Zimmer Biomet(US:ZBH)2021-02-05 18:35Financial Data and Key Metrics Changes - Net sales in Q4 2020 were $2.085 billion, a reported decrease of 1.9% and a constant currency decrease of 3.7% compared to 2019 [33] - GAAP diluted earnings per share were $1.59, and adjusted diluted earnings per share were $2.11, with adjusted EPS down about 10% due to lower operating margin and higher share count [39] - Free cash flow totaled $329 million, higher than the same period in 2019, driven by better working capital and lower capital expenditures [43] Business Line Data and Key Metrics Changes - Global knee business declined 4.8%, while U.S. knee business grew 1.8% and Asia Pacific knee business increased 2.9% [37] - Global hip business decreased 3.4%, with U.S. hips and APAC hips growing 1.4% and 1.3%, respectively [38] - Sports, extremity, and trauma sales declined 3.3%, while Dental, Spine, and CMFT increased 0.8% [38] Market Data and Key Metrics Changes - Asia Pacific region grew 2% versus Q4 2019, with growth across Japan, China, and Australia/New Zealand [34] - EMEA region decreased 17.5% versus 2019, impacted by COVID-19 surges and lockdowns [35] - Americas region was flat, decreasing 0.3% compared to 2019, with strong demand for innovative product introductions helping to buoy performance [36] Company Strategy and Development Direction - The company is undergoing a transformation with a planned spin-off of its Spine and Dental businesses to create two independent, publicly traded companies [22][24] - The spin-off is expected to enhance management focus, drive increased growth and efficiency, and create greater value for shareholders [23][25] - The long-term growth strategy aims for a 4% to 5% growth rate and a 30% operating margin profile by the end of 2023 [28] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the impact of COVID-19 vaccines on elective procedures and the potential for a backlog of deferred procedures to drive future growth [13][46] - The company anticipates continued pressure from COVID-19 in Q1 2021 but expects recovery as vaccine distribution increases [12][44] - Management emphasized confidence in the core business and ongoing innovation, with several new product launches planned for 2021 [20][28] Other Important Information - The company implemented cost containment initiatives, resulting in lower operating expenses compared to the previous year [41] - The adjusted tax rate for Q4 was 15%, better than the previous year due to geographic mix of income [42] - The company plans to pay down an additional $500 million of debt in 2021 to maintain its investment-grade rating [48] Q&A Session Summary Question: Thoughts on capital allocation and COVID impact - The company remains focused on tuck-in acquisitions with low dis-synergy risk and plans to strengthen its balance sheet while paying down debt [58][60] - Deferred procedures are estimated to be in the hundreds of millions of dollars, creating a backlog to work through once the pandemic subsides [61][62] Question: Spin-off timing and strategy - The spin-off aligns with the company's transformation phases and is seen as a significant way to drive value for shareholders [74][75] Question: Digital ecosystem in orthopedics - The company is focused on creating a digital ecosystem that includes surgical planning, robotics, and data analytics to improve patient outcomes [76][77] Question: Margins of Spine and Dental businesses - The gross margin profile of Spine and Dental businesses is below the overall company average, but there are opportunities for margin enhancement through top-line growth and efficiency [81][82] Question: Revenue growth cadence and operating margins for 2021 - The company is not providing specific guidance due to uncertainties but anticipates potential strong growth once vaccine adoption occurs [84][86]