Zimmer Biomet Announces Fourth Quarter and Full-Year 2019 Financial Results
WARSAW, Ind., Feb. 4, 2020 /PRNewswire/ -- Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter and year ended December 31, 2019. The Company reported fourth quarter net sales of $2.126 billion, an increase of 2.6% over the prior year period, and an increase of 3.2% on a constant currency basis. Net sales for the full year were $7.982 billion, an increase of 0.6% over 2018 and an increase of 2.2% on a constant currency basis. Net earnings for the fourth quarter were $321 million and $478 million on an adjusted basis, and for the full year were $1.132 billion and $1.626 billion on an adjusted basis.
Diluted earnings per share were $1.54 for the fourth quarter and $5.47 for the full year. Adjusted diluted earnings per share were $2.30 for the fourth quarter, an increase of 5.5% over the prior year period, and were $7.87 for the full year, an increase of 3.0% over 2018.
"In 2019 we continued to successfully execute our plan to reposition the company for success, driven by our global team's focus on our One ZB mission and culture," said Bryan Hanson, President and CEO of Zimmer Biomet. "We continued to invest for growth and drove improved performance in 2019, especially in the second half of the year. We are operating from a position of strength for 2020 and beyond. I am proud of the entire ZB team and their unyielding commitment to the ZB mission and bettering the lives of patients around the world."
Key drivers in the fourth quarter included solid performance from the Americas and Asia Pacific, with continued strong results across our global Knee and Hip businesses. Additionally, ROSA(®) Knee System sales accelerated from the third quarter of 2019.
Please see the attached schedules accompanying this press release for additional details on performance in the quarter, including sales by Zimmer Biomet's three geographies and six product categories.
Recent Highlights
-- Fourth quarter launch, positive customer feedback and good momentum for
the Persona(®) Revision and Avenir Complete(TM) products
-- The Company began a number of restructuring initiatives, including
reorganizing business units to create greater strategic alignment,
increased efficiency and improved resource allocation for accelerated
growth
-- Zimmer Biomet named 2019 Medtech Company of the Year by Medical Device
and Diagnostic Industry (MD+DI)
Geographic and Product Category Sales
The following sales tables provide results by geography and product category for the three-month period and year ended December 31, 2019, as well as the percentage change compared to the prior year periods, on both a reported basis and a constant currency basis.
NET SALES - THREE MONTHS ENDED DECEMBER 31, 2019
(in millions, unaudited)
Constant
Net
Currency
Sales
% Change
% Change
Geographic Results
Americas $1,288 2.3
% 2.4
%
EMEA 471 (1.1) 1.4
Asia Pacific 367 9.2 8.6
Total $2,126 2.6
% 3.2
%
Product Categories
Knees
Americas $454 4.8
% 4.9
%
EMEA 180 0.8 3.4
Asia Pacific 127 7.3 7.5
Total 761 4.3 4.9
Hips
Americas 267 3.3 3.3
EMEA 132 (3.2) (0.9)
Asia Pacific 112 9.3 8.2
Total 511 2.7 3.2
S.E.T * 474 2.8 3.1
Spine & CMF** 197 (0.3) 0.2
Dental 109 4.3 5.0
Other 74 (8.2) (7.7)
Total $2,126 2.6
% 3.2
%
* Surgical, Sports Medicine, Extremities and Trauma
** Craniomaxillofacial
NET SALES - YEAR ENDED DECEMBER 31, 2019
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $4,876 0.8 1.0
% %
EMEA 1,747 (3.1) 2.2
Asia Pacific 1,359 5.1 6.9
Total $7,982 0.6 2.2
% %
Product Categories
Knees
Americas $1,677 2.1 2.2
% %
EMEA 654 (2.7) 2.8
Asia Pacific 479 4.5 7.1
Total 2,810 1.3 3.2
Hips
Americas 1,016 2.0 2.2
EMEA 500 (3.9) 1.3
Asia Pacific 419 3.4 4.8
Total 1,935 0.7 2.5
S.E.T * 1,796 2.5 3.8
Spine & CMF** 747 (2.2) (1.2)
Dental 414 0.7 2.3
Other 280 (9.9) (8.6)
Total $7,982 0.6 2.2
% %
* Surgical, Sports Medicine, Extremities and Trauma
** Craniomaxillofacial
Cash Flow and Balance Sheet
Operating cash flow for the fourth quarter was $423 million and free cash flow was $295 million. In the fourth quarter, the Company paid down $161 million of debt, net of debt proceeds, paid $49 million in dividends and declared a dividend of $0.24 per share. Operating cash flow for the full year was $1.586 billion and free cash flow was $1.063 billion. In the full year, the Company paid down $716 million of debt, net of debt proceeds, paid $197 million in dividends and declared dividends of $0.96 per share.
Guidance
The Company is providing the following full-year 2020 financial guidance:
Projected Year Ending December 31, 2020
---
2020 reported and constant
currency revenue growth 2.5% - 3.5%
---
Foreign Currency Exchange
Impact(1)
Neutral
---
Adjusted Operating Profit
Margin(2) 27.0% - 28.0%
---
Adjusted Tax Rate(2) 16.0% - 17.0%
---
Adjusted Diluted EPS(2)
$8.15 - $8.45
---
Expected to be
negative in
the first
half of the
year and
slightly
positive in
the second
half of the
year based on
current
foreign
currency
exchange
(1) rates
---
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
(2) Measures."
---
Conference Call
The Company will conduct its fourth quarter and full-year 2019 investor conference call today, February 4, 2020, at 8:30 a.m. Eastern Time. The audio webcast can be accessed via Zimmer Biomet's Investor Relations website at https://investor.zimmerbiomet.com. It will be archived for replay following the conference call.
About the Company
Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer Biomet is a global leader in musculoskeletal healthcare. We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; office based technologies; spine, craniomaxillofacial and thoracic products; dental implants; and related surgical products.
We collaborate with healthcare professionals around the globe to advance the pace of innovation. Our products and solutions help treat patients suffering from disorders of, or injuries to, bones, joints or supporting soft tissues. Together with healthcare professionals, we help millions of people live better lives.
We have operations in more than 25 countries around the world and sell products in more than 100 countries. For more information, visit www.zimmerbiomet.com or follow Zimmer Biomet on Twitter at www.twitter.com/zimmerbiomet.
Website Information
We routinely post important information for investors on our website, www.zimmerbiomet.com, in the "Investor Relations" section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.
Note on Non-GAAP Financial Measures
This press release 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 should be considered in addition to, and not as a substitute for, or superior to, other measures prepared in accordance with GAAP.
Sales change information for the three-month period and the year ended December 31, 2019 is presented on a GAAP (reported) basis and on a constant currency basis. Constant currency percentage changes exclude the effects of foreign currency exchange rates. They are calculated by translating current and prior-period sales at the same predetermined exchange rate. The translated results are then used to determine year-over-year percentage increases or decreases.
Net earnings and diluted earnings per share for the three-month period and the year ended December 31, 2019 are presented on a GAAP (reported) basis and on an adjusted basis. Adjusted earnings and adjusted diluted earnings per share exclude the effects of certain inventory and manufacturing-related charges, including charges to terminate a raw material supply agreement and to discontinue certain product lines; intangible asset amortization; intangible asset impairment; quality remediation expenses; restructuring and other cost reduction initiative expenses; acquisition, integration and related gains and expenses; certain litigation gains and charges; expenses to establish initial compliance with the European Union Medical Device Regulation; other charges; any related effects on our income tax provision associated with these items, the effect of Switzerland tax reform and other certain tax adjustments.
Free cash flow is an additional non-GAAP measure that is presented in this press release. Free cash flow is computed by deducting additions to instruments and other property, plant and equipment from net cash provided by operating activities.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in this press release. This press release also contains supplemental reconciliations of additional non-GAAP financial measures that the Company presents in other contexts. These additional non-GAAP financial measures are computed from the most directly comparable GAAP financial measure as indicated in the applicable reconciliation.
Management uses non-GAAP financial measures internally to evaluate the performance of the business. Additionally, management believes these non-GAAP measures provide meaningful incremental information to investors to consider when evaluating the performance of the Company. Management believes these measures offer the ability to make period-to-period comparisons that are not impacted by certain items that can cause dramatic changes in reported income but that do not impact the fundamentals of our operations. The non-GAAP measures enable the evaluation of operating results and trend analysis by allowing a reader to better identify operating trends that may otherwise be masked or distorted by these types of items that are excluded from the non-GAAP measures. In addition, constant currency sales changes, adjusted operating profit, adjusted diluted earnings per share and free cash flow are used as performance metrics in our incentive compensation programs.
Forward-Looking Non-GAAP Financial Measures
This press release also includes certain forward-looking non-GAAP financial measures for the year ending December 31, 2020. 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 charges related to restructuring and other cost reduction initiatives and certain legal and tax matters. We have not provided quantitative reconciliations of these forward-looking 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. For example, the timing of certain transactions is difficult to predict because management's plans may change. In addition, the company believes such reconciliations would imply a degree of precision and certainty that could be confusing to investors. It is probable that these forward-looking non-GAAP financial measures may be materially different from the corresponding GAAP financial measures.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of federal securities laws, including, among others, statements regarding sales and earnings guidance and any statements about our expectations, plans, strategies or prospects. We generally use the words "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "assumes," "guides," "targets," "forecasts," "sees," "seeks," "should," "could," "would," "predicts," "potential," "strategy," "future," "opportunity," "work toward," "intends," "guidance," "confidence," "positioned," "look forward to" and similar expressions to identify forward-looking statements. All statements other than statements of historical or current fact are, or may be deemed to be, forward-looking statements. Such statements are based upon the current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual outcomes and results to differ materially from the forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to: the possibility that the anticipated synergies and other benefits from mergers and acquisitions will not be realized, or will not be realized within the expected time periods; the risks and uncertainties related to our ability to successfully integrate the operations, products, employees and distributors of acquired companies; the risks and uncertainties related to our ability to successfully execute our restructuring plans; the effect of the potential disruption of management's attention from ongoing business operations due to integration matters related to mergers and acquisitions; the effect of mergers and acquisitions on our relationships with customers, vendors and lenders and on our operating results and businesses generally; compliance with the Deferred Prosecution Agreement entered into in January 2017; the success of our quality and operational excellence initiatives, including ongoing quality remediation efforts at our Warsaw North Campus facility; challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration (FDA) and foreign government regulators, such as more stringent requirements for regulatory clearance of products; the ability to remediate matters identified in any inspectional observations or warning letters issued by the FDA, while continuing to satisfy the demand for our products; the outcome of government investigations; competition; pricing pressures; changes in customer demand for our products and services caused by demographic changes or other factors; the impact of healthcare reform measures; reductions in reimbursement levels by third-party payors and cost containment efforts of healthcare purchasing organizations; dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; control of costs and expenses; the ability to obtain and maintain adequate intellectual property protection; breaches or failures of our information technology systems or products, including by cyberattack, unauthorized access or theft; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including European Union rules on state aid, or examinations by tax authorities; product liability and intellectual property litigation losses; the ability to retain the independent agents and distributors who market our products; dependence on a limited number of suppliers for key raw materials and outsourced activities; the impact of substantial indebtedness on our ability to service our debt obligations and/or refinance amounts outstanding under our debt obligations at maturity on terms favorable to us, or at all; changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations; and the impact of the ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected countries. For a further list and description of such risks and uncertainties, see our reports filed with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the quarters ended June 30, 2019 and September 30, 2019. Copies of these filings, as well as subsequent filings, are available online at www.sec.gov, www.zimmerbiomet.com or on request from us. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers of this press release are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary note is applicable to all forward-looking statements contained in this press release.
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 and 2018
(in millions, except per share amounts, unaudited)
2019 2018
---
Net Sales $2,125.7 $2,071.0
Cost of products
sold, excluding
intangible
asset
amortization 582.2 583.4
Intangible asset
amortization 147.4 148.0
Research and
development 121.1 101.2
Selling, general
and
administrative 882.2 998.6
Goodwill and
intangible
asset
impairment 975.9
Quality
remediation 19.3 34.6
Restructuring
and other cost
reduction
initiatives 33.0 9.5
Acquisition,
integration and
related 3.7 10.3
---
Operating
expenses 1,788.9 2,861.5
---
Operating Profit
(Loss) 336.8 (790.5)
Other income
(expense), net 4.8 (6.9)
Interest
expense, net (52.4) (68.5)
---
Earnings (loss)
before income
taxes 289.2 (865.9)
(Benefit)
provision for
income taxes (32.2) 36.6
---
Net Earnings
(Loss) 321.4 (902.5)
Less: Net
earnings (loss)
attributable to
noncontrolling
interest 0.7 (1.4)
Net Earnings
(Loss) of
Zimmer Biomet
Holdings, Inc. $320.7 $(901.1)
Earnings (Loss) Per Common Share
Basic $1.56 $(4.42)
Diluted $1.54 $(4.42)
Weighted Average Common Shares
Outstanding
Basic 205.8 204.0
Diluted 207.8 204.0
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, except per share amounts, unaudited)
2019 2018
Net Sales $7,982.2 $7,932.9
Cost of products
sold, excluding
intangible asset
amortization 2,252.6 2,271.9
Intangible asset
amortization 584.3 595.9
Research and
development 449.3 391.7
Selling, general
and
administrative 3,343.8 3,379.3
Goodwill and
intangible asset
impairment 70.1 979.7
Quality
remediation 82.4 146.9
Restructuring and
other cost
reduction
initiatives 50.0 34.2
Acquisition,
integration and
related 12.2 99.5
Operating expenses 6,844.7 7,899.1
Operating Profit 1,137.5 33.8
Other expense, net (4.8) (15.6)
Interest expense,
net (226.9) (289.3)
Earnings (loss)
before income
taxes 905.8 (271.1)
(Benefit)
provision for
income taxes (225.7) 108.2
Net Earnings
(Loss) 1,131.5 (379.3)
Less: Net loss
attributable to
noncontrolling
interest (0.1) (0.1)
Net Earnings
(Loss) of Zimmer
Biomet Holdings,
Inc. $1,131.6 $(379.2)
Earnings (Loss) Per Common Share
Basic $5.52 $(1.86)
Diluted $5.47 $(1.86)
Weighted Average Common Shares
Outstanding
Basic 205.1 203.5
Diluted 206.7 203.5
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
December 31,
December 31,
2019 2018
Assets
Cash and cash equivalents $617.9 $542.8
Receivables, net 1,363.9 1,275.8
Inventories 2,385.0 2,256.5
Other current assets 357.1 352.3
Total current assets 4,723.9 4,427.4
Property, plant and
equipment, net 2,077.4 2,015.4
Goodwill 9,599.7 9,594.4
Intangible assets, net 7,257.6 7,684.6
Other assets 980.1 405.0
Total Assets $24,638.7 $24,126.8
Liabilities and
Stockholders' Equity
Current liabilities $1,941.5 $1,896.3
Current portion of long-
term debt 1,500.0 525.0
Other long-term liabilities 2,083.0 2,015.7
Long-term debt 6,721.4 8,413.7
Stockholders' equity 12,392.8 11,276.1
Total Liabilities and
Stockholders' Equity $24,638.7 $24,126.8
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
2019 2018
Cash flows provided by (used in) operating activities
Net earnings (loss) $1,131.5 $(379.3)
Depreciation and amortization 1,006.1 1,040.5
Share-based compensation 84.3 65.5
Goodwill and intangible asset impairment 70.1 979.7
Changes in operating assets and liabilities, net of acquired assets and
liabilities
Income taxes (427.3) (137.4)
Receivables (93.8) 213.6
Inventories (125.2) (199.5)
Accounts payable and accrued expenses (42.0) 155.9
Other assets and liabilities (17.9) 8.4
Net cash provided by operating activities (1) 1,585.8 1,747.4
Cash flows provided by (used in) investing activities
Additions to instruments (315.9) (276.3)
Additions to other property, plant and equipment (207.1) (162.7)
Net investment hedge settlements 48.1 69.2
Acquisition of intellectual property rights (197.6)
Business combination investments, net of acquired cash (37.1) (15.3)
Investments in other assets (19.7) (31.5)
Net cash used in investing activities (729.3) (416.6)
Cash flows provided by (used in) financing activities
Proceeds from senior notes 549.2 749.5
Proceeds from multicurrency revolving facility 400.0
Payments on multicurrency revolving facility (400.0)
Redemption of senior notes (500.0) (1,150.0)
Proceeds from term loans 200.0 675.0
Payments on term loans (960.0) (1,425.0)
Net payments on other debt (5.3) (3.9)
Dividends paid to stockholders (196.7) (195.2)
Proceeds from employee stock compensation plans 158.2 107.9
Net cash flows from unremitted collections from factoring programs (12.2) (36.7)
Business combination contingent consideration payments (2.9) (19.8)
Other financing activities (10.2) (4.0)
Net cash used in financing activities (779.9) (1,302.2)
Effect of exchange rates on cash and cash equivalents (1.5) (10.2)
Increase in cash and cash equivalents 75.1 18.4
Cash and cash equivalents, beginning of period 542.8 524.4
Cash and cash equivalents, end of period $617.9 $542.8
(1) 2019 reflects approximately $168 million paid related to a patent litigation matter
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY GEOGRAPHY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Three Months Ended
December 31,
2019 2018 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Americas $1,288.2 $1,259.2 2.3 5.3 (2.9)
% % %
% (0.1)
EMEA 470.4 475.6 (1.1) 3.3 (1.9) (2.5)
Asia Pacific 367.1 336.2 9.2 10.7 (2.1) 0.6
Total $2,125.7 $2,071.0 2.6 5.8 (2.6)
% % %
% (0.6)
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Three Months Ended
December 31,
2019 2018 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Knees $760.6 $729.5 4.3 7.8 (2.9)
% % %
% (0.6)
Hips 511.3 497.7 2.7 6.4 (3.2) (0.5)
S.E.T 473.7 461.1 2.8 4.9 (1.8) (0.3)
Spine & CMF 197.3 197.7 (0.3) 2.9 (2.7) (0.5)
Dental 108.8 104.4 4.3 5.0 (0.7)
Other 74.0 80.6 (8.2) (4.6) (3.1) (0.5)
Total $2,125.7 $2,071.0 2.6 5.8 (2.6)
% % %
% (0.6)
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY GEOGRAPHY
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Years Ended
December 31,
2019 2018 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Americas $4,875.8 $4,837.2 0.8 4.0 (3.0)
% % %
% (0.2)
EMEA 1,746.9 1,801.9 (3.1) 4.3 (2.1) (5.3)
Asia Pacific 1,359.5 1,293.8 5.1 9.1 (2.2) (1.8)
Total $7,982.2 $7,932.9 0.6 4.9 (2.7)
% % %
% (1.6)
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Years Ended
December 31,
2019 2018 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Knees $2,810.1 $2,773.7 1.3 6.2 (3.0)
% % %
% (1.9)
Hips 1,935.1 1,921.4 0.7 5.5 (3.0) (1.8)
S.E.T 1,795.7 1,751.8 2.5 5.4 (1.6) (1.3)
Spine & CMF 747.3 763.9 (2.2) 1.4 (2.6) (1.0)
Dental 414.0 411.2 0.7 3.2 (0.9) (1.6)
Other 280.0 310.9 (9.9) (2.1) (6.5) (1.3)
Total $7,982.2 $7,932.9 0.6 4.9 (2.7)
% % %
% (1.6)
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Three Months Ended
December 31, 2019
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas 2.3 (0.1) 2.4
% % %
EMEA (1.1) (2.5) 1.4
Asia Pacific 9.2 0.6 8.6
Total 2.6 (0.6) 3.2
% % %
Product Categories
Knees
Americas 4.8 (0.1) 4.9
% % %
EMEA 0.8 (2.6) 3.4
Asia Pacific 7.3 (0.2) 7.5
Total 4.3 (0.6) 4.9
Hips
Americas 3.3 3.3
EMEA (3.2) (2.3) (0.9)
Asia Pacific 9.3 1.1 8.2
Total 2.7 (0.5) 3.2
S.E.T 2.8 (0.3) 3.1
Spine & CMF (0.3) (0.5) 0.2
Dental 4.3 (0.7) 5.0
Other (8.2) (0.5) (7.7)
Total 2.6 (0.6) 3.2
% % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Year Ended
December 31, 2019
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas 0.8 (0.2) 1.0
% % %
EMEA (3.1) (5.3) 2.2
Asia Pacific 5.1 (1.8) 6.9
Total 0.6 (1.6) 2.2
% % %
Product Categories
Knees
Americas 2.1 (0.1) 2.2
% % %
EMEA (2.7) (5.5) 2.8
Asia Pacific 4.5 (2.6) 7.1
Total 1.3 (1.9) 3.2
Hips
Americas 2.0 (0.2) 2.2
EMEA (3.9) (5.2) 1.3
Asia Pacific 3.4 (1.4) 4.8
Total 0.7 (1.8) 2.5
S.E.T 2.5 (1.3) 3.8
Spine & CMF (2.2) (1.0) (1.2)
Dental 0.7 (1.6) 2.3
Other (9.9) (1.3) (8.6)
Total 0.6 (1.6) 2.2
% % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 and 2018
(in millions, except per share amounts, unaudited)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019
---
Cost of
Intangible
Research
Selling,
Quality Restructuring Acquisition, (Benefit)
Net Diluted
products asset and general and remediation and other integration provision Earnings earnings
sold, amortization development administrative cost and related for (Loss) of per
excluding reduction income Zimmer common
intangible initiatives taxes Biomet share
asset Holdings,
amortization Inc.
As Reported $582.2 $147.4 $121.1 $882.2 $19.3 $33.0 $3.7 $(32.2) $320.7 $1.54
Inventory and (6.2) 3.5 2.7 0.01
manufacturing-related
charges(1)
Intangible asset (147.4) 31.2 116.2 0.56
amortization(2)
Quality remediation(4) (3.7) (19.3) 5.4 17.6 0.08
Restructuring and other cost - (33.0) 1.6 31.4 0.16
reduction initiatives(5)
Acquisition, integration and (3.7) 3.9 (0.2)
related(6)
Litigation(7) (17.0) 3.1 13.9 0.07
European Union Medical (12.8) 13.7 (0.9)
Device Regulation(9)
Other charges(10) (1.5) (35.9) 8.4 29.0 0.14
Switzerland tax reform(12) 51.2 (51.2) (0.25)
Other certain tax 1.1 (1.1) (0.01)
adjustments(13)
As Adjusted $572.3
$ - $106.8 $829.3
$ -
$ -
$ - $90.9 $478.1 $2.30
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018
---
Cost of Intangible
Selling, Goodwill
Quality
Restructuring Acquisition,
Other (Benefit)
Net Diluted
products asset general and impairment remediation and other integration income provision Earnings earnings
sold, amortization administrative cost and related (expense), for (Loss) of per
excluding reduction net income Zimmer common
intangible initiatives taxes Biomet share
asset Holdings,
amortization Inc.
As Reported $583.4 $148.0 $998.6 $975.9 $34.6 $9.5 $10.3 $(6.9) $36.6 $(901.1) $(4.42)
Inventory and (7.8) 5.1 2.7 0.01
manufacturing-
related charges(1)
Intangible asset (148.0) 18.1 129.9 0.64
amortization(2)
Goodwill (975.9) 975.9 4.78
impairment(3)
Quality (5.0) (34.6) 10.3 29.3 0.15
remediation(4)
Restructuring and (9.5) 2.2 7.3 0.04
other cost reduction
initiatives(5)
Acquisition, (10.3) 1.6 8.7 0.04
integration and
related(6)
Litigation(7) (170.5) 50.0 120.5 0.59
European Union (2.1) 0.3 1.8 0.01
Medical Device
Regulation(9)
Other charges(10) (32.8) 3.9 2.5 34.2 0.17
U.S. tax reform(11) (8.3) 8.3 0.04
Other certain tax (30.4) 30.4 0.15
adjustments(13)
Effect of dilutive (0.02)
shares assuming net
earnings(14)
As Adjusted $570.6
$ - $793.2
$ -
$ -
$ -
$ - $(3.0) $88.0 $447.9 $2.18
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, except per share amounts, unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2019
---
Cost of Intangible
Research
Selling, Intangible
Quality Restructuring Acquisition, (Benefit)
Net Loss
Net Diluted
products asset and general and asset remediation and other integration provision attributable to Earnings earnings
sold, amortization development administrative impairment cost and related for noncontrolling of per
excluding reduction income interest Zimmer common
intangible initiatives taxes Biomet share
asset Holdings,
amortization Inc.
As Reported $2,252.6 $584.3 $449.3 $3,343.8 $70.1 $82.4 $50.0 $12.2 $(225.7) $(0.1) $1,131.6 $5.47
Inventory and (53.9) 23.3 30.6 0.15
manufacturing
-related
charges(1)
Intangible (584.3) 116.2 468.1 2.26
asset
amortization(2)
Intangible (70.1) 5.5 64.6 0.31
asset
impairment(3)
Quality (5.2) (82.4) 20.3 67.3 0.33
remediation(4)
Restructuring (50.0) 5.6 44.4 0.22
and other cost
reduction
initiatives(5)
Acquisition, (12.2) 6.3 5.9 0.03
integration and
related(6)
Litigation(7) (65.0) 11.0 54.0 0.26
Litigation 23.5 (5.2) (18.3) (0.09)
settlement
gain(8)
European (30.9) 16.9 14.0 0.07
Union Medical
Device
Regulation(9)
Other (5.8) (114.7) 26.3 1.3 92.9 0.45
charges(10)
Switzerland 315.0 (315.0) (1.52)
tax reform(12)
Other certain 13.7 (13.7) (0.07)
tax
adjustments(13)
As Adjusted $2,193.5
$ - $412.6 $3,187.6
$ -
$ -
$ -
$ - $329.2 $1.2 $1,626.4 $7.87
FOR THE YEAR ENDED DECEMBER 31, 2018
---
Cost of Intangible
Selling, Goodwill
Quality
Restructuring Acquisition, Other Provision
Net Diluted
products asset general and and remediation and other integration expense, for Earnings earnings
sold, amortization administrative intangible cost and related net income of per
excluding asset reduction taxes Zimmer common
intangible impairment initiatives Biomet share
asset Holdings,
amortization Inc.
As Reported $2,271.9 $595.9 $3,379.3 $979.7 $146.9 $34.2 $99.5 $(15.6) $108.2 $(379.2) $(1.86)
Inventory and (32.5) 15.1 17.4 0.08
manufacturing-related
charges(1)
Intangible asset (595.9) 98.2 497.7 2.45
amortization(2)
Goodwill and (979.7) 0.9 978.8 4.81
intangible asset
impairment(3)
Quality remediation(4) (18.5) (146.9) 35.1 130.3 0.64
Restructuring and (34.2) 7.9 26.3 0.13
other cost reduction
initiatives(5)
Acquisition, (99.5) 20.1 79.4 0.39
integration and
related(6)
Litigation(7) (186.0) 44.8 141.2 0.69
European Union (3.7) 0.5 3.2 0.02
Medical Device
Regulation(9)
Other charges(10) (79.6) 3.2 17.0 65.8 0.32
U.S. tax reform(11) (8.3) 8.3 0.04
Other certain tax 3.8 (3.8) (0.02)
adjustments(13)
Effect of dilutive (0.05)
shares assuming net
earnings(14)
As Adjusted $2,220.9
$ - $3,110.0
$ -
$ -
$ -
$ - $(12.4) $343.3 $1,565.4 $7.64
(1) In the 2019
periods, inventory
and manufacturing-
related charges
include a $20.8
million charge
incurred to
terminate a raw
material supply
agreement
recognized in the
second quarter,
excess and
obsolete inventory
charges on certain
product lines we
intend to
discontinue and
other inventory
and manufacturing-
related charges.
The 2018 charges
primarily relate
to the excess and
obsolete inventory
charges on certain
product lines we
intend to
discontinue and
other inventory
and manufacturing-
related charges.
The excess and
obsolete inventory
charges on certain
product lines are
driven by
acquisitions where
there are
competing product
lines and we have
plans to
discontinue one of
the competing
product lines.
(2) We exclude
intangible asset
amortization from
our non-GAAP
financial measures
because we
internally assess
our performance
against our peers
without this
amortization. Due
to various levels
of acquisitions
among our peers,
intangible asset
amortization can
vary significantly
from company to
company.
(3) In the second
quarter of 2019
and third quarter
of 2018, we
recognized $70.1
million and $3.8
million,
respectively, of
in-process
research and
development
("IPR&D")
intangible asset
impairment due to
the termination of
certain IPR&D
projects. In the
fourth quarter of
2018, we
recognized a
goodwill
impairment charge
of $975.9 million.
The impairment
was comprised of
$401.2 million in
our Spine less
Asia Pacific
reporting unit,
$567.0 million in
our EMEA reporting
unit and $7.7
million from an
insignificant
reporting unit.
(4) We are addressing
inspectional
observations on
Form 483 and a
Warning Letter
issued by the U.S.
Food and Drug
Administration
("FDA") following
its previous
inspections of our
Warsaw North
Campus facility,
among other
matters. This
quality
remediation has
required us to
devote significant
financial
resources and is
for a discrete
period of time.
The majority of
the expenses are
related to
consultants who
are helping us to
update previous
documents and
redesign certain
processes.
(5) In December 2019,
our Board of
Directors
approved, and we
initiated, a new
global
restructuring
program that
includes a
reorganization of
key businesses and
an overall effort
to reduce costs in
order to
accelerate
decision-making
and focus the
organization on
priorities to
drive growth. We
have reclassified
$9.5 million and
$34.2 million in
the three-month
period and year
ended December 31,
2018,
respectively, from
Acquisition,
integration and
related to
Restructuring and
other cost
reduction
initiatives which
is primarily
attributed to
project costs
related to our
supply chain
optimization
initiative.
(6) The acquisition,
integration and
related gains and
expenses we have
excluded from our
non-GAAP
financial measures
resulted from our
merger with Biomet
in 2015 and other
various
acquisitions. The
acquisition,
integration and
related gains and
expenses include
the following
types of gains and
expenses:
-- Consulting and professional fees
related to third-party integration
consulting performed in a variety of
areas, such as tax, compliance,
logistics and human resources, and
legal fees related to the consummation
of mergers and acquisitions.
-- Employee termination benefits related
to terminating employees with
overlapping responsibilities in
various areas of our business.
-- Dedicated project personnel expenses
which include the salary, benefits,
travel expenses and other costs
directly associated with employees who
are 100 percent dedicated to our
integration of acquired businesses and
employees who have been notified of
termination, but are continuing to
work on transferring their
responsibilities.
-- Contract termination expenses related
to terminated contracts, primarily
with sales agents and distribution
agreements.
-- Other various expenses to relocate
facilities, integrate information
technology, losses incurred on assets
resulting from the applicable
acquisition, and other various
expenses.
(7) We are involved in
routine patent
litigation,
product liability
litigation,
commercial
litigation and
other various
litigation
matters. We
review litigation
matters from both
a qualitative and
quantitative
perspective to
determine if
excluding the
losses or gains
will provide our
investors with
useful incremental
information.
Litigation matters
can vary in their
characteristics,
frequency and
significance to
our operating
results. The
litigation charges
and gains excluded
from our non-GAAP
financial measures
in the periods
presented relate
to product
liability matters
where we have
received numerous
claims on specific
products, patent
litigation and
commercial
litigation related
to a common matter
in multiple
jurisdictions. In
regards to the
product liability
matters, due to
the complexities
involved and
claims filed in
multiple
districts, the
expenses
associated with
these matters are
significant to our
operating results.
Once the
litigation matter
has been excluded
from our non-GAAP
financial measures
in a particular
period, any
additional
expenses or gains
from changes in
estimates are also
excluded, even if
they are not
significant, to
ensure consistency
in our non-GAAP
financial measures
from period-to-
period.
(8) In the first
quarter of 2019,
we settled a
patent
infringement
lawsuit out of
court, and the
other party agreed
to pay us an
upfront, lump-sum
amount for a non-
exclusive license
to the patent.
(9) The European Union
Medical Device
Regulation imposes
significant
additional
premarket and
postmarket
requirements. The
new regulations
provide a
transition period
until May 2020 for
currently-
approved medical
devices to meet
the additional
requirements. For
certain devices,
this transition
period can be
extended until May
2024. We are
excluding from our
non-GAAP
financial measures
the incremental
costs incurred to
establish initial
compliance with
the regulations
related to our
currently-
approved medical
devices. The
incremental costs
primarily include
third-party
consulting
necessary to
supplement our
internal
resources.
(10) We have incurred
other various
expenses from
specific events or
projects that we
consider highly
variable or that
have a significant
impact to our
operating results
that we have
excluded from our
non-GAAP
measures. These
include costs
related to legal
entity,
distribution and
manufacturing
optimization,
including contract
terminations, as
well as our costs
of complying with
our Deferred
Prosecution
Agreement ("DPA")
with the U.S.
government related
to certain Foreign
Corrupt Practices
Act matters
involving Biomet
and certain of its
subsidiaries.
Under the DPA,
which has a three-
year term, we are
subject to
oversight by an
independent
compliance
monitor, which
monitorship
commenced in
August 2017. The
excluded costs
include the fees
paid to the
independent
compliance monitor
and to external
legal counsel
assisting in the
matter. The
primary costs in
the 2019 periods
were related to
the DPA and
distributor
contract
terminations.
(11) In 2018, we
finalized our
estimates of the
effects of the Tax
Cuts and Jobs Act
of 2017 (the "2017
Tax Act") based
upon final
guidance issued by
U.S. tax
authorities.
(12) Switzerland enacted
the Federal Act on
Tax Reform and AHV
Financing ("TRAF")
effective January
1, 2020. The
federal provisions
of the TRAF were
enacted in the
third quarter of
2019 and the
cantonal
provisions of the
TRAF were enacted
in the fourth
quarter of 2019.
In the third
quarter of 2019,
we recognized a
$263.8 million
provisional net
tax benefit
related to the
federal components
of the TRAF. In
the fourth quarter
of 2019, we
recognized an
additional $51.2
million net tax
benefit related to
the federal and
cantonal
components of the
TRAF in addition
to the tax impact
of certain
restructuring
transactions in
Switzerland.
(13) Other certain tax
adjustments relate
to various
discrete tax
period
adjustments,
including changes
in tax rates on
deferred tax
liabilities
recorded on
intangible assets
recognized in
acquisition-
related accounting
and adjustments
from internal
restructuring
transactions that
provide us access
to offshore funds
in a tax efficient
manner.
(14) Diluted share count
used in Adjusted
Diluted EPS (in
millions):
Three Months Ended Year Ended
December 31, 2018 December 31, 2018
Diluted shares 204.0 203.5
Dilutive shares assuming
net earnings 1.4 1.5
Adjusted diluted shares 205.4 205.0
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING
ACTIVITIES TO FREE CASH FLOW
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Three Months Ended Years Ended December 31,
December 31,
---
2019 2018 2019 2018
---
Net cash provided by operating $423.3 $379.5 $1,585.8 $1,747.4
activities
Additions to instruments (76.4) (72.6) (315.9) (276.3)
Additions to other property, plant (51.8) (47.5) (207.1) (162.7)
and equipment
Free cash flow $295.1 $259.4 $1,062.8 $1,308.4
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS
PROFIT & MARGIN
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Three Months Ended
Years Ended
December 31, December 31,
2019 2018 2019 2018
Net Sales $2,125.7 $2,071.0 $7,982.2 $7,932.9
Cost of products sold, 582.2 583.4 2,252.6 2,271.9
excluding intangible asset
amortization
Intangible asset amortization 147.4 148.0 584.3 595.9
Gross Profit $1,396.1 $1,339.6 $5,145.3 $5,065.1
Inventory and manufacturing- 6.2 7.8 53.9 32.5
related charges
Quality remediation 3.7 5.0 5.2 18.5
Intangible asset amortization 147.4 148.0 584.3 595.9
Adjusted gross profit $1,553.4 $1,500.4 $5,788.7 $5,712.0
Gross margin 65.7
% 64.7
% 64.5
% 63.9
%
Inventory and manufacturing- 0.3 0.4 0.7 0.4
related charges
Quality remediation 0.2 0.2 0.2
Intangible asset amortization 6.9 7.1 7.3 7.5
Adjusted gross margin 73.1
% 72.4
% 72.5
% 72.0
%
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT (LOSS) & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2019 and 2018
(in millions, unaudited)
Three Months Ended
Years Ended
December 31, December 31,
2019 2018 2019 2018
Operating profit (loss) $336.8 $(790.5) $1,137.5 $33.8
Inventory and manufacturing- 6.2 7.8 53.9 32.5
related charges
Intangible asset amortization 147.4 148.0 584.3 595.9
Goodwill and intangible asset 975.9 70.1 979.7
impairment
Quality remediation 23.0 39.6 87.6 165.4
Restructuring and other cost 33.0 9.5 50.0 34.2
reduction initiatives
Acquisition, integration and 3.7 10.3 12.2 99.5
related
Litigation 17.0 170.5 65.0 186.0
Litigation settlement gain (23.5)
European Union Medical 12.8 2.1 30.9 3.7
Device Regulation
Other charges 37.4 32.8 120.5 79.6
Adjusted operating profit $617.3 $606.0 $2,188.5 $2,210.3
Operating profit (loss) margin 15.8
% (38.2)
% 14.2
% 0.4
%
Inventory and manufacturing- 0.3 0.4 0.7 0.4
related charges
Intangible asset amortization 6.9 7.1 7.3 7.5
Goodwill and intangible asset 47.1 0.9 12.4
impairment
Quality remediation 1.1 1.9 1.1 2.1
Restructuring and other cost 1.6 0.5 0.6 0.4
reduction initiatives
Acquisition, integration and 0.2 0.5 0.2 1.3
related
Litigation 0.8 8.2 0.8 2.3
Litigation settlement gain (0.3)
European Union Medical 0.6 0.1 0.4
Device Regulation
Other charges 1.7 1.7 1.5 1.1
Adjusted operating profit 29.0
% 29.3
% 27.4
% 27.9
%
margin
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF EFFECTIVE TAX RATE TO ADJUSTED EFFECTIVE TAX RATE
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2019 and 2018
(unaudited)
Three Months Ended Years Ended
December 31, December 31,
2019 2018 2019 2018
Effective tax rate (11.1) (4.2) (24.9) (39.9)
% % % %
Tax effect of adjustments 9.0 16.2 5.4 56.2
made to earnings (loss) before
taxes(1)
Switzerland tax reform 17.7 34.8
U.S. tax reform 1.0 3.1
Other certain tax adjustments 0.4 3.5 1.5 (1.4)
Adjusted effective tax rate 16.0 16.5 16.8 18.0
% % % %
(1)Includes inventory and manufacturing-related charges; intangible asset amortization; goodwill and intangible asset impairment; quality remediation; restructuring and other cost
reduction initiatives; acquisition, integration and related; litigation; litigation settlement gain; European Union Medical Device Regulation; and other charges
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF DEBT TO NET DEBT
AS OF DECEMBER 31, 2019 and 2018
(in millions, unaudited)
December 31, 2019 December 31, 2018
---
Debt,
both
current
and
long-
term $8,221.4 $8,938.7
Cash
and
cash
equivalents (617.9) (542.8)
Net
debt $7,603.5 $8,395.9
===
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SOURCE Zimmer Biomet Holdings, Inc.
