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 / (Dec)				Volume / Mix				Price				Foreign 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 / (Dec)				Volume / Mix				Price				Foreign 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 / Mix				Price				Foreign 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 / Mix				Price				Foreign 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 products sold, excluding intangible asset amortization				Intangible asset amortization				Research and development				Selling, general and administrative				Restructuring and other cost reduction initiatives				Quality remediation				Acquisition, integration and related				Other income (expense), net				Provision (benefit) for income taxes				Net Earnings of Zimmer Biomet Holdings, Inc.				Diluted earnings per common share
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- related charges(1)			(2.3)				-				-				-				-				-				-				-				4.3				(2.0)				(0.01)
Intangible asset amortization(2)			-				(149.7)				-				-				-				-				-				-				39.3				110.4				0.53
Restructuring and other cost reduction initiatives(4)			-				-				-				-				(16.2)				-				-				-				6.5				9.7				0.05
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 Regulation(8)			-				-				(2.0)				-				-				-				-				-				1.1				0.9				0.01
Other charges(9)			-				-				-				(0.3)				-				-				-				(8.6)				(4.7)				(3.6)				(0.02)
Tax adjustments relating to the impacts of tax only amortization in Switzerland(10)			-				-				-				-				-				-				-				-				(1.9)				1.9				0.01
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 products sold, excluding intangible asset amortization				Intangible asset amortization				Research and development				Selling, general and administrative				Restructuring and other cost reduction initiatives				Quality remediation				Acquisition, integration and related				Provision (benefit) for income taxes				Net Earnings attributable to noncontrolling interest				Net Earnings of Zimmer Biomet Holdings, Inc.				Diluted earnings per common share
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- related charges(1)			(11.6)				-				-				-				-				-				-				6.8				-				4.8				0.02
Intangible asset amortization(2)			-				(146.6)				-				-				-				-				-				27.0				-				119.6				0.58
Restructuring and other cost reduction initiatives(4)			-				-				-				-				(5.4)				-				-				1.3				-				4.1				0.02
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 Regulation(8)			-				-				(11.4)				-				-				-				-				2.1				-				9.3				0.05
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 products sold, excluding intangible asset amortization				Intangible asset amortization				Research and development				Selling, general and administrative				Goodwill and intangible asset impairment				Restructuring and other cost reduction initiatives				Quality remediation				Acquisition, integration and related				Other income (expense), net				Provision (benefit) for income taxes				Net (Loss) Earnings of Zimmer Biomet Holdings, Inc.				Diluted (loss) earnings per common share
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- related charges(1)			(4.3)				-				-				-				-				-				-				-				-				10.2				(5.9)				(0.03)
Intangible asset amortization(2)			-				(445.0)				-				-				-				-				-				-				-				77.5				367.5				1.78
Goodwill and intangible asset impairment(3)			-				-				-				-				(645.0)				-				-				-				-				5.7				639.3				3.09
Restructuring and other cost reduction initiatives(4)			-				-				-				-				-				(89.2)				-				-				-				18.7				70.5				0.34
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 Regulation(8)			-				-				(19.1)				-				-				-				-				-				-				3.2				15.9				0.07
Other charges(9)			-				-				-				(18.1)				-				-				-				-				(12.5)				7.9				(2.3)				(0.01)
Tax adjustments relating to the impacts of tax only amortization in Switzerland(10)			-				-				-				-				-				-				-				-				-				(18.1)				18.1				0.09
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 net earnings(13)			-				-								-				-				-				-								-				-				-				(0.02)
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 products sold, excluding intangible asset amortization				Intangible asset amortization				Research and development				Selling, general and administrative				Intangible asset impairment				Restructuring and other cost reduction initiatives				Quality remediation				Acquisition, integration and related				Provision (benefit) for income taxes				Net earnings (loss) attributable to noncontrolling interest				Net (Loss) Earnings of Zimmer Biomet Holdings, Inc.				Diluted (loss) earnings per common share
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- related charges(1)			(47.7)				-				-				-				-				-				-				-				19.8				-				27.9				0.14
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 reduction initiatives(4)			-				-				-				-				-				(17.0)				-				-				4.0				-				13.0				0.06
Quality remediation(5)			(1.5)				-								-				-				-				(63.1)				-				14.9				-				49.7				0.24
Acquisition, integration and related(6)			-				-				-				-				-				-				-				(8.5)				2.5				-				6.0				0.03
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 Device Regulation(8)			-				-				(18.1)				-				-				-				-				-				3.2				-				14.9				0.07
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

 

(14)	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 AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(in millions, unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
Net cash provided by operating activities	$	381.3			$	577.9			$	779.4			$	1,162.5
Additions to instruments		(63.5)				(94.7)				(222.8)				(239.5)
Additions to other property, plant and equipment		(30.6)				(58.6)				(89.8)				(155.3)
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 September 30,									Nine Months Ended September 30,
	2020				2019					2020				2019
Net Sales	$	1,929.3			$	1,892.4				$	4,939.2			$	5,856.5
Cost of products sold, excluding intangible asset amortization		569.4				535.7					1,481.0				1,670.4
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- related charges		2.3				11.6					4.3				47.7
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- related charges		0.1				0.6					0.1				0.8
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 September 30,									Nine Months Ended September 30,
	2020				2019					2020				2019
Operating profit (loss)	$	299.2			$	245.8				$	(328.5)			$	800.7
Inventory and manufacturing- related charges		2.3				11.6					4.3				47.7
Intangible asset amortization		149.7				146.6					445.0				436.9
Goodwill and intangible asset impairment		-				-					645.0				70.1
Restructuring and other cost reduction initiatives		16.2				5.4					89.2				17.0
Quality remediation		10.0				21.5					35.8				64.6
Acquisition, integration and related		9.1				(2.6)					15.7				8.5
Litigation		19.3				42.8					100.4				48.0
Litigation settlement gain		-				-					-				(23.5)
European Union Medical Device Regulation		2.0				11.4					19.1				18.1
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- related charges		0.1				0.6					0.1				0.8
Intangible asset amortization		7.8				7.9					9.0				7.5
Goodwill and intangible asset impairment		-				-					13.1				1.2
Restructuring and other cost reduction initiatives		0.8				0.3					1.8				0.3
Quality remediation		0.5				1.1					0.7				1.1
Acquisition, integration and related		0.5				(0.1)					0.3				0.1
Litigation		1.0				2.3					2.0				0.8
Litigation settlement gain		-				-					-				(0.4)
European Union Medical Device Regulation		0.1				0.6					0.4				0.3
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 30,									Nine Months Ended September 30,
	2020				2019					2020				2019
Effective tax rate		3.8	%			(134.1)	%				(0.3)	%			(31.4)	%
Tax effect of adjustments made to earnings before taxes(1)		9.8				7.2					15.8				3.8
Tax adjustments relating to the impacts of tax only amortization in Switzerland		(0.7)				-					3.8				-
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, 2020				December 31, 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

 

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