ZIMMER BIOMET HOLDINGS, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• ERP Implementation: Made progress, with the impact of ERP in the second half of 2024 now expected to be 60-80 basis points of annual sales, split evenly between the third and fourth quarters, and expected to return to normal shipping levels by the end of 2024.
• Q3 Results: Net sales were $1.824 billion, up 4% reported and 4.1% constant currency. Adjusted EPS was $1.74, and free cash flow was $310 million. Reconstructed platform grew mid-single-digit globally, head had upper single-digit growth, and S.E.T. grew 7.3%.
• Innovation: Zimmer Biomet has over 50 meaningful product launches planned. Momentum in Hips with Z1, HAMMR, and OrthoGrid; Knees with Persona OsseoTi and IQ; S.E.T. with ROSA Solar; and navigation/robotics with ROSA and Tamini partnership.
• Strategic Priorities: Focus on people and culture, operational excellence, and diversification via M&A and internal capital allocation to increase growth and profitability.

Segment Performance:

• Reconstructed platform (knees and hips): Grew in the mid-single-digit range globally.
• Head: Delivered upper single-digit growth, aided by strong performance across key growth drivers.
• S.E.T. segment: Grew 7.3%, led by CMFT, sports, and upper extremities, marking the fourth consecutive quarter of at least mid-single-digit growth.
• Other category: Declined 9.5% due to tough year-ago comparisons and ERP-related impacts on the surgical business.

Guidance:

• 2024: Updated full-year guidance includes constant currency revenue growth 4.25%-4.75%, reported revenue growth 3.5%-4%, full-year pricing flat to 50 basis points positive, adjusted EPS $7.95-$8.05, and free cash flow ~$1 billion.
• 2025: Outlook is positive, with ERP challenge contained within 2024, and excitement around innovation and new product launches driving growth.

Risks:

• ERP implementation initially projected to impact 1% of annual sales, but resolved to 60-80 basis points, though still a risk during the quarter due to initial disruptions.

Question and Answer: Q: Why cut 2024 guidance more than ERP issue?

A: Conservatism due to Q4 variables, ERP resolution, and new product launches.

Q: Thoughts on M&A?

A: Evaluate deals strategically, looking for growth segments like Recon, S.E.T., and ASC space.

Q: Knees and geographic performance?

A: International knees grew ~10%, U.S. knees had supply constraints resolved, but ERP impacted U.S. growth.

Q: Z1 launch and supply?

A: Launched, full launch next week in Dallas, supply expected to be available by 2025.

Q: Pipeline and ROSA expansion?

A: Mid-term products like Oxford Partial, ROSA Shoulder, coated hip devices, and multiple ROSA indications.

Q: Pricing and 2025 margins?

A: Third consecutive quarter positive pricing, expect operating margin expansion in 2025 with cost containment and better pricing.

Q: TMINI collaboration?

A: Partnership gives optionality, early momentum in ASC setting.

Q: China impact?

A: China ~2-3% of global sales, no major impact seen.

Q: 2025 guidance and M&A?

A: Excited about 2025, will update in early 2025, and M&A for diversification to reach 5% WAMGR.