Zimmer Biomet Holdings Inc at Citi Global Healthcare Conference Transcript

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

Question: Joanne Wuensch - Citigroup Inc. - Analyst : How did I do? Okay? You can try Wuensch later. But anyway, so Ivan, we've been talking all year about the new Zimmer Biomet. And I would love for you to sort of just start the conversation right now and sort of saying what you've accomplished in your first year, plus as the CEO and a little bit about where you see it going.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : So let's pause just on ERPs because we've talked about it a lot over the last 90 days. You say it is behind you. Can you quantify the ultimate impact versus the expected impact and then comment on whether or not that will be there in 2025?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. Is there something that takes it to the lower end of that 30 to 40 or the higher end?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : All right. Let's step back for a second and talk about the global orthopedics market, which is stronger now than it was five years ago. And I want to think about the different components that's making a stronger market right now and the sustainability of those components.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Why do you think price is positive now? I mean as a student of med tech, I've been watching price erosion across all sectors of medtech for years. And now all sectors are discussing positive price, what's changed?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. Let's go back also to the site of care. ASCs has been a theme over the last couple of years. There is a stage pre-pandemic where it was a worry because it was thought maybe you'd get pricing pressure in the ASC, but that doesn't seem to be happening.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Sounds right. I want to spend a little bit of time on ROSA, and you have multiple different applications for ROSA. And so this is sort of a three-part question. The first part, how are you viewing robotic uptake and applications? How are you viewing the different opportunities you have with the robot? And then the last one is sort of a bigger question, which is looking forward, how do you think about robotic surgery adoption and the contribution to your revenue? So a lot all wrapped up there.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : What does artificial intelligence fold into this? Is it things that are driving the product? Or can you get an SAS type of business model going on with it?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Excellent. I know you've talked about, I think, it's 50 new products in the next three years, if my math is done correctly. If you had to say five products that you're in most --

Question: Joanne Wuensch - Citigroup Inc. - Analyst : You can't say 50. You can say 7. But what are the products that we should be really tracking over the next period of time? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:45PM, ZBH.N - Zimmer Biomet Holdings Inc at Citi Global Healthcare Conference

Question: Joanne Wuensch - Citigroup Inc. - Analyst : And now these products slowly going out the door? Are we going to be able to track from throughout 2025? How do I think about the contribution of them to revenue?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. What's a bit amazing to me when you look back at the period of time of the Zimmer and the Biomet integration despite a ton of disruption, there wasn't that much market share loss, which means the market is very sticky. But at the same time, when I run numbers, you lost some market share particularly in hips. How do you think about taking that back?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. One of the areas that I think is not particularly well understood or even focus on is S.E.T. And there are five categories --

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Six categories. Thank you. Break that up for us, please. And how do we think about which of those products are pay attention to this and which of them are like, yeah, we're fine with that. It's more of a harvest mode maybe.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. One of the things which the company has been talking about for some time has been tuck-in M&A. You've been extremely clear, nothing transformational.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : What does tuck-in M&A mean for you? And how is your view today change versus maybe 12 months ago and what that may mean?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Okay. And this leads me straight to thinking about other aspects of capital allocation, share repurchases, and where you may or may not be thinking about a dividend. Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Yeah. So it does come down to capital allocation. The good thing for the company is we've pivoted from a focus of capital allocation towards debt paydown to now one that balances return of capital to shareholders and M&A. As Ivan said, we're in a very healthy spot from an investment-grade perspective. We're at BBB. We like where we are firmly in that spot, and we expect to stay there. So any capital allocation decisions we make, it's going to be with a north star of maintaining our investment-grade rating. So that's point one. Now this pivot, as I talked about, to return of capital and M&A we've committed to returning at least 65% of our free cash flow generation over $1 billion per year in total free cash flow, 65% of that on average over the next three years as part of our LRP. The way to think about that is of that return of capital, we expect to maintain our dividends at the current level, which is about $200 million per year. and the remainder of that 65% going to share buyback. And then the residual of that free cash flow will go towards things like tuck-in M&A. But that still leaves us even if you exhaust all the free cash flow when you're talking about a net debt leverage in the two range, adjusted EBITDA of $2.5 billion, you can safely go 1 turn to 1.5 turn on that very quickly, you've got a lot of capacity there to do M&A if something strategic and financially attractive came along. So I like where we are. We're in a very good space. And but again, it's always going to be with that north star of maintaining that investment grade and very strong balance sheet.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : And how do you think about like certain things which orthopedics has been known for, for a long time is high inventory levels, having a salesperson in every operating room, stickiness of products, those types of things, to me, have always been sort of the sand and the gears that impacts the leverage. How do you want to unpack that? Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Yeah. So I think from a salesforce deployment and somebody in the office, I think you're already starting to see efficiencies in that. As you're seeing a movement to ASCs, the ASCs just don't have, one, the bandwidth, the space, the time to have as many people in the operating room. So they're finding efficiencies and we're helping them find efficiencies through different solutions. So that is becoming better, too. They don't have the room also or the bandwidth from a sterilization point to have all this inventory. They just simply don't have the space. So we're finding operational efficiencies in partnership with the ASCs to deliver in a more efficient way. That's just one angle of it. The second is portfolio rationalization. Our objective is to get to one knee platform over the next few years. The ability to do that, rationalizing out older SKUs, older codes, also enables us to rationalize inventory, bring our working capital down, which then also has gross margin improvement. So it starts to build on one another. It starts to become a force multiplier. These are the things that get me excited because there's still a lot of runway and opportunity in front of us.

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Between the third quarter call and today, there's been this little election -- Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain When did it happen?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Excellent. And on remaining minutes, when you and I are sitting here next year talking, what do you think we're going to be talking about?

Question: Joanne Wuensch - Citigroup Inc. - Analyst : Excellent. Ivan and Suky, thank you so much for joining us. Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President ¡ Finance, Operations and Supply Chain Thank you, Joanne.