Zimmer Biomet Announces First Quarter 2023 Financial Results

NET SALES - THREE MONTHS ENDED MARCH 31, 2023

(in millions, unaudited)

Constant

Net

Currency

Sales

% Change

% Change

Geographic Results

United States

$

1,060.4

12.7

%

12.7

%

International

770.6

6.7

14.0

Total

$

1,831.0

10.1

%

13.2

%

Product Categories

Knees

United States

$

448.2

18.1

%

18.1

%

International

314.3

10.9

18.2

Total

762.5

15.0

18.2

Hips

United States

252.3

12.3

12.3

International

240.5

6.2

13.5

Total

492.8

9.3

12.9

S.E.T. *

433.4

4.0

6.4

Other

142.3

7.3

11.1

Total

$

1,831.0

10.1

%

13.2

%

* Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic

Amounts reported in millions are computed based on the actual amounts. As a result, the sum of
the components reported in millions may not equal the total amount reported in millions due to
rounding.  Percentages presented are calculated from the underlying unrounded amounts.

Previous Guidance

Updated Guidance

2023 Reported Revenue Change

1.5% - 3.5%

5.0% - 6.0%

Foreign Currency Exchange Impact

(1.5) %

(1.0) %

Adjusted Diluted EPS⁽¹⁾

$6.95 - $7.15

$7.40 - $7.50

⁽¹⁾

This measure is a non-GAAP financial measure for which a reconciliation to the most
directly comparable GAAP financial measure is not available without unreasonable efforts.
See "Forward-Looking Non-GAAP Financial Measures" below, which identifies the information
that is unavailable without unreasonable efforts and provides additional information. 
It is probable that this forward-looking non-GAAP financial measure may be materially different
from the corresponding GAAP financial measure.

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(in millions, except per share amounts, unaudited)

2023

2022

Net Sales

$

1,831.0

$

1,663.2

Cost of products sold, excluding intangible asset amortization

500.8

500.0

Intangible asset amortization

133.4

130.8

Research and development

110.4

96.9

Selling, general and administrative

715.9

684.5

Restructuring and other cost reduction initiatives

41.8

43.9

Quality remediation

-

6.5

Acquisition, integration, divestiture and related

1.3

2.2

Operating expenses

1,503.7

1,464.8

Operating Profit

327.3

198.4

Other income (expense), net

7.7

(56.1)

Interest expense, net

(48.2)

(41.1)

Earnings from continuing operations before income taxes

286.8

101.2

Provision for income taxes from continuing operations

54.1

28.0

Net Earnings from continuing operations

232.8

73.2

Less: Net earnings attributable to noncontrolling interest

0.2

0.2

Net Earnings from Continuing Operations of Zimmer Biomet Holdings, Inc.

232.5

73.0

Loss from discontinued operations, net of taxes

-

(58.8)

Net Earnings of Zimmer Biomet Holdings, Inc.

$

232.5

$

14.2

Earnings Per Common Share - Basic

Earnings from continuing operations

$

1.11

$

0.35

Loss from discontinued operations

-

(0.28)

Net Earnings Per Common Share - Basic

$

1.11

$

0.07

Earnings Per Common Share - Diluted

Earnings from continuing operations

$

1.11

$

0.35

Loss from discontinued operations

-

(0.28)

Net Earnings Per Common Share - Diluted

$

1.11

$

0.07

Weighted Average Common Shares Outstanding

Basic

209.4

209.2

Diluted

210.4

210.1

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, unaudited)

March 31,

December 31,

2023

2022

Assets

Cash and cash equivalents

$

330.2

$

375.7

Receivables, net

1,380.9

1,381.5

Inventories

2,241.3

2,147.2

Other current assets

459.5

522.9

Total current assets

4,411.9

4,427.3

Property, plant and equipment, net

1,906.4

1,872.5

Goodwill

8,734.9

8,580.2

Intangible assets, net

5,071.7

5,063.8

Other assets

1,118.6

1,122.2

Total Assets

$

21,243.5

$

21,066.0

Liabilities and Stockholders' Equity

Current liabilities

$

1,750.8

$

1,813.9

Current portion of long-term debt

585.0

544.3

Other long-term liabilities

1,545.3

1,528.6

Long-term debt

5,204.8

5,152.2

Stockholders' equity

12,157.6

12,027.0

Total Liabilities and Stockholders' Equity

$

21,243.5

$

21,066.0

ZIMMER BIOMET HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(in millions, unaudited)

2023

2022

Cash flows provided by (used in) operating activities from continuing
operations

Net earnings from continuing operations

$

232.8

$

73.2

Depreciation and amortization

231.8

233.8

Share-based compensation

25.0

23.2

(Gain) loss on investment in ZimVie

(2.5)

51.0

Changes in operating assets and liabilities, net of acquired assets and liabilities

Income taxes

21.5

(2.5)

Receivables

8.6

(14.2)

Inventories

(94.2)

(0.6)

Accounts payable and accrued liabilities

(91.8)

(15.9)

Other assets and liabilities

(23.5)

(32.3)

Net cash provided by operating activities from continuing operations

307.7

315.7

Cash flows provided by (used in) investing activities from continuing
operations

Additions to instruments

(82.8)

(56.4)

Additions to other property, plant and equipment

(46.7)

(36.4)

Net investment hedge settlements

13.4

12.7

Business combination investments, net of acquired cash

(18.9)

-

Investments in other assets

(14.3)

(1.0)

Net cash used in investing activities from continuing operations

(149.4)

(81.1)

Cash flows provided by (used in) financing activities from continuing
operations

Proceeds from revolving facility

370.0

100.0

Payments on revolving facility

(160.0)

-

Redemption of senior notes

(86.3)

(750.0)

Payment on term loan

(33.9)

-

Dividends paid to stockholders

(50.3)

(50.2)

Proceeds from employee stock compensation plans

36.0

40.5

Distribution from ZimVie, Inc.

-

540.6

Business combination contingent consideration payments

(9.6)

-

Repurchase of common stock

(267.6)

-

Other financing activities

(5.1)

(3.3)

Net cash used in financing activities from continuing operations

(206.7)

(122.4)

Cash flows provided by (used in) discontinued operations

Net cash used in operating activities

-

(78.5)

Net cash used in investing activities

-

(7.2)

Net cash used in financing activities

-

(68.1)

Net cash used in discontinued operations

-

(153.8)

Effect of exchange rates on cash and cash equivalents

2.9

(1.1)

Decrease in cash and cash equivalents

(45.5)

(42.7)

Cash and cash equivalents, beginning of period (includes $100.4 at January 1,
2022 of discontinued operations cash)

375.7

478.5

Cash and cash equivalents, end of period

$

330.2

$

435.8

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF REPORTED NET SALES % CHANGE TO

CONSTANT CURRENCY % CHANGE

(unaudited)

For the Three Months Ended

March 31, 2023 vs. 2022

Foreign

Constant

Exchange

Currency

% Change

Impact

% Change

Geographic Results

United States

12.7

%

-

%

12.7

%

International

6.7

(7.3)

14.0

Total

10.1

%

(3.1)

%

13.2

%

Product Categories

Knees

United States

18.1

%

-

%

18.1

%

International

10.9

(7.3)

18.2

Total

15.0

(3.2)

18.2

Hips

United States

12.3

-

12.3

International

6.2

(7.3)

13.5

Total

9.3

(3.6)

12.9

S.E.T.

4.0

(2.4)

6.4

Other

7.3

(3.8)

11.1

Total

10.1

%

(3.1)

%

13.2

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS

FOR THE THREE MONTHS ENDED MARCH, 2023 and 2022

(in millions, except per share amounts, unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2023

Cost of
products
sold,
excluding
intangible
asset
amortization

Intangible
asset
amortization

Research
and
development

Selling,
general and
administrative

Restructuring
and other
cost
reduction
initiatives

Acquisition,
integration,

divestiture
and related

Other
income
(expense),
net

Provision
for income
taxes from
continuing
operations

Net
Earnings
from
Continuing
Operations
of Zimmer
Biomet
Holdings,
Inc.

Diluted
earnings
from
continuing
operations
per
common
share

As Reported

$

500.8

$

133.4

$

110.4

$

715.9

$

41.8

$

1.3

$

7.7

$

54.1

$

232.5

$

1.11

Inventory and manufacturing-related charges⁽¹⁾

(3.6)

-

-

-

-

-

-

2.4

1.2

0.01

Intangible asset amortization⁽²⁾

-

(133.4)

-

-

-

-

-

27.0

106.4

0.51

Restructuring and other cost reduction initiatives⁽³⁾

-

-

-

-

(41.8)

-

-

10.3

31.5

0.15

Acquisition, integration, divestiture and related⁽⁵⁾

-

-

-

-

-

(1.3)

-

0.3

1.0

-

European Union Medical Device Regulation⁽⁷⁾

-

-

(14.0)

-

-

-

-

3.3

10.7

0.05

Other charges⁽⁸⁾

-

-

-

1.1

-

-

(5.7)

(2.0)

(4.8)

(0.02)

Other certain tax adjustments⁽⁹⁾

-

-

-

-

-

-

-

(18.3)

18.3

0.09

As Adjusted

$

497.2

$

-

$

96.4

$

717.0

$

-

$

-

$

2.0

$

77.1

$

396.8

$

1.89

FOR THE THREE MONTHS ENDED MARCH 31, 2022

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,
divestiture
and related

Other
income
(expense),
net

Provision
for income
taxes from
continuing
operations

Net
Earnings
from
Continuing
Operations
of Zimmer
Biomet
Holdings,
Inc.

Diluted
earnings
from
continuing
operations
per
common
share

As Reported

$

500.0

$

130.8

$

96.9

$

684.5

$

43.9

$

6.5

$

2.2

$

(56.1)

$

28.0

$

73.0

$

0.35

Inventory and manufacturing-related charges⁽¹⁾

(10.9)

-

-

-

-

-

-

-

7.6

3.3

0.01

Intangible asset amortization⁽²⁾

-

(130.8)

-

-

-

-

-

-

25.9

104.9

0.50

Restructuring and other cost reduction initiatives⁽³⁾

-

-

-

-

(43.9)

-

-

-

6.4

37.5

0.18

Quality remediation⁽⁴⁾

-

-

-

-

-

(6.5)

-

-

1.5

5.0

0.02

Acquisition, integration, divestiture and related⁽⁵⁾

-

-

-

-

-

-

(2.2)

-

3.0

(0.8)

-

Litigation⁽⁶⁾

-

-

-

(31.6)

-

-

-

-

6.9

24.7

0.12

European Union Medical Device Regulation⁽⁷⁾

-

-

(10.7)

-

-

-

-

-

2.3

8.4

0.04

Other charges⁽⁸⁾

-

-

-

(4.2)

-

-

-

60.5

1.4

63.3

0.30

Other certain tax adjustments⁽⁹⁾

-

-

-

-

-

-

-

-

(18.1)

18.1

0.09

As Adjusted

$

489.1

$

-

$

86.2

$

648.7

$

-

$

-

$

-

$

4.4

$

64.9

$

337.4

$

1.61

⁽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 or gains.

⁽²⁾ 

We exclude intangible asset amortization as well as deferred tax rate changes on our intangible assets 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 December 2019 and 2021, we initiated global restructuring programs that included a reorganization of key businesses and an overall effort to reduce costs in order to accelerate decision-making, focus the organization on priorities to drive growth and to prepare for the spinoff of ZimVie.  Restructuring and other cost reduction initiatives also include other cost reduction and optimization initiatives that have the goal of reducing costs across the organization.  The costs include employee termination benefits; contract terminations for facilities and sales agents; and other charges, such as consulting fees, project management expenses, retention period salaries and benefits and relocation costs. 

⁽⁴⁾

We addressed 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 required us to devote significant financial resources.  The majority of the expenses were related to consultants who helped us to update previous documents and redesign certain processes.

⁽⁵⁾ 

The acquisition, integration, divestiture and related gains and expenses we have excluded from our non-GAAP financial measures resulted from various acquisitions, post-separation costs we have incurred related to ZimVie and gains related to a transition services agreement for services we provide to ZimVie and a transition manufacturing and supply agreement for products we supply to ZimVie for a limited period. 

⁽⁶⁾

We are involved in 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 patent litigation.  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.

⁽⁷⁾ 

The European Union Medical Device Regulation imposes significant additional premarket and postmarket requirements.  The new regulations provided a transition period until May 2021 for previously-approved medical devices to meet the additional requirements.  For certain devices, this transition period can be extended until May 2024.  A conditional extension of the transition period has been implemented until December 2027 and 2028 depending on the legacy medical device's risk class.  We are excluding from our non-GAAP financial measures the incremental costs incurred to establish initial compliance with the regulations related to our previously-approved medical devices.  The incremental costs primarily relate to temporary personnel and third-party professionals necessary to supplement our internal resources.

⁽⁸⁾ 

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 contract terminations and gains and losses from changes in fair value on our equity investments including our investment in ZimVie, among other various costs.

⁽⁹⁾ 

Other certain tax adjustments are related to certain significant and discrete tax adjustments including intercompany transactions between jurisdictions, ongoing impacts of tax only amortization resulting from certain restructuring transactions, impacts of significant tax reform including Swiss reform and certain favorable tax audit settlements.

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES FROM

CONTINUING OPERATIONS TO FREE CASH FLOW FROM CONTINUING OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(in millions, unaudited)

Three Months Ended March 31,

2023

2022

Net cash provided by operating activities from continuing operations

$

307.7

$

315.7

Additions to instruments

(82.8)

(56.4)

Additions to other property, plant and equipment

(46.7)

(36.4)

Free cash flow from continuing operations

$

178.2

$

222.9

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF GROSS PROFIT & MARGIN FROM CONTINUING OPERATIONS

TO ADJUSTED GROSS PROFIT & MARGIN FROM CONTINUING OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(in millions, unaudited)

Three Months Ended March 31,

2023

Net Sales

$

1,831.0

$

1,663.2

Cost of products sold, excluding intangible asset amortization

500.8

500.0

Intangible asset amortization

133.4

130.8

Gross Profit

$

1,196.8

$

1,032.4

Inventory and manufacturing-related charges

3.6

10.9

Intangible asset amortization

133.4

130.8

Adjusted gross profit

$

1,333.8

$

1,174.1

Gross margin

65.4

%

62.1

%

Inventory and manufacturing-related charges

0.2

0.6

Intangible asset amortization

7.3

7.9

Adjusted gross margin

72.8

%

70.6

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF OPERATING PROFIT & MARGIN FROM CONTINUING OPERATIONS
TO ADJUSTED OPERATING PROFIT & MARGIN FROM CONTINUING OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(in millions, unaudited)

Three Months Ended March 31,

2023

2022

Operating profit

$

327.3

$

198.4

Inventory and manufacturing-related charges

3.6

10.9

Intangible asset amortization

133.4

130.8

Restructuring and other cost reduction initiatives

41.8

43.9

Quality remediation

-

6.5

Acquisition, integration, divestiture and related

1.3

2.2

Litigation

-

31.6

European Union Medical Device Regulation

14.0

10.7

Other charges

(1.1)

4.2

Adjusted operating profit

$

520.3

$

439.2

Operating profit margin

17.9

%

11.9

%

Inventory and manufacturing-related charges

0.2

0.6

Intangible asset amortization

7.3

7.9

Restructuring and other cost reduction initiatives

2.3

2.6

Quality remediation

-

0.4

Acquisition, integration, divestiture and related

0.1

0.2

Litigation

-

1.9

European Union Medical Device Regulation

0.8

0.6

Other charges

(0.1)

0.3

Adjusted operating profit margin

28.4

%

26.4

%

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF EFFECTIVE TAX RATE FROM CONTINUING OPERATIONS TO
ADJUSTED EFFECTIVE TAX RATE FROM CONTINUING OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(unaudited)

Three Months Ended March 31,

2023

2022

Effective tax rate

18.9

%

27.8

%

Tax effect of adjustments made to earnings before taxes⁽¹⁾

3.7

6.1

Other certain tax adjustments

(6.3)

(17.8)

Adjusted effective tax rate

16.3

%

16.1

%

⁽¹⁾ Includes inventory and manufacturing-related charges; intangible asset amortization;
restructuring and other cost reduction initiatives; quality remediation; acquisition,
integration, divestiture and related; litigation; European Union Medical Device
Regulation; and other charges

ZIMMER BIOMET HOLDINGS, INC.

RECONCILIATION OF DEBT TO NET DEBT

AS OF MARCH 31, 2023 and DECEMBER 31, 2022

(in millions, unaudited)

March 31, 2023

December 31, 2022

Debt, both current and long-term

$

5,789.8

$

5,696.5

Cash and cash equivalents

(330.2)

(375.7)

Net debt

$

5,459.6

$

5,320.8

Media

Investors

Meredith Weissman

Keri Mattox

(703) 346-3127

(215) 275-2431

[email protected]

[email protected]

Heather Zoumas-Lubeski

Zach Weiner

(445) 248-0577

(908) 591-6955

[email protected]

[email protected]