Zimmer Biomet Announces Third Quarter 2020 Financial Results
WARSAW, Ind., Nov. 6, 2020 /PRNewswire/ -- Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter ended September 30, 2020. The Company reported third quarter net sales of $1.929 billion, an increase of 2.0% over the prior year period, and an increase of 1.1% on a constant currency basis. Net earnings for the third quarter were $242.5 million. Net earnings on an adjusted basis were $376.8 million.
Diluted earnings per share were $1.16 for the third quarter, a decrease of 44.2% from the prior year period. Adjusted diluted earnings per share were $1.81 for the third quarter, an increase of 2.3% over the prior year period.
"While the stronger than expected recovery of elective procedures in the third quarter was encouraging, we also remain focused on ZB's strong operational execution, which continues to drive confidence in our underlying business," said Bryan Hanson, President and CEO of Zimmer Biomet. "It is important to note that the challenges and fluidity around COVID-19 persist as we move into the end of the year. Still, we will continue to transform our business, invest for greater value and prioritize innovation to better position the Company for accelerated growth over the long term. I am so proud of our global team for the support we provide healthcare professionals and patients every day and our ongoing commitment to the ZB mission to better the lives of people around the world."
While the recovery from COVID-19 continued in the third quarter, the pace of procedure volume and patient returns slowed toward the end of the period, with overall performance still negatively impacted by the pandemic. Stronger recovery was seen in the Americas and Asia Pacific in the quarter, with a slower return in regions within Europe, the Middle East and Africa (EMEA).
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.
Recent Highlights
Aligned with Zimmer Biomet's active portfolio management strategy and the ongoing transformation of the business, the Company has invested in priority and right-to-win areas to drive long-term growth, including two recently completed acquisitions. Collectively, these deals total approximately $80 million in initial spend and up to $98 million in deferred and milestone payments and add new or soon-to-be launched product offerings to the Zimmer Biomet portfolio:
-- Incisive LLC, a privately-held operating room (OR) solutions company in
the expanding $1.2 billion global integrated OR market; Incisive's
technology drives efficiency in the surgical setting through a
comprehensive offering of "smart OR" infrastructure, including surgical
booms and lights with a smaller footprint as well as proprietary data
analytics and artificial intelligence capabilities; this approach
reduces acquisition and construction costs and is especially attractive
to ambulatory surgery center (ASC) customers; revenues will be recorded
in the Company's S.E.T. segment
-- Relign Corp., a privately-held company in the attractive and growing
$1.6 billion arthroscopy market and overall $5 billion sports medicine
market; Relign's offerings include the consolidation of three
differentiated arthroscopy tower components into a single system, a
first in the industry, and address a key portfolio gap for Zimmer Biomet
in the sports medicine and broader ASC markets; revenues will be
recorded in the Company's S.E.T. segment
Geographic and Product Category Sales
The following sales tables provide results by geography and product category for the three and nine-month periods ended September 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 SEPTEMBER 30, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $
1,216.5 3.2 3.3
% %
EMEA 366.2 (2.3) (5.7)
Asia Pacific 346.6 2.3 0.7
Total $
1,929.3 2.0 1.1
% %
Product Categories
Knees
Americas $
402.6 0.9 0.9
% %
EMEA 126.6 (6.4) (9.5)
Asia Pacific 119.5 1.7 (0.1)
Total 648.7 (0.5) (1.4)
Hips
Americas 268.6 7.9 8.0
EMEA 109.7 0.8 (2.6)
Asia Pacific 105.8 4.4 2.9
Total 484.1 5.4 4.4
S.E.T * 359.9 3.3 2.5
Dental, Spine & CMFT** 295.5 7.3 6.5
Other 141.1 (10.3) (11.1)
Total $
1,929.3 2.0 1.1
% %
* Sports Medicine, Extremities and Trauma
** Craniomaxillofacial and Thoracic
NET SALES - NINE MONTHS ENDED SEPTEMBER 30, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $
3,051.5 (14.9) (14.8)
% %
EMEA 983.0 (23.0) (22.7)
Asia Pacific 904.7 (8.8) (9.0)
Total $
4,939.2 (15.7) (15.6)
% %
Product Categories
Knees
Americas $
1,003.9 (17.9) (17.9)
% %
EMEA 344.5 (27.4) (27.0)
Asia Pacific 304.3 (13.6) (13.4)
Total 1,652.7 (19.4) (19.2)
Hips
Americas 671.8 (10.3) (10.2)
EMEA 291.9 (20.6) (20.4)
Asia Pacific 282.7 (7.0) (7.2)
Total 1,246.4 (12.3) (12.2)
S.E.T * 946.1 (10.9) (10.8)
Dental, Spine & CMFT** 729.7 (14.7) (14.7)
Other 364.3 (22.2) (22.2)
Total $
4,939.2 (15.7) (15.6)
% %
* Sports Medicine, Extremities and Trauma
** Craniomaxillofacial and Thoracic
Cash Flow and Balance Sheet
Cash provided by operating activities for the third quarter was $381.3 million and free cash flow was $287.2 million. At September 30, 2020, the Company had $967.3 million in cash and cash equivalents on the balance sheet. In the third 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 third 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 fourth quarter financial guidance at this time.
Conference Call
The Company will conduct its third quarter 2020 investor conference call today, November 6, 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 nine-month periods ended September 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 earnings (loss) and diluted earnings (loss) per share for the three and nine-month periods ended September 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; the effect of Switzerland tax reform; 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 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 the 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 SEPTEMBER 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
1,929.3 $
1,892.4
Cost of products sold,
excluding intangible asset
amortization 569.4 535.7
Intangible asset amortization 149.7 146.6
Research and development 85.9 114.4
Selling, general and
administrative 790.0 826.4
Restructuring and other cost
reduction initiatives 16.2 5.4
Quality remediation 9.8 20.7
Acquisition, integration and
related 9.1 (2.6)
Operating expenses 1,630.1 1,646.6
Operating Profit 299.2 245.8
Other income (expense), net 10.6 (4.4)
Interest expense, net (54.0) (56.8)
Earnings before income taxes 255.8 184.6
Provision (benefit) for income
taxes 9.7 (247.4)
Net Earnings 246.1 432.0
Less: Net earnings
attributable to
noncontrolling interest 3.6 0.9
Net Earnings of
Zimmer Biomet
Holdings, Inc. $
242.5 $
431.1
Earnings Per Common Share
Basic $
1.17 $
2.10
Diluted $
1.16 $
2.08
Weighted Average Common Shares
Outstanding
Basic 207.1 205.3
Diluted 208.5 207.0
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
4,939.2 $
5,856.5
Cost of products sold,
excluding intangible asset
amortization 1,481.0 1,670.4
Intangible asset amortization 445.0 436.9
Research and development 272.0 328.2
Selling, general and
administrative 2,283.9 2,461.6
Goodwill and intangible asset
impairment 645.0 70.1
Restructuring and other cost
reduction initiatives 89.2 17.0
Quality remediation 35.9 63.1
Acquisition, integration and
related 15.7 8.5
Operating expenses 5,267.7 5,055.8
Operating (Loss) Profit (328.5) 800.7
Other income (expense), net 17.4 (9.6)
Interest expense, net (158.9) (174.5)
(Loss) earnings before income
taxes (470.0) 616.6
Provision (benefit) for income
taxes 1.2 (193.5)
Net (Loss) Earnings (471.2) 810.1
Less: Net earnings (loss)
attributable to
noncontrolling interest 1.4 (0.8)
Net (Loss) Earnings
of Zimmer Biomet
Holdings, Inc. $
(472.6) $
810.9
(Loss) Earnings Per Common
Share
Basic $
(2.29) $
3.96
Diluted $
(2.29) $
3.93
Weighted Average Common Shares
Outstanding
Basic 206.8 204.8
Diluted 206.8 206.3
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
September 30, December 31,
2020 2019
Assets
Cash and cash equivalents $
967.3 $
617.9
Receivables, net 1,340.7 1,363.9
Inventories 2,492.2 2,385.0
Other current assets 352.4 357.1
Total current assets 5,152.6 4,723.9
Property, plant and equipment,
net 2,042.5 2,077.4
Goodwill 9,038.8 9,599.7
Intangible assets, net 6,850.6 7,257.6
Other assets 941.0 980.1
Total Assets $
24,025.5 $
24,638.7
Liabilities and Stockholders'
Equity
Current liabilities $
1,816.2 $
1,941.5
Current portion of long-term
debt 450.0 1,500.0
Other long-term liabilities 2,040.9 2,083.0
Long-term debt 7,840.2 6,721.4
Stockholders' equity 11,878.2 12,392.8
Total Liabilities and
Stockholders' Equity $
24,025.5 $
24,638.7
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
2020 2019
Cash flows provided by (used in)
operating activities
Net (loss) earnings $
(471.2) $
810.1
Depreciation and amortization 767.3 752.2
Share-based compensation 62.0 61.6
Goodwill and intangible asset
impairment 645.0 70.1
Changes in operating assets and
liabilities, net of acquired assets
and liabilities
Income taxes (55.0) (356.3)
Receivables 13.6 109.5
Inventories (108.6) (106.0)
Accounts payable and accrued
expenses (131.4) (162.7)
Other assets and liabilities 57.7 (16.0)
Net cash provided by operating
activities (1) 779.4 1,162.5
Cash flows provided by (used in)
investing activities
Additions to instruments (222.8) (239.5)
Additions to other property, plant
and equipment (89.8) (155.3)
Net investment hedge settlements 43.0 37.5
Acquisition of intellectual property
rights (197.6)
Investments in other assets (28.3) (36.4)
Net cash used in investing
activities (297.9) (591.3)
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 (750.0)
Net payments on other debt (5.0)
Dividends paid to stockholders (148.7) (147.3)
Proceeds from employee stock
compensation plans 97.7 125.9
Net cash flows from unremitted
collections from factoring programs (39.6) (15.4)
Business combination contingent
consideration payments (13.0)
Debt issuance costs (22.3)
Other financing activities (6.7) (5.4)
Net cash used in financing
activities (135.5) (597.2)
Effect of exchange rates on cash and
cash equivalents 3.4 (4.3)
Increase (decrease) in cash and cash
equivalents 349.4 (30.3)
Cash and cash equivalents, beginning
of period 617.9 542.8
Cash and cash equivalents, end of
period $
967.3 $
512.5
(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 SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended September 30,
2020 2019 % Inc / Volume / Price Foreign
(Dec) Mix Exchange
Americas $
1,216.5 $
1,179.2 3.2 6.7 (3.4) (0.1)
%
% % %
EMEA 366.2 374.6 (2.3) (4.8) (0.9) 3.4
Asia Pacific 346.6 338.6 2.3 2.1 (1.4) 1.6
Total $
1,929.3 $
1,892.4 2.0 3.7 (2.6)
% %
% % 0.9
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended September 30,
2020 2019 % Inc / Volume / Price Foreign
(Dec) Mix Exchange
Knees $
648.7 $
651.9 (0.5) 1.4 (2.8)
% %
% % 0.9
Hips 484.1 459.2 5.4 7.3 (2.9) 1.0
S.E.T 359.9 348.5 3.3 4.9 (2.4) 0.8
Dental, Spine & CMFT 295.5 275.5 7.3 9.0 (2.5) 0.8
Other 141.1 157.3 (10.3) (10.1) (1.0) 0.8
Total $
1,929.3 $
1,892.4 2.0 3.7 (2.6)
% % %
% 0.9
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY GEOGRAPHY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Nine Months Ended September 30,
2020 2019 % (Dec) Volume / Price Foreign
Mix Exchange
Americas $
3,051.5 $
3,587.6 (14.9) (11.9) (2.9) (0.1)
% %
% %
EMEA 983.0 1,276.5 (23.0) (21.5) (1.2) (0.3)
Asia Pacific 904.7 992.4 (8.8) (7.8) (1.2) 0.2
Total $
4,939.2 $
5,856.5 (15.7) (13.4) (2.2) (0.1)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Nine Months Ended September 30,
2020 2019 % (Dec) Volume / Price Foreign
Mix Exchange
Knees $
1,652.7 $
2,049.5 (19.4) (16.7) (2.5) (0.2)
% %
% %
Hips 1,246.4 1,421.1 (12.3) (9.5) (2.7) (0.1)
S.E.T 946.1 1,062.3 (10.9) (8.5) (2.3) (0.1)
Dental, Spine & CMFT 729.7 855.2 (14.7) (13.5) (1.2)
Other 364.3 468.4 (22.2) (20.6) (1.6)
Total $
4,939.2 $
5,856.5 (15.7) (13.4) (2.2) (0.1)
% %
% %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Three Months Ended
September 30, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas 3.2 (0.1)
% %
% 3.3
EMEA (2.3) 3.4 (5.7)
Asia Pacific 2.3 1.6 0.7
Total 2.0 0.9 1.1
% % %
Product Categories
Knees
Americas 0.9 % 0.9
% %
EMEA (6.4) 3.1 (9.5)
Asia Pacific 1.7 1.8 (0.1)
Total (0.5) 0.9 (1.4)
Hips
Americas 7.9 (0.1) 8.0
EMEA 0.8 3.4 (2.6)
Asia Pacific 4.4 1.5 2.9
Total 5.4 1.0 4.4
S.E.T 3.3 0.8 2.5
Dental, Spine & CMFT 7.3 0.8 6.5
Other (10.3) 0.8 (11.1)
Total 2.0 0.9 1.1
% % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Nine Months Ended
September 30, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas (14.9) (0.1)
% %
% (14.8)
EMEA (23.0) (0.3) (22.7)
Asia Pacific (8.8) 0.2 (9.0)
Total (15.7) (0.1)
% %
% (15.6)
Product Categories
Knees
Americas (17.9) % (17.9)
% %
EMEA (27.4) (0.4) (27.0)
Asia Pacific (13.6) (0.2) (13.4)
Total (19.4) (0.2) (19.2)
Hips
Americas (10.3) (0.1) (10.2)
EMEA (20.6) (0.2) (20.4)
Asia Pacific (7.0) 0.2 (7.2)
Total (12.3) (0.1) (12.2)
S.E.T (10.9) (0.1) (10.8)
Dental, Spine & CMFT (14.7) (14.7)
Other (22.2) (22.2)
Total (15.7) (0.1)
% %
% (15.6)
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
---
Cost of Intangible Research and Selling, general Restructuring Quality Acquisition, Other income Provision Net Earnings Diluted
products asset development and and other cost remediation integration (expense), (benefit) of Zimmer earnings
sold, amortization administrative reduction and related net for income Biomet per common
excluding initiatives taxes Holdings, share
intangible Inc.
asset
amortization
As Reported $
569.4 $
149.7 $
85.9 $
790.0 $
16.2 $
9.8 $
9.1 $
10.6 $
9.7 $
242.5 $
1.16
Inventory and manufacturing- (2.3) 4.3 (2.0) (0.01)
related charges(1)
Intangible asset amortization(2) (149.7) 39.3 110.4 0.53
Restructuring and other cost (16.2) 6.5 9.7 0.05
reduction initiatives(4)
Quality remediation(5) (0.2) (9.8) 3.2 6.8 0.03
Acquisition, integration and related(6) (9.1) 1.9 7.2 0.03
Litigation(7) (19.3) 6.8 12.5 0.06
European Union Medical Device (2.0) 1.1 0.9 0.01
Regulation(8)
Other charges(9) (0.3) (8.6) (4.7) (3.6) (0.02)
Tax adjustments relating to (1.9) 1.9 0.01
the impacts of tax only
amortization in Switzerland(10)
Switzerland tax reform(11) 6.5 (6.5) (0.03)
Other certain tax adjustments(12) 3.0 (3.0) (0.01)
As Adjusted $
566.9
$ $
83.9 $
770.4
$
$
$ $
2.0 $
75.7 $
376.8 $
1.81
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
---
Cost of Intangible Research and Selling, general Restructuring Quality Acquisition, Provision Net Earnings Net Earnings Diluted
products asset development and and other cost remediation integration (benefit) attributable to of Zimmer earnings
sold, amortization administrative reduction and related for income noncontrolling Biomet per common
excluding initiatives taxes interest Holdings, share
intangible Inc.
asset
amortization
As Reported $
535.7 $
146.6 $
114.4 $
826.4 $
5.4 $
20.7 $
(2.6) $
(247.4) $
0.9 $
431.1 $
2.08
Inventory and manufacturing- (11.6) 6.8 4.8 0.02
related charges(1)
Intangible asset amortization(2) (146.6) 27.0 119.6 0.58
Restructuring and other cost (5.4) 1.3 4.1 0.02
reduction initiatives(4)
Quality remediation(5) (0.8) (20.7) 4.8 16.7 0.08
Acquisition, integration and related(6) 2.6 (0.5) (2.1) (0.01)
Litigation(7) (42.8) 8.7 34.1 0.16
European Union Medical Device (11.4) 2.1 9.3 0.05
Regulation(8)
Other charges(9) (18.5) 4.6 0.1 13.8 0.07
Switzerland tax reform(11) 263.8 (263.8) (1.27)
Other certain tax adjustments(12) 1.2 (1.2) (0.01)
As Adjusted $
523.3
$ $
103.0 $
765.1
$
$
$ $
72.4 $
1.0 $
366.4 $
1.77
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
---
Cost of Intangible Research and Selling, general Goodwill and Restructuring Quality Acquisition, Other income Provision Net (Loss) Diluted
products asset development and intangible and other cost remediation integration (expense), (benefit) Earnings of (loss)
sold, amortization administrative asset reduction and related net for income Zimmer earnings
excluding impairment initiatives taxes Biomet per common
intangible Holdings, share
asset Inc.
amortization
As Reported $
1,481.0 $
445.0 $
272.0 $
2,283.9 $
645.0 $
89.2 $
35.9 $
15.7 $
17.4 $
1.2 $
(472.6) $
(2.29)
Inventory and manufacturing- (4.3) 10.2 (5.9) (0.03)
related charges(1)
Intangible asset amortization(2) (445.0) 77.5 367.5 1.78
Goodwill and intangible asset (645.0) 5.7 639.3 3.09
impairment(3)
Restructuring and other cost (89.2) 18.7 70.5 0.34
reduction initiatives(4)
Quality remediation(5) 0.1 (35.9) 7.3 28.5 0.14
Acquisition, integration and related(6) (15.7) 2.9 12.8 0.06
Litigation(7) (100.4) 18.7 81.7 0.40
European Union Medical Device (19.1) 3.2 15.9 0.07
Regulation(8)
Other charges(9) (18.1) (12.5) 7.9 (2.3) (0.01)
Tax adjustments relating to (18.1) 18.1 0.09
the impacts of tax only
amortization in Switzerland(10)
Switzerland tax reform(11) 6.5 (6.5) (0.03)
Other certain tax adjustments(12) 6.1 (6.1) (0.03)
Effect of dilutive shares assuming (0.02)
net earnings(13)
As Adjusted $
1,476.8
$ $
252.9 $
2,165.4
$
$
$
$ $
4.9 $
147.8 $
740.9 $
3.56
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
---
Cost of Intangible Research and Selling, general Intangible Restructuring Quality Acquisition, Provision Net earnings Net (Loss) Diluted
products asset development and asset and other cost remediation integration (benefit) (loss) Earnings of (loss)
sold, amortization administrative impairment reduction and related for income attributable to Zimmer earnings
excluding initiatives taxes noncontrolling Biomet per common
intangible interest Holdings, share
asset Inc.
amortization
As Reported $
1,670.4 $
436.9 $
328.2 $
2,461.6 $
70.1 $
17.0 $
63.1 $
8.5 $
(193.5) $
(0.8) $
810.9 $
3.93
Inventory and manufacturing- (47.7) 19.8 27.9 0.14
related charges(1)
Intangible asset amortization(2) (436.9) 85.0 351.9 1.71
Intangible asset impairment(3) (70.1) 5.5 64.6 0.31
Restructuring and other cost (17.0) 4.0 13.0 0.06
reduction initiatives(4)
Quality remediation(5) (1.5) (63.1) 14.9 49.7 0.24
Acquisition, integration and (8.5) 2.5 6.0 0.03
related(6)
Litigation(7) (48.0) 7.9 40.1 0.19
Litigation settlement gain(14) 23.5 (5.2) (18.3) (0.09)
European Union Medical (18.1) 3.2 14.9 0.07
Device Regulation(8)
Other charges(9) (4.3) (78.8) 17.8 1.3 64.0 0.31
Switzerland tax reform(11) 263.8 (263.8) (1.27)
Other certain tax adjustments(12) 12.6 (12.6) (0.06)
As Adjusted $
1,621.2
$ $
305.8 $
2,358.3
$
$
$
$ $
238.3 $
0.5 $
1,148.3 $
5.57
(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 nine-month
period ended September 30, 2019,
inventory and manufacturing-related
charges also included 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, gains and losses from
changes in fair value on our equity
investments, 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, we were subject to
oversight by an independent
compliance monitor, which
monitorship concluded in August
2020. We expect the one-count
criminal information filed against
us in 2017 to be dismissed with
prejudice in February 2021 and the
DPA to conclude at that time. 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) Switzerland passed the Federal Act on
Tax Reform and AHV Financing (TRAF),
effective January 1, 2020. Certain
provisions of the TRAF were enacted
in the third quarter of 2019,
resulting in provisional adjustments
to our deferred taxes, generating a
net tax benefit.
(12) Other certain tax adjustments relate
to various discrete tax period
adjustments.
(13) Diluted share count used in Adjusted
Diluted EPS:
Nine Months
Ended
September
30, 2020
Diluted shares 206.8
Dilutive shares assuming
net earnings 1.4
Adjusted diluted shares 208.2
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
(14) patent.
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING
ACTIVITIES TO FREE CASH FLOW
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30,
2020 2019 2020 2019
Net cash provided by operating $
381.3 $
577.9 $
779.4 $
1,162.5
activities
Additions to instruments (63.5) (94.7) (222.8) (239.5)
Additions to other property, plant and (30.6) (58.6) (89.8) (155.3)
equipment
Free cash flow $
287.2 $
424.6 $
466.8 $
767.7
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS
PROFIT & MARGIN
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30,
2020 2019 2020 2019
Net Sales $
1,929.3 $
1,892.4 $
4,939.2 $
5,856.5
Cost of products sold, 569.4 535.7 1,481.0 1,670.4
excluding intangible asset
amortization
Intangible asset amortization 149.7 146.6 445.0 436.9
Gross Profit $
1,210.2 $
1,210.1 $
3,013.2 $
3,749.2
Inventory and manufacturing- 2.3 11.6 4.3 47.7
related charges
Quality remediation 0.2 0.8 (0.1) 1.5
Intangible asset amortization 149.7 146.6 445.0 436.9
Adjusted gross profit $
1,362.4 $
1,369.1 $
3,462.4 $
4,235.3
Gross margin 62.7 63.9 61.0 64.0
% % % %
Inventory and manufacturing- 0.1 0.6 0.1 0.8
related charges
Quality remediation
Intangible asset amortization 7.8 7.9 9.0 7.5
Adjusted gross margin 70.6 72.4 70.1 72.3
% % % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT (LOSS) & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Operating profit (loss) $
299.2 $
245.8 $
(328.5) $
800.7
Inventory and manufacturing- 2.3 11.6 4.3 47.7
related charges
Intangible asset amortization 149.7 146.6 445.0 436.9
Goodwill and intangible asset 645.0 70.1
impairment
Restructuring and other cost 16.2 5.4 89.2 17.0
reduction initiatives
Quality remediation 10.0 21.5 35.8 64.6
Acquisition, integration and 9.1 (2.6) 15.7 8.5
related
Litigation 19.3 42.8 100.4 48.0
Litigation settlement gain (23.5)
European Union Medical 2.0 11.4 19.1 18.1
Device Regulation
Other charges 0.3 18.5 18.1 83.1
Adjusted operating profit $
508.1 $
501.0 $
1,044.1 $
1,571.2
Operating profit (loss) margin 15.5 13.0 (6.7) 13.7
% % % %
Inventory and manufacturing- 0.1 0.6 0.1 0.8
related charges
Intangible asset amortization 7.8 7.9 9.0 7.5
Goodwill and intangible asset 13.1 1.2
impairment
Restructuring and other cost 0.8 0.3 1.8 0.3
reduction initiatives
Quality remediation 0.5 1.1 0.7 1.1
Acquisition, integration and 0.5 (0.1) 0.3 0.1
related
Litigation 1.0 2.3 2.0 0.8
Litigation settlement gain (0.4)
European Union Medical 0.1 0.6 0.4 0.3
Device Regulation
Other charges 0.8 0.4 1.4
Adjusted operating profit margin 26.3 26.5 21.1 26.8
% % % %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF EFFECTIVE TAX RATE TO ADJUSTED EFFECTIVE TAX RATE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(unaudited)
Three Months Ended September Nine Months Ended September
30, 30,
2020 2019 2020 2019
Effective tax rate 3.8 (134.1) (0.3)
% %
% % (31.4)
Tax effect of adjustments made 9.8 7.2 15.8 3.8
to earnings before taxes(1)
Tax adjustments relating to the (0.7) 3.8
impacts of tax only
amortization in Switzerland
Switzerland tax reform 2.5 142.8 (1.4) 42.8
Other certain tax adjustments 1.2 0.6 (1.3) 2.0
Adjusted effective tax rate 16.6 16.5 16.6
% %
% % 17.2
(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 SEPTEMBER 30, 2020 and DECEMBER 31, 2019
(in millions, unaudited)
September 30, December 31,
2020 2019
Debt, both
current and
long-term $
8,290.2 $
8,221.4
Cash and cash equivalents (967.3) (617.9)
Net debt $
7,322.9 $
7,603.5
Media
Investors
---
Meredith Weissman
Keri Mattox
(703) 346-3127
(215) 275-2431
meredith.weissman@zimmerbiomet.com
keri.mattox@zimmerbiomet.com
Ezgi Yagci
(617) 549-2443
ezgi.yagci@zimmerbiomet.com
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SOURCE Zimmer Biomet Holdings, Inc.
