Zimmer Biomet(US:ZBH)2023-02-03 17:53Financial Data and Key Metrics - Q4 2022 net sales were $1.825 billion, up 2.7% reported and 8.3% on a constant currency basis [50] - Full-year 2022 free cash flow totaled $910 million, with Q4 free cash flow at $115 million [55] - Adjusted diluted EPS for Q4 was $1.88, up from $1.79 in Q4 2021 [79] - 2023 guidance includes reported revenue growth of 1.5% to 3.5%, with constant currency growth of 3% to 5% [56] Business Line Performance - Global knees grew 10.2%, with U.S. knees up 10.8% and international knees up 9.3% [51] - Global hips grew 8.4%, with U.S. hips up 9.5% and international hips up 10.8% [51] - Sports, extremities, and trauma (SET) grew 7.6%, driven by CMFT, sports medicine, and upper extremities [78] Market Performance - U.S. sales grew 6.2%, driven by elective procedure recovery and strong execution in knees and hips [77] - International sales grew 11.1%, with strong performance in EMEA and APAC, despite COVID-19 impacts in China [77] Strategy and Industry Competition - The company is in Phase 3 of its transformation, focusing on portfolio transformation to increase revenue in faster-growing markets [38] - Innovation is a key competitive advantage, with over 50 new product launches from 2018 to 2022 and plans for 40+ more by 2025 [47][48] - The company is targeting acquisitions in robotics, data, ASC settings, and faster-growing orthopedic sub-segments like sports and extremities [39] Management Commentary on Operating Environment and Future Outlook - The company expects supply chain challenges to persist through the first half of 2023, with improvement in the second half [64] - Pricing headwinds are expected to be slightly better than the historical average of 200-300 basis points [82] - The company is confident in its ability to deliver solid growth and earnings performance in 2023, despite a dynamic environment [58] Other Important Information - The company reduced net debt by approximately $150 million in Q4, ending the quarter with $375 million in cash and cash equivalents [55] - The adjusted tax rate for 2023 is expected to be broadly in line with 2022 at 16.5% [81] Q&A Summary Question: FX impact and EPS flow-through - FX was a 150 basis point headwind, improved from an initial estimate of 300 basis points [9] - EPS flow-through is expected to be 20% to 30%, slightly lower than the previous year [11] Question: Growth in the SET segment - The company expects mid-single-digit growth in SET for 2023, driven by upper extremities, sports business, and CMFT [14][15] Question: Operating margin levers - Revenue growth, sourcing improvements, and SG&A leverage are key drivers for operating margin expansion [23][26] Question: Recon market growth - The recon market grew 8% in 2022, driven by easier comps and better pricing, but this growth is not expected to be sustainable [29][30] Question: Robotic shoulder opportunity - The company expects to be first to market with its robotic shoulder platform, which is seen as transformational [34][35] Question: M&A strategy - The company is focused on smaller to midsized deals that enhance its position in faster-growing markets like robotics, sports, and extremities [38][39] Question: Pricing performance - Pricing erosion in 2022 was 100-150 basis points, better than the historical average of 200-300 basis points, with expectations for 2023 to be slightly better than the historical average [123][124] Question: Supply chain challenges - Supply chain challenges are broad-based, affecting materials, labor, and sterilization capacity, with improvement expected in the second half of 2023 [132][151] Question: Innovation pipeline - The company has a robust innovation pipeline, with key products like Persona OsseoTi and HipInsight expected to drive growth [149][150] Question: China market outlook - The company sees China as an attractive market for growth in 2023 and beyond, with COVID impacts stabilizing [187][204]