Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference Transcript

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

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : I appreciate that. Well, good. So I wanted to start off high level. Medtech has had a difficult few years. COVID has really disrupted the normal flow back and forth. And here we are, back in person, back across the [PON] meeting, and it feels -- nobody is wearing masks. Joe Biden just said, it's no longer a pandemic anymore. And I think we're starting to see, across medical devices, trends starting to get back to normal, not quite all the way there, but almost. On the bottom line, it's a different story as inflation and currency and everything is having an impact. So maybe we'll take them in 2 separate parts. But I just thought maybe here we are, a number of years after you've been CEO, and you've had a good year so far. So maybe talk about how you're feeling about Zimmer Biomet and the overall environment that you operate in.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So I guess that's a good jumping off point. You spun off ZimVie. You're now focused primarily just on orthopedics, large joint plus a few other categories. How do you think Zimmer Biomet is going to look? And how are you planning for, let's say, the 3- to 5- to 7-year time frame versus the 1 to 3? Obviously, in the 1 to 3, you want to firm up the top line, move to technology, focus on operating margin expansion. But how is your sort

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Before I jump into where you are today, I want to just lead off on that a little bit. What kind of companies are you looking at? Does it have to be within your wheelhouse, within your adjacent work? And how do you think about the different return metrics or other metrics that are essential for businesses you look at?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Yes.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : How do you feel about geographic expansion as part of this? You're already fairly well diverse around the globe. Are there any regions that you think might benefit a little more from M&A?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Got it. What do you think Zimmer Biomet's weighted average market growth is? Because you talked about a 4% plus growth rate in a normalized environment. So is that above your WAMGR? And how do you feel about the sustainability of that level of growth going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 20, 2022 / 1:00PM, ZBH.N - Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : You guys took a very different approach to guidance than a lot of your peers at the beginning of this year. You said we're done trying to predict this crazy environment because I don't think anyone has done it even close to well. So we'll just -- we'll take it as it is at the time. And so when you give guidance, it was a pretty terrible time in the operating environment. Fast forward, and we're in a very different period, it feels like. So how do you feel about getting back to normal towards that 4% type of operating environment? Where are we today? And how do you think third quarter has progressed so far?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : I'm very happy for that. I'm very happy for that.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Great. Great. Good to hear. One of the concerns I keep hearing from investors and just all across -- every day you open up the newspaper, potential recessionary fears in Europe, in the U.S. and now with interest rates likely to go up 75 bps this week, it's how bad will it be or how shallow. So I'm of the opinion that medtech should do very differently and better than the last time around in the global financial crisis for a number of different reasons. How do you think a business like Zimmer Biomet would fare in a recessionary environment? And how different is it if it's also a high unemployment level versus a recessionary environment with low unemployment levels?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : We also have better access to insurance in the U.S. with the exchanges. Pricing was a gigantic negative on organic sales growth last time around, which probably brings up my next question, pricing. It's an interesting environment where for the first time we're hearing companies even whisper price increases. So how do we think about your ability across the different portfolios and regions to implement, whether it's flat pricing or selective price increases given this has historically been a minus 2%, 3% type of category on price? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 20, 2022 / 1:00PM, ZBH.N - Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Are there certain geography -- like is it just a U.S. discussion? Is there any -- is it -- how do you think about with tenders and single payer markets? How do you think about the implementation of flattening out or increasing price outside the U.S.?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Sticking on some of the pricing. How do we think about some of the other let's call it, P&L items, whether it's third quarter here and also as we think about, let's call it, relative change since second quarter, whether it's FX, cost inputs on cost of goods sold or any other metrics? I don't believe you have interest rate sensitivity through the P&L for the most part.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Right.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So if I'm trying to think about the model and picture that out, it's more normalized top line growth, though not necessarily fully normal, probably not a lot of gross margin expansion. I'm thinking probably gross margin still under pressure with a little more leverage in SG&A gets you down to modest operating margin.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Great. Maybe if we shift back to the top line and talk about some of the new products. We were just discussing beforehand the Identity Shoulder. S.E.T. is one area we haven't heard a whole lot recently. So maybe just refresh us on how is S.E.T., the different components and how they've been growing and how Identity plays into your extremity portfolio.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Do you think the HA market is still attractive now with this reimbursement change? And how should we think about your ability to gain share in this market?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Got it. So think of this reimbursement change impacting basically 12 months and then again return to growth afterwards.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Maybe if we zero in on Identity Shoulder, double-digit growth, this is a market probably, what, 6%, 8% upper extremity growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 20, 2022 / 1:00PM, ZBH.N - Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So how does this improve upon your portfolio that you have right now? And how does this position you versus the competition?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : We've heard you talk about ROSA and shoulder recently. How do we think about the benefits? Is it something a little more akin to knee where you can have better results? Or is it hip where maybe it doesn't play out in as many cases? How do we think about what it does and the time lines for it?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : And that's why it gets really interesting, right? You take the recovery time down by a factor of 10 or... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 20, 2022 / 1:00PM, ZBH.N - Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So maybe if we shift over to ROSA a little bit. This is one area, I think, that's really exciting. It's also become a little more competitive recently. We hear each company talk about, it seems, increasingly aggressive strategies, like use arm robot. So how do you think Zimmer Biomet is doing with ROSA in your strongest accounts, but also in competitive accounts? And how do you feel that the ROSA platform stacks up versus the 3 other competitors?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So as you think about robotics, what's the biggest pushback when you go into an account? I imagine it's a different conversation when you go into a big Zimmer Biomet user today and a competitive account. And so when you go in and your users decline to get a robot, what's the biggest reason? And then when you go into competitive accounts, again, what's also the #1 reason?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : It's exactly what happened with Intuitive Surgical, someone else across the street got it, and right now, I need to get to get it. As you think about -- just back to the competitive dynamics, have you seen a change in your competitors' practices in trying to place robots? And have you had to change your dynamic at all?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : You brought up sports. One of the areas earlier on with M&A you said you wanted to focus on was building out the ASC capabilities. How important is it to have an ASC capability and tie in with your sports business? And do the 2 benefit from each other?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : And are you seeing ROSA placements in the ASC?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So one of the concerns, obviously, as ASCs are usually, well, more cash poor versus hospitals, a lot of it's on financing. Rates are going up. Do you expect any slowdown in the build-out of ASCs and the conversion from hospital to ASC as we think about these dynamics?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : I think in this -- people in your seat, the biggest fear I used to hear about the ASC was pricing is going to be a lot worse. How has that held up in the ASC? And do you see a material difference versus in the hospital?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Got it. And last question here. What do you think is the right level of in-hospital versus ASC orthopedic split?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Large joints specifically.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Got it. One product we haven't touched on yet, Persona IQ. To me, this could be a really differentiating product with a great growth potential. But I think early on here, as we're waiting for some of the data collection, it's more of a wait and see mode. Correct me if you feel differently.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : So how do you think about, one, when we're going to have enough data to make that decision that yes, this is a very important product, and I know what to do with it? And then how does your selling process change once you have that? Because it's more expensive. The reimbursement is similar. So how do you go about enacting a favorable environment once you have the right data in place?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Are we thinking something in the 1- to 3-year time frame? Or is this more a 3- to 5-plus?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : And as you think about -- like it is more expensive. And hopefully, when it plays out, you will have this great product that can deliver results. How do you get reimbursed for that? What's the process?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Got it. One thing you've talked about throughout the presentation is mymobility and ZBEdge and data and how that ties into your products and can drive results. As I think about, it's going to be a big number on your cost line. You're not -- right now, it seems like you're doing this for free. In the future, as we think about it, if -- when it becomes even more differentiated and value add, is there a way you can monetize this beyond just selling more implants? Or is that the goal, just we do it to sell more implants? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 20, 2022 / 1:00PM, ZBH.N - Zimmer Biomet Holdings Inc at JPMorgan US All Stars Conference

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : As we think about, let's say, the next 12 months, 24 months, what are some of the really exciting things in the pipeline that we should be looking at? And if -- maybe if it's not disclosed yet, maybe what category or type of product it might be that we should keep our eyes on?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : All right. Great. One more question. You talked about several times, you now have more cash. You've paid off a lot of the debt from the acquisitions, and you've spun off some -- ZimVie, and you're in a pretty decent financial position on the balance sheet. So we talked about M&A. How should we think about just your priorities for capital allocation going forward with this cash?

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Great. Well, we're almost out of time. I figure I'll just leave it with you for any closing remarks. We touched on a lot. I've run out of things to ask you. So I'll just leave it with you and any closing remarks on Zimmer Biomet in the future.

Question: Robert Justin Marcus - JPMorgan Chase & Co, Research Division - Analyst : Okay. I think we could end it there. Thank you so much for joining.