Zimmer Biomet Holdings, Inc. 3rd Quarter 2017 Earnings Call Presentation. November 1, 2017

Transcription

1 Zimmer Biomet Holdings, Inc. 3rd Quarter 2017 Earnings Call Presentation November 1, 2017

2 Cautionary Note on Forward-Looking Statements and Non- GAAP Financial Measures Our discussions during this presentation will include forward-looking statements concerning, among other things, our anticipated future operating and financial performance, business plans and prospects, product and service offerings, including new product launches and potential clinical successes, capital allocation plans and priorities, business development plans and priorities and the benefits expected from our acquisitions and other business development activities. Such statements are based upon the current beliefs and expectations of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual outcomes and results to differ materially. For a list and description of some of such risks and uncertainties, see our Annual Report on Form 10-K for the year ended December 31, 2016, including in the section thereof captioned Risk Factors, as well as our subsequent reports on Form 8-K and Form 10- Q, all of which are available at and The forward-looking statements in this presentation speak only as of the original date of this presentation and we undertake no obligation to update or revise any of these statements. Also, this presentation refers to certain financial measures that differ from financial measures calculated in accordance with U.S. generally accepted accounting principles (GAAP). Reconciliations of these non-gaap financial measures to the most directly comparable GAAP financial measures can be found in the Appendix to this presentation. Investors and other readers should consider non-gaap financial measures only as supplements to, and not as substitutes for or superior to, the measures of financial performance prepared in accordance with GAAP. 2

3 Table of Contents 2017 Q3 Financial Summary 2017 Guidance and Outlook Company Overview Appendix 3

4 2017 Q3 Financial Summary

5 3 rd Quarter 2017 Net Sales Results Product Category Performance Product (in millions) Geographic Region Performance Region (in millions) Net Sales Net Sales Q3 Constant Currency % Change (3) Knees $ % $2, % Hips % 1, % S.E.T % 1, % Dental % % Spine & CMF % % Other % % Total $1, % $5, % Ex LDR, Billing Day Adjusted -0.2% Q3 Constant Currency % Change (3) Net Sales Year to Date Constant Currency % Change (3) Americas $1, % $3, % Europe % 1, % Asia Pacific % % Total $1, % $5, % (1) (2) (1) Net Sales Year to Date Constant Currency % Change (3) (1) Includes approximately 30 basis points of contribution from the LDR acquisition and a negative impact of approximately 130 basis points as a result of having one less billing day during the quarter. (2) Excludes approximately 30 basis points of contribution from the LDR acquisition and a negative impact of approximately 130 basis points as a result of having one less billing day during the quarter. (3) Non-GAAP financial measure; see reconciliation. 5

6 Reconstructive Product Category Persona Personalized Knee System Persona Partial Knee System KNEES USD (millions) Revenue Persona Partial Knee System launched in September Persona The Personalized Knee System continues to drive growth New products key catalyst in 2018 including Cementless, PSI X-Ray Guides, and Revision Growth impacted by continued supply constraints from the Warsaw North Campus Q3 Year to Date Constant Currency Constant Currency Revenue % Change (1) % Change (1) Americas $ % $ 1, % EMEA % % APAC % % Total Knees $ % $ 2, % Arcos Modular Femoral Revision System Taperloc Complete Hip System HIPS USD (millions) Revenue Strong demand for G7 Acetabular System First Clinical Graphics case performed in Q3 Constant Currency Constant Currency Revenue % Change (1) % Change (1) Americas $ % $ % EMEA % % APAC % % Total Hips $ % $ 1, % OsseoTi Porous Metal Technology continues success in G7 Dual Mobility Construct Growth impacted by continued supply constraints from the Warsaw North Campus Q3 Year to Date (1) Non-GAAP financial measure; see reconciliation 6

7 S.E.T. Product Category S.E.T. GLOBAL REVENUE USD (millions) Revenue Q3 Constant Currency % Change (1) Revenue Year to Date Constant Currency % Change (1) S.E.T. $ % $1, % SURGICAL SPORTS MEDICINE EXTREMITIES IntelliCart System Gel-One Cross-Linked Hyaluronate Comprehensive Total Shoulder System DVT product line continues to drive growth Strong, above market regional performances in Americas and EMEA IntelliCart System, evaluated in 250+ sites, receiving very positive feedback Gel-One Cross-Linked Hyaluronate continues to drive growth Specialized reps remain focused on driving Sports Medicine growth Growth impacted by continued supply constraints from the Warsaw North Campus 2018 product launches of Augmented Baseplate and Stemless Shoulder growth accelerators Growth impacted by continued supply constraints from the Warsaw North Campus FOOT & ANKLE A.L.P.S. Total Foot System Partnership with Nextremity benefits our product portfolio Continued buildout of specialized sales force A.L.P.S. saw steady demand TRAUMA NCB Periprosthetic Femur Plating System Strong growth in APAC and EMEA Continued buildout of specialized sales force Growth impacted by continued supply constraints from the Warsaw North Campus (1) Non-GAAP financial measure; see reconciliation 7

8 Spine, CMF & Dental Product Categories SPINE & CMF GLOBAL REVENUE USD (millions) Revenue Q3 Constant Currency % Change (1) Revenue Year to Date Constant Currency % Change (1) Spine & CMF $ % $ % SPINE Mobi-C Cervical Disc Mobi-C continued to deliver significant growth Focused on cross-sell opportunities and mitigating channel dis-synergies Vitality Spinal System provides steady growth CMF SternaLock Blu Closure System Continued to see steady sales for RibFix Blu Thoracic Fixation System, as well as our SternaLock Blu and SternaLock 360 Primary Closure systems DENTAL GLOBAL REVENUE USD (millions) Revenue Q3 Constant Currency % Change (1) Revenue Year to Date Constant Currency % Change (1) Dental $93-4.4% $ % DENTAL Osseotite Implant Realigning portfolio to meet market needs Global commercial strategy execution underway (1) Non-GAAP financial measure; see reconciliation 8

9 Leading in Innovation Joint Preservation Motion Preservation Product Pipeline Persona Partial Knee (September 2017) Fixed bearing partial knee Clearance received in major markets across the globe Persona Partial Knee System Personalized Procedures Diagnostics & Infection Innovating to Minimize Complications Reduce Surgery Times Improve Efficiencies Optimize Outcomes Enhance Patient Experiences Persona TM Tibia Knee (2H 2018) Cementless knee utilizing clinically proven Trabecular Metal Persona Revision Knee (2H 2018 Limited Launch) Adds revision offering to Persona portfolio Medtech ROSA (2H 2018 Limited Launch) Fully functional demo complete for Knee application ROSA cadaver lab held in Warsaw Key Design Principles: X-Ray based, time net neutral, soft tissue balancing Stemless Shoulder (2018) Hip Preservation Portfolio Entire continuum of care for Hip preservation Clinical Graphics for hip application received clearance in March 2017 X-Ray Based Knee PSI Guides (2018) Received CE mark and pursuing FDA clearance for full launch Mobi-C Cervical Disc VISCO-3 Quattro Link Rotator Cuff Repair Recent Launches & Additions 9

10 Key 3 rd Quarter Financials Metric (in millions) 2017 Q Q3 Y/Y Growth Net Sales $1,818.1 $1, % Adj. Gross Profit (3) 73.0% 75.1% - R&D (% of sales) 5.0% 5.2% - (4) SG&A (% of sales) 38.2% 39.7% - Adj. Operating Margin (3) 29.8% 30.2% - Adj. Net Earnings (2)(3) $349.9 $ % Adj. Diluted EPS (2)(3) $1.72 $ % Free Cash Flow (3) $344.4 $ (1) (1) Includes approximately 30 basis points of contribution from the LDR acquisition and a negative impact of approximately 130 basis points as a result of having one less billing day during the quarter. (2) Excluding the impact of foreign exchange, Adj. Net Earnings (3) and Adj. Diluted EPS (3) grew 0.2% and (0.6)%, respectively. (3) Non-GAAP financial measure; see reconciliation (4) Includes instrument depreciation Key Call-Outs: Gross Profit YoY quarterly performance impacted due to the impact of price declines, product mix, additional manufacturing costs and lower gains from our cash flow hedging program. SG&A Continue to incur higher freight expenses due to expedited product shipments, partially offset by savings from synergy capture initiatives. 10

11 Free Cash Flow ($ In millions) YTD 2017 YTD 2016 Inc/(Dec) vs PY Operating Cash Flow 1,179 1, CapEx Instruments (256) (251) Traditional PP&E (109) (130) Total CapEx (365) (381) Free Cash Flow (1) Beginning Cash Balance (12/31/2016) 634 Ending Cash Balance (09/30/2017) 481 Beginning Debt Balance (12/31/2016) 11,241 Ending Debt Balance (09/30/2017) 10,425 (1) Non-GAAP financial measure; see reconciliation 11

12 2017 Guidance and Outlook

13 2017 Revenue Guidance Metric Q Growth FY2017 Growth Reported 0.0% to 2.0% 1.0% to 1.5% FX Impact -180 bps -10 bps Constant Currency (1) (1.8)% to 0.2% 0.9% to 1.4% LDR Impact bps Constant Currency, Excluding LDR (1) (1.8)% to 0.2% (0.3)% to 0.2% Billing Day - 20 bps 40 bps Constant Currency, Excluding LDR, Billing Day Adjusted (1) (2.0)% to 0.0% 0.1% to 0.6% (1) Non-GAAP financial measure; see reconciliation 13

14 2017 Guidance Metric ($ in millions, excluding EPS data) Q FY2017 Constant Currency Revenue Growth (1)(3) (1.8)% to 0.2% 0.9% to 1.4% Revenue $2,010 to $2,050 $7,760 to $7,800 Free Cash Flow $1,125 to $1,225 GAAP EPS $0.94 to $1.08 $3.80 to $3.93 Adj. Diluted EPS (2)(3) $2.08 to $2.14 $8.01 to $8.07 (1) Q includes approximately 20-basis-point positive impact from billing days compared to the prior year. Full Year 2017 includes 120 basis points of acquired revenue from the LDR transaction as well as approximately 40-basis-point negative impact from billing days. (2) This EPS range on the full year represents 0.6% to 1.4% growth over the prior year, or 4% to 5% excluding the negative impact of foreign exchange. (3) (3) Non-GAAP financial measure; see reconciliation 14

15 Company Overview

16 Leading Musculoskeletal Portfolio KNEE Products for early intervention, bone preservation and full and partial knee replacement surgeries, including primary joint replacement and revision procedures HIP Products for primary hip joint replacement, as well as revision procedures S.E.T. Products for biologics, extremities, sports medicine, surgical, trauma, foot and ankle and Zimmer Biomet Signature Solutions SPINE & CRANIOMAXILLOFACIAL (CMF) & THORACIC Products for face and skull reconstruction, back and neck pain caused by deformities or injuries of the spine, and stabilization of the chest following open heart surgery DENTAL Dental reconstructive implants, prosthetic products and products for soft tissue and bone rehabilitation 16

17 Broad Portfolio of Solutions in the Musculoskeletal Market Spine $9.0B Market 5%-7% Est. Share CMF / Thoracic $1.1B Market 14%-16% Est. Share Hip $6.0B Market 31%-32% Est. Share Dental $4.2B Market 9%-11% Est. Share Knee $7.5B Market 36%-37% Est. Share S.E.T.* $15.0B Market 10%-11% Est. Share *Surgical, Sports Medicine, Foot & Ankle, Extremities and Trauma Market shares based on internal and sell-side analysts estimates 17

18 Drivers of Sustainable Market Growth Favorable global demographics Increasing percentage of population 65 and older Supportive utilization trends Penetration opportunity in developed markets Expanding access to healthcare in emerging markets Utilization at a fraction of developed market rates World Population 65 and Older Procedure Volume Share of World Population 65 and Older 7.6% 523M 9.3% 714M 14.2% Growing global musculoskeletal 11.7% market of ~$50B 969M 1,252M 16.2% ,487M Source: United Nations Population Division 18

19 Leading Musculoskeletal Portfolio KNEE & HIP Global market share leader 2016 Revenue of $4,620 million, 60% of ZBH business 2016 Estimated Market Share of 33% to 34% 2016 Estimated Market Growth of 3% to 4% S.E.T. Diverse and fast growing category 2016 Revenue of $1,645 million, 21% of ZBH business 2016 Estimated Market Share of 10% to 11% 2016 Estimated Market Growth of 4% to 6% SPINE & CMF Innovative products and solutions 2016 Revenue of $662 million, 9% of ZBH business 2016 Estimated Market Share of 5% to 7% 2016 Estimated Market Growth of 1% to 3% DENTAL Complete implant and regenerative portfolio 2016 Revenue of $428 million, 6% of ZBH business 2016 Estimated Market Share of 9% to 11% 2016 Estimated Market Growth of 4% to 5% *S.E.T. = Surgical, Sports Medicine, Foot & Ankle, Extremities and Trauma 19

20 Broad Portfolio Timberline MPF Lateral Fusion System Mobi-C Osseotite Quattro Link Knotless Anchors Persona Personalized Knee System Comprehensive Reverse Shoulder System DVR Crosslock Distal Radius Plating System & epak Delivery System New Vanguard ID Total Knee System SternaLock Blu Gel-One Cross-Linked Hyaluronate Arcos Modular Femoral Revision System G7 Acetabular System 20

21 Guided by our Value Creation Framework Growth Opportunity to deliver 4%+ revenue growth by 2020: Innovative new products Specialized sales forces Expanding emerging markets presence Operational Excellence Market Leading Operating Margin: Leverage scale Manufacturing and quality system optimization Realize net synergies Disciplined Capital Allocation Significant Free Cash Flow rates: Achievement of deleveraging goals Value creating M&A Returning value to stockholders 21

22 Key Strategies Transforming Revenue Mix Strengthening presence in fastergrowing product categories Specialized Sales Channel Leveraging scale and specialized reps to accelerate growth Differentiated R&D 60+ new products and solutions launched in 2016 and 2017 Disciplined Capital Allocation Delivering value with strategic acquisitions Free Cash Flow generation dedicated to further debt reduction and long-term shareholder friendly activities 22

23 Zimmer + Biomet = Transformative Combination Revenue (in millions) Adj. Diluted EPS (1) $10,000 $9.00 Key Strengths $9,000 $7.96 $ $8.07 Broad product portfolio $8,000 $7,000 $6,000 $6.40 $6.90 $5,998 $7,684 $7,760 - $7,800 $6.00 Product combination enables key cross-sell & specialized channel focus 7.9% Adjusted EPS CAGR Innovative new products $5,000 $4,673 Internal and external portfolio development $4,000 History of strong earnings growth and delivery of deal synergies $3,000 $2,000 $3.00 Strong Free Cash Flow positioning ZBH for future flexibility $1,000 $ E $- Revenue Adj. Diluted EPS (1) Non-GAAP financial measure; see reconciliation 23

24 M&A Strengthens Portfolio Platform Technologies Musculoskeletal Health Diversification Hips 25% Knee 36% 17% In 2016 Zimmer Biomet invested $1.5B on M&A transactions 24

25 Global Footprint: Operating Locations Making a Global Impact In Patients Lives 39 Manufacturing sites globally Sales in 100+ countries 25

26 Appendix

27 Reconciliation of Reported Net Sales % Change to Constant Currency % Change and % Change Excluding LDR Holding Corporation (unaudited) For the Three Months Ended September 30, 2017 Foreign Constant Exchange Currency % Change Impact % Change Geographic Results Americas (2.9) % 0.1 % (3.0) % EMEA (0.4) Asia Pacific 2.4 (2.8) 5.2 Total (0.8) % 0.4 % (1.2) % Product Categories Knees Americas (3.8) % 0.1 % (3.9) % EMEA Asia Pacific 2.3 (1.6) 3.9 Total (1.2) 0.5 (1.7) Hips Americas (4.5) 0.2 (4.7) EMEA (1.5) Asia Pacific 2.1 (4.0) 6.1 Total (1.4) 0.3 (1.7) S.E.T Dental (3.2) 1.2 (4.4) Spine & CMF Other (4.8) 0.5 (5.3) Total (0.8) % 0.4 % (1.2) % Impact of additional LDR Holding Corporation billing days in the 2017 period (0.3) - (0.3) % Change excluding LDR Holding Corporation (1.1) % 0.4 % (1.5) % 27

28 Reconciliation of Reported Net Sales % Change to Constant Currency % Change and % Change Excluding LDR Holding Corporation (unaudited) For the Nine Months Ended September 30, 2017 Foreign Constant Exchange Currency % Change Impact % Change Geographic Results Americas 1.5 % 0.1 % 1.4 % EMEA (1.0) (1.4) 0.4 Asia Pacific 4.8 (1.2) 6.0 Total 1.4 % (0.4) % 1.8 % Product Categories Knees Americas (2.2) % - % (2.2) % EMEA (2.2) (2.1) (0.1) Asia Pacific 3.5 (0.3) 3.8 Total (1.3) (0.5) (0.8) Hips Americas (1.9) - (1.9) EMEA (1.5) (0.9) (0.6) Asia Pacific 5.3 (1.9) 7.2 Total (0.4) (0.6) 0.2 S.E.T 3.3 (0.4) 3.7 Dental (3.5) (0.1) (3.4) Spine & CMF Other (4.9) (0.4) (4.5) Total 1.4 % (0.4) % 1.8 % Impact of additional LDR Holding Corporation billing days in the 2017 period (1.6) - (1.6) % Change excluding LDR Holding Corporation (0.2) % (0.4) % 0.2 % 28

29 Reconciliation of Cash Flow from Operating Activities to Free Cash Flow For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Nine Months Ended March 31, 2017 June 30, 2017 September 30, 2017 September 30, 2017 Net cash provided by operating activities $ $ $ $ 1,179.4 Additions to instruments (86.4) (86.2) (83.1) (255.7) Additions to other property, plant and equipment (43.1) (30.7) (36.0) (109.8) Free cash flow $ $ $ $ For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2016 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Nine Months Ended March 31, 2016 June 30, 2016 September 30, 2016 September 30, 2016 Net cash provided by operating activities $ $ $ $ 1,005.0 Additions to instruments (85.1) (72.2) (94.0) (251.3) Additions to other property, plant and equipment (27.6) (46.1) (56.4) (130.1) Free cash flow $ $ $ $

30 Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Nine Months Ended March 31, 2017 June 30, 2017 September 30, 2017 September 30, 2017 Net Sales $ 1,977.3 $ 1,954.4 $ 1,818.1 $ 5,749.8 Cost of products sold, excluding intangible asset amortization ,541.5 Intangible asset amortization Gross profit $ 1,312.4 $ 1,279.0 $ 1,164.5 $ 3,755.9 Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross profit $ 1,487.6 $ 1,451.6 $ 1,327.6 $ 4,266.8 Gross margin 66.4 % 65.4 % 64.1 % 65.3 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross margin 75.2 % 74.3 % 73.0 % 74.2 % 30

31 Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2016 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Year Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 December 31, 2016 Net Sales $ 1,904.0 $ 1,934.0 $ 1,832.8 $ 2,013.1 $ 7,683.9 Cost of products sold, excluding intangible asset amortization ,381.8 Intangible asset amortization Gross profit $ 1,136.8 $ 1,160.1 $ 1,189.2 $ 1,250.1 $ 4,736.2 Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross profit $ 1,441.7 $ 1,450.5 $ 1,376.3 $ 1,502.7 $ 5,771.2 Gross margin 59.7 % 60.0 % 64.9 % 62.1 % 61.6 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross margin 75.7 % 75.0 % 75.1 % 74.6 % 75.1 % 31

32 Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Nine Months Ended March 31, 2017 June 30, 2017 September 30, 2017 September 30, 2017 Operating profit $ $ $ $ Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Special items Adjusted operating profit $ $ $ $ 1,791.1 Operating profit margin 17.7 % 14.4 % 11.7 % 14.7 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Special items Adjusted operating profit margin 32.1 % 31.4 % 29.8 % 31.1 % 32

33 Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ending December 31, 2016 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Year Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 December 31, 2016 Operating profit (loss) $ $ $ $ $ Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Special items Adjusted operating profit $ $ $ $ $ 2,472.7 Operating profit (loss) margin 12.9 % 10.4 % 10.7 % 9.1 % 10.7 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Special items Adjusted operating profit margin 33.6 % 32.6 % 30.2 % 32.3 % 32.2 % 33

34 Reconciliation of Net Earnings to Adjusted Net Earnings FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 and 2016 (in millions, unaudited) Three Months Ended September 30, Net Earnings of Zimmer Biomet Holdings, Inc. $ 98.8 $ Inventory step-up and other inventory and manufacturing-related charges Intangible asset amortization Special items Biomet merger-related Other special items Merger-related and other (income) expense in other expense, net (0.5) (2.6) Taxes on above items (1) (79.1) (111.6) Other certain tax adjustments (2) 2.2 (39.7) Adjusted Net Earnings $ $ (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) In 2017, other certain tax adjustments relate to net unfavorable resolutions of various tax matters. The 2016 adjustment primarily relates to a favorable adjustment to certain deferred tax liabilities recognized as part of acquisition-related accounting. 34

35 Reconciliation of Net Earnings to Adjusted Net Earnings FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 and 2016 (in millions, unaudited) Nine Months Ended September 30, Net Earnings of Zimmer Biomet Holdings, Inc. $ $ Inventory step-up and other inventory and manufacturing-related charges Intangible asset amortization Special items Biomet merger-related Other special items Merger-related and other (income) expense in other expense, net 0.5 (1.1) Taxes on above items (1) (264.4) (297.0) Biomet merger-related measurement period tax adjustments (2) Other certain tax adjustments (3) (55.6) 6.4 Adjusted Net Earnings $ 1,207.9 $ 1,176.7 (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) The 2016 period includes negative effects from finalizing the tax accounts for the Biomet merger. Under the applicable U.S. GAAP rules, these measurement period adjustments are recognized on a prospective basis in the period of change. (3) In 2017, other certain tax adjustments relate to a tax restructuring that lowered the tax rate on deferred tax liabilities recorded on intangible assets recognized in acquisition-related accounting, net favorable resolutions of various tax matters, and charges from internal restructuring transactions that provide the Company access to cash in a tax efficient manner. The 2016 adjustment primarily relates to a favorable adjustment to certain deferred tax liabilities recognized as part of acquisition-related accounting offset by internal restructuring transactions that provide the Company access to cash in a tax efficient manner. 35

36 Reconciliation of Diluted EPS to Adjusted EPS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 and 2016 (unaudited) Three Months Ended September 30, Diluted EPS $ 0.48 $ 0.78 Inventory step-up and other inventory and manufacturing-related charges Intangible asset amortization Special items Biomet merger-related Other special items Merger-related expense in other expense, net - (0.01) Taxes on above items (1) (0.38) (0.55) Other certain tax adjustments (2) 0.01 (0.19) Adjusted Diluted EPS $ 1.72 $ 1.79 (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) In 2017, other certain tax adjustments relate to net unfavorable resolutions of various tax matters. The 2016 adjustment primarily relates to a favorable adjustment to certain deferred tax liabilities recognized as part of acquisition-related accounting. 36

37 Reconciliation of Diluted EPS to Adjusted EPS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 and 2016 (unaudited) Nine Months Ended September 30, Diluted EPS $ 2.86 $ 1.17 Inventory step-up and other inventory and manufacturing-related charges Intangible asset amortization Special items Biomet merger-related Other special items Merger-related and other expense in other expense, net - (0.01) Taxes on above items (1) (1.30) (1.47) Biomet merger-related measurement period tax adjustments (2) Other certain tax adjustments (3) (0.27) 0.04 Adjusted Diluted EPS $ 5.93 $ 5.82 (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) The 2016 period includes negative effects from finalizing the tax accounts for the Biomet merger. Under the applicable U.S. GAAP rules, these measurement period adjustments are recognized on a prospective basis in the period of change. (3) In 2017, other certain tax adjustments relate to a tax restructuring that lowered the tax rate on deferred tax liabilities recorded on intangible assets recognized in acquisition-related accounting, net favorable resolutions of various tax matters, and charges from internal restructuring transactions that provide the Company access to cash in a tax efficient manner. The 2016 adjustment primarily relates to a favorable adjustment to certain deferred tax liabilities recognized as part of acquisition-related accounting offset by internal restructuring transactions that provide the Company access to cash in a tax efficient manner. 37

38 Reconciliation of 2017 Projected Revenue % Change to 2017 Projected Constant Currency % Change and Change Excluding LDR Holding Corporation (unaudited) Projected Three Months Ended December 31, 2017: High Low Revenue % change 2.0 % - % Foreign exchange impact (1.8) (1.8) Constant currency % change 0.2 % (1.8) % Projected Year Ended December 31, 2017: High Low Revenue % change 1.5 % 1.0 % Foreign exchange impact (0.1) (0.1) Constant currency % change 1.4 % 0.9 % Impact of LDR Holding Corporation (1.2) (1.2) Constant currency % change excluding LDR Holding Corporation 0.2 % (0.3) % 38

39 Reconciliation of 2017 Projected Diluted EPS and Projected Adjusted Diluted EPS (unaudited) Projected Three Months Ended December 31, 2017: High Low Diluted EPS $ 1.08 $ 0.94 Inventory step-up and other inventory and manufacturing related charges, intangible asset amortization, special items and other expense Taxes on above items (1) and other certain tax adjustments (0.42) (0.46) Adjusted Diluted EPS $ 2.14 $ 2.08 Projected Year Ended December 31, 2017: High Low Diluted EPS $ 3.93 $ 3.80 Inventory step-up and other inventory and manufacturing related charges, intangible asset amortization, special items and other expense Taxes on above items (1) and other certain tax adjustments (2.00) (2.03) Adjusted Diluted EPS $ 8.07 $ 8.01 (1) The tax effect for the U.S. jurisdiction is estimated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is estimated based upon the statutory rates where the items are projected to be incurred. 39

40 Reconciliation of GAAP Net Earnings to non-gaap Adjusted Net Earnings (unaudited) Year ended December 31, Net Earnings of Zimmer Biomet Holdings, Inc. $ $ $ Inventory step-up and other inventory and manufacturing related charges Certain claims Intangible asset amortization Special items Biomet merger-related Other special items Merger-related and other expense in other (expense) income, net Debt extinguishment cost Interest expense on Biomet merger financing Taxes on above items (1) (449.0) (487.6) (153.3) Biomet merger-related measurement period tax adjustments (2) Other certain tax adjustments (3) (2.5) Adjusted Net Earnings $ 1,610.8 $ 1,310.5 $ 1,098.0 (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) The 2016 period includes negative effects from finalizing the tax accounts for the Biomet merger. Under the applicable U.S. GAAP rules, these measurement period adjustments are recognized on a prospective basis in the period of change. (3) Other certain tax adjustments primarily include internal restructuring transactions to integrate Biomet operations and facilitate access to offshore earnings, partially offset by resolution of certain matters with taxing authorities and adjustments to deferred tax liabilities recognized as part of acquisition-related accounting. 40

41 Reconciliation of GAAP Diluted Earnings Per Share to non-gaap Adjusted Diluted Earnings Per Share (unaudited) Year ended December 31, Diluted EPS $ 1.51 $ 0.77 $ 4.20 Inventory step-up and other inventory and manufacturing related charges Certain claims Intangible asset amortization Special items Biomet merger-related Other special items Merger-related and other expense in other (expense) income, net Debt extinguishment cost Interest expense on Biomet merger financing Taxes on above items (1) (2.22) (2.57) (0.90) Biomet merger-related measurement period tax adjustments (2) Other certain tax adjustments (3) (0.01) Adjusted Diluted EPS $ 7.96 $ 6.90 $ 6.40 (1) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were incurred. (2) The 2016 period includes negative effects from finalizing the tax accounts for the Biomet merger. Under the applicable U.S. GAAP rules, these measurement period adjustments are recognized on a prospective basis in the period of change. (3) Other certain tax adjustments primarily include internal restructuring transactions to integrate Biomet operations and facilitate access to offshore earnings, partially offset by resolution of certain matters with taxing authorities and adjustments to deferred tax liabilities recognized as part of acquisition-related accounting. 41

42 Reconciliation of Net Earnings and Diluted EPS to Adjusted Net Earnings and Adjusted Diluted EPS and Adjusted Net Earnings and Adjusted Diluted EPS Excluding the Estimated Effects of Changes in Foreign Currency Exchange Rates FOR THE FOR THE YEARS ENDED DECEMBER 31, 2017 and 2016 and THREE MONTHS ENDED SEPTEMBER 30, 2017 and 2016 (unaudited) EPS NET EARNINGS Years Ended December 31, Three Months Ended September 30, EPS Three Months Ended September 30, Projected (High) Projected (Low) Net Earnings of Zimmer Biomet Holdings, Inc. / Diluted EPS $ 3.93 $ 3.80 $ 1.50 $ 98.8 $ $ 0.48 $ 0.78 Inventory step-up and other inventory and manufacturing related charges, intangible asset amortization, special items and other expense Taxes on above items (1) and other certain tax adjustments (2.00) (2.03) (1.95) (76.9) (151.3) (0.37) (0.74) Adjusted Diluted EPS $ 8.07 $ 8.01 $ 7.96 $ $ $ 1.72 $ 1.79 Incremental foreign currency exchange rate forward contract cash flow hedges (2) Effects of changes in foreign currency exchange rates on functional currency translation (3) (0.05) (0.05) (4.7) (0.02) Adjusted Diluted EPS excluding the estimated effects of changes in foreign currency exchange rates (4) $ 8.34 $ 8.28 $ $ 1.78 Growth over prior year Adjusted Diluted EPS 5% 4% 0.2% -0.6% (1) (2) The tax effect for the U.S. jurisdiction is calculated based on an effective rate considering federal and state taxes, as well as permanent items. For jurisdictions outside the U.S., the tax effect is calculated based upon the statutory rates where the items were or are projected to be incurred. We enter into foreign currency exchange rate forward contracts to minimize the effects of foreign currency exchange rate movements on the cash flows from our intercompany sales of inventory. We designate these contracts as cash flow hedges and defer any gains or losses on these contracts until the inventory is sold to a third party. Based upon actual and estimated foreign currency exchange rates, we estimate that we will recognize lower hedge gains in the applicable periods when compared to the same prior year period. (3) Under U.S. GAAP, we consolidate our foreign operations by translating their statement of earnings in their functional currency into U.S. Dollars using average foreign currency exchange rates during the applicable time period. We have estimated the effects of changes in foreign currency exchange rates on our consolidated statement of earnings by translating the current period functional currency results using the same exchange rates from the prior year period. This estimate is complex and may not actually reflect the changes in our consolidated statement of earnings had foreign currency exchange rates not changed. This effect also includes the estimated tax impact on the foreign currency exchange forward contract cash flow hedges. (4) Adjusted Diluted EPS excluding the estimated effects of changes in foreign currency exchange rates excludes the effects of incremental changes in foreign currency exchange rate forward contract cash flow hedges, incremental changes in remeasurement of monetary assets and liabilities denominated in a currency other than its functional currency and the effects of changes in foreign currency exchange rates on functional currency translation. 42

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