Zimmer Biomet Holdings, Inc. 1 st Quarter 2018 Earnings Call Presentation. April 26, 2018

Transcription

1 Zimmer Biomet Holdings, Inc. 1 st Quarter 2018 Earnings Call Presentation April 26, 2018

2 Cautionary Note on Forward-Looking Statements and Non- GAAP Financial Measures Cautionary Note on Forward-Looking Statements. 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, 2017, including in the section thereof captioned Risk Factors, which is 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. Note on Non-GAAP Financial Measures. This presentation includes non-gaap financial measures that differ from financial measures calculated in accordance with U.S. generally accepted accounting principles (GAAP). These non-gaap financial measures may not be comparable to similar measures reported by other companies and investors and other readers should consider these measures only as supplements to, and not as substitutes for or superior to, measures of financial performance prepared in accordance with GAAP. Reconciliations of these non-gaap financial measures to the most directly comparable GAAP financial measures are included in the Appendix to this presentation. Forward-Looking Non-GAAP Financial Measures. This press release also includes certain forward-looking non-gaap financial measures for the year ending December 31, We calculate forward-looking non-gaap financial measures based on internal forecasts that omit certain amounts that would be included in GAAP financial measures. For instance, we exclude the impact of certain potential charges or gains connected to quality enhancement and remediation efforts and certain legal and tax matters. Other than projected free cash flow for the year ending December 31, 2018, for which a reconciliation is provided, we have not provided quantitative reconciliations of these forwardlooking non-gaap financial measures to the most directly comparable forward-looking GAAP financial measures because the excluded items are not available on a prospective basis without unreasonable efforts. It is probable that these forward-looking non-gaap financial measures may be materially different from the corresponding GAAP financial measures. 2

3 Table of Contents 2018 Q1 Financial Summary 2018 Guidance & Outlook Company Overview Appendix 3

4 2018 Q1 Financial Summary

5 1 st Quarter 2018 Net Sales Results Product Category Performance Q1 Net Sales Constant Currency Product (in millions) % Change (1) Knees $ % Geographic Region Performance Region (3) (3) (1) Hips % S.E.T % Dental % Spine & CMF % Other % Total $2, % Net Sales (in millions) (1) (1) (3) % Change (3) Americas $1, % Europe % Asia Pacific % Total $2, % Q1 Constant Currency (2) Q1 Q1 (1) Non-GAAP financial measure; see reconciliation. 5

6 Knees & Hips Product Categories Persona Personalized Knee System Persona Partial Knee System KNEES Revenue (in millions) Americas $ % EMEA % APAC % Total Knees $ % Strong growth from Persona The Personalized Knee System Continued positive reception of the Persona Partial Knee launched in fall of 2017 Persona TM Tibia FDA clearance and CE Mark received as well as first surgical case performed early 2018 Q1 Constant Currency % Change (1) Taperloc Complete Hip System HIPS Revenue (in millions) Americas $ % EMEA % APAC % Total Hips $ % Q1 Constant Currency % Change (1) G7 Acetabular System Positive growth of Taperloc Complete Hip System and G7 Acetabular System Sales of Arcos Modular Femoral Revision System continued growth Warsaw North Campus supply constraints linger, but steadily improving (1) Non-GAAP financial measure; see reconciliation 6

7 S.E.T. Product Category S.E.T. GLOBAL REVENUE Revenue (in millions) S.E.T. $ % Q1 Constant Currency % Change (1) SURGICAL IntelliCart System Steady demand for wound debridement and skin graft portfolios Strong growth for Universal Power System surgical instruments SPORTS MEDICINE Gel-One Cross-Linked Hyaluronate Specialized sales representatives focused on driving growth Warsaw North Campus supply constraints linger Steady growth from BioCUE brand EXTREMITIES Sidus Stem-Free Shoulder Continued success of Comprehensive Total Shoulder System Full launch of Sidus Stem-Free Shoulder as well as a limited launch of Comprehensive Augmented Baseplate in Q FOOT & ANKLE A.L.P.S. Total Foot System Continued buildout of specialized sales force Steady demand for A.L.P.S. system portfolio Continued market acceptance for Subchondroplasty Procedures TRAUMA NCB Periprosthetic Femur Plating System Strong sales of the DVR Distal Radius Plating System Portfolio Continued success of Zimmer Natural Nail System Portfolio Steady growth of NCB brands led by the NCB Periprosthetic Plating Systems (1) Non-GAAP financial measure; see reconciliation 7

8 Spine, CMF & Thoracic and Dental Product Categories SPINE & CMF GLOBAL REVENUE Revenue (in millions) Spine & CMF $ % Q1 Constant Currency % Change (1) SPINE Mobi-C Cervical Disc Growth of Vitality Spinal Fixation platform contributed to Q1 sales Continued strong market acceptance of Mobi-C Cervical Disc Remain focused on resolution of U.S. salesforce integration dis-synergies CMF & THORACIC SternaLock Blu Closure System Continued strong demand for the SternaLock Blu Primary Closure System and RibFix Blu Thoracic Fixation System FDA 510(k) clearance of ROSA Brain 3.0 DENTAL GLOBAL REVENUE Revenue (in millions) Dental $ % Q1 Constant Currency % Change (1) DENTAL Osseotite Implant Realigning portfolio to meet market needs Continued restructuring of sales organization in certain key markets (1) Non-GAAP financial measure; see reconciliation 8

9 Innovative Solutions Across the Continuum of Care Recently Launched Innovating to: Minimize Complications Reduce Surgery Times Improve Efficiencies Optimize Outcomes Enhance Patient Experiences Sidus Stem-Free Shoulder (Introduced February US) Total shoulder arthroplasty solution Available in EMEA since 2012, now available in US with recent FDA clearance and launch Second stemless shoulder on the market Product Pipeline Persona TM Tibia Knee (2H 2018) Cementless knee utilizing clinically proven Trabecular Metal TM Technology FDA clearance/ce Mark received and first surgical case performed early 2018 Persona Revision Knee (2H 2018 Limited Launch) Adds revision offering to Persona portfolio ROSA Knee (2H 2018 Limited Launch) Timeline remains on track Global commercialization strategy complete Sidus Stem-Free Shoulder ROSA Knee Key Design Principles: X-Ray based, time net neutral, soft tissue balancing Comprehensive Augmented Baseplate (Mid 2018) FDA clearance received in early 2018 First surgery March 2018 Complements Comprehensive Reverse Shoulder System by offering alternative to bone graphing and eccentric reaming for patients with glenoid defects Currently in limited launch with full launch expected in June

10 Key 1 st Quarter Financials Metric ($ in millions, except per share amounts) 2018 Q Q1 Y/Y Change Net Sales $2,017.6 $1, % Adj. Gross Profit Margin (2) 72.0% 75.2% - R&D (% of sales) 4.7% 4.6% - SG&A (% of sales) (3) 38.9% 38.4% - Adj. Operating Margin (2) 28.3% 32.1% - Adj. Net Earnings (2) $390.9 $ % Adj. Diluted EPS (2) $1.91 $ % Free Cash Flow (2) $403.4 $ (1) (1) Includes approximately 380 basis points of positive foreign exchange impact (2) Non-GAAP financial measure; see reconciliation (3) Includes instrument depreciation 10

11 Free Cash Flow (in millions) 2018 Q Q1 Inc/(Dec) vs PY Operating Cash Flow $490.5 $ CapEx Instruments (60.4) (86.4) Traditional PP&E (26.7) (43.1) Total CapEx Free Cash Flow (1) $403.4 $ Beginning Cash Balance (12/31/2017) $524 Ending Cash Balance (03/31/2018) $1,765 Beginning Debt Balance (12/31/2017) $10,142 Ending Debt Balance (03/31/2018) $11,112 (1) Non-GAAP financial measure; see reconciliation 11

12 2018 Guidance and Outlook

13 2018 Guidance Projected Year Ending December 31, Sales Growth vs Prior Year (1) Adjusted Operating Profit Margin (2) Adjusted Tax Rate (2) Adjusted Diluted EPS (2) Free Cash Flow (3) 1.5% - 3.5% 27.5% % 18.5% % $ $7.80 $1.1 billion - $1.3 billion (1) 2018 sales growth vs prior year is provided on an as reported basis and includes 200 to 300 basis points of positive foreign exchange impact (2) These measures are non-gaap financial measures for which a reconciliation to the most directly comparable GAAP financial measure is not available without unreasonable efforts. See Forward-Looking Non-GAAP Financial Measures. (3) Projected Year Ending December 31, 2018 (in millions) Low High Net Cash Provided by Operating Activities $ 1,585 $ 1,755 Additions to Instruments and Other Property, Plant and Equipment (485) (455) Free Cash Flow $ 1,100 $ 1,300 13

14 Company Overview

15 Broad Portfolio of Musculoskeletal Solutions Spine & CMF Innovative products and solutions $10B MARKET Spine: 7% share CMF: 15% share Dental Complete implant and regenerative portfolio $5B MARKET 9% share Hip & Knee Global market share leader $14B MARKET Hip: 32% share Knee: 36% share S.E.T. Diverse and fast growing category $20B MARKET 11% share Knee $7.5B Market 36%-37% Est. Share Company Information, Wall Street Estimates and Zimmer Biomet Management estimates 15

16 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 16

17 Global Footprint: Operating Locations Making a Global Impact In Patients Lives 39 Manufacturing sites globally Sales in 100+ countries 17

18 Appendix

19 Reconciliation of Reported Net Sales % Change to Constant Currency % Change (unaudited) For the Three Months Ended March 31, 2018 Foreign Constant Exchange Currency % Change Impact % Change Geographic Results Americas (1.8) % 0.2 % (2.0) % EMEA (3.0) Asia Pacific Total 2.3 % 3.8 % (1.5) % Product Categories Knees Americas (2.5) % 0.2 % (2.7) % EMEA (0.1) Asia Pacific (3.0) Total (2.1) Hips Americas EMEA (7.6) Asia Pacific Total (0.9) S.E.T Dental (0.2) 4.6 (4.8) Spine & CMF (1.7) 2.1 (3.8) Other (1.1) 2.9 (4.0) Total 2.3 % 3.8 % (1.5) % 19

20 Reconciliation of Cash Flow from Operating Activities to Free Cash Flow For the Three Months Ended March 31, 2018 (in millions, unaudited) Three Months Ended March 31, 2018 Net cash provided by operating activities $ Additions to instruments (60.4) Additions to other property, plant and equipment (26.7) Free cash flow $ For the Quarterly and Year-to-Date Periods in Calendar Year Ended December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Year Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 December 31, 2017 Net cash provided by operating activities $ $ $ $ $ 1,582.3 Additions to instruments (86.4) (86.2) (83.1) (81.3) (337.0) Additions to other property, plant and equipment (43.1) (30.7) (36.0) (46.2) (156.0) Free cash flow $ $ $ $ $ 1,

21 Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin For the Three Months Ended March 31, 2018 (in millions, unaudited) Three Months Ended March 31, 2018 Net Sales $ 2,017.6 Cost of products sold, excluding intangible asset amortization Intangible asset amortization Gross profit $ 1,291.0 Inventory step-up and other inventory and manufacturing related charges 10.8 Intangible asset amortization Adjusted gross profit $ 1,452.6 Gross margin 64.0 % Inventory step-up and other inventory and manufacturing related charges 0.5 Intangible asset amortization 7.5 Adjusted gross margin 72.0 % 21

22 Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ended December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Year Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 December 31, 2017 Net Sales $ 1,972.4 $ 1,949.5 $ 1,813.1 $ 2,068.3 $ 7,803.3 Cost of products sold, excluding intangible asset amortization ,132.9 Intangible asset amortization Gross profit $ 1,307.5 $ 1,274.1 $ 1,159.5 $ 1,325.4 $ 5,066.5 Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross profit $ 1,482.7 $ 1,446.7 $ 1,322.6 $ 1,503.0 $ 5,755.0 Gross margin 66.3 % 65.4 % 64.0 % 64.1 % 64.9 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Adjusted gross margin 75.2 % 74.2 % 72.9 % 72.7 % 73.8 % 22

23 Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin For the Three Months Ended March 31, 2018 (in millions, unaudited) Three Months Ended March 31, 2018 Operating profit $ Inventory step-up and other inventory and manufacturing related charges 10.8 Intangible asset amortization Special items Adjusted operating profit $ Operating profit margin 15.1 % Inventory step-up and other inventory and manufacturing related charges 0.5 Intangible asset amortization 7.5 Special items 5.2 Adjusted operating profit margin 28.3 % 23

24 Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin For the Quarterly and Year-to-Date Periods in Calendar Year Ended December 31, 2017 (in millions, unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Year Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 December 31, 2017 Operating profit (loss) $ $ $ $ (40.1) $ Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Goodwill impairment Special items Adjusted operating profit $ $ $ $ $ 2,425.6 Operating profit (loss) margin 17.7 % 14.4 % 11.7 % (1.9) % 10.2 % Inventory step-up and other inventory and manufacturing related charges Intangible asset amortization Goodwill impairment Special items Adjusted operating profit margin 32.1 % 31.4 % 29.8 % 31.0 % 31.1 % 24

25 Reconciliation of Net Earnings to Adjusted Net Earnings FOR THE THREE MONTHS ENDED MARCH 31, 2018 and 2017 (in millions, unaudited) Three Months Ended March 31, 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 expense in other expense, net Taxes on above items (1) (50.6) (83.1) Other certain tax adjustment (2) - (69.7) Adjusted Net Earnings $ $

26 Reconciliation of Diluted EPS to Adjusted Diluted EPS FOR THE THREE MONTHS ENDED MARCH 31, 2018 and 2017 (unaudited) Three Months Ended March 31, Diluted EPS $ 0.85 $ 1.47 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 Taxes on above items (1) (0.24) (0.41) Other certain tax adjustment (2) - (0.34) Adjusted Diluted EPS $ 1.91 $

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