Decisions Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Thank you. Thank you. Maybe just to kick it off, Bryan, it's been about 3.5 years since you took over as CEO. When you joined the company, you had been donating market share for several years and was dealing with some major supply disruption and FDA quality issues. You've been clear from the start about your 3-phase plan for the business. And you made a lot of progress despite all the disruption from COVID-19. I wonder if maybe you could just kick us off by setting the context a bit on where we are in your turnaround plan for the business.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. You mentioned culture in there. Culture has been a focus for you from the start. You moved really quickly to reengage with the sales force and reshape the leadership team. Culture can take time to change, and there's always risks associated with making major changes to leadership. I wonder, can you give us a little bit of a sense for kind of what inning you're in with respect to efforts to enhance the organization and culture?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Got it. So the pandemic, of course, has been a big surprise for all of us. Besides COVID-19, what elements of the turnaround have been maybe more difficult than you might have expected? Maybe where have you spent more time than you got -- you might have expected to spend?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Great. Excellent. So maybe let's spend a few minutes -- I want to come back and touch on a lot of the topics you just mentioned. But let's spend a few minutes on COVID recovery first. You were asked about the pace of recovery a few weeks ago. And you said we were kind of close, but not quite there yet. You used this analogy of a dinner party that was supposed to start at 7:00. The table is set. Everything is ready. You're pretty sure everybody is coming, but it's 7:15, and nobody showed up yet. Can you just give us an update on where we are now? Have your dinner guests showed up for the party yet?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : The topic of backlog, maybe for the generalist on the call, you've spoken before, you just mentioned it that your osteoarthritis incidence rates haven't changed, and this is a progressive disease. It keeps getting worse, and the pain gets harder and harder to deal with. And every day, volumes are below normal. You're adding to this backlog of patients who you believe will eventually come in. Maybe can you -- you quantified that backlog back in August at about $700 million or $800 million of revenue, and it has to have grown, I think, since then, given where volumes have been. Can you just give us the latest on how you're thinking about that backlog? And maybe help us think about like could this be a multiyear tailwind for ZBH.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. Excellent. If you think about it from a supply-demand perspective, is it fair to say that it's the demand piece that's the rate-limiting factor right now, patient's willingness to come in? And once demand is no longer the rate-limiting factor, how far can supply kind of flex up to meet that demand, 105%, 110%, 115% of normal?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Yes. Got it. Okay. Great. Just a couple of near-term focused questions and then we'll zoom out a bit. So first, it's been a little bit over 7 months since Stryker closed the Wright Medical deal. I wonder if you're seeing any disruption out there in the market, anything you can take advantage of in the extremity space.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. China is moving forward with finalizing the framework for a national tender process for large joints. You've characterized the worst-case impact as about 100 basis point headwind to global growth with ZB, with most impact hitting in 2022, maybe a little bit in Q4 this year. Any update to that view or latest thoughts on China?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Great. Okay. So maybe you mentioned ZBEdge a little bit earlier, zooming out a little bit. I think longer term, you believe ZB can accelerate organic growth from the low single digits historically to 5% or -- 4% or 5% or better. On the Q1 call, you talked about how ortho market growth is inflecting, thanks to some of these new digital technologies like robotics and smart implants. I think skeptics might say that patient outcomes are already pretty good. 10-year vision rates have come down. Maybe can you explain a little bit how do digital technologies really improve patient outcomes and what could that do for market growth over time?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. Maybe for generalists who aren't in the weeds on the product. Your new smart implant Persona iQ is an important piece of the whole ecosystem you just mentioned. Can you just talk a little bit about the expectations for that implant and kind of what data you collect from that product?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. So let's zoom in on robotics a little bit. It's been almost 8 years since Stryker acquired MAKO. Robotics has become increasingly competitive. Smith & Nephew and J&J are out there as well. That said, you've made an impressive number of ROSA placements in a short time. Maybe you could talk a little bit about which pieces of the ROSA value proposition are resonating most with ROSA adopters. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 02, 2021 / 2:00PM, ZBH.N - Zimmer Biomet Holdings Inc at Sanford C Bernstein Strategic Decisions Conference (Virtual)

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. So maybe with a significant majority of ROSA placements now being done on volume commitments, it makes some investors worry that there might be an issue where customers don't have as much skin in the game as you might like. I wonder if you could address that point a little bit.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Got it. You mentioned time neutrality is an important part of the value proposition. I wonder if you're willing to share any data or maybe directional trends on early ROSA utilization. And as you add ROSA Hip and other indications, curious maybe where that utilization can go.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. All right. Great. And so shifting gears a little bit, we got an investor question about the spin. So earlier this year, you announced your plan to spin off the spine and dental businesses by mid-2022. I think it's easy to see how this spin could enhance the value of RemainCo. But it may be a little bit harder to make the pitch for owning NewCo shares. I wonder if that starts to complicate the ZBH story headed into the spin. So there's 2 questions, how do you pitch NewCo?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. You mentioned the competitive product offering is one of the sort of keys to success for the spin. ROSA Spine is a big part of the story there. I know you probably have some Ts to cross in figuring out how you're going to make sure NewCo has access to that technology. But maybe can you just give us a framework for how you're thinking about it?

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. Let's talk about ASCs a little bit. Correct me if I'm wrong, but I think you've mentioned before that your market share is a little bit lower in ASC than it is in hospital historically. And you described the ASC opportunity as an all-out focus for ZB right now. I wonder if you could elaborate a little bit on the infrastructure that you've got in place now to maximize that ASC opportunity.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : What do you think is the sort of endgame with the ASC hospital mix? If you give a long enough time horizon, could ASC knee and hip volumes actually account for the majority of overall volumes in the U.S. at some stage? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 02, 2021 / 2:00PM, ZBH.N - Zimmer Biomet Holdings Inc at Sanford C Bernstein Strategic Decisions Conference (Virtual)

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : That's great. Let's talk about profitability a little bit. You've set a goal to get to 30% operating margin by the end of 2023. I wonder how much of that is driven by specific OpEx efficiency initiatives versus simply by revenue growth stepping up into that 4% to 5% range.

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. Thank you for that. All right. Maybe just wrapping this up here, Bryan, maybe you could take us home. This is the strategic decisions conference, of course. When you look ahead to the next 3 to 5 years, what are the most important 1 or 2 strategic decisions you'll face (inaudible)

Question: Lee Michael Hambright - Sanford C. Bernstein & Co., LLC., Research Division - Analyst : Excellent. Well, we're at the 50-minute mark here. So I think we're going to have to leave it there. I wish we had more time. But thank you very much, gentlemen, for taking the time this morning. Really appreciate it.