Persona, and we have that full product portfolio, I believe that we're going to be differentiated versus our competition and we're going to bring more ammunition to the fight. At the end of the day, we're not here to play, we're here to win. And I truly do believe this portfolio is going to position us to do that.

Daniel P. Florin -- Chief Financial Officer

And Bob, with respect to 2019. First and foremost to be clear, we're not providing 2019 guidance on today's call. We'll do that in the coming months. But let me try to provide some color to help folks with their models. First, with respect to revenue, at current FX rates, as we look to 2019, there'll be more than a 100 bps of headwinds on reported revenues in 2019 versus 2018. And I mentioned the bone cement transition, that also will be a bit of a headwind for the next several quarters as I said in my prepared remarks. On the positive side, as Bryan just said, continued supply recovery, the important new launches that we have coming, all see it a growing momentum in the base business.

With respect to earnings per share of 2019, again, some headwinds and some positives. First, with respect to headwinds, just relative to our last earnings call, if you look at the combination of foreign currency and the bone cement issue, together those represent about a $0.15 per share headwind to 2019 with probably more than half of that coming in the first half of the year. I spoke to gross margin earlier, that will continue to be pressured through 2019 as well for the reasons I've discussed. And importantly, we're going to continue to invest in the business for growth as we've been talking about.

Now on the positive side, again, relative to our last earnings call, we do anticipate lower interest expense and a slightly lower tax rate through 2019, which will make up for some of that incremental EPS pressure coming from FX and bone cement. And we'll continue to work through the other moving parts in the 2019 financial model. And when you put that all together for the reasons that I've stated, I would not expect operating margins to expand in 2019, but again, we'll provide more specifics when we provide 2019 guidance.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks. Next question please.

Operator

Our next question is from Josh Jennings with Cowen and Company. Please go ahead.

Josh Jennings -- Cowen and Company -- Analyst

Hi good morning. Thanks, gentlemen. I was hoping to just follow-up Bryan on your comments about portfolio rationalization. And just to get a sense of, have you taken advantage of some of the supply constraints to begin the rationalization of the portfolio. I think you're coming up on the third year anniversary, just passed through your anniversary of the Biomet acquisition. And just wanted to hear some more details around how you're going to pursue that process, and does that risk your return to weighted average market growth that you're pursuing? Thanks for taking the question.

Bryan C. Hanson -- President and Chief Executive Officer

Yes, Josh, I appreciate the question. So we wouldn't risk our pursuit of that weighted average market growth if we do it the right way. No -- here is -- first of all, we have reduced certain SKUs already. We're just not anywhere near where we need to be. In reality, we've got to be cautious in how fast we pursue it because let's face it, we have had supply issues as an organization for all the reasons that we've referenced in the past. The worst thing we can do right now when we've been stressing our surgeon partners because of the supply issue is to start taking away products they know and love. And so we do have to sequence this thing appropriately. Get to that place where we feel confident that supply is in good shape, that our field sales organization feels the same way as well as our surgeon partners, and then at that point, we begin the process of removing families that don't make sense anymore with the strategy that we have. But to do those concurrently would put too much pressure on our ability to service our customers and I think would frustrate the customer right now. So that's the reason why we're pacing it. I just throw it out there because it is something we will have to tackle as an organization to be able to get to the service levels that I would expect of our organization. So that's kind of where we stand with it right now. It's something we're going to pursue. We just got to sequence it in the right way.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Next question, please.

Operator

Our next question is from Rick Wise with Stifel. Please go ahead.

Rick Wise -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Good morning. Let me start with -- I'll just ask my two questions as well. FDA -- basically Bryan, what's next, where are we -- are you feeling encouraged at the progress you're making there? And maybe a question for Dan. Dan, obviously, free cash flow, debt pay-down as the priority, maybe just help us think in broad terms about your free cash flow driving initiatives and how we might think about, if you're generating a couple of billion in round numbers of free cash flow this year, what that might look like in '19 and beyond? Thank you.

Bryan C. Hanson -- President and Chief Executive Officer

All right. Great, Rick. I'll start with the FDA. Really nothing more than what I had in my prepared remarks. You know the fact is, as we are diligently pursuing the remediation activities that we need to put into place, we're on track with the timeline that we would have expected for that remediation. We continue to put patient safety first and foremost in our mind. I just want to make sure that I say that, if we ever feel that we have a risk to patients that would change the trajectory of that remediation, certainly we don't feel that way and that's why we feel we're on track. So -- and again, to the extent that we can, we're trying to keep the FDA informed of everything that we're doing and make sure that we stay as close to them as possible. But I guess that's really all I have to say. We're on track with the remediation timeline and we feel confident with where we are in that process.

Daniel P. Florin -- Chief Financial Officer

And Rick with respect to free cash flow and debt pay-down. Year-to-date, our free cash flow is $1.049 billion, so good free cash flow for the first three quarters of this year. So we're on track to deliver free cash flow in line with the guidance that we provided at the beginning of the year. And clearly, our priority as we've been saying in terms of what we do with that free cash flow is to pay down debt and pay the dividend. That's really where our focus is. We've talked also in the past about capital allocation, first and foremost, that's to pay down debt to get leveraged inside of three times. We talked a lot about that and we have a host of free cash flow initiatives that we've been executing last year, this year, and we'll continue to do so, everything from basic working capital improvements to productivity of instrumentation and those will continue. Certainly, as we look at our cash specials, particularly the quality remediation burn rate, we expect that to start to wind down through next year, that will be a source of free cash flow as well. So we still see all as part of the turnaround that we've talked about that our increased financial flexibility will start to show itself exiting next year.

Bryan C. Hanson -- President and Chief Executive Officer

And Rick, we threw out a number of a couple of billion in free cash flow in line with what Dan just said, while I look forward to the day when that is the correct number, I just want to clarify here that Dan's comment earlier on our free cash flow expectation for the year which remains unchanged is $1.2 billion to $1.35 billion, just a little bit south of the $2 billion number that you threw out there. Operator, next question, please.

Operator

Our next question is from David Lewis with Morgan Stanley. Please go ahead.

David Lewis -- Morgan Stanley & Co. LLC -- Analyst

Good morning. So just questions for Bryan and they all kind of center on growth. So, Bryan, I'm just trying to line a couple of messages. You've talked about not being able to sustainably grow 2% to 3% until 2020, but you're also making progress. So my way of math is, next year's number should be somewhere between 2% and 3% on the high end, obviously, not going to get there, but better than the growth rates you're putting up in 2018. Could you just talk about the messaging for the fourth quarter? First of all, is that likely to slow from the third quarter and is it a reasonable assessment to think about 1.5% to 2% next year somewhere between '18 and 2% to 3%? And then related to that, this particular quarter, Spine was the only business frankly that didn't take a step forward. Can you just sort of talk to us about the distributor challenges in Spine and how they may reverse themselves next year? Thanks so much.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Before we get there, I want to remind people again, guys, one question per caller please strictly, so may we come in and do this anymore, it really helps. Bryan, please continue.

Bryan C. Hanson -- President and Chief Executive Officer

So David, maybe I'll start with the revenue growth discussion. So in the fourth quarter, you're accurate. And I think we're trying to get everybody to recognize is that we will likely see less growth. We will see less growth in the fourth quarter revenue growth rate than we did in Q3. So your assumption there is accurate, that is the message we're trying to send. A lot of that has to do with the timing that we referenced and also the cement issue that Dan talked about. When I think about, beyond that, we haven't given any guidance at this point beyond 2018. But I want to continue to reference to the fact that, I do believe that the turnaround would require us to be in that 2% to 3% consistently. I expect that to happen in 2020, and obviously, if we're saying that would happen in 2020 consistently, then it would be some number below that in 2019. We haven't given specific guidance, but when the time is right, we will.

Relative to the Spine distributor, a situation, I think we're progressing pretty well to be honest. Just remember we have a complete restructuring of the channel that is ongoing as we're delivering the numbers that we are. So what the risk would have been inside of this is as you're doing it, you actually see a deceleration in that growth and the fact that we're maintaining the growth rates that we are tell us that we're kind of driving down the Street changing the fan belt at the same time and it's working. And so I'm pretty happy with the progress that the team has put into place, and I expect as we work through the end of this year, we'll be in a place we need to be with the sales channel. And the hope is, from that point, we can begin to accelerate, but the fact that we are staying where we are while we're making all these changes is actually a positive thing. Dan?

Daniel P. Florin -- Chief Financial Officer

I've nothing to add, I mean. I agree with what Bryan said with respect, just to reiterate the fact that our revenue guidance for 2018 remains unchanged other than updating our FX assumptions is the only thing I would add to what Bryan just said.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks. Next question please.

Operator

Our next question is from Isaac Ro with Goldman Sachs. Please go ahead.

Isaac Ro -- Goldman Sachs -- Analyst

Good morning. Thanks. Bryan, just want to try and get a little clarification on your comments at the beginning of the call with regards to the timing benefits you got from some of the tender and capital sales items. Can you maybe try and quantify a little bit what that meant to the quarter so that as we look at next year, we have the right comp in mind? Thank you.

Bryan C. Hanson -- President and Chief Executive Officer

Yes. So, I purposely didn't give a specific number there, but I'll give you some color around it. Dan referenced the fact that in the fourth quarter we're going to be challenged a bit on the cement side of our business, just given the distribution change that's happening. He referenced that would be between $10 million and $15 million. So what I would tell you is that when I think about the comps -- not the comps, but when I think about the timing issues for those tenders and capital, if I combine those, it's a number smaller than that -- it's a number smaller than that. So the benefit that we received in Q3 is something under that range and the pressure that we'll receive in Q4 will be the same thing, something under that range.

Isaac Ro -- Goldman Sachs -- Analyst

Thank you.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thank you. Next question please.

Operator

Our next question is from Robbie Marcus with J.P. Morgan. Please go ahead.

Robbie Marcus -- J.P. Morgan Securities LLC -- Analyst

Great. Thanks for taking the question. Bryan, when you took over the CEO role at Biomet Zimmer, you said that part of the challenge was regaining the trust, your physician users but also the internal sales force. Can you kind of give us an update on where both of those stand because they are key components to the turnaround story. Thanks.

Bryan C. Hanson -- President and Chief Executive Officer

Yes, I appreciate the question, Robbie. And so I think we're moving well. The -- one of the things that I referenced in my prepared remarks is, we've got a few things working in our favor, when we look at the commercial organization, and as a result of that, our surge in population as well. We are getting better engagement with the commercial team. And there's no question that that engagement is increasing and it's being felt across the board. I will say that this is a continuous improvement game and will never be where I want us to be. But if I just think of where we are now from an engagement standpoint with the sales organization versus when I started, I think anyone you ask would say that it's better, and I would say you know much better than it was. But we will not stop there, we'll continue to make sure that we improve in that area. And then of course outside of engagement, supply recovery certainly helps put a positive in the sales reps' arm, and in new products, we've been on track with the new products that we've been referencing, we've been on time, and when you're on time with new products, that gives the sales organization the lifeblood they need to drive the organization forward. And I think the combination of those things is really what's changing the engagement and the feeling that you have in the commercial organization. We're not where we want to be, we still have opportunity for improvement, but it's definitely moving in the right direction and I would say the same with our surgeon partners.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks, Robbie, and thanks for sticking to the one question.Next question please, operator.

Operator

Our next question is from Craig Bijou with Cantor Fitzgerald. Please go ahead.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Thanks. Good morning, guys. Just want to ask on the recon market. So if we collectively look at you guys and maybe some of your competitors that have already announced, the recon market looks, it may look a little bit better in Q3 and recognizing that comps are a little bit easier. So I just wanted to see what your general thoughts on the overall market? Did you see any improvement in the market and anything else you know pricing or anything else that you saw for the ortho market in the quarter?

Bryan C. Hanson -- President and Chief Executive Officer

I usually try to stay away from any of these -- strength or weakness in -- from a market perspective in a quarter. The fact is, we delivered a little better results than we expected in the quarter. Some of that was due to the timing that I referenced before, some of it's just natural momentum in the business that we're getting based on the other things that I've referenced. But there isn't anything in particular that I'm hearing from my sales organization that would indicate that we saw strength that would be unusual in the quarter. I really do think that for all organizations it was a relatively easy comp in the quarter that made the market look a little stronger than maybe it actually was. But again, nothing that I saw in that quarter, and I think Dan, you might feel the same way, that would indicate to us that there's unusual strength that we will count on moving forward.

Daniel P. Florin -- Chief Financial Officer

I agree. And just with respect to pricing. Pricing continues to be very stable, so pricing for Q3 for us was a negative 2.4%, which was in line with, if you look back to full-year 2017 with negative 2.5%, and Q2 was negative 2.5% as well. So very stable price declines in that 2.5% type range.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Thanks guys.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thank you. Next question please.

Operator

Our next question is from Steven Lichtman with Oppenheimer. Please go ahead.

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Thank you. Hi guys. I just wanted to follow-up on Spine. You talked about the distributor work you're doing. Can you update us on the state of the pipeline there? I believe you have a number of things coming out in 2019, I think ROSA on Spine, perhaps expandable cages. Can you just give us your overall state of the pipeline within Spine? Thanks.

Bryan C. Hanson -- President and Chief Executive Officer

Yes, I'll tell you -- as you said, the new products is everything for an organization and they have the channel in the right structure as we exit this year. We're going to be able for the first time to actually have it for -- in a while to have a kickoff meeting with the Spine organization. And I tell you when you have a kickoff meeting with an organization that's ready to go and you introduce new products that there's serious energy that comes out of that and that's what we expect to be able to do. One of the biggest things that people are excited about obviously is to be able to bring robotics to Spine. We're still on track with what we've been saying. We're also waiting on regulatory approval for that Spine application for ROSA. And for that reason, we're still on track with what we've been expecting. But yes, we've got new products coming, we've got the channel in the right place and we're going to have our first kickoff in a while with that team coming up here in the beginning of the year.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks, Steve. Next question please.

Operator

Our next question is from Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Biegelsen -- Wells Fargo -- Analyst

Good morning guys. Dan, I wanted to ask about the implied Q4 guidance, just maybe you can help me with some numbers here. I'm getting to about negative 2% reported, FX about negative 2%, and flat constant currency at the midpoint. And then on EPS, the range is relatively wide, you know $0.20. So why such a wide range and should we be thinking about the midpoint at this point? Thanks for taking the questions.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Larry, let me chip in there. I mean let me be clear on this and we've been clear all year, we're not going to give specific quarterly guidance nor should you ever assume a midpoint being a more likely number than any other number in the range. While offline, I'm more than happy to take you through all the different puts and takes we've talked about publicly here and get you through the numbers. We're not going to speak to specific numbers or answering questions about guiding to a specific number in a quarter. We're just not going to go there.

Bryan C. Hanson -- President and Chief Executive Officer

And I would just add, I agree with Cole. And we've provided a fair bit of information that should enable you to model Q4 revenue and EPS for that matter. And just to reiterate that our revenue guidance remains unchanged other than updating our FX assumptions for the year.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Yes, Bryan -- I think Bryan specifically talked about a number of things that affected the third quarter will affect the fourth quarter. I think directionally we've given you a lot of color here. And in fact, we've given you a lot of color about 2019 in an environment where we're not even giving specific 2019 guidance yet. But I think we're going to draw the line there and not get any more specific quantitatively. Okay. Next question, please.

Operator

Our next question is from Glenn Novarro with RBC Capital Markets. Please go ahead.

Glenn Novarro -- RBC Capital Markets -- Analyst

Hi good morning. Just wanted to clarify Bryan, the 2% to 3% goal weighted -- to get back to 2% to 3% revenue growth by 2020. Can you get there through the internal pipeline? It sounds like you may need some acquisitions to get there. And if so, will you be in a position to do acquisitions in 2019? Thank you.

Bryan C. Hanson -- President and Chief Executive Officer

Yes. Thanks, Glenn. So, no. I think that the 2% to 3% is with the current pipeline. I feel that's our weighted average market growth. It is what we should be able to get to with our current pipeline. In reality, I'd like to see us with the current pipeline be able to do more than that, to be able to take share. But what you can count on typically is that you should at least be able to be at your weighted average market growth if you are firing on all cylinders, if not higher. When I talk about active portfolio management, it's because I don't like the idea of our weighted average market growth being 2% to 3% and the active portfolio management would be focused on getting us into spaces that are higher growth rate than that, build scale in those spaces, and ultimately as a result of that increase our weighted average market growth. So that active portfolio management would be fully intended to get us above the 2% to 3% growth rate.

Glenn Novarro -- RBC Capital Markets -- Analyst

Okay, great.Thanks, Bryan.

Coleman N. Lannum -- Senior Vice President, Investor Relations

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

Operator

Our next question is from Larry Keusch with Raymond James. Please go ahead.

Larry Keusch -- Raymond James & Associates, Inc. -- Analyst

Thank you. Good morning, everyone. Just two questions here. Just you referenced and this is not the first time obviously, but you've referenced increase in investment spending as you move forward. So maybe just talk a little bit about where that investment is going and perhaps Bryan, some broader thoughts on your innovation engine and how are you thinking about that? And then the second question is just how do you differentiate ROSA in total knee application versus sort of any of the other technologies that are sitting out there?

Bryan C. Hanson -- President and Chief Executive Officer

Okay, great. So when I talk about the investment spending, I'm not going to obviously give too many specifics because I don't want to make it clear to my competition where we're going to be spending our time and effort. But it's pretty consistent broadly with what I've said in the past, part of that will go to research and development, part of that will go to our selling and marketing organizations to make sure that we have specialization where needed, so we can drive traction in those faster growth submarkets that we play in and ultimately diversify our growth. So that will continue. But remember, as we do launch ROSA, as we do try to get additional traction with this collaboration with Apple, that does require spend and that will -- when I talk about increasing those investments, when we come into 2019, that's exactly what I'm talking about. To launch those appropriately, to be able to get the traction that we need in the field, we need to make sure that we're increasing the spend in those areas. So that's -- when I talk about it, those are the areas of concentration and that's the reason for the increased investment.

When I think of ROSA differentiation, we've been trying to stay away from speaking too much about telegraphing, our top track associated with what our system is going to do versus anybody else's. But I think you get a clue from what I talked about earlier, which is the first surgeon doing procedures with the system, brand new, did five cases in a typical surgical day, that would tell you something about the way that the robotic system will work with the current flow of a procedure. And that would be one of the biggest things that we talk about. I won't get into other things, but just know that that will be one of the primary things we concentrate on is being able to use robotics system without dramatically disrupting the surgical flow, which is a big deal.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks. Next question please.

Operator

Our next question is from Kristen Stewart with Barclays. Please go ahead.

Kristen Stewart -- Barclays -- Analyst

Hi, good morning, everybody. I was just wondering if you could maybe just talk to the big picture from operating margin perspective, I think on a year-to-date basis you're running around 27.4%, you've talked about seeing some pressure for 2019. I'm just curious on how you think about the much longer term outlook. Your old colleague over at Baxter clearly has done a great job of improving operating margins. Do you think that there's a similar opportunity here as you look out across the different levers to really generate significant operating margin expansion over maybe the next three to five years?

Bryan C. Hanson -- President and Chief Executive Officer

Yes. So I'm wondering who you're talking about over there at Baxter, I don't know.

Daniel P. Florin -- Chief Financial Officer

Yes. There are lot of people -- you're talking about the ex-Goldman Sachs sell side analyst or who is that, OK?

Kristen Stewart -- Barclays -- Analyst

Yes. Yes. I heard it's all David Roman that was responsible for.

Bryan C. Hanson -- President and Chief Executive Officer

Is David doing a great job over there? So obviously, Kristen, given the history that I have with the individual you're talking about, there's a similar playbook that we would put into place here. I don't know that the opportunities are as readily available as maybe what you've seen there, but there's always opportunity in a business, 100%. And one of the key areas we're going to be concentrating on would be in gross margin as Dan referenced, we're going to continue to see some pressure as we come in to 2019 because all these costs that we had haven't quite capitalized in yet. But as we turn the machine on, and we start to get after cost reduction in our manufacturing facilities, there's no way that that doesn't begin to translate into margin expansion. That will be one of the primary areas we concentrate on. So it will come. In addition to that, we will look at stuff below gross margin, OpEx to make sure that we're truly doing zero-based budgeting, that we understand why we're spending and where we're spending and we'll look to be able to reduce cost where it makes sense. One of the primary things that allows you to do that is to get better focused on growth drivers. We're not as focused as I would like us to be as an organization in selecting the markets that are going to matter most to us, getting our path to leadership inside of those markets and then differentially spending in those areas. Once we do that, that will by default allow us to decrease spending in areas that don't fit those growth driver categories. And just that mix shift alone and the efficiency we get out of that focus will drive operating margin expansion. So I'm not committing to it overnight, we've already given some color on this that it is going to take some time, but there's clearly opportunity in the organization over time.

Daniel P. Florin -- Chief Financial Officer

And I would just say that in addition to all of that as the revenue growth accelerates that that natural opportunity to leverage our fixed overhead structure is a big opportunity as well. So plenty of opportunity over time as Bryan just said.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Pretty soon you'll be talking with the people in Chicago comparing them to the ones in Zimmer Biomet. Next question please.

Operator

Our next question is from Richard Newitter with Leerink Partners. Please go ahead.

Richard S. Newitter -- Leerink Partners LLC -- Analyst

Hi, thanks. I wanted to ask a question on ROSA. So I appreciate your pending FDA clearance for Spine and Knee application. So I'm just curious about when it's ready for commercial launch? Should we be thinking of a Spine application and the Knee application potentially available at some point in the same skin of the platform or customers going to have to buy separate robots for separate applications? And then also, if you could within that answer or comment on your willingness to pursue volume-based contracts as some of your competitors have mentioned that they're doing with their robotics platforms? Thank you.

Bryan C. Hanson -- President and Chief Executive Officer

Sure. So out of the gate, I want to clear on, we're waiting on regulatory approval for both the Knee and Spine applications. They are two different units today. So with Spine, that will be in the same chassis, if you will, with brain. So our brain application and spine application will be in the same robotics system. I think probably everybody knows but we're already marketing on the brain side, that system is already out and we're actively selling those units. And once we get regulatory approval on the Spine side, that unit will also have the capability to do spine procedures as well. Out of the gate, the Knee system will be separate. There is an opportunity clearly for us to be able to combine all three applications in one unit. The benefit associated with that is that you're going to get a better return on invested capital for our accounts because you're going to get more volume out of the same unit. We're not doing that out of the gate. We're going to be assessing the value of doing that in the future and if it makes sense we could certainly make that happen.

Relative to the way we're going to commercialize the robotics system, I don't want to get too much into our plan here because I don't want to telegraph anything, but just know, we're not in the business of robotic sales, we're in the business of market share. So we're going to approach the platform in a way that brings the most value to our customers and brings the most value to Zimmer Biomet.

Daniel P. Florin -- Chief Financial Officer

I'd also like to add just a really a shout out to our team that has made this possible. We just remember we acquired Medtech in September of 2016. So in just over a two-year time period, we're launching ROSA Knee with that ROSA Spine coming and just tremendous effort by our team and I want to shout them out for the great job that they're doing. We're excited about 2019 on robotics.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Great point. Operator, next question. Thanks, Rich. Next question please.

Operator

Our next question is from Matthew O'Brien with Piper Jaffray. Please go ahead.

Matthew O'Brien -- Piper Jaffray -- Analyst

Hi good morning. Thanks for taking the question. Just as far as when I look at your performance, the Americas hip number was quite good. But S.E.T., when you back out, I think the benefits you got from the order in the quarter might have been a little bit lighter than I might have thought given how good that market is. So, is this a function of the productivity at the North Campus getting a little bit better on the hip side, still maybe a little bit pressured on the S.E.T. side of the business. And if that's true, is this the kind of snapback we can expect once you get back to more regular productivity out of that facility?

Bryan C. Hanson -- President and Chief Executive Officer

So let me try to hit this. So, on the hip side, we're -- a couple of things there I think caused it. We had a pretty easy comp that benefited the number but we are seeing progress and we have supply recovery which is helping our field sales organization. We have a great hip line and being able to have that supply, have our sales organization utilize the supply has translated into -- to benefit in hip for us. Certainly, in the quarter, we don't expect those quarters moving forward because it was an easy comp that made it look as good as it was. But we are seeing momentum in hip. On the S.E.T. side of the business, what I would say is, it is probably a little more hindered on the supply side than our hips and knees. But in reality, we're still on our trajectory to be able to get improvement in S.E.T., particularly versus first half and second half. We need that improvement -- that overall growth rate improvement, I'd like to see it every quarter, but I'm going to look at it as halves because you always got timing between quarters. We need that improvement to continue, we expect that it will. Now, so we have other product launches in the S.E.T. categories that we would expect to continue to help us. And as we've said before, some of that investment that we've been making is specialization in those areas which again should allow us to continue that improvement of revenue growth as time moves on. I'm not happy with where we are -- even, let's call it, even if we're looking at the growth rate in the quarter we're in, that was bullied by comps, we're still not at market growth rate. So we have real opportunity here, real headroom that we need to make sure that we continue to take advantage of.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thanks for that, Matt. Operator, we're coming up on the bottom of the hour. Well, let's try to get at least two more questions in if we can. Next question please.

Operator

Our next question is from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Kumar -- Evercore ISI. -- Analyst

Thanks for taking my question. So maybe one quick one on the distributor terminations you guys spoke about Dan, I just want to make sure I heard the numbers correct. So this is $0.10 to $0.15 impact from next year, but there was also some impact for Q4. So is that -- does that mean there is a $0.03 to $0.04 impact in Q4 and the low end of the guidance which implies $2.14 EPS for Q4. You are reiterating that $2.14 number inclusive of this incremental headwinds? Thank you.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Let me start by, Vijay, on the guidance numbers. I would refer you back to the press release where we clearly stated which numbers we're reiterating, which ones we're not. What we're not going to do is interpret or interpolate additional numbers based on that. Again, more than happy to take you through the math offline if needed, but we're not going to go through specific numbers like that on the call as I said earlier. With that, let me turn over to Dan if there's anything he wants to add.

Daniel P. Florin -- Chief Financial Officer

Sure. Yes, I would just reiterate that what I said is that for the fourth quarter you should expect the bone cement to be size that's between $10 million to $15 million of negative impact in revenue in Q4 and that that will continue until we anniversary out of that. Now we're doing a lot to mitigate against that number, but that's our best estimate at this point in time. The second thing I would just reiterate is, when I talked about 2019, I said that the combination of FX and the bone cement would be a $0.15 headwind on 2019 that we're looking to --

Bryan C. Hanson -- President and Chief Executive Officer

On 2019 earnings.

Daniel P. Florin -- Chief Financial Officer

On 2019 earnings. That's right. Yes. And that's relative to our last earnings call, right. So $0.15 per share next year that we'll work to offset to the extent possible.

Vijay Kumar -- Evercore ISI. -- Analyst

That's helpful guys. Thank you.

Coleman N. Lannum -- Senior Vice President, Investor Relations

Thank you, Vijay. Next question, please.

Operator

Our next question is from Bruce Nudell with SunTrust. Please go ahead.

Bruce M. Nudell -- SunTrust Robinson Humphrey, Inc. -- Analyst

Hi, this is Spencer Duke (ph) on the line of Bruce Nudell. Thank you for taking my question. Given the competitors' recent move into Robotics and Spine, do you share the view that a closed system robotics and spine will result in greater pull-through of the entire product line, greater ASP and stability and put pressure on lower tier players who don't have a robotic system?

Bryan C. Hanson -- President and Chief Executive Officer

I would personally never say it that way. But I do think that having a robotic system whether it be in spine, whether it be in brain, whether it be in orthopedics, you know recon, I think is a must have. I think if you're going to be a real player in any of those spaces, you better ensure that you've got a robotic platform that brings some value to the equation. I think it will be a table stakes to play in my opinion.

Coleman N. Lannum -- Senior Vice President, Investor Relations

And operator, I think we got time for one more question. Let's just try to do one more question before we wrap up.

Operator

Our last question will be from Chris Pasquale with Guggenheim. Please go ahead.

Chris Pasquale -- Guggenheim -- Analyst

Thanks, good morning guys. Appreciate you squeezing me in. Hips was a bright spot again this quarter. Can you talk about the sustainability of the strength there and maybe contrast the acceleration we've seen in US hips with the shallower recovery in knees. Is the difference in momentum there related to the portfolio, the bigger impact of robotics or would you point to something else?

Bryan C. Hanson -- President and Chief Executive Officer

I don't know that I have any more specific comments on the hips side of the business. I think we saw -- we're seeing traction. Our supply recovery is in place on the hip side. We have a great portfolio, sales organization is getting traction as a result of it. I just wouldn't expect Q3 to be a number that you're going to see anytime soon, because the comp was a real benefit to us.

Daniel P. Florin -- Chief Financial Officer

Yes. And I would just add to that, that the strength of our portfolio deserves above market growth sustainably. We've just not -- we've not been delivering that mainly due to supply and as supply is recovering, you're seeing that in the hip number. But again, just to reiterate, Q3 was up against an easier comp, but as we look to the future, we're very -- feel really good about our hip portfolio and what the team can do with that.

Bryan C. Hanson -- President and Chief Executive Officer

Yes. One -- I did want to because I didn't get a chance to, but the cement thing, I do want to spend just a little bit more time on that. We've quantified it obviously in the $10 million to $15 million range in fourth quarter and that's going to continue into 2019, sorry about train in the background here folks. But I just want to get some additional color on that, I mean it's really frustrating that it's happening right now because the fact is, our recovery is in full swing. The momentum we have in the business feels right, and to have something like this come in that creates a material headwind is beyond irritating. As Dan said though, we're not going to just sit idly by and let this thing just leak from us. We do have an internal bone cement. We will be and already have plans in place to be able to try to pursue this business and stop that leakage, but until we actually get traction on an execution, we wanted to be very clear this is a real headwind for us that we're going to have to deal with. You know the good news is, it's a relatively small category. So I don't expect any peripheral impact associated with this. In other words, cement is not going to have this kind of negative pull-through effect on our recon business, it's just not going to happen. As a matter of fact, eventually, the size and scale of our recon business is probably an opportunity for us to recapture some of this business you know that we lose over the short term. And I think probably the most important thing I want to call out here is, regardless of the negative impact we have on losing this distribution right here, the fact is, we're still on track with the recovery. And though it may be a pain point for us in 2019, and the fourth quarter of 2018, it is not going to get in the way of that recovery that we've talked about in 2020. It's finite thing, has a beginning and an end. You know as the distribution agreement is lost, it's going to can hurt us and then it's going to annualize out and it's gone. So I just want to make sure that that's clear. I'm frustrated by it. It's a real headwind for us, but it is something that will start and finish and it's not going to get in the way of the recovery.

Coleman N. Lannum -- Senior Vice President, Investor Relations

So with that, everyone, thank you. I know it's in the middle of earnings season and it's a Friday. Really appreciate your time this morning. Appreciate you for joining us. As a reminder, a replay of the call will be available later today for review on our website zimmerbiomet.com.

Have a great day, great weekend. Talk to you soon. Cheers. Bye-bye.

Operator

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

Duration: 66 minutes

Call participants:

Coleman N. Lannum -- Senior Vice President, Investor Relations

Bryan C. Hanson -- President and Chief Executive Officer

Daniel P. Florin -- Chief Financial Officer

Amit Hazan -- Citigroup -- Analyst

Bob Hopkins -- Bank of America -- Analyst

Bryan C. Hanson -- President and Chief Executive Officer

Josh Jennings -- Cowen and Company -- Analyst

Rick Wise -- Stifel, Nicolaus & Company, Incorporated -- Analyst

David Lewis -- Morgan Stanley & Co. LLC -- Analyst

Isaac Ro -- Goldman Sachs -- Analyst

Robbie Marcus -- J.P. Morgan Securities LLC -- Analyst

Craig Bijou -- Cantor Fitzgerald -- Analyst

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Larry Biegelsen -- Wells Fargo -- Analyst

Glenn Novarro -- RBC Capital Markets -- Analyst

Larry Keusch -- Raymond James & Associates, Inc. -- Analyst

Kristen Stewart -- Barclays -- Analyst

Richard S. Newitter -- Leerink Partners LLC -- Analyst

Matthew O'Brien -- Piper Jaffray -- Analyst

Vijay Kumar -- Evercore ISI. -- Analyst

Bruce M. Nudell -- SunTrust Robinson Humphrey, Inc. -- Analyst

Chris Pasquale -- Guggenheim -- Analyst

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