Zimmer Biomet(ZBH) - 2024 Q4 - Annual Results

Executive Summary & Highlights This section provides an overview of Zimmer Biomet's financial performance for Q4 and full-year 2024, strategic developments, and 2025 financial guidance Fourth Quarter and Full-Year 2024 Financial Performance Zimmer Biomet reported strong financial results for Q4 and full-year 2024, meeting its financial guidance, with net sales increasing across both periods and adjusted diluted EPS also seeing healthy increases Fourth Quarter 2024 Financial Highlights | Metric | Reported Value | YoY Change (Reported) | YoY Change (Constant Currency) | | :----- | :------------- | :-------------------- | :----------------------------- | | Net Sales | $2.023 billion | 4.3% | 4.9% | | Net Earnings | $239.4 million | - | - | | Adjusted Net Earnings | $462.4 million | - | - | | Diluted EPS | $1.20 | - | - | | Adjusted Diluted EPS | $2.31 | - | - | Full-Year 2024 Financial Highlights | Metric | Reported Value | YoY Change (Reported) | YoY Change (Constant Currency) | | :----- | :------------- | :-------------------- | :----------------------------- | | Net Sales | $7.679 billion | 3.8% | 4.8% | | Net Earnings | $903.8 million | - | - | | Adjusted Net Earnings | $1.630 billion | - | - | | Diluted EPS | $4.43 | - | - | | Adjusted Diluted EPS | $8.00 | - | - | Recent Strategic Developments and Product Innovations Zimmer Biomet is actively diversifying its portfolio into higher-growth segments, highlighted by the agreement to acquire Paragon 28, which will significantly expand its S.E.T. business, alongside key regulatory approvals for innovative knee and shoulder systems and a direct-to-patient initiative with Arnold Schwarzenegger - Announced definitive agreement to acquire Paragon 28, Inc., a leading medical device company focused on the foot and ankle orthopedic segment, expanding into the ~$5 billion market and aiming to make the S.E.T. business larger and faster-growing than the Hip business[5][7] - Received U.S. FDA Premarket Approval (PMA) for the Oxford® Cementless Partial Knee, making it the only FDA-approved cementless partial knee implant in the U.S. after extensive international clinical experience[7] - Announced FDA 510(k) clearance for the OsseoFit™ Stemless Shoulder System for total shoulder replacement, designed to optimize anatomical fit and bone preservation[7] - Received CE Mark Certification for the Persona® Revision Knee System, enhancing personalized solutions for revision knee arthroplasty[7] - Welcomed Arnold Schwarzenegger as Chief Movement Officer to motivate and support individuals in increasing mobility and maintaining joint health, supporting Direct-to-Patient efforts[7] Full-Year 2025 Financial Guidance Zimmer Biomet provided its financial outlook for the full-year 2025, projecting revenue growth and adjusted diluted EPS within specific ranges, taking into account anticipated foreign currency exchange impacts Projected Year Ending December 31, 2025 Financial Guidance | Metric | Range | | :-------------------------- | :------------ | | Reported Revenue Change | 1.0% - 3.5% | | Foreign Currency Exchange Impact | (2.0)% - (1.5)% | | Constant Currency Revenue Change | 3.0% - 5.0% | | Adjusted Diluted EPS | $8.15 - $8.35 | Company Overview This section provides an overview of Zimmer Biomet's global medical technology leadership, its innovative approach, and key investor information About Zimmer Biomet Zimmer Biomet is a global medical technology leader with over 90 years of experience, offering a comprehensive portfolio focused on maximizing mobility and improving health, integrating innovative products with digital and robotic technologies leveraging data and AI to enhance patient experience - Zimmer Biomet is a global medical technology leader with a comprehensive portfolio designed to maximize mobility and improve health[16] - The company transforms the patient experience through innovative products and integrated digital and robotic technologies that leverage data, data analytics, and artificial intelligence[16] - With over 90 years of trusted leadership, Zimmer Biomet operates in 25+ countries and has sales in 100+ countries[17][18] Investor Information Zimmer Biomet provides investor information through its dedicated Investor Relations website, which is used for disclosing material non-public information and complying with Regulation FD, and also hosts investor conference calls with replays available online - The company's Investor Relations website (https://investor.zimmerbiomet.com) is a primary channel for disclosing material, non-public information and complying with Regulation FD[15][20] - A conference call for Q4 and full-year 2024 results was scheduled for February 6, 2025, with an audio webcast accessible via the Investor Relations website[15] Financial Review (GAAP) This section presents Zimmer Biomet's GAAP financial statements, including consolidated statements of earnings, balance sheets, and cash flows for the specified periods Consolidated Statements of Earnings The Consolidated Statements of Earnings provide a detailed breakdown of Zimmer Biomet's revenue, expenses, and net earnings for both the fourth quarter and the full year of 2024, compared to 2023, on a GAAP basis Three Months Ended December 31, 2024 and 2023 For the fourth quarter of 2024, Zimmer Biomet reported an increase in net sales but a decrease in net earnings compared to the prior year, primarily due to higher operating expenses and a significantly higher provision for income taxes Consolidated Statements of Earnings (Q4 2024 vs. Q4 2023, in millions USD) | Metric | Q4 2024 | Q4 2023 | | :------------------------------------------ | :-------------------- | :-------------------- | | Net Sales | $2,023.2 | $1,940.1 | | Operating Profit | $389.0 | $354.2 | | Earnings before income taxes | $289.0 | $284.4 | | Provision (benefit) for income taxes | $49.0 | $(135.2) | | Net Earnings of Zimmer Biomet Holdings, Inc. | $239.4 | $419.2 | | Diluted EPS | $1.20 | $2.01 | Years Ended December 31, 2024 and 2023 For the full year 2024, Zimmer Biomet achieved higher net sales and operating profit compared to 2023, but net earnings decreased due to a substantial increase in the provision for income taxes Consolidated Statements of Earnings (Full-Year 2024 vs. Full-Year 2023, in millions USD) | Metric | FY 2024 | FY 2023 | | :------------------------------------------ | :-------------------- | :-------------------- | | Net Sales | $7,678.6 | $7,394.2 | | Operating Profit | $1,285.7 | $1,277.7 | | Earnings before income taxes | $1,036.6 | $1,067.3 | | Provision for income taxes | $131.4 | $42.2 | | Net Earnings of Zimmer Biomet Holdings, Inc. | $903.8 | $1,024.0 | | Diluted EPS | $4.43 | $4.88 | Condensed Consolidated Balance Sheets As of December 31, 2024, Zimmer Biomet's balance sheet shows a slight decrease in total assets compared to the prior year, with an increase in cash and cash equivalents, while total liabilities also decreased, leading to a stable stockholders' equity Condensed Consolidated Balance Sheets (as of Dec 31, 2024 vs. 2023, in millions USD) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :-------------------------------- | :------------------------- | :------------------------- | | Cash and cash equivalents | $525.5 | $415.8 | | Total current assets | $4,671.5 | $4,609.5 | | Goodwill | $8,951.1 | $8,818.5 | | Total Assets | $21,365.3 | $21,496.9 | | Current liabilities | $1,587.9 | $1,957.5 | | Long-term debt | $5,341.6 | $4,867.9 | | Total Liabilities and Stockholders' Equity | $21,365.3 | $21,496.9 | Consolidated Statements of Cash Flows For the full year 2024, Zimmer Biomet's net cash provided by operating activities slightly decreased, while net cash used in investing activities increased, and net cash used in financing activities significantly decreased, primarily due to higher proceeds from senior notes and lower net payments on revolving facilities, despite substantial common stock repurchases Consolidated Statements of Cash Flows (Full-Year 2024 vs. Full-Year 2023, in millions USD) | Metric | FY 2024 | FY 2023 | | :------------------------------------------ | :-------------------- | :-------------------- | | Net cash provided by operating activities | $1,499.4 | $1,581.6 | | Net cash used in investing activities | $(888.1) | $(778.9) | | Net cash used in financing activities | $(484.5) | $(763.5) | | Change in cash and cash equivalents | $109.7 | $40.1 | | Cash and cash equivalents, end of period | $525.5 | $415.8 | - Proceeds from senior notes increased significantly to $1,436.3 million in 2024 from $499.8 million in 2023[42] - Repurchase of common stock increased to $868.0 million in 2024 from $692.2 million in 2023[42] Sales Performance by Geography and Product Category This section details Zimmer Biomet's net sales performance, broken down by geographic region and specific product categories for both the fourth quarter and full year 2024 Three Months Ended December 31, 2024 In Q4 2024, Zimmer Biomet's net sales grew across both the United States and International segments, with International sales showing stronger constant currency growth, while the S.E.T. category led product growth and Technology & Data, Bone Cement and Surgical experienced a decline Net Sales - Three Months Ended December 31, 2024 (in millions USD) | Category | Net Sales | % Change (Reported) | % Change (Constant Currency) | | :----------------------------------- | :-------- | :------------------ | :--------------------------- | | Geographic Results | | | | | United States | $1,181.2 | 4.7% | 4.7% | | International | $842.0 | 3.7% | 5.2% | | Total | $2,023.2 | 4.3% | 4.9% | | Product Categories | | | | | Knees Total | $839.2 | 5.1% | 5.6% | | Hips Total | $520.0 | 3.0% | 4.0% | | S.E.T. | $489.4 | 8.0% | 8.4% | | Technology & Data, Bone Cement and Surgical | $174.6 | (4.9)% | (4.3)% | Year Ended December 31, 2024 For the full year 2024, Zimmer Biomet's total net sales increased, driven by growth in both U.S. and International markets, with International showing stronger constant currency growth, while the S.E.T. category was the strongest performer and Hips showed the slowest growth Net Sales - Year Ended December 31, 2024 (in millions USD) | Category | Net Sales | % Change (Reported) | % Change (Constant Currency) | | :----------------------------------- | :-------- | :------------------ | :--------------------------- | | Geographic Results | | | | | United States | $4,439.0 | 3.5% | 3.5% | | International | $3,239.6 | 4.3% | 6.6% | | Total | $7,678.6 | 3.8% | 4.8% | | Product Categories | | | | | Knees Total | $3,173.5 | 4.4% | 5.2% | | Hips Total | $1,999.1 | 1.6% | 3.0% | | S.E.T. | $1,865.7 | 6.5% | 7.1% | | Technology & Data, Bone Cement and Surgical | $640.3 | 0.7% | 1.9% | Non-GAAP Financial Measures and Reconciliations This section explains Zimmer Biomet's use of non-GAAP financial measures and provides detailed reconciliations to their GAAP equivalents for various financial metrics Note on Non-GAAP Financial Measures Zimmer Biomet uses non-GAAP financial measures, such as constant currency sales, adjusted net earnings, adjusted diluted EPS, and free cash flow, to provide investors with additional insights into the company's performance, as these measures exclude certain items that management believes do not reflect the fundamentals of ongoing operations, allowing for better period-to-period comparisons and trend analysis - Non-GAAP financial measures are used to supplement GAAP measures, providing meaningful incremental information to investors by excluding certain items that can cause dramatic changes in reported income but do not impact operational fundamentals[22][28] - Constant currency percentage changes exclude the effects of foreign currency exchange rates, calculated by translating current and prior-period sales at predetermined exchange rates[23] - Adjusted net earnings and diluted EPS exclude the effects of certain detailed items, as reconciled in the press release[24] - Free cash flow is computed by deducting additions to instruments and other property, plant and equipment from net cash provided by operating activities[25] Reconciliation of Net Sales % Change to Constant Currency % Change These reconciliations illustrate the impact of foreign currency exchange rates on net sales growth, providing a clearer view of underlying business performance by showing sales changes on a constant currency basis for both the fourth quarter and full year 2024 Three Months Ended December 31, 2024 For Q4 2024, foreign currency exchange had a negative impact on reported net sales growth, particularly affecting international sales and the Hips category, resulting in higher constant currency growth rates across most segments Net Sales % Change (Q4 2024 vs. 2023) | Category | % Change (Reported) | Foreign Exchange Impact | % Change (Constant Currency) | | :----------------------------------- | :------------------ | :---------------------- | :--------------------------- | | Geographic Results | | | | | United States | 4.7% | -% | 4.7% | | International | 3.7% | (1.5)% | 5.2% | | Total | 4.3% | (0.6)% | 4.9% | | Product Categories | | | | | Knees Total | 5.1% | (0.5)% | 5.6% | | Hips Total | 3.0% | (1.0)% | 4.0% | | S.E.T. | 8.0% | (0.4)% | 8.4% | | Technology & Data, Bone Cement and Surgical | (4.9)% | (0.6)% | (4.3)% | Year Ended December 31, 2024 For the full year 2024, foreign currency exchange also had a negative impact on reported net sales, with International sales and the Hips category experiencing the most significant adverse effects, leading to higher constant currency growth rates Net Sales % Change (Full-Year 2024 vs. 2023) | Category | % Change (Reported) | Foreign Exchange Impact | % Change (Constant Currency) | | :----------------------------------- | :------------------ | :---------------------- | :--------------------------- | | Geographic Results | | | | | United States | 3.5% | -% | 3.5% | | International | 4.3% | (2.3)% | 6.6% | | Total | 3.8% | (1.0)% | 4.8% | | Product Categories | | | | | Knees Total | 4.4% | (0.8)% | 5.2% | | Hips Total | 1.6% | (1.4)% | 3.0% | | S.E.T. | 6.5% | (0.6)% | 7.1% | | Technology & Data, Bone Cement and Surgical | 0.7% | (1.2)% | 1.9% | Reconciliation of Reported to Adjusted Results (Net Earnings & EPS) These reconciliations detail the adjustments made to GAAP net earnings and diluted EPS to arrive at adjusted figures for both the fourth quarter and full year 2024 and 2023, with key adjustments including intangible asset amortization, restructuring costs, and litigation expenses Three Months Ended December 31, 2024 and 2023 For Q4 2024, significant adjustments, primarily intangible asset amortization and restructuring initiatives, increased reported net earnings of $239.4 million to adjusted net earnings of $462.4 million, and diluted EPS of $1.20 to adjusted diluted EPS of $2.31 Reconciliation of Reported to Adjusted Results (Q4 2024, in millions USD) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :------------------------ | :------------------------ | :------------------------ | | Net Earnings of Zimmer Biomet Holdings, Inc. | $239.4 | $223.0 | $462.4 | | Diluted earnings per common share | $1.20 | $1.11 | $2.31 | Key Adjustments (Q4 2024) * Intangible asset amortization: $157.6 million * Restructuring and other cost reduction initiatives: $20.9 million * Litigation: $27.4 million Reconciliation of Reported to Adjusted Results (Q4 2023, in millions USD) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :------------------------ | :------------------------ | :------------------------ | | Net Earnings of Zimmer Biomet Holdings, Inc. | $419.2 | $38.9 | $458.1 | | Diluted earnings per common share | $2.01 | $0.19 | $2.20 | Key Adjustments (Q4 2023) * Intangible asset amortization: $144.9 million * Restructuring and other cost reduction initiatives: $61.3 million * Other certain tax adjustments: $(167.8) million Years Ended December 31, 2024 and 2023 For the full year 2024, reported net earnings of $903.8 million were adjusted to $1,630.2 million, and diluted EPS of $4.43 to adjusted diluted EPS of $8.00, primarily due to significant intangible asset amortization and restructuring costs Reconciliation of Reported to Adjusted Results (Full-Year 2024, in millions USD) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :------------------------ | :------------------------ | :------------------------ | | Net Earnings of Zimmer Biomet Holdings, Inc. | $903.8 | $726.4 | $1,630.2 | | Diluted earnings per common share | $4.43 | $3.57 | $8.00 | Key Adjustments (Full-Year 2024) * Intangible asset amortization: $591.9 million * Restructuring and other cost reduction initiatives: $219.0 million * Other certain tax adjustments: $(46.0) million Reconciliation of Reported to Adjusted Results (Full-Year 2023, in millions USD) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :------------------------ | :------------------------ | :------------------------ | | Net Earnings of Zimmer Biomet Holdings, Inc. | $1,024.0 | $560.2 | $1,584.2 | | Diluted earnings per common share | $4.88 | $2.67 | $7.55 | Key Adjustments (Full-Year 2023) * Intangible asset amortization: $561.5 million * Restructuring and other cost reduction initiatives: $151.9 million * Other certain tax adjustments: $(96.0) million Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Zimmer Biomet's free cash flow for the full year 2024 increased to $1,055.3 million from $978.8 million in 2023, despite a slight decrease in net cash provided by operating activities, primarily due to reduced additions to instruments and other property, plant and equipment Free Cash Flow (Q4 and Full-Year 2024 vs. 2023, in millions USD) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Net cash provided by operating activities | $506.2 | $588.4 | $1,499.4 | $1,581.6 | | Additions to instruments | $(51.9) | $(79.0) | $(240.3) | $(311.7) | | Additions to other property, plant and equipment | $(51.5) | $(62.9) | $(203.8) | $(291.1) | | Free cash flow | $402.8 | $446.5 | $1,055.3 | $978.8 | Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin Adjustments for inventory and manufacturing-related charges and intangible asset amortization significantly increased both gross profit and gross margin for Zimmer Biomet in Q4 and full-year 2024, providing a higher adjusted view of profitability Gross Profit & Margin (Q4 and Full-Year 2024 vs. 2023) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Gross Profit (in millions USD) | $1,278.9 | $1,256.4 | $4,895.5 | $4,748.9 | | Adjusted gross profit (in millions USD) | $1,442.5 | $1,406.2 | $5,506.7 | $5,328.8 | | Gross margin | 63.2% | 64.8% | 63.8% | 64.2% | | Adjusted gross margin | 71.3% | 72.5% | 71.7% | 72.1% | Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin Adjustments for various non-recurring or non-operational items, including intangible asset amortization and restructuring initiatives, significantly increased Zimmer Biomet's operating profit and margin for both the fourth quarter and full year 2024, presenting a more favorable adjusted operating performance Operating Profit & Margin (Q4 and Full-Year 2024 vs. 2023) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Operating profit (in millions USD) | $389.0 | $354.2 | $1,285.7 | $1,277.7 | | Adjusted operating profit (in millions USD) | $623.2 | $588.5 | $2,195.4 | $2,086.9 | | Operating profit margin | 19.2% | 18.3% | 16.7% | 17.3% | | Adjusted operating profit margin | 30.8% | 30.3% | 28.6% | 28.2% | Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate The reconciliation shows that Zimmer Biomet's adjusted effective tax rate for Q4 and full-year 2024 was higher than the reported rate, due to the tax effects of various adjustments to earnings before taxes and other certain discrete tax adjustments Effective Tax Rate (Q4 and Full-Year 2024 vs. 2023) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Effective tax rate | 16.9% | (47.6)% | 12.7% | 4.0% | | Adjusted effective tax rate | 17.5% | 15.8% | 18.0% | 16.3% | Reconciliation of Debt to Net Debt As of December 31, 2024, Zimmer Biomet's net debt increased to $5,679.1 million from $5,352.1 million in 2023, reflecting an increase in total debt partially offset by higher cash and cash equivalents Debt to Net Debt (as of Dec 31, 2024 vs. 2023, in millions USD) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :------------------------------------------ | :------------------------- | :------------------------- | | Debt, both current and long-term | $6,204.6 | $5,767.9 | | Cash and cash equivalents | $(525.5) | $(415.8) | | Net debt | $5,679.1 | $5,352.1 | Explanations of Non-GAAP Adjustments This section provides detailed explanations for the various adjustments made to GAAP financial measures to derive non-GAAP results, including inventory and manufacturing-related charges, intangible asset amortization, restructuring initiatives, acquisition/integration costs, litigation expenses, European Union Medical Device Regulation compliance costs, other specific charges, and certain tax adjustments - Inventory and manufacturing-related charges include excess and obsolete inventory, accelerated depreciation, and fixed overhead costs related to plant shutdowns[55] - Intangible asset amortization and deferred tax rate changes on intangible assets are excluded to allow for performance comparison against peers, given varying acquisition levels[55] - Restructuring and other cost reduction initiatives cover global programs aimed at reorganizing businesses, reducing costs, and optimizing operations, including employee termination benefits and contract terminations[55] - Acquisition, integration, divestiture, and related gains and expenses stem from various acquisitions, post-separation costs related to ZimVie, and gains from transition service agreements[55] - Litigation charges and gains are excluded for patent, product liability, and commercial litigation, to provide useful incremental information, with consistency maintained for subsequent changes in estimates[55] - Costs related to initial compliance with the European Union Medical Device Regulation (EU MDR) for previously-approved medical devices are excluded, primarily temporary personnel and third-party professional fees[55] - Other charges include various expenses from specific, highly variable events or projects with significant impact, such as gains and losses from changes in fair value on equity investments[55] - Other certain tax adjustments relate to significant and discrete tax items, including intercompany transactions, tax-only amortization from restructurings, tax reform impacts, and favorable tax settlements[55] Forward-Looking Statements and Risk Factors This section outlines Zimmer Biomet's forward-looking non-GAAP financial measures and provides cautionary notes regarding the inherent risks and uncertainties associated with future statements Forward-Looking Non-GAAP Financial Measures Zimmer Biomet includes forward-looking non-GAAP financial measures in its guidance, which are based on internal forecasts that exclude certain items, and quantitative reconciliations to GAAP are not provided due to the unreasonable effort required to predict the timing and nature of excluded items, and to avoid implying a misleading degree of precision - Forward-looking non-GAAP financial measures are based on internal forecasts that omit certain amounts included in GAAP measures, such as charges related to EU MDR compliance, restructuring, acquisition/integration, and certain legal and tax matters[29] - Quantitative reconciliations to GAAP are not provided for these forward-looking measures due to the unreasonable effort required to predict excluded items and to avoid implying a misleading degree of precision[29] Cautionary Note Regarding Forward-Looking Statements This section serves as a cautionary note regarding forward-looking statements, emphasizing that such statements are subject to significant risks, uncertainties, and changes in circumstances that could cause actual results to differ materially, highlighting various factors including competition, pricing pressures, new product development, employee retention, shifts in sales mix, and risks associated with acquisitions like Paragon 28, regulatory approvals, and global economic conditions - Forward-looking statements are based on current beliefs and expectations but are subject to significant risks, uncertainties, and changes in circumstances that could cause actual outcomes to differ materially[30][31] - Key risks include competition, pricing pressures, dependence on new product development, ability to attract and retain skilled employees, shifts in product or regional sales mix, and the successful execution of restructuring plans[31] - Risks related to the Paragon 28 acquisition include failure to obtain regulatory approvals, lack of stockholder approval, inability to realize anticipated benefits, and integration challenges[31] - Other significant risks involve business disruptions, supply chain issues, cybersecurity breaches, government investigations, healthcare reform, substantial indebtedness, changes in tax obligations, and global economic and political instability[31][32] - Readers are cautioned not to rely on forward-looking statements, as there is no assurance they will prove accurate, and the company disclaims any obligation to update or revise them[32][33]