Zimmer Biomet(ZBH) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2025 Financial Performance Zimmer Biomet reported solid Q2 2025 results, with net sales up 7.0% and adjusted diluted EPS growing 3.0%, driven by new product cycles | Metric | Q2 2025 Value | YoY Change (Reported) | YoY Change (Constant Currency) | YoY Change (Organic Constant Currency) | | :----- | :------------ | :-------------------- | :----------------------------- | :----------------------------------- | | Net Sales | $2.077 billion | 7.0% | 5.4% | 2.8% | | Diluted EPS | $0.77 | - | - | - | | Adjusted Diluted EPS | $2.07 | 3.0% | - | - | Recent Business Highlights Strategic initiatives include acquiring Monogram Technologies, partnering with Getinge, launching a patient campaign, and receiving industry recognition - Announced definitive agreement to acquire Monogram Technologies, an AI-driven robotics company, to expand Zimmer Biomet's robotics suite with semi- and fully autonomous solutions[7] - Signed a strategic partnership with Getinge to distribute Getinge's Operating Room capital products to Ambulatory Surgery Center customers, creating a turnkey solution[7] - Launched "This, You Can Do," a new direct-to-patient campaign to drive awareness of Zimmer Biomet's Knee solutions in key U.S. markets[7] - Named one of America's Best Mid-Size Companies in 2025 by TIME and certified as a Great Place to Work® in multiple countries[7] Full-Year 2025 Financial Guidance Update Full-year 2025 guidance tightened for revenue growth and increased for adjusted EPS, reflecting confidence in continued performance Projected Year Ending December 31, 2025 Financial Guidance | Metric | Previous Guidance | Updated Guidance | | :---------------------------------- | :---------------- | :--------------- | | 2025 Reported Revenue Change | 5.7% - 8.2% | 6.7% - 7.7% | | Foreign Currency Exchange Impact | 0.0% - 0.5% | 0.5% | | 2025 Constant Currency Revenue Change | 5.7% - 7.7% | 6.2% - 7.2% | | 2025 Organic Constant Currency Revenue Change | 3.0% - 5.0% | 3.5% - 4.5% | | Adjusted Diluted EPS | $7.90 - $8.10 | $8.10 - $8.30 | Detailed Financial Results Geographic and Product Category Sales Sales for Q2 and H1 2025 showed varied growth across geographies and product categories, with strong performance in S.E.T. and U.S. Hips and Knees Three Months Ended June 30, 2025 Q2 2025 net sales increased 7.0% reported, 5.4% constant currency, and 2.8% organic constant currency, with S.E.T. as the strongest category Net Sales - Three Months Ended June 30, 2025 (in millions) | Geographic Results | Net Sales | % Change | Constant Currency % Change | Organic Constant Currency % Change | | :----------------- | :-------- | :------- | :------------------------- | :--------------------------------- | | United States | $1,173.8 | 6.1 % | 6.1 % | 2.3 % | | International | 903.5 | 8.1 % | 4.6 % | 3.4 % | | Total | $2,077.3 | 7.0 % | 5.4 % | 2.8 % | | Product Categories | | | | | | Knees Total | 826.0 | 3.1 % | 1.8 % | 1.8 % | | Hips Total | 536.1 | 5.8 % | 4.0 % | 4.0 % | | S.E.T. | 550.6 | 17.3 % | 16.0 % | 4.9 % | | Technology & Data, Bone Cement and Surgical | 164.6 | (0.2) % | (2.2) % | (2.2) % | | Total | $2,077.3 | 7.0 % | 5.4 % | 2.8 % | Six Months Ended June 30, 2025 H1 2025 net sales increased 4.0% reported, 3.9% constant currency, and 2.5% organic constant currency, with S.E.T. as the strongest growth driver Net Sales - Six Months Ended June 30, 2025 (in millions) | Geographic Results | Net Sales | % Change | Constant Currency % Change | Organic Constant Currency % Change | | :----------------- | :-------- | :------- | :------------------------- | :--------------------------------- | | United States | $2,287.4 | 3.7 % | 3.7 % | 1.8 % | | International | 1,699.0 | 4.5 % | 4.1 % | 3.5 % | | Total | $3,986.4 | 4.0 % | 3.9 % | 2.5 % | | Product Categories | | | | | | Knees Total | 1,618.9 | 1.9 % | 1.8 % | 1.8 % | | Hips Total | 1,031.9 | 3.4 % | 3.2 % | 3.2 % | | S.E.T. | 1,021.1 | 10.7 % | 10.6 % | 4.9 % | | Technology & Data, Bone Cement and Surgical | 314.5 | (2.4) % | (2.8) % | (2.8) % | | Total | $3,986.4 | 4.0 % | 3.9 % | 2.5 % | Condensed Consolidated Statements of Earnings Net earnings decreased for Q2 and H1 2025 due to increased operating expenses, especially acquisition, integration, and divestiture costs Three Months Ended June 30, 2025 and 2024 Q2 2025 net sales increased, but net earnings decreased due to higher SG&A and substantial acquisition, integration, and divestiture costs Condensed Consolidated Statements of Earnings (Three Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net Sales | $2,077.3 | $1,942.0 | | Operating Profit | $300.0 | $351.3 | | Net Earnings of Zimmer Biomet Holdings, Inc. | $152.8 | $242.8 | | Diluted Earnings Per Common Share | $0.77 | $1.18 | Six Months Ended June 30, 2025 and 2024 H1 2025 net sales increased, but net earnings and diluted EPS decreased due to higher operating expenses, including acquisition and integration costs Condensed Consolidated Statements of Earnings (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net Sales | $3,986.4 | $3,831.2 | | Operating Profit | $592.3 | $617.2 | | Net Earnings of Zimmer Biomet Holdings, Inc. | $334.9 | $415.2 | | Diluted Earnings Per Common Share | $1.68 | $2.01 | Condensed Consolidated Balance Sheets Total assets increased to $22.87 billion as of June 30, 2025, driven by goodwill and intangible assets, with total liabilities rising due to higher long-term debt Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $22,865.1 | $21,365.3 | | Cash and cash equivalents | $556.9 | $525.5 | | Goodwill | $9,709.5 | $8,951.1 | | Intangible assets, net | $4,890.8 | $4,598.4 | | Total current liabilities | $1,879.5 | $1,587.9 | | Long-term debt | $6,752.5 | $5,341.6 | | Total Liabilities and Stockholders' Equity | $22,865.1 | $21,365.3 | Condensed Consolidated Statements of Cash Flows H1 2025 operating cash flow increased, but investing cash flow rose substantially due to business combinations, with financing providing inflow from senior notes Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in millions) | Cash Flow Category | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $761.0 | $597.4 | | Net cash used in investing activities | $(1,490.4) | $(442.0) | | Net cash provided by (used in) financing activities | $739.2 | $(142.0) | | Change in cash and cash equivalents | $31.4 | $4.4 | | Cash and cash equivalents, end of period | $556.9 | $420.1 | - Business combination investments, net of acquired cash, significantly increased cash used in investing activities to $1,226.3 million in 2025 from $66.5 million in 2024[41] - Proceeds from senior notes of $1,748.1 million were a major contributor to net cash provided by financing activities in 2025[41] Non-GAAP Financial Measures & Reconciliations Note on Non-GAAP Financial Measures Non-GAAP measures provide additional performance insights by excluding distorting items, used internally for evaluation and compensation - Non-GAAP financial measures are used to evaluate business performance internally and provide meaningful incremental information to investors by enabling period-to-period comparisons not impacted by certain items[28] - Constant currency percentage changes exclude the effects of foreign currency exchange rates, calculated by translating current and prior-period sales at the same predetermined exchange rate[23] - Adjusted financial measures exclude the effects of certain items detailed in reconciliations, such as inventory and manufacturing-related charges, intangible asset amortization, restructuring, and acquisition-related costs[24][53] Net Sales % Change Reconciliations Reconciliations clarify organic constant currency performance by showing foreign currency and Paragon 28 acquisition impacts on net sales growth Three Months Ended June 30, 2025 vs. 2024 Q2 2025 reported sales saw 1.6% foreign exchange impact and 2.6% from Paragon 28, leading to 2.8% organic constant currency growth Reconciliation of Reported Net Sales % Change (Three Months Ended June 30, 2025 vs. 2024) | Geographic Results | % Change (Reported) | Foreign Exchange Impact | Constant Currency % Change | Paragon 28 Impact | Organic Constant Currency % Change | | :----------------- | :------------------ | :---------------------- | :------------------------- | :---------------- | :--------------------------------- | | United States | 6.1 % | - % | 6.1 % | 3.8 % | 2.3 % | | International | 8.1 % | 3.5 % | 4.6 % | 1.2 % | 3.4 % | | Total | 7.0 % | 1.6 % | 5.4 % | 2.6 % | 2.8 % | | Product Categories | | | | | | | S.E.T. | 17.3 % | 1.3 % | 16.0 % | 11.1 % | 4.9 % | Six Months Ended June 30, 2025 vs. 2024 H1 2025 reported sales saw 0.1% foreign exchange impact and 1.4% from Paragon 28, leading to 2.5% organic constant currency growth Reconciliation of Reported Net Sales % Change (Six Months Ended June 30, 2025 vs. 2024) | Geographic Results | % Change (Reported) | Foreign Exchange Impact | Constant Currency % Change | Paragon 28 Impact | Organic Constant Currency % Change | | :----------------- | :------------------ | :---------------------- | :------------------------- | :---------------- | :--------------------------------- | | United States | 3.7 % | - % | 3.7 % | 1.9 % | 1.8 % | | International | 4.5 % | 0.4 % | 4.1 % | 0.6 % | 3.5 % | | Total | 4.0 % | 0.1 % | 3.9 % | 1.4 % | 2.5 % | | Product Categories | | | | | | | S.E.T. | 10.7 % | 0.1 % | 10.6 % | 5.7 % | 4.9 % | Projected Full-Year 2025 Revenue Change Projected full-year 2025 organic constant currency revenue change is estimated between 3.5% and 4.5%, after FX and Paragon 28 impacts Reconciliation of Projected Full-Year 2025 Reported Revenue Change to Organic Constant Currency Revenue Change | Metric | Projected Full-year 2025 | | :-------------------------------- | :----------------------- | | Reported revenue change | 6.7 - 7.7 % | | Less: Foreign currency exchange impact | 0.5 % | | Less: Paragon 28 | 2.7 % | | Organic constant currency revenue change | 3.5 - 4.5 % | Reported to Adjusted Results Reconciliations Reconciliations adjust GAAP results to non-GAAP figures, clarifying operational performance by excluding non-recurring or non-operational items Three Months Ended June 30, 2025 and 2024 (Net Earnings & EPS) Q2 2025 adjusted net earnings were $411.2 million ($2.07 diluted EPS), significantly higher than reported due to amortization and acquisition costs Reported vs. Adjusted Net Earnings and Diluted EPS (Three Months Ended June 30, 2025) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net Earnings of Zimmer Biomet Holdings, Inc. | $152.8 | $258.4 | $411.2 | | Diluted earnings per common share | $0.77 | $1.30 | $2.07 | Reported vs. Adjusted Net Earnings and Diluted EPS (Three Months Ended June 30, 2024) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net Earnings of Zimmer Biomet Holdings, Inc. | $242.8 | $172.2 | $415.0 | | Diluted earnings per common share | $1.18 | $0.83 | $2.01 | Six Months Ended June 30, 2025 and 2024 (Net Earnings & EPS) H1 2025 adjusted net earnings were $772.3 million ($3.88 diluted EPS), compared to reported, with significant amortization and acquisition expense adjustments Reported vs. Adjusted Net Earnings and Diluted EPS (Six Months Ended June 30, 2025) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net Earnings of Zimmer Biomet Holdings, Inc. | $334.9 | $437.4 | $772.3 | | Diluted earnings per common share | $1.68 | $2.20 | $3.88 | Reported vs. Adjusted Net Earnings and Diluted EPS (Six Months Ended June 30, 2024) | Metric | As Reported | Adjustments | As Adjusted | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net Earnings of Zimmer Biomet Holdings, Inc. | $415.2 | $399.5 | $814.7 | | Diluted earnings per common share | $2.01 | $1.94 | $3.95 | Inventory and Manufacturing-Related Charges (Footnote) Inventory and manufacturing-related charges are excluded from non-GAAP measures for a clearer view of manufacturing costs without acquisition impacts - Inventory and manufacturing-related charges include inventory step-up expense, excess and obsolete inventory charges, accelerated depreciation, and other related costs[53] - Excluding inventory step-up expense provides useful information on costs as if inventory had not been increased to fair value due to business combinations[53] Intangible Asset Amortization (Footnote) Intangible asset amortization and deferred tax changes are excluded from non-GAAP measures for better peer comparison, given acquisition-driven variations - Intangible asset amortization and deferred tax rate changes on intangible assets are excluded from non-GAAP measures[53] - Exclusion allows for internal performance assessment against peers, as amortization varies significantly due to different acquisition levels[53] Restructuring and Other Cost Reduction Initiatives (Footnote) Restructuring and cost reduction initiatives aim to reduce costs and drive growth, with excluded costs including employee termination benefits and contract terminations - Restructuring programs initiated in December 2019, 2021, 2023, and February 2025 aim to reorganize businesses and reduce costs[53] - Costs include employee termination benefits, contract terminations, consulting fees, project management expenses, retention period salaries, and relocation costs[53] Acquisition, Integration, Divestiture and Related (Footnote) Excluded gains and expenses from acquisitions, ZimVie post-separation costs, and transition service agreements include $43.4 million in Q2 2025 Paragon 28 compensation - Exclusions relate to various acquisitions, post-separation costs for ZimVie, and gains from transition service agreements[53] - Expenses for Q2 2025 include $43.4 million in compensation for accelerated vesting of Paragon 28 restricted stock units[53] Litigation (Footnote) Litigation charges and gains, mainly from patent and product liability, are excluded from non-GAAP measures for consistent period-to-period comparisons - Litigation charges and gains, primarily from patent and product liability, are excluded from non-GAAP measures[53] - Exclusion ensures consistency in non-GAAP financial measures from period-to-period, even if subsequent changes in estimates are not significant[53] European Union Medical Device Regulation (Footnote) Incremental costs for initial EU Medical Device Regulation compliance, mainly for temporary personnel, are excluded from non-GAAP financial measures - Incremental costs for initial compliance with EU Medical Device Regulation are excluded from non-GAAP measures[53] - These costs primarily relate to temporary personnel and third-party professionals to supplement internal resources[53] Other Charges (Footnote) Other charges from highly variable events, like equity investment gains/losses and pre-acquisition debt interest, are excluded from non-GAAP measures - Other charges include gains and losses from changes in fair value on equity investments[53] - Interest on debt related to the estimated purchase price and acquisition-related costs up through the acquisition date (e.g., for Paragon 28) is excluded[53] Other Certain Tax Adjustments (Footnote) Tax adjustments relate to intercompany transactions, tax-only amortization, tax reform, and Q2 2025 expense for unremitted foreign earnings - Tax adjustments relate to intercompany transactions, tax-only amortization from restructuring, and impacts of tax reform[53] - In June 2025, tax expense was recognized for unremitted foreign earnings previously expected to remain permanently reinvested[53] Free Cash Flow Reconciliation H1 2025 free cash flow increased to $526.1 million from $342.4 million, driven by higher operating cash flow despite increased capital additions Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $378.2 | $369.4 | $761.0 | $597.4 | | Additions to instruments | (80.5) | (65.2) | (140.2) | (147.2) | | Additions to other property, plant and equipment | (50.0) | (52.7) | (94.7) | (107.8) | | Free cash flow | $247.7 | $251.5 | $526.1 | $342.4 | Gross Profit & Margin Reconciliation Adjusted gross profit and margin exclude inventory charges and intangible asset amortization; H1 2025 adjusted gross margin was 71.9%, slightly lower than prior year Reconciliation of Gross Profit & Margin to Adjusted Gross Profit & Margin (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross Profit | $1,324.5 | $1,244.4 | $2,532.8 | $2,479.2 | | Inventory and manufacturing-related charges | 17.0 | 2.7 | 23.2 | 3.8 | | Intangible asset amortization | 160.6 | 144.0 | 311.6 | 286.1 | | Adjusted gross profit | $1,502.1 | $1,391.1 | $2,867.6 | $2,769.1 | | Gross margin | 63.8 % | 64.1 % | 63.5 % | 64.7 % | | Adjusted gross margin | 72.3 % | 71.6 % | 71.9 % | 72.3 % | Operating Profit & Margin Reconciliation Adjusted operating profit and margin exclude non-GAAP items; H1 2025 adjusted operating profit was $1,079.0 million with a 27.1% margin Reconciliation of Operating Profit & Margin to Adjusted Operating Profit & Margin (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating profit | $300.0 | $351.3 | $592.3 | $617.2 | | Inventory and manufacturing-related charges | 17.0 | 2.7 | 23.2 | 3.8 | | Intangible asset amortization | 160.6 | 144.0 | 311.6 | 286.1 | | Restructuring and other cost reduction initiatives | 17.5 | 41.5 | 53.5 | 165.9 | | Acquisition, integration, divestiture and related | 78.9 | 5.2 | 89.5 | 5.5 | | European Union Medical Device Regulation | 4.3 | 7.6 | 8.7 | 13.4 | | Adjusted operating profit | $578.5 | $552.6 | $1,079.0 | $1,092.0 | | Operating profit margin | 14.4 % | 18.1 % | 14.9 % | 16.1 % | | Adjusted operating profit margin | 27.8 % | 28.5 % | 27.1 % | 28.5 % | Effective Tax Rate Reconciliation The adjusted effective tax rate for Q2 and H1 2025 was 18.2%, after accounting for tax effects of earnings adjustments and other tax items Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Effective tax rate | 31.7 % | 19.6 % | 25.9 % | 19.6 % | | Tax effect of adjustments made to earnings before taxes | 2.2 % | 2.0 % | 2.1 % | 2.8 % | | Other certain tax adjustments | (15.7) % | (3.4) % | (9.8) % | (4.0) % | | Adjusted effective tax rate | 18.2 % | 18.2 % | 18.2 % | 18.4 % | Debt to Net Debt Reconciliation As of June 30, 2025, total debt increased to $7,572.5 million, with net debt at $7,015.6 million, up from $5,679.1 million Reconciliation of Debt to Net Debt (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Debt, both current and long-term | $7,572.5 | $6,204.6 | | Cash and cash equivalents | (556.9) | (525.5) | | Net debt | $7,015.6 | $5,679.1 | Company Information & Disclosures About the Company Zimmer Biomet is a global medical technology leader with 90+ years of experience, offering a comprehensive portfolio to maximize mobility and improve health - Zimmer Biomet is a global medical technology leader with a comprehensive portfolio focused on maximizing mobility and improving health[16] - The company integrates innovative products with digital and robotic technologies, leveraging data, data analytics, and artificial intelligence[16] - With over 90 years of leadership, Zimmer Biomet operates in 25+ countries and sells in 100+ countries[17][18] Website Information Important investor information is routinely posted on Zimmer Biomet's "Investor Relations" website, complying with Regulation FD - Important information for investors is routinely posted on www.zimmerbiomet.com in the "Investor Relations" section[20] - The website is used for disclosing material, non-public information and complying with Regulation FD[20] Forward-Looking Statements & Risks Forward-looking statements face significant risks including competition, pricing, new product development, acquisition integration, supply chain, and regulatory changes - Forward-looking statements are based on current beliefs and assumptions, subject to significant risks and uncertainties that could cause actual outcomes to differ materially[30] - Key risks include competition, pricing pressures, dependence on new product development, challenges in attracting and retaining skilled employees, and shifts in product/regional sales mix[31] - Other significant risks involve the successful execution of restructuring plans, integration of acquired companies (e.g., Paragon 28), business disruptions, breaches of IT systems, healthcare reform impacts, and changes in tax and regulatory environments[31][32]