Zimmer Biomet(US:ZBH)2022-05-03 17:03Financial Data and Key Metrics Changes - Net sales for Q1 2022 were $1.663 billion, an increase of 3.9% on a reported basis and 6.8% on a constant currency basis compared to Q1 2021 [12] - GAAP diluted earnings per share (EPS) decreased to $0.35 from $0.92 in Q1 2021, primarily due to unrealized investment losses and higher litigation-related charges [15] - Adjusted diluted EPS from continuing operations increased to $0.61 from $0.55 in Q1 2021, driven by higher sales and lower interest expenses [16] - Adjusted gross margin was 70.6%, lower than the previous year due to higher input costs, partially offset by better volume and mix [16] - Operating cash flows from continuing operations were $360 million, with free cash flow totaling $223 million for the quarter [17] Business Line Data and Key Metrics Changes - Global knees grew 11%, with U.S. knees up 11.7% and international knees up 10.1%, driven by strong commercial execution and recovery in knee procedures [14] - Global hips grew 4.5%, with U.S. hips up 3.3% and international hips up 5.6%, supported by recovery in primary and revision hip procedures [15] - The sports and extremities and trauma category increased by 1.8%, driven by strong performance in sports medicine and upper extremities [15] - The other category grew by 11.5% [15] Market Data and Key Metrics Changes - U.S. sales grew 5.8% due to a strong recovery as COVID cases subsided and elective procedures returned, with cancellation rates returning to pre-pandemic levels [12][13] - International sales grew 8.1%, driven by strong growth across Europe despite COVID surges in certain markets [14] Company Strategy and Development Direction - The company is focusing on innovation and has a strong new product pipeline, including AI-based solutions and robotics [7][8] - The company is committed to environmental, social, and governance (ESG) initiatives and has made significant progress in this area [9] - Active portfolio management is a key strategy, with the recent spin-off of ZimVie being part of this approach [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in 2022 growth due to stronger-than-expected COVID recovery, despite facing headwinds such as supply challenges and inflation [6][10] - The company raised and tightened its full-year guidance based on the positive trends observed in Q1 [11][19] - Management acknowledged ongoing staffing pressures in hospitals but noted improvements in procedure volumes [23][24] Other Important Information - The company has committed to key environmental standards and has enhanced its ESG reporting [9] - The company is actively managing its debt, having reduced it by about $650 million in Q1 [17] Q&A Session All Questions and Answers Question: What is the view on hospital-level staffing and CapEx spending headwinds? - Management acknowledged ongoing staffing pressures but noted improvements in procedure volumes and cancellation rates returning to pre-pandemic levels [23][24] Question: What are the trends in capital purchasing? - Management indicated that there is no shortage of capital and expressed optimism regarding capital allocation from hospitals [29] Question: How are inflationary pressures expected to impact margins? - Management expects inflationary pressures to be a 150 basis point headwind on margins, with some costs being capitalized into 2023 [34] Question: What is the outlook for China volumes and the impact of VBP? - Management noted that while China volumes have been negatively impacted by COVID surges, the overall impact was in line with expectations [38] Question: How is the company thinking about market share in the U.S.? - Management expressed confidence in market share growth, supported by a strong pipeline of new products and innovations [46][48] Question: What is the strategy for M&A post-spin? - Management emphasized active portfolio management and the importance of maintaining investment-grade ratings while exploring M&A opportunities [54][56]