Zimmer Biomet Announces Second Quarter 2020 Financial Results
WARSAW, Ind., Aug. 4, 2020 /PRNewswire/ -- Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter ended June 30, 2020. The Company reported second quarter net sales of $1.226 billion, a decrease of 38.3% from the prior year period, and a decrease of 38.0% on a constant currency basis. Net loss for the second quarter was $206.6 million. Net earnings on an adjusted basis were $10.2 million.
Diluted loss per share was $1.00 for the second quarter. Adjusted diluted earnings per share were $0.05 for the second quarter, a decrease of 97.4% from the prior year period.
"While we are encouraged by our operational performance and the stronger than expected recovery of elective procedures in the second quarter, the impact of COVID-19 is still significant and remains very fluid," said Bryan Hanson, President and CEO of Zimmer Biomet. "Even in this time of ongoing challenge and uncertainty, we continue to reshape and evolve Zimmer Biomet for greater value and are investing aggressively in our primary growth initiatives and innovative R&D programs to better position us for growth over the long term. I am so proud of our global team for the support we continue to provide healthcare professionals and patients every day and our ongoing commitment to the ZB mission to better the lives of people around the world."
Second quarter performance was negatively impacted by COVID-19, which reached a pandemic level in March and has resulted in a global decline in elective procedure volumes. The deepest decline in those procedures to-date was seen by the Company in April 2020, with incremental improvement in May and June.
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 five product categories.
Geographic and Product Category Sales
The following sales tables provide results by geography and product category for the three and six-month periods ended June 30, 2020, 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 JUNE 30, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $
733.7 (39.6) (39.5)
% %
EMEA 218.7 (50.1) (49.0)
Asia Pacific 273.7 (18.6) (18.2)
Total $
1,226.1 (38.3) (38.0)
% %
Product Categories
Knees
Americas $
221.0 (46.7) (46.7)
% %
EMEA 65.2 (60.1) (59.3)
Asia Pacific 88.0 (29.9) (29.2)
Total 374.2 (46.8) (46.5)
Hips
Americas 170.7 (32.6) (32.5)
EMEA 70.8 (43.7) (42.5)
Asia Pacific 88.2 (11.3) (11.1)
Total 329.7 (31.1) (30.7)
S.E.T * 252.6 (29.2) (28.7)
Dental, Spine & CMFT** 182.5 (37.6) (37.4)
Other 87.1 (44.5) (44.3)
Total $
1,226.1 (38.3) (38.0)
% %
* Sports Medicine, Extremities and Trauma
** Craniomaxillofacial and Thoracic
NET SALES - SIX MONTHS ENDED JUNE 30, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $
1,835.0 (23.8) (23.7)
% %
EMEA 616.8 (31.6) (29.8)
Asia Pacific 558.1 (14.6) (14.0)
Total $
3,009.9 (24.1) (23.5)
% %
Product Categories
Knees
Americas $
601.3 (27.0) (27.0)
% %
EMEA 217.9 (35.7) (33.9)
Asia Pacific 184.8 (21.3) (20.1)
Total 1,004.0 (28.2) (27.5)
Hips
Americas 403.2 (19.4) (19.3)
EMEA 182.2 (29.7) (27.8)
Asia Pacific 176.9 (12.7) (12.3)
Total 762.3 (20.8) (20.1)
S.E.T * 586.2 (17.9) (17.3)
Dental, Spine & CMFT** 434.2 (25.1) (24.7)
Other 223.2 (28.2) (27.8)
Total $
3,009.9 (24.1) (23.5)
% %
* Sports Medicine, Extremities and Trauma
** Craniomaxillofacial and Thoracic
Cash Flow and Balance Sheet
Cash used in operating activities for the second quarter was $52.8 million and negative free cash flow was $145.4 million. At June 30, 2020, the Company had $713.4 million in cash and cash equivalents on the balance sheet. In the second quarter, the Company paid $49.6 million in dividends and declared a dividend of $0.24 per share. As previously announced, Zimmer Biomet refinanced $1.5 billion in debt that came due April 1, 2020, renegotiated the terms of its $1.5 billion revolver and secured an additional $1.0 billion credit facility. No borrowings are outstanding under these credit facilities.
Financial Guidance
While Zimmer Biomet saw encouraging recovery in elective procedures during the second quarter, there continues to be uncertainty around the scope and duration of COVID-19 and its ongoing impact. Therefore, the Company is currently unable to quantify the expected impact on its results of operations, financial condition and cash flows, which could be material, for 2020 and is not providing full-year financial guidance at this time.
Conference Call
The Company will conduct its second quarter 2020 investor conference call today, August 4, 2020, at 8:30 a.m. ET. 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 and six-month periods ended June 30, 2020 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 (loss) earnings and diluted (loss) earnings per share for the three and six-month periods ended June 30, 2020 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 discontinue certain product lines; intangible asset amortization; goodwill and intangible asset impairment; restructuring and other cost reduction initiative expenses; quality remediation expenses; acquisition, integration and related 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; tax adjustments relating to the impacts of tax only amortization in Switzerland; other certain tax adjustments; and, with respect to earnings per share information, provide for the effect of dilutive shares assuming net earnings in a period of a reported net loss.
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 (used in) 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.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the impact of the COVID-19 pandemic on our business, and any statements about our forecasts, expectations, plans, intentions, strategies or prospects. 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 effects of the COVID-19 global pandemic and other adverse public health developments on the global economy, our business and operations and the business and operations of our suppliers and customers, including the deferral of elective procedures and our ability to collect accounts receivable; the risks and uncertainties related to our ability to successfully execute our restructuring plans; the success of our quality and operational excellence initiatives, including ongoing quality remediation efforts at our Warsaw North Campus facility; the ability to remediate matters identified in inspectional observations or warning letters issued by U.S. Food and Drug Administration (FDA), while continuing to satisfy the demand for our products; compliance with the Deferred Prosecution Agreement entered into in January 2017; 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; 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 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 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, suppliers and lenders and on our operating results and businesses generally; challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the FDA and foreign government regulators, such as more stringent requirements for regulatory clearance of 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, intellectual property and commercial litigation losses; 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. A further list and description of these risks and uncertainties and other factors can be found in our Annual Report on Form 10-K for the year ended December 31, 2019, including in the sections captioned "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors," and our subsequent filings with the Securities and Exchange Commission (SEC). Copies of these filings are available online at www.sec.gov, www.zimmerbiomet.com or on request from us. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in our filings with the SEC. 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 JUNE 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
1,226.1 $
1,988.6
Cost of products sold, excluding intangible asset amortization 424.5 581.3
Intangible asset amortization 147.7 146.9
Research and development 87.7 112.1
Selling, general and administrative 665.0 838.8
Goodwill and intangible asset impairment 33.0 70.1
Restructuring and other cost reduction initiatives 28.0 6.9
Quality remediation 9.7 22.7
Acquisition, integration and related 2.2 5.1
Operating expenses 1,397.8 1,783.9
Operating (Loss) Profit (171.7) 204.7
Other income (expense), net 3.8 (4.7)
Interest expense, net (54.0) (59.7)
(Loss) earnings before income taxes (221.9) 140.3
(Benefit) provision for income taxes (13.7) 8.4
Net (Loss) Earnings (208.2) 131.9
Less: Net loss attributable to noncontrolling interest (1.6) (1.8)
Net (Loss) Earnings of Zimmer Biomet Holdings, Inc. $
(206.6) $
133.7
(Loss) Earnings Per Common Share
Basic $
(1.00) $
0.65
Diluted $
(1.00) $
0.65
Weighted Average Common Shares Outstanding
Basic 206.8 204.8
Diluted 206.8 206.2
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
3,009.9 $
3,964.1
Cost of products sold, excluding intangible asset amortization 911.6 1,134.7
Intangible asset amortization 295.3 290.3
Research and development 186.1 213.8
Selling, general and administrative 1,493.9 1,635.2
Goodwill and intangible asset impairment 645.0 70.1
Restructuring and other cost reduction initiatives 73.0 11.6
Quality remediation 26.1 42.4
Acquisition, integration and related 6.6 11.1
Operating expenses 3,637.6 3,409.2
Operating (Loss) Profit (627.7) 554.9
Other income (expense), net 6.8 (5.2)
Interest expense, net (104.9) (117.7)
(Loss) earnings before income taxes (725.8) 432.0
(Benefit) provision for income taxes (8.5) 53.9
Net (Loss) Earnings (717.3) 378.1
Less: Net loss attributable to noncontrolling interest (2.2) (1.7)
Net (Loss) Earnings of Zimmer Biomet Holdings, Inc. $
(715.1) $
379.8
(Loss) Earnings Per Common Share
Basic $
(3.46) $
1.86
Diluted $
(3.46) $
1.84
Weighted Average Common Shares Outstanding
Basic 206.6 204.6
Diluted 206.6 206.0
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
June 30, December 31,
2020 2019
Assets
Cash and cash equivalents $
713.4 $
617.9
Receivables, net 1,064.5 1,363.9
Inventories 2,496.5 2,385.0
Other current assets 432.4 357.1
Total current assets 4,706.8 4,723.9
Property, plant and equipment, net 2,056.5 2,077.4
Goodwill 8,982.4 9,599.7
Intangible assets, net 6,937.4 7,257.6
Other assets 964.5 980.1
Total Assets $
23,647.6 $
24,638.7
Liabilities and Stockholders' Equity
Current liabilities $
1,711.2 $
1,941.5
Current portion of long-term debt 450.0 1,500.0
Other long-term liabilities 2,083.2 2,083.0
Long-term debt 7,759.3 6,721.4
Stockholders' equity 11,643.9 12,392.8
Total Liabilities and Stockholders' Equity $
23,647.6 $
24,638.7
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
2020 2019
Cash flows provided by (used in) operating activities
Net (loss) earnings $
(717.3) $
378.1
Depreciation and amortization 508.7 500.7
Share-based compensation 38.3 40.0
Goodwill and intangible asset impairment 645.0 70.1
Changes in operating assets and liabilities, net of acquired assets and
liabilities
Income taxes (46.1) (44.2)
Receivables 272.7 29.3
Inventories (122.6) (83.0)
Accounts payable and accrued expenses (233.9) (269.8)
Other assets and liabilities 53.3 (36.6)
Net cash provided by operating activities (1) 398.1 584.6
Cash flows provided by (used in) investing activities
Additions to instruments (159.3) (144.8)
Additions to other property, plant and equipment (59.2) (96.7)
Net investment hedge settlements 26.8 21.3
Acquisition of intellectual property rights (197.6)
Investments in other assets (14.8) (9.9)
Net cash used in investing activities (206.5) (427.7)
Cash flows provided by (used in) financing activities
Proceeds from senior notes 1,497.1
Redemption of senior notes (1,500.0)
Proceeds from term loans 200.0
Payments on term loans (425.0)
Dividends paid to stockholders (99.1) (98.1)
Proceeds from employee stock compensation plans 61.7 54.8
Net cash flows from unremitted collections from factoring programs (19.6) (25.6)
Business combination contingent consideration payments (7.5)
Debt issuance costs (19.4)
Other financing activities (6.1) (4.9)
Net cash used in financing activities (92.9) (298.8)
Effect of exchange rates on cash and cash equivalents (3.2) 2.2
Increase (decrease) in cash and cash equivalents 95.5 (139.7)
Cash and cash equivalents, beginning of period 617.9 542.8
Cash and cash equivalents, end of period $
713.4 $
403.1
(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 JUNE 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended
June 30,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Americas $
733.7 $
1,214.3 (39.6) (36.9) (2.6) (0.1)
% %
% %
EMEA 218.7 438.0 (50.1) (48.7) (0.3) (1.1)
Asia Pacific 273.7 336.3 (18.6) (17.2) (1.0) (0.4)
Total $
1,226.1 $
1,988.6 (38.3) (36.2) (1.8) (0.3)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE THREE MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended
June 30,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Knees $
374.2 $
703.5 (46.8) (44.2) (2.3) (0.3)
% %
% %
Hips 329.7 478.5 (31.1) (28.5) (2.2) (0.4)
S.E.T 252.6 357.0 (29.2) (26.0) (2.7) (0.5)
Dental, Spine & 182.5 292.4 (37.6) (38.1) 0.7 (0.2)
CMFT
Other 87.1 157.2 (44.5) (42.9) (1.4) (0.2)
Total $
1,226.1 $
1,988.6 (38.3) (36.2) (1.8) (0.3)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY GEOGRAPHY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Six Months Ended
June 30,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Americas $
1,835.0 $
2,408.4 (23.8) (21.0) (2.7) (0.1)
% %
% %
EMEA 616.8 901.9 (31.6) (28.5) (1.3) (1.8)
Asia Pacific 558.1 653.8 (14.6) (13.0) (1.0) (0.6)
Total $
3,009.9 $
3,964.1 (24.1) (21.4) (2.1) (0.6)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Six Months Ended
June 30,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Knees $
1,004.0 $
1,397.6 (28.2) (25.2) (2.3) (0.7)
% %
% %
Hips 762.3 961.9 (20.8) (17.5) (2.6) (0.7)
S.E.T 586.2 713.8 (17.9) (15.1) (2.2) (0.6)
Dental, Spine 434.2 579.7 (25.1) (24.1) (0.6) (0.4)
& CMFT
Other 223.2 311.1 (28.2) (25.9) (1.9) (0.4)
Total $
3,009.9 $
3,964.1 (24.1) (21.4) (2.1) (0.6)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Three Months Ended
June 30, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas (39.6) (0.1)
% %
% (39.5)
EMEA (50.1) (1.1) (49.0)
Asia Pacific (18.6) (0.4) (18.2)
Total (38.3) (0.3)
% %
% (38.0)
Product Categories
Knees
Americas (46.7) % (46.7)
% %
EMEA (60.1) (0.8) (59.3)
Asia Pacific (29.9) (0.7) (29.2)
Total (46.8) (0.3) (46.5)
Hips
Americas (32.6) (0.1) (32.5)
EMEA (43.7) (1.2) (42.5)
Asia Pacific (11.3) (0.2) (11.1)
Total (31.1) (0.4) (30.7)
S.E.T (29.2) (0.5) (28.7)
Dental, Spine & CMFT (37.6) (0.2) (37.4)
Other (44.5) (0.2) (44.3)
Total (38.3) (0.3)
% %
% (38.0)
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Six Months Ended
June 30, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas (23.8) (0.1)
% %
% (23.7)
EMEA (31.6) (1.8) (29.8)
Asia Pacific (14.6) (0.6) (14.0)
Total (24.1) (0.6)
% %
% (23.5)
Product Categories
Knees
Americas (27.0) % (27.0)
% %
EMEA (35.7) (1.8) (33.9)
Asia Pacific (21.3) (1.2) (20.1)
Total (28.2) (0.7) (27.5)
Hips
Americas (19.4) (0.1) (19.3)
EMEA (29.7) (1.9) (27.8)
Asia Pacific (12.7) (0.4) (12.3)
Total (20.8) (0.7) (20.1)
S.E.T (17.9) (0.6) (17.3)
Dental, Spine & CMFT (25.1) (0.4) (24.7)
Other (28.2) (0.4) (27.8)
Total (24.1) (0.6)
% %
% (23.5)
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE THREE MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 2020
---
Cost of Intangible Research and Selling, Intangible Restructuring Quality Acquisition, Other (Benefit) Net (Loss) Diluted
products asset development general and asset and other remediation integration income provision for Earnings of (loss)
sold, amortization administrative impairment cost and related (expense), income taxes Zimmer earnings
excluding reduction net Biomet per common
intangible initiatives Holdings, share
asset Inc.
amortization
As Reported $
424.5 $
147.7 $
87.7 $
665.0 $
33.0 $
28.0 $
9.7 $
2.2 $
3.8 $
(13.7) $
(206.6) $
(1.00)
Inventory and manufacturing-related
charges(1) (1.4) 3.7 (2.3) (0.01)
Intangible asset amortization(2) (147.7) 8.1 139.6 0.68
Intangible asset impairment(3) (33.0) 5.7 27.3 0.13
Restructuring and other cost reduction
initiatives(4) (28.0) 0.8 27.2 0.13
Quality remediation(5) (0.2) (9.7) 0.6 9.3 0.04
Acquisition, integration and related(6) (2.2) 0.1 2.1 0.01
Litigation(7) (1.3) (6.1) 7.4 0.04
European Union Medical Device Regulation(8) (6.1) (0.1) 6.2 0.03
Other charges(9) (11.9) (4.6) 10.7 (3.4) (0.02)
Tax adjustments relating to the impacts of
tax only amortization in Switzerland(10) 0.7 (0.7)
Other certain tax adjustments(11) (4.1) 4.1 0.02
Effect of dilutive shares assuming net
earnings(12)
As Adjusted $
422.9
$ $
81.6 $
651.8
$
$
$
$ $
(0.8) $
6.4 $
10.2 $
0.05
FOR THE THREE MONTHS ENDED JUNE 30, 2019
---
Cost of Intangible Research and Selling, Intangible Restructuring Quality Acquisition, Provision Net Earnings Net Earnings Diluted
products asset development general and asset and other remediation integration for income attributable of Zimmer earnings
sold, amortization administrative impairment cost and related taxes to Biomet per common
excluding reduction noncontrolling Holdings, share
intangible initiatives interest Inc.
asset
amortization
As Reported $
581.3 $
146.9 $
112.1 $
838.8 $
70.1 $
6.9 $
22.7 $
5.1 $
8.4 $
(1.8) $
133.7 $
0.65
Inventory and manufacturing-related
charges(1) (34.1) 9.4 24.7 0.12
Intangible asset amortization(2) (146.9) 34.1 112.8 0.55
Intangible asset impairment(3) (70.1) 5.5 64.6 0.31
Restructuring and other cost reduction
initiatives(4) (6.9) 1.6 5.3 0.03
Quality remediation(5) (0.7) (22.7) 5.9 17.5 0.08
Acquisition, integration and related(6) (5.1) 1.7 3.4 0.02
Litigation(7) (7.0) 1.9 5.1 0.02
European Union Medical Device Regulation(8) (5.1) 0.9 4.2 0.02
Other charges(9) (4.3) (37.6) 8.8 0.6 32.5 0.15
Other certain tax adjustments(10) 6.1 (6.1) (0.02)
As Adjusted $
546.5
$ $
102.7 $
794.2
$
$
$
$ $
84.3 $
(1.2) $
397.7 $
1.93
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2020
---
Cost of Intangible Research and Selling, Goodwill and Restructuring Quality Acquisition, Other income (Benefit) Net (Loss) Diluted
products asset development general and intangible and other remediation integration (expense), provision for Earnings of (loss)
sold, amortization administrative asset cost and related net income taxes Zimmer earnings
excluding impairment reduction Biomet per common
intangible initiatives Holdings, share
asset Inc.
amortization
As Reported $
911.6 $
295.3 $
186.1 $
1,493.9 $
645.0 $
73.0 $
26.1 $
6.6 $
6.8 $
(8.5) $
(715.1) $
(3.46)
Inventory and manufacturing-related
charges(1) (2.0) 5.9 (3.9) (0.02)
Intangible asset amortization(2) (295.3) 38.2 257.1 1.24
Goodwill and intangible asset impairment(3) (645.0) 5.7 639.3 3.09
Restructuring and other cost reduction
initiatives(4) (73.0) 12.2 60.8 0.29
Quality remediation(5) 0.3 (26.1) 4.1 21.7 0.11
Acquisition, integration and related(6) (6.6) 1.0 5.6 0.03
Litigation(7) (81.1) 11.9 69.2 0.34
European Union Medical Device Regulation(8) (17.1) 2.1 15.0 0.07
Other charges(9) (17.8) (3.9) 12.6 1.3 0.01
Tax adjustments relating to the impacts of
tax only amortization in Switzerland(10) (16.2) 16.2 0.08
Other certain tax adjustments(11) 3.1 (3.1) (0.02)
Effect of dilutive shares assuming net
earnings(12) (0.01)
As Adjusted $
909.9
$ $
169.0 $
1,395.0
$
$
$
$ $
2.9 $
72.1 $
364.1 $
1.75
FOR THE SIX MONTHS ENDED JUNE 30, 2019
---
Cost of Intangible Research and Selling, Intangible Restructuring Quality Acquisition, Provision Net Loss Net Earnings Diluted
products asset development general and asset and other remediation integration for income attributable of Zimmer earnings
sold, amortization administrative impairment cost and related taxes to Biomet per common
excluding reduction noncontrolling Holdings, share
intangible initiatives interest Inc.
asset
amortization
As Reported $
1,134.7 $
290.3 $
213.8 $
1,635.2 $
70.1 $
11.6 $
42.4 $
11.1 $
53.9 $
(1.7) $
379.8 $
1.84
Inventory and manufacturing-related
charges(1) (36.1) 13.0 23.1 0.11
Intangible asset amortization(2) (290.3) 58.0 232.3 1.13
Intangible asset impairment(3) (70.1) 5.5 64.6 0.31
Restructuring and other cost reduction
initiatives(4) (11.6) 2.7 8.9 0.04
Quality remediation(5) (0.7) (42.4) 10.1 33.0 0.16
Acquisition, integration and related(6) (11.1) 3.0 8.1 0.05
Litigation(7) (5.2) (0.8) 6.0 0.03
Litigation settlement gain(13) 23.5 (5.2) (18.3) (0.09)
European Union Medical Device Regulation(9) (6.7) 1.1 5.6 0.03
Other charges(10) (4.3) (60.3) 13.2 1.2 50.2 0.24
Other certain tax adjustments(13) 11.4 (11.4) (0.05)
As Adjusted $
1,097.9
$ $
202.8 $
1,593.2
$
$
$
$ $
165.9 $
(0.5) $
781.9 $
3.80
(1) Inventory and manufacturing-related
charges include excess and obsolete
inventory charges on certain product
lines we intend to discontinue and
other inventory and manufacturing-
related charges. In the 2019
periods, inventory and
manufacturing-related charges also
include a $20.8 million charge
incurred to terminate a raw material
supply agreement.
(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 first quarter of 2020, we
recognized goodwill impairment
charges of $470.0 million and $142.0
million related to our EMEA and
Dental reporting units,
respectively. In the second
quarters of 2020 and 2019, we
recognized $33.0 million and $70.1
million, respectively, of in-
process research and development
("IPR&D") intangible asset
impairments on certain IPR&D
projects.
(4) 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. Restructuring and other
cost reduction initiatives also
include other cost reduction
initiatives that have the goal of
reducing costs across the
organization.
(5) 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.
(6) The acquisition, integration and
related gains and expenses we have
excluded from our non-GAAP
financial measures resulted from
various acquisitions.
(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) The European Union Medical Device
Regulation imposes significant
additional premarket and postmarket
requirements. The new regulations
provide a transition period until
May 2021 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.
(9) 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.
(10) Represents tax adjustments relating
to the impacts of tax only
amortization resulting from Swiss
Tax Reform as well as certain
restructuring transactions in
Switzerland.
(11) Other certain tax adjustments relate
to various discrete tax period
adjustments.
(12) Diluted share count used in Adjusted
Diluted EPS:
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2020
Diluted shares 206.8 206.6
Dilutive shares assuming net earnings 1.0 1.4
Adjusted diluted shares 207.8 208.0
(13) 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.
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES TO FREE CASH FLOW
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net cash (used in) provided by $
(52.8) $
301.0 $
398.1 $
584.6
operating activities
Additions to instruments (73.6) (81.1) (159.3) (144.8)
Additions to other property, plant and (19.0) (58.9) (59.2) (96.7)
equipment
Free cash flow $
(145.4) $
161.0 $
179.6 $
343.1
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS
PROFIT & MARGIN
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net Sales $
1,226.1 $
1,988.6 $
3,009.9 $
3,964.1
Cost of products sold, 424.5 581.3 911.6 1,134.7
excluding intangible asset
amortization
Intangible asset amortization 147.7 146.9 295.3 290.3
Gross Profit $
653.9 $
1,260.4 $
1,803.0 $
2,539.1
Inventory and manufacturing- 1.4 34.1 2.0 36.1
related charges
Quality remediation 0.2 0.7 (0.3) 0.7
Intangible asset amortization 147.7 146.9 295.3 290.3
Adjusted gross profit $
803.2 $
1,442.1 $
2,100.0 $
2,866.2
Gross margin 53.3 63.4 59.9 64.1
% % % %
Inventory and manufacturing- 0.1 1.7 0.1 0.9
related charges
Quality remediation
Intangible asset amortization 12.1 7.4 9.8 7.3
Adjusted gross margin 65.5 72.5 69.8 72.3
% % % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Operating (loss) profit $
(171.7) $
204.7 $
(627.7) $
554.9
Inventory and manufacturing- 1.4 34.1 2.0 36.1
related charges
Intangible asset amortization 147.7 146.9 295.3 290.3
Goodwill and intangible asset 33.0 70.1 645.0 70.1
impairment
Restructuring and other cost 28.0 6.9 73.0 11.6
reduction initiatives
Quality remediation 9.9 23.4 25.8 43.1
Acquisition, integration and 2.2 5.1 6.6 11.1
related
Litigation 1.3 7.0 81.1 5.2
Litigation settlement gain (23.5)
European Union Medical 6.1 5.1 17.1 6.7
Device Regulation
Other charges 11.9 41.9 17.8 64.6
Adjusted operating profit $
69.8 $
545.2 $
536.0 $
1,070.2
Operating (loss) profit margin (14.0) 10.3 (20.9) 14.0
% % % %
Inventory and manufacturing- 0.1 1.7 0.1 0.9
related charges
Intangible asset amortization 12.1 7.4 9.8 7.3
Goodwill and intangible asset 2.7 3.5 21.4 1.8
impairment
Restructuring and other cost 2.3 0.3 2.4 0.3
reduction initiatives
Quality remediation 0.8 1.2 0.9 1.1
Acquisition, integration and 0.2 0.3 0.2 0.3
related
Litigation 0.1 0.4 2.7 0.1
Litigation settlement gain (0.6)
European Union Medical 0.5 0.3 0.6 0.2
Device Regulation
Other charges 0.9 2.0 0.6 1.6
Adjusted operating profit 5.7 27.4 17.8 27.0
% % % %
margin
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF EFFECTIVE TAX RATE TO ADJUSTED EFFECTIVE TAX RATE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 and 2019
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Effective tax rate 6.2 6.0 1.2 12.5
% % % %
Tax effect of adjustments 35.0 7.1 13.5 2.3
made to earnings before
taxes(1)
Tax adjustments relating to the (0.3) 2.3
impacts of tax only
amortization in Switzerland
Other certain tax adjustments 1.9 4.4 (0.4) 2.7
42.8 17.5 16.6 17.5
% % % %
Adjusted effective tax rate
(1) Includes inventory and manufacturing-related charges; intangible asset amortization; goodwill and intangible asset impairment; restructuring and other cost reduction initiatives; quality remediation;
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 JUNE 30, 2020 and DECEMBER 31, 2019
(in millions, unaudited)
June 30, 2020 December 31, 2019
Debt, both current and long-term $
8,209.3 $
8,221.4
Cash and cash equivalents (713.4) (617.9)
Net debt $
7,495.9 $
7,603.5
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SOURCE Zimmer Biomet Holdings, Inc.
