Zimmer Biomet Holdings Inc Q3 2024 Earnings Call Summary

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

Question: Travis Steed - Bank of America - Analyst : I wanted to understand, first, why are you cutting the guide by more than the ERP issue on an organic basis for 2024? And how to think about 2025 and the ERP? Is there a catch-up there? Should we think about 2025 kind of the low end of your 4% to 6% LRP?

Question: Vik Chopra - Wells Fargo Securities, LLC - Analyst : This is Vik Chopra in for Larry. Ivan, can you provide us with your updated thoughts on M&A and areas of interest? Why haven't we seen more deals from you given that valuations have come down?

Question: David Roman - Goldman Sachs Group, Inc. - Analyst : I was hoping you could dive a little bit deeper into the reconstructive businesses and maybe starting with Knees, where I know you had called out some supply chain dynamics last quarter that negatively impacted your US business. That looks to have turned around here. Have you fully recovered from that? And maybe you could take us through a little bit more what's going on outside the US because it also looked to be an area of strength this quarter? And how should we think about the geographic performance across Recon on a go-forward basis here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ZBH.N - Q3 2024 Zimmer Biomet Holdings Inc Earnings Call

Question: Allan Gong - JPMorgan - Analyst : This is Allen on for Robbie. I wanted to dive a little bit deeper into the guidance question that we kind of opened a Q&A session with. Just because you -- despite the ERP challenges that you had in the quarter, you ended up beating your -- what kind of where I think expectations were for constant currency and organic guidance for the quarter. So could you just help us a little bit more to kind of quantify some of the headwinds that you're not being a little conservative on, whether that's the disruption from the hurricane or the IV bags because you're seeing those cases coming back through. Just help us kind of bridge the gap between the beat that you had this quarter, the fact that ERP challenges are coming in better than expected and the 100 basis points lower guide.

Question: Matthew O'Brien - Piper Sandler - Analyst : Would love to talk a little bit about the S.E.T. performance in the quarter because that was strong. It was a two year stack acceleration. And as I think about that category, the growth that we're seeing overall across the category plus the margin profile, I'm just curious what that can do for Zimmer Biomet as we head into '25. Can it really help drive us to that mid-single digit, upper -- even upper end of the range at 6%. And then what it might do for the profitability profile of the business as well.

Question: Chris Pasquale - Nephron Research LLC - Analyst : You announced that you're going to be rolling out Z1 in a couple of weeks. Our data suggests that triple taper stems have become a big portion of the US it mix for your competitors. So it would be great to hear how you're thinking about that opportunity as you plug that hole in your portfolio? And could you also talk about what your supply situation is going to look like with Z1 initially? And at what point you could have broad availability of that product in the US. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ZBH.N - Q3 2024 Zimmer Biomet Holdings Inc Earnings Call

Question: Steve Lichtman - Oppenheimer & Co. Inc. - Analyst : Ivan, you talked about 50 meaningful product launches planned over the long-term plan. Near term, you've highlighted Persona IQ, ROSA Shoulder, Hip and Knee products. Are there pipeline products you'd highlight in the medium term that could be meaningful? You mentioned ROSA indication expansion. Anything else you can talk about on pipeline drivers would be great.

Question: Sophia Knopp - Evercore ISI - Analyst : This is Sophia Knopp on for Vijay. I have one quick one on '25. I was wondering if you guys could talk about the assumptions around gross margins and operating margins. You had previously called out some gross margin headwinds for next year. Do you have any updated thoughts on those headwinds and if we should expect to see operating margin expansion next year? Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Yes. Thanks, Sophia. So first of all, yes, we continue to expect to see operating margin expansion into 2025. And really just going back to our LRP that we unveiled at our Investor Day back in May. We expect to generate at least 30 basis points of operating margin expansion per year, if not better than that. Inside of gross margin, I think our comments are still consistent with our thinking into 2025. There are some FX headwinds that occur that are going to peel off into 2025. So that will be a headwind. But operationally, we continue to make really good progress in containing our costs. We're also seeing a better pricing environment. I'm not saying it's going to be positive into next year, but overall, it's been much better than what we had anticipated coming into the year. So there's a lot of puts and takes on to the gross margin line. We still expect it to be relatively stable opposite 2024. But in the backdrop of all that, we are still committed to and have a very clear pathway to expanding operating margin next year and beyond.

Question: Richard Newitter - Truist Securities - Analyst : I was wondering if you could comment on TMINI and how that collaboration is progressing for you, particularly in the ASC setting, even if anecdotal feedback, I know it's early in that relationship, but would love to hear what kind of momentum that might be able to generate for you going forward? And what kind of impact it's had so far?

Question: Jeff Johnson - Baird - Analyst : Maybe a two part here, if I could. Just one clarifying just on the selling days. Can you just remind us 3Q, 4Q and for 2025 versus 2024, what selling days look like? But more importantly, Ivan, maybe I think at your Analyst Day, you had just performed surgeons at Mayo, just performed maybe the first couple of cases using ROSA Shoulder. Any more anecdotal updates from what you're seeing on ROSA Shoulder from some of your surgeons? How many cases have been performed and what kind of early learnings are? Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Jeff, it's Suky. On selling days in the quarter, it was about a day of a tailwind for the full year. It's not meaningful. And for 2025, we'll provide that update when we give guidance in the first quarter, but we don't see it as being material.

Question: Caitlin Cronin - Canaccord Genuity Group Inc. - Analyst : I'd like to focus a bit on pricing. I think it was positive again this quarter. Could you provide some more color on what you're seeing in the US and also the change in the full year expectations for pricing. Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Caitlin, it's Suky. So the third quarter marks the third consecutive quarter where we've actually had positive pricing at the consolidated level across the entire company. Inside of that, the US was down modestly, but still well better than the historic average. Asia Pacific was up slightly, and we saw good continued strong performance in EMEA. There's really three factors there. First is around market. We just think structurally, the market is in a better spot relative to pricing. One, the value of our products and solutions is being rewarded by the marketplace. And two, we're seeing, I think, relatively rational behavior across the larger med tech segment. Secondly, structurally, we've made a lot of improvements inside the company around strategy, governance and execution and incentives around pricing. And so we're seeing better performance because of that. And then third, we're seeing some opportunistic price taking in certain areas where we see the opportunity and the advantage. So all of those combined have led us into a really good spot. We do think we'll be at least flat, probably positive for the full year, whether that's sustainable or not, we think a lot of those variables I talked through are sustainable. Others, we'll just have to wait and see. Our planning assumption throughout the LRP is that we'll be at about 100 basis points of pricing erosion. So this year is a good starting point. And hopefully, we can beat that long-term look.

Question: Mike Matson - Needham & Company - Analyst : I guess I just want to ask one on China. Some of your competitors talked about continued pressures over there from the volume-based purchasing. Are you -- what sort of impact are you seeing there, I guess?

Question: Shagun Singh - RBC Capital Markets - Analyst : Great. I had two quick follow-ups. On M&A, you did note that you don't need to do large deals to maintain that mid-single-digit growth out outlook. And I was wondering how do you think about diversification and pushing that top line beyond the mid-single-digit growth longer term? And then just a follow-up on 2025. Is it possible for you to share anything on sales and margin cadence as we move through the year, first half, second half, could you be at the upper end of that mid-single-digit range, just given easier comps possibility to get some lost sales due to ERP implementation in 2025. And then you also called out ROSA Shoulder that it would be a meaningful contributor. So if you can just help us bridge that, that would be helpful.