Zimmer Biomet Announces Fourth Quarter and Full-Year 2020 Financial Results
WARSAW, Ind., Feb. 5, 2021 /PRNewswire/ -- Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter and year ended December 31, 2020. The Company reported fourth quarter net sales of $2.085 billion, a decrease of 1.9% from the prior year period, and a decrease of 3.7% on a constant currency basis. Net sales for the full year were $7.025 billion, a decrease of 12.0% from the prior year, and a decrease of 12.4% on a constant currency basis. Net earnings for the fourth quarter were $333.7 million, or $440.7 million on an adjusted basis, and for the full year net loss was $138.9 million and net earnings on an adjusted basis were $1,181.6 million.
Diluted earnings per share were $1.59 for the fourth quarter, an increase of 3.2% over the prior year period. Adjusted diluted earnings per share were $2.11 for the fourth quarter, a decrease of 8.3% from the prior year period. Full-year diluted loss per share was $0.67 and full-year adjusted diluted earnings per share were $5.67, a decrease of 28.0% from the prior year.
"The fourth quarter saw continued pressure from COVID and its impact on the recovery of elective procedures, yet our core business remained strong as did our operational execution to close out 2020," said Bryan Hanson, President and CEO of Zimmer Biomet. "Against that backdrop, we continue the transformation of our business in order to drive growth and increase shareholder value, as underscored by today's announcement that we intend to spin off our Spine and Dental businesses. This transaction will position us to prioritize resources, simplify our operating models and deliver greater value through two independent publicly traded companies. Our team remains confident and focused as we continue to deliver on our mission and serve patients, providers and our customers."
Please see the attached schedules accompanying this press release for additional details on performance in the quarter and full-year 2020, 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, key recent highlights include:
-- Acquisition of A&E Medical Corp., a privately-held company that
manufactures and sells innovative and differentiated products in the
sternal closure market; expanded Zimmer Biomet's sternal closure
portfolio to be one of the most comprehensive in a space growing at a
high single digit percentage rate annually; revenues are recorded in the
Company's Dental, Spine and CMFT segment.
-- Launch of a large-scale, multimedia, direct-to-patient campaign, "Don't
Let Pain Gain on You", in the U.S., focused on education and support for
patients around elective procedures like joint replacement surgery,
especially during the COVID pandemic.
-- Partnership with Hospital for Special Surgery (HSS) to advance
innovation on the mymobility® with Apple Watch® remote care management
system that will enable patients and practices around the world to
leverage HSS' expertise in orthopedic patient care through Zimmer
Biomet's platform.
-- Formal launch of the Zimmer Biomet Foundation, a philanthropic 501(c)(3)
organization that further strengthens the Company's ongoing commitment
to empowering diverse and underserved communities, supporting STEM
education, enabling community health and providing disaster relief;
launch included announcement of a partnership with the National
Association for the Advancement of Colored People (NAACP) Empowerment
Programs, Inc., with a commitment of $2 million over the next three
years to support partnered efforts with NAACP to end racial injustice
and advance diversity and equality.
-- In conjunction with Q4 earnings, announcement of the intention to pursue
a plan to spin off the Company's Spine and Dental businesses to form a
new and independent, publicly traded company ("NewCo"); planned
transaction will enhance the focus of both Zimmer Biomet and NewCo to
meet the needs of patients and customers and achieve faster growth and
greater value for all stakeholders.
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, 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 DECEMBER 31, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas* $
1,283.9 (0.3)
% (0.3)
%
EMEA 408.3 (13.2) (17.5)
Asia Pacific 393.1 7.1 2.0
Total $
2,085.3 (1.9)
% (3.7)
%
Product Categories
Knees
Americas* $
457.2 0.8
% 0.8
%
EMEA 142.5 (20.8) (24.1)
Asia Pacific 137.4 8.1 2.9
Total 737.1 (3.1) (4.8)
Hips
Americas* 269.7 1.0 1.0
EMEA 115.9 (12.2) (16.2)
Asia Pacific 118.5 6.2 1.3
Total 504.1 (1.3) (3.4)
S.E.T ** 375.9 (1.5) (3.3)
Dental, Spine & CMFT*** 314.0 2.6 0.8
Other 154.2 (7.5) (9.3)
Total $
2,085.3 (1.9)
% (3.7)
%
* The Americas net sales in the three months ended December 31, 2020 include the benefit
of expanded strategic sales, favorable bulk orders and shipment timing
** Sports Medicine, Extremities and Trauma
*** Craniomaxillofacial and Thoracic
NET SALES - YEAR ENDED DECEMBER 31, 2020
(in millions, unaudited)
Constant
Net Currency
Sales % Change % Change
Geographic Results
Americas $
4,335.4 (11.1) % (11.0) %
EMEA 1,391.3 (20.4) (21.3)
Asia Pacific 1,297.8 (4.5) (6.0)
Total $
7,024.5 (12.0) % (12.4) %
Product Categories
Knees
Americas $
1,461.1 (12.9) % (12.8) %
EMEA 487.0 (25.6) (26.2)
Asia Pacific 441.7 (7.8) (9.1)
Total 2,389.8 (15.0) (15.3)
Hips
Americas 941.5 (7.4) (7.3)
EMEA 407.8 (18.4) (19.3)
Asia Pacific 401.2 (3.4) (4.9)
Total 1,750.5 (9.4) (9.9)
S.E.T * 1,322.0 (8.4) (8.8)
Dental, Spine & CMFT** 1,043.7 (10.1) (10.6)
Other 518.5 (18.4) (18.8)
Total $
7,024.5 (12.0) % (12.4) %
* Sports Medicine, Extremities and Trauma
** Craniomaxillofacial and Thoracic
Cash Flow and Balance Sheet
Cash provided by operating activities for the fourth quarter was $425.1 million and free cash flow was $328.5 million. At December 31, 2020, the Company had $802.1 million in cash and cash equivalents on the balance sheet. In the fourth quarter, the Company paid $49.8 million in dividends and declared a dividend of $0.24 per share. Cash provided by operating activities for the full year was $1.205 billion and free cash flow was $795.3 million. In the full year, the Company paid $198.5 million in dividends and declared dividends of $0.96 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
There continues to be uncertainty around the ongoing impact of COVID-19. 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 full year 2021 and is not providing financial guidance at this time.
Conference Call
The Company will conduct its fourth quarter and full-year 2020 investor conference call today, February 5, 2021, 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 or any other website referenced herein 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, 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-month period and the year ended December 31, 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 items, which are detailed in the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures presented later in this press release.
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.
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
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
2,085.3 $
2,125.7
Cost of products sold, excluding intangible asset amortization 647.3 582.2
Intangible asset amortization 152.6 147.4
Research and development 100.0 121.1
Selling, general and administrative 893.9 882.2
Restructuring and other cost reduction initiatives 27.7 33.0
Quality remediation 15.0 19.3
Acquisition, integration and related 8.1 3.7
Operating expenses 1,844.6 1,788.9
Operating Profit 240.7 336.8
Other income (expense), net 8.0 4.8
Interest expense, net (53.1) (52.4)
Earnings before income taxes 195.6 289.2
Benefit for income taxes (138.2) (32.2)
Net Earnings 333.8 321.4
Less: Net earnings attributable to noncontrolling interest 0.1 0.7
Net Earnings of Zimmer Biomet Holdings, Inc. $
333.7 $
320.7
Earnings Per Common Share
Basic $
1.61 $
1.56
Diluted $
1.59 $
1.54
Weighted Average Common Shares Outstanding
Basic 207.4 205.8
Diluted 209.3 207.8
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, except per share amounts, unaudited)
2020 2019
Net Sales $
7,024.5 $
7,982.2
Cost of products sold, excluding intangible asset amortization 2,128.3 2,252.6
Intangible asset amortization 597.6 584.3
Research and development 372.0 449.3
Selling, general and administrative 3,177.8 3,343.8
Goodwill and intangible asset impairment 645.0 70.1
Restructuring and other cost reduction initiatives 116.9 50.0
Quality remediation 50.9 82.4
Acquisition, integration and related 23.8 12.2
Operating expenses 7,112.3 6,844.7
Operating (Loss) Profit (87.8) 1,137.5
Other income (expense), net 25.4 (4.8)
Interest expense, net (212.0) (226.9)
(Loss) earnings before income taxes (274.4) 905.8
Benefit for income taxes (137.0) (225.7)
Net (Loss) Earnings (137.4) 1,131.5
Less: Net earnings (loss) attributable to noncontrolling interest 1.5 (0.1)
Net (Loss) Earnings of Zimmer Biomet Holdings, Inc. $
(138.9) $
1,131.6
(Loss) Earnings Per Common Share
Basic $
(0.67) $
5.52
Diluted $
(0.67) $
5.47
Weighted Average Common Shares Outstanding
Basic 207.0 205.1
Diluted 207.0 206.7
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
December 31, December 31,
2020 2019
Assets
Cash and cash equivalents $
802.1 $
617.9
Receivables, net 1,452.7 1,363.9
Inventories 2,450.7 2,385.0
Other current assets 377.8 357.1
Total current assets 5,083.3 4,723.9
Property, plant and equipment, net 2,047.7 2,077.4
Goodwill 9,261.8 9,599.7
Intangible assets, net 7,055.5 7,257.6
Other assets 969.4 980.1
Total Assets $
24,417.7 $
24,638.7
Liabilities and Stockholders' Equity
Current liabilities $
2,056.9 $
1,941.5
Current portion of long-term debt 500.0 1,500.0
Other long-term liabilities 2,034.9 2,083.0
Long-term debt 7,626.5 6,721.4
Stockholders' equity 12,199.4 12,392.8
Total Liabilities and Stockholders' Equity $
24,417.7 $
24,638.7
ZIMMER BIOMET HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
2020 2019
Cash flows provided by (used in) operating
activities
Net (loss) earnings $
(137.4) $
1,131.5
Depreciation and amortization 1,032.7 1,006.1
Share-based compensation 79.7 84.3
Goodwill and intangible asset impairment 645.0 70.1
Changes in operating assets and liabilities,
net of acquired assets and liabilities
Income taxes (279.1) (427.3)
Receivables (70.0) (93.8)
Inventories (40.8) (125.2)
Accounts payable and accrued expenses (95.1) (42.0)
Other assets and liabilities 69.5 (17.9)
Net cash provided by operating activities
(1) 1,204.5 1,585.8
Cash flows provided by (used in) investing
activities
Additions to instruments (291.7) (315.9)
Additions to other property, plant and
equipment (117.5) (207.1)
Net investment hedge settlements 53.5 48.1
Acquisition of intellectual property rights (0.4) (197.6)
Business combination investments, net of
acquired cash (235.5) (37.1)
Investments in other assets (22.2) (19.7)
Net cash used in investing activities (613.8) (729.3)
Cash flows provided by (used in) financing
activities
Proceeds from senior notes 1,497.1 549.2
Redemption of senior notes (1,750.0) (500.0)
Proceeds from term loans 200.0
Payments on term loans (960.0)
Net payments on other debt (5.3)
Dividends paid to stockholders (198.5) (196.7)
Proceeds from employee stock compensation
plans 129.8 158.2
Net cash flows from unremitted collections
from factoring programs (54.6) (12.2)
Business combination contingent
consideration payments (15.0) (2.9)
Debt issuance costs (22.3) (3.5)
Other financing activities (8.3) (6.7)
Net cash used in financing activities (421.8) (779.9)
Effect of exchange rates on cash and cash
equivalents 15.3 (1.5)
Increase in cash and cash equivalents 184.2 75.1
Cash and cash equivalents, beginning of
period 617.9 542.8
Cash and cash equivalents, end of period $
802.1 $
617.9
(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, 2020 and 2019
(in millions, unaudited)
Three Months Ended
December 31,
2020 2019 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Americas $
1,283.9 $
1,288.2 (0.3) % 3.5 % (3.8) % %
EMEA 408.3 470.4 (13.2) (17.6) 0.1 4.3
Asia Pacific 393.1 367.1 7.1 4.4 (2.4) 5.1
Total $
2,085.3 $
2,125.7 (1.9) % (1.0) % (2.7) % 1.8 %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Three Months Ended
December 31,
2020 2019 % Inc / Volume Price Foreign
(Dec) / Mix Exchange
Knees $
737.1 $
760.6 (3.1) % (1.6) % (3.2) % 1.7 %
Hips 504.1 510.4 (1.3) (0.4) (3.0) 2.1
S.E.T 375.9 381.8 (1.5) (0.9) (2.4) 1.8
Dental, Spine & CMFT 314.0 306.1 2.6 2.1 (1.3) 1.8
Other 154.2 166.8 (7.5) (6.7) (2.6) 1.8
Total $
2,085.3 $
2,125.7 (1.9) % (1.0) % (2.7) % 1.8 %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY GEOGRAPHY
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Years Ended
December 31,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Americas $
4,335.4 $
4,875.8 (11.1) % (7.9) % (3.1) % (0.1) %
EMEA 1,391.3 1,746.9 (20.4) (20.5) (0.8) 0.9
Asia Pacific 1,297.8 1,359.5 (4.5) (4.5) (1.5) 1.5
Total $
7,024.5 $
7,982.2 (12.0) % (10.0) % (2.4) % 0.4 %
ZIMMER BIOMET HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Years Ended
December 31,
2020 2019 % (Dec) Volume Price Foreign
/ Mix Exchange
Knees $
2,389.8 $
2,810.1 (15.0) % (12.6) % (2.7) % 0.3 %
Hips 1,750.5 1,931.5 (9.4) (7.1) (2.8) 0.5
S.E.T 1,322.0 1,444.1 (8.4) (6.5) (2.3) 0.4
Dental, Spine &
CMFT 1,043.7 1,161.3 (10.1) (9.4) (1.2) 0.5
Other 518.5 635.2 (18.4) (16.9) (1.9) 0.4
Total $
7,024.5 $
7,982.2 (12.0) % (10.0) % (2.4) % 0.4 %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Three Months Ended
December 31, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas (0.3) % % (0.3) %
EMEA (13.2) 4.3 (17.5)
Asia Pacific 7.1 5.1 2.0
Total (1.9) % 1.8 % (3.7) %
Product Categories
Knees
Americas 0.8 % % 0.8 %
EMEA (20.8) 3.3 (24.1)
Asia Pacific 8.1 5.2 2.9
Total (3.1) 1.7 (4.8)
Hips
Americas 1.0 1.0
EMEA (12.2) 4.0 (16.2)
Asia Pacific 6.2 4.9 1.3
Total (1.3) 2.1 (3.4)
S.E.T (1.5) 1.8 (3.3)
Dental, Spine & CMFT 2.6 1.8 0.8
Other (7.5) 1.8 (9.3)
Total (1.9) % 1.8 % (3.7) %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED NET SALES % CHANGE TO
CONSTANT CURRENCY % CHANGE
(unaudited)
For the Year Ended
December 31, 2020
Foreign Constant
Exchange Currency
% Change Impact % Change
Geographic Results
Americas (11.1) % (0.1) % (11.0) %
EMEA (20.4) 0.9 (21.3)
Asia Pacific (4.5) 1.5 (6.0)
Total (12.0) % 0.4 % (12.4) %
Product Categories
Knees
Americas (12.9) % (0.1) % (12.8) %
EMEA (25.6) 0.6 (26.2)
Asia Pacific (7.8) 1.3 (9.1)
Total (15.0) 0.3 (15.3)
Hips
Americas (7.4) (0.1) (7.3)
EMEA (18.4) 0.9 (19.3)
Asia Pacific (3.4) 1.5 (4.9)
Total (9.4) 0.5 (9.9)
S.E.T (8.4) 0.4 (8.8)
Dental, Spine & CMFT (10.1) 0.5 (10.6)
Other (18.4) 0.4 (18.8)
Total (12.0) % 0.4 % (12.4) %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020
---
Cost of Intangible Research and Selling, Restructuring Quality Acquisition, Other Benefit for Net Diluted
products asset development general and and other remediation integration income income Earnings earnings
sold, amortization administrative cost and related (expense), taxes of Zimmer per common
excluding reduction net Biomet share
intangible initiatives Holdings,
asset Inc.
amortization
As Reported $
647.3 $
152.6 $
100.0 $
893.9 $
27.7 $
15.0 $
8.1 $
8.0 $
(138.2) $
333.7 $
1.59
Inventory and manufacturing-
related charges(1) (49.9) 26.1 23.8 0.11
Intangible asset
amortization(2) (152.6) 38.5 114.1 0.55
Restructuring and other cost
reduction initiatives(4) (27.7) 9.8 17.9 0.09
Quality remediation(5) 1.0 (15.0) 4.6 9.4 0.04
Acquisition, integration and
related(6) (8.1) 2.5 5.6 0.03
Litigation(7) (59.4) 18.2 41.2 0.20
European Union Medical Device
Regulation(8) (6.2) 2.0 4.2 0.02
Other charges(9) (6.4) (1.3) (0.4) 5.5 0.03
Impacts of Swiss tax
reform(10) 16.6 (16.6) (0.08)
Other certain tax
adjustments(11) 98.1 (98.1) (0.47)
As Adjusted $
598.4
$ $
93.8 $
828.1
$
$
$ $
6.7 $
77.8 $
440.7 $
2.11
FOR THE THREE MONTHS ENDED DECEMBER 31, 2019
---
Cost of Intangible Research and Selling, Restructuring Quality Acquisition, Benefit for Net Diluted
products asset development general and and other remediation integration income Earnings earnings
sold, amortization administrative cost and related taxes of Zimmer per common
excluding reduction Biomet share
intangible initiatives Holdings,
asset Inc.
amortization
As Reported $
582.2 $
147.4 $
121.1 $
882.2 $
33.0 $
19.3 $
3.7 $
(32.2) $
320.7 $
1.54
Inventory and manufacturing-
related charges(1) (6.2) 3.5 2.7 0.01
Intangible asset
amortization(2) (147.4) 31.2 116.2 0.56
Restructuring and other cost
reduction initiatives(4) (33.0) 1.6 31.4 0.16
Quality remediation(5) (3.7) (19.3) 5.4 17.6 0.08
Acquisition, integration and
related(6) (3.7) 3.9 (0.2)
Litigation(7) (17.0) 3.1 13.9 0.07
European Union Medical Device
Regulation(8) (12.8) 13.7 (0.9)
Other charges(9) (1.5) (35.9) 8.4 29.0 0.14
Impacts of Swiss tax
reform(10) 51.2 (51.2) (0.25)
Other certain tax
adjustments(11) 1.1 (1.1) (0.01)
As Adjusted $
572.3
$ $
106.8 $
829.3
$
$
$ $
90.9 $
478.1 $
2.30
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF REPORTED TO ADJUSTED RESULTS
FOR THE YEAR ENDED DECEMBER 31, 2020 and 2019
(in millions, except per share amounts, unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2020
---
Cost of Intangible Research and Selling, Goodwill and Restructuring Quality Acquisition, Other Benefit for Net (Loss) Diluted
products asset development general and intangible and other remediation integration income income Earnings of (loss)
sold, amortization administrative asset cost and related (expense), taxes Zimmer earnings
excluding impairment reduction net Biomet per common
intangible initiatives Holdings, share
asset Inc.
amortization
As Reported $
2,128.3 $
597.6 $
372.0 $
3,177.8 $
645.0 $
116.9 $
50.9 $
23.8 $
25.4 $
(137.0) $
(138.9) $
(0.67)
Inventory and manufacturing-
related charges(1) (54.2) 36.3 17.9 0.09
Intangible asset
amortization(2) (597.6) 116.0 481.6 2.33
Goodwill and intangible asset
impairment(3) (645.0) 5.7 639.3 3.09
Restructuring and other cost
reduction initiatives(4) (116.9) 28.5 88.4 0.43
Quality remediation(5) 1.1 (50.9) 11.9 37.9 0.18
Acquisition, integration and
related(6) (23.8) 5.4 18.4 0.09
Litigation(7) (159.8) 36.9 122.9 0.59
European Union Medical Device
Regulation(8) (25.3) 5.2 20.1 0.10
Other charges(9) (24.5) (13.8) 7.5 3.2 0.01
Impacts of Swiss tax
reform(10) 5.0 (5.0) (0.03)
Other certain tax
adjustments(11) 104.2 (104.2) (0.50)
Effect of dilutive shares
assuming net earnings(12) (0.04)
As Adjusted $
2,075.2
$ $
346.7 $
2,993.5
$
$
$
$ $
11.6 $
225.6 $
1,181.6 $
5.67
FOR THE YEAR ENDED DECEMBER 31, 2019
---
Cost of Intangible Research and Selling, Intangible Restructuring Quality Acquisition, Benefit for Net earnings Net (Loss) Diluted
products asset development general and asset and other remediation integration income (loss) Earnings of (loss)
sold, amortization administrative impairment cost and related taxes attributable Zimmer earnings
excluding reduction to Biomet per common
intangible initiatives noncontrolling Holdings, share
asset interest Inc.
amortization
As Reported $
2,252.6 $
584.3 $
449.3 $
3,343.8 $
70.1 $
50.0 $
82.4 $
12.2 $
(225.7) $
(0.1) $
1,131.6 $
5.47
Inventory and manufacturing-
related charges(1) (53.9) 23.3 30.6 0.15
Intangible asset
amortization(2) (584.3) 116.2 468.1 2.26
Intangible asset impairment(3) (70.1) 5.5 64.6 0.31
Restructuring and other cost
reduction initiatives(4) (50.0) 5.6 44.4 0.22
Quality remediation(5) (5.2) (82.4) 20.3 67.3 0.33
Acquisition, integration and
related(6) (12.2) 6.3 5.9 0.03
Litigation(7) (65.0) 11.0 54.0 0.26
Litigation settlement gain(13) 23.5 (5.2) (18.3) (0.09)
European Union Medical Device
Regulation(8) (30.9) 16.9 14.0 0.07
Other charges(9) (5.8) (114.7) 26.3 1.3 92.9 0.45
Impacts of Swiss tax
reform(10) 315.0 (315.0) (1.52)
Other certain tax
adjustments(11) 13.7 (13.7) (0.07)
As Adjusted $
2,193.5
$ $
412.6 $
3,187.6
$
$
$
$ $
329.2 $
1.2 $
1,626.4 $
7.87
(1) Inventory and manufacturing-related
charges in the three months and year
ended December 31, 2020 and 2019 are
primarily related to excess and
obsolete inventory charges on
certain product lines we intend to
discontinue and other charges. The
year ended December 31, 2019 also
included a $20.8 million charge
incurred to terminate a raw material
supply agreement in the annual
period. The excess and obsolete
inventory charges on certain product
lines are driven by overlapping
product lines in our portfolio and
we have plans to discontinue one of
the product lines, or from decisions
not to spend additional funds to
keep certain products up-to-date
on the latest quality standards,
such as the European Union Medical
Device Regulation.
(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) We exclude certain acquisition and
integration related gains and
expenses from our non-GAAP results.
(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) 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. Also included are
ongoing 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. In the 2020 periods,
the adjustments are primarily
related to the resolution of or
changes in estimates of significant
uncertain tax positions as a result
of settlements or favorable rulings.
In the 2019 periods, the
adjustments are primarily 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.
(12) Due to the reported net loss for this
period, the effect of dilutive
shares assuming net earnings is
shown as an adjustment. Diluted
share count used in Adjusted Diluted
EPS is:
Year Ended
December
31, 2020
Diluted shares 207.0
Dilutive shares assuming
net earnings 1.4
Adjusted diluted shares 208.4
(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 PROVIDED BY OPERATING
ACTIVITIES TO FREE CASH FLOW
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Three Months Ended Years Ended
December 31, December 31,
2020 2019 2020 2019
Net cash
provided by
operating
activities $
425.1 $
423.3 $
1,204.5 $
1,585.8
Additions to instruments (68.9) (76.4) (291.7) (315.9)
Additions to other
property, plant and
equipment (27.7) (51.8) (117.5) (207.1)
Free cash flow $
328.5 $
295.1 $
795.3 $
1,062.8
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS
PROFIT & MARGIN
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Three Months Ended Years Ended
December 31, December 31,
2020 2019 2020 2019
Net Sales $
2,085.3 $
2,125.7 $
7,024.5 $
7,982.2
Cost of products sold, excluding
intangible asset amortization 647.3 582.2 2,128.3 2,252.6
Intangible asset amortization 152.6 147.4 597.6 584.3
Gross Profit $
1,285.4 $
1,396.1 $
4,298.6 $
5,145.3
Inventory and manufacturing-
related charges 49.9 6.2 54.2 53.9
Quality remediation (1.0) 3.7 (1.1) 5.2
Intangible asset amortization 152.6 147.4 597.6 584.3
Adjusted gross profit $
1,486.9 $
1,553.4 $
4,949.3 $
5,788.7
Gross margin 61.6 % 65.7 % 61.2 % 64.5 %
Inventory and manufacturing-
related charges 2.4 0.3 0.8 0.7
Quality remediation 0.2
Intangible asset amortization 7.3 6.9 8.5 7.3
Adjusted gross margin 71.3 % 73.1 % 70.5 % 72.5 %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF OPERATING PROFIT (LOSS) & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019
(in millions, unaudited)
Three Months Ended
Years Ended
December 31, December 31,
2020 2019 2020 2019
Operating profit
(loss) $
240.7 $
336.8 $
(87.8) $
1,137.5
Inventory and manufacturing-
related charges 49.9 6.2 54.2 53.9
Intangible asset amortization 152.6 147.4 597.6 584.3
Goodwill and intangible asset
impairment 645.0 70.1
Restructuring and other cost
reduction initiatives 27.7 33.0 116.9 50.0
Quality remediation 14.0 23.0 49.8 87.6
Acquisition, integration and
related 8.1 3.7 23.8 12.2
Litigation 59.4 17.0 159.8 65.0
Litigation settlement gain (23.5)
European Union Medical Device
Regulation 6.2 12.8 25.3 30.9
Other charges 6.4 37.4 24.5 120.5
Adjusted operating
profit $
565.0 $
617.3 $
1,609.1 $
2,188.5
Operating profit (loss) margin 11.5 % 15.8 % (1.2) % 14.2 %
Inventory and manufacturing-
related charges 2.4 0.3 0.8 0.7
Intangible asset amortization 7.3 6.9 8.5 7.3
Goodwill and intangible asset
impairment 9.2 0.9
Restructuring and other cost
reduction initiatives 1.3 1.6 1.7 0.6
Quality remediation 0.7 1.1 0.7 1.1
Acquisition, integration and
related 0.4 0.2 0.3 0.2
Litigation 2.8 0.8 2.3 0.8
Litigation settlement gain (0.3)
European Union Medical Device
Regulation 0.3 0.6 0.4 0.4
Other charges 0.4 1.7 0.2 1.5
Adjusted operating profit margin 27.1 % 29.0 % 22.9 % 27.4 %
ZIMMER BIOMET HOLDINGS, INC.
RECONCILIATION OF EFFECTIVE TAX RATE TO ADJUSTED EFFECTIVE TAX RATE
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019
(unaudited)
Three Months Ended Years Ended
December 31, December 31,
2020 2019 2020 2019
Effective tax rate (70.7) % (11.1) % 49.9 % (24.9) %
Tax effect of
adjustments made to
earnings before
taxes(1) 27.2 9.0 6.0 5.4
Tax adjustments relating
to the impacts of tax
only amortization in
Switzerland (10.2) 13.8
Switzerland tax reform 18.6 17.7 (15.7) 34.8
Other certain tax
adjustments 50.1 0.4 (38.0) 1.5
Adjusted effective tax
rate 15.0 % 16.0 % 16.0 % 16.8 %
(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 DECEMBER 31, 2020 and 2019
(in millions, unaudited)
December 31, 2020 December 31, 2019
Debt, both current and long-term $
8,126.5 $
8,221.4
Cash and cash equivalents (802.1) (617.9)
Net debt $
7,324.4 $
7,603.5
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SOURCE Zimmer Biomet Holdings, Inc.
