Zimmer Biomet Holdings Inc at Jefferies London Healthcare Conference Summary

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

Question: Matt Taylor - Jefferies - Analyst : Great. Maybe just to set the backdrop, could we review your LRP guidance? And maybe just talk about the health of the end market. We've been seeing some very healthy end markets kind of across orthopedics post COVID. And I think investors wonder, is that a bolus? Or is this sort of a new normal. So maybe you could comment on that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 11:00AM, ZBH.N - Zimmer Biomet Holdings Inc at Jefferies London Healthcare Conference

Question: Matt Taylor - Jefferies - Analyst : Great. Maybe I'll give Suky, a shot here. Could you talk about the updated 2024 guidance? And generally, your approach to setting guidance? And maybe touch on the ERP issue and how that's been -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 11:00AM, ZBH.N - Zimmer Biomet Holdings Inc at Jefferies London Healthcare Conference Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain Sure. Happy to do it. And thanks for having us, Matt. First, I'll start with some facts. So we started out the year 2024 top line at ex FX, 5% to 6%. And as we move through the second quarter, we were delivering right in that range, I think, almost 5.5%. Then of course, we hit the speed bump with the ERP, which I'll come back to, but that adjusted our guidance down. We came out as soon as we knew that that could potentially be a material impact. And we ultimately revised down to top line of 4.25% to 4.75%, which implies the fourth quarter will be somewhere around 3% to 5% ex FX. Halfway through the quarter, we still feel confident in that full guidance range. So we feel pretty good. And going back, if you actually look at our commitments back to '21, '22, '23, we've -- I think, for just about every single quarter, met or beat our expectations. So as we think about this year, as we think about going forward, I don't think a lot is going to change fundamentally about our guidance, but we clearly understand what investors are looking for; stability, the ability to continue to beat and raise, and that's, of course, going to inform how we think about guidance moving forward. As it relates to the ERP, we've made -- really proud of the team's tremendous progress. We initially thought that the impact could be up to about 100 basis points of revenue impact in the second half of the year. And we -- on our third quarter call came back and said, hey, look, we think it's going to be less than that because we were able to respond more quickly. We continue to put near-term, long-term fixes in. We're seeing really high volumes in the fourth quarter, as you would normally expect in the fourth quarter, a very seasonal business. All of that demand being met by supply. So we feel really good about the remediation actions that we put in place, and that continues to give us even greater confidence that we're going to be completely out of this by the time we exit this year. .

Question: Matt Taylor - Jefferies - Analyst : So maybe just a continuation of that question, any spillover effect from ERP next year? Maybe remind everybody what the LRP guidance is and the approach that you took there? . Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain Yes. So our LRP set through 2027, 4% to 6% ex FX top line. We said that you should expect earnings to grow at at least 1.5 times the revenue growth rate and free cash flow would grow at 100 basis points faster that -- faster than earnings. And we still feel very confident in that. As it relates to the ERP and the impact on that, like I said, we don't believe that there will be any shipping interruptions as we move into 2025. There's going to be some headwinds and tailwinds related to the ERP and of course, on the broader macro scale, there's going to be a lot of headwinds and tailwinds. So of course, we're not going to give guidance yet on '25. We'll do that in the first quarter of next year as we normally do. . But you should think about, hey, look, there could be some tailwinds relative to some comp in the second half. Also some recovery of cases that may get pushed into 2025. But on the same time, there could be some headwinds related to, hey, we had a number of REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 11:00AM, ZBH.N - Zimmer Biomet Holdings Inc at Jefferies London Healthcare Conference new products that were expected to be up to ramp and flowing in a very robust way by this point, that will get pushed out to 2025. So there's going to be some puts and takes into next year. And again, we're going to come back with that guidance in the first quarter, but still feel very confident in that 4% to 6% top line over our LRP.

Question: Matt Taylor - Jefferies - Analyst : Great. I wanted to also go back to your ASC strategy, touched on that as one of the key growth drivers. I think some investors might be surprised that you've gone from 2% to 15% and also a leader in the ASC area. Maybe talk about your strategy and how that's contributing to your growth.

Question: Matt Taylor - Jefferies - Analyst : Great. Suky, I'll pivot back to you. Let's talk a little bit about margin trajectory. And as you've talked about in the future, getting at least 30 basis points of margin expansion, talk about the sources of that going forward. Suketu Upadhyay - Zimmer Biomet Holdings Inc - Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain Yes. Sure. So let's first start with -- we have a relatively high margin -- operating margin inside of our sector. And if you look at 2024, based on our implied guidance, even after the ERP announcement, this will be the fourth consecutive year where we increase operating margins and at not an insignificant level. And that's even in the backdrop of hyperinflation over the last couple of years. You're right, we have committed to at least 30 basis points of operating margin expansion on average per year through our LRP. The main sources are really around, first and foremost, our revenue leverage, growing mid-single digits, as we said, as part of our LRP with a relatively large percent of our cost base being fixed or semi-fixed, gives us a tremendous amount of leverage there just alone and generating operating margin expansion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 11:00AM, ZBH.N - Zimmer Biomet Holdings Inc at Jefferies London Healthcare Conference We do expect gross margins to be largely stable through the planned horizon with some near-term headwinds that we've talked about because of FX, but operationally, relatively stable to what you saw in 2024 and 2023 and then perhaps on an operational basis, growing towards the latter part of the strat-plan or the LRP as we continue to consolidate and optimize our plan at foot work -- network. And then within SG&A, they are still at 43% OpEx, still some target-rich areas, some of the back-office opportunities inside of our sales organizations globally, sustaining engineering, which could be optimized by offshoring a fair number of activities and then continued leverage of our global business services for back-office operations like finance, IT, HR, et cetera. Those are the building blocks that give us confidence in that 30 basis points, which actually is a little bit less than what we've been doing consistently now for the last four years.

Question: Matt Taylor - Jefferies - Analyst : Great. Well, I think we're right on time. So I'll thank you guys for your time, and thanks a lot for your interest in Zimmer Biomet, and great update on the story. Thank you.