Zimmer Biomet Reports Second Quarter 2017 Financial Results

WARSAW, Ind., July 27, 2017 /PRNewswire/ — Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter ended June 30, 2017.  The Company reported second quarter net sales of $1.954 billion, an increase of 1.1% over the prior year period, and an increase of 2.1% on a constant currency basis.  Excluding approximately 240 basis points of contribution from the LDR Holding Corporation acquisition, second quarter 2017 revenues decreased 1.3% from the second quarter of 2016, or 0.3% on a constant currency basis.

Diluted earnings per share for the quarter were $0.90.  Adjusted diluted earnings per share for the quarter were $2.08, an increase of 3.0% over the prior year period.

“During the second quarter, we increased production output from our Warsaw North Campus manufacturing facility, and continued to drive efforts to achieve best-in-class quality systems.  Our sales growth fell short of our expectations, due in part to production delays of certain key brands and slower-than-expected sales recapture from previously affected customers in the United States.  These factors have informed our updated outlook for the full year,” said Daniel P. Florin, Interim Chief Executive Officer, Senior Vice President and Chief Financial Officer of Zimmer Biomet.  “Looking forward, we remain focused on fully restoring product supply to enhance our commercial execution, while continuing to closely engage with our customers and take advantage of the opportunities in front of us.”

“We have great confidence in Dan as he transitions into the role of Interim CEO. He has already begun to leverage his deep knowledge of Zimmer Biomet and decades of medical device industry experience to lead the Company during this period,” said Larry C. Glasscock, Chairman of the Board of Zimmer Biomet.  “We have initiated a thorough search to identify the best candidate to serve as Zimmer Biomet’s next CEO.  We are seeking a strong leader, whose strategic and operational track record aligns with Zimmer Biomet’s commitment to growth and enhancing stockholder value.”

Net earnings for the second quarter were $184.2 million, and $424.6 million on an adjusted basis, an increase of 4.3% over the prior year period.  Operating cash flow for the second quarter was $440.5 million.

In the quarter, the Company paid $48.4 million in dividends and declared a second quarter dividend of $0.24 per share.  The Company has made approximately $650 million of net debt repayments through the first half of 2017.

Guidance
The Company is updating its full-year 2017 constant currency revenue and adjusted earnings per share guidance.  For the full year, the Company now expects revenue in the range of $7.80 billion to $7.87 billion, representing constant currency revenue growth of 1.8% to 2.7% compared to the prior year, inclusive of approximately 120 basis points of contribution from the LDR transaction.  Previously, the Company had expected full-year, constant currency revenue growth between 3.2% and 4.2%, inclusive of approximately 120 basis points of contribution from the LDR transaction.  Additionally, the Company now expects its full-year 2017 diluted earnings per share to be in a range of $4.15 to $4.35, and in a range of $8.20 to $8.30 on an adjusted basis.  Previously, the Company had expected full-year 2017 diluted earnings per share to be in a range of $4.68 to $4.88, and in a range of $8.50 to $8.60 on an adjusted basis.

For the third quarter of 2017, the Company expects revenue in the range of $1.815 billion to $1.845 billion, representing constant currency revenue growth of negative 0.5% to positive 1.0% compared to the prior year period, inclusive of approximately 30 basis points of contribution from the LDR transaction.  Additionally, the Company expects its diluted earnings per share for the third quarter to be in a range of $0.60 to $0.70, and in a range of $1.72 to $1.77 on an adjusted basis.

Conference Call
The Company will conduct its second quarter 2017 investor conference call today, July 27, 2017, at 8:00 a.m. Eastern Time.  The live audio webcast can be accessed via Zimmer Biomet’s Investor Relations website at http://investor.zimmerbiomet.com.  It will be archived for replay following the conference call.

Individuals in the U.S. and Canada who wish to dial into the conference call may do so by dialing (888) 312-9837 and entering conference ID 7278985.  For a complete listing of international toll-free and local numbers, please visit http://investor.zimmerbiomet.com.  A digital recording will be available 24 hours after the completion of the conference call, from July 28, 2017 to August 26, 2017.  To access the recording, U.S. callers should dial (888) 203-1112 and international callers should dial +1 (719) 457-0820, and enter the Access Code ID 7278985.

Sales Tables
The following sales tables provide results by geography and product category, as well as the percentage change compared to the prior year quarter and six months, on both a reported and a constant currency basis.

About the Company
Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer Biomet is a global leader in musculoskeletal healthcare. We design, manufacture and market orthopaedic reconstructive products; sports medicine, biologics, extremities and trauma products; office based technologies; spine, craniomaxillofacial and thoracic products; dental implants; and related surgical products.

We collaborate with healthcare professionals around the globe to advance the pace of innovation. Our products and solutions help treat patients suffering from disorders of, or injuries to, bones, joints or supporting soft tissues. Together with healthcare professionals, we help millions of people live better lives.

We have operations in more than 25 countries around the world and sell products in more than 100 countries. For more information, visit www.zimmerbiomet.com or follow Zimmer Biomet on Twitter at www.twitter.com/zimmerbiomet.

Website Information
We routinely post important information for investors on our website, www.zimmerbiomet.com, in the “Investor Relations” section.  We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD.  Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts.  The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Note on Non-GAAP Financial Measures
This press release includes non-GAAP financial measures that differ from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”).  These non-GAAP financial measures may not be comparable to similar measures reported by other companies and should be considered in addition to, and not as a substitute for, or superior to, other measures prepared in accordance with GAAP.

Sales change information for the three- and six-month periods ended June 30, 2017 is presented on a GAAP (reported) basis and on a constant currency basis, as well as on a basis that excludes the contribution from the Company’s acquisition of LDR Holding Corporation in July 2016.  Constant currency rates exclude the effects of foreign currency exchange rates.  They are calculated by translating current and prior-period sales at the same predetermined exchange rate.  The translated results are then used to determine year-over-year percentage increases or decreases.  Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this press release.

Net earnings, diluted earnings per share and projected diluted earnings per share are presented on a GAAP (reported) basis and on an adjusted basis.  Adjusted diluted earnings per share excludes the effects of inventory step-up; certain inventory and manufacturing-related charges connected to discontinuing certain product lines, quality enhancement and remediation efforts; special items; intangible asset amortization; any related effects on our income tax provision associated with these items; and other certain tax adjustments.  Special items include expenses resulting directly from our business combinations and/or global restructuring, quality and operational excellence initiatives, including employee termination benefits, certain contract terminations, consulting and professional fees, dedicated project personnel, asset impairment or loss on disposal charges and other items.  Other certain tax adjustments include a tax restructuring that lowered the tax rate on deferred tax liabilities recorded on intangible assets recognized in acquisition-related accounting, net favorable resolutions of various tax matters, and charges from internal restructuring transactions that provide the Company access to cash in a tax efficient manner.

Management uses these non-GAAP financial measures internally to evaluate the performance of the business and believes they are useful measures that provide meaningful supplemental information to investors to consider when evaluating the performance of the Company.  Management believes these measures offer the ability to make period-to-period comparisons that are not impacted by certain items that can cause dramatic changes in reported operating results, to perform trend analysis, to better identify operating trends that may otherwise be masked or distorted by these types of items and to provide additional transparency of certain items.  In addition, certain of these non-GAAP financial measures are used as performance metrics in the Company’s incentive compensation programs.

Cautionary Statement Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, among others, statements regarding sales and earnings guidance and any statements about our expectations, plans, strategies or prospects.  We generally use the words “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “assumes,” “guides,” “targets,” “forecasts,” “sees,” “seeks,” “should,” “could,” “intends” and similar expressions to identify forward-looking statements.  Such statements are based upon the current beliefs and expectations of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual outcomes and results to differ materially.  These risks, uncertainties and changes in circumstances include, but are not limited to: our chief executive officer transition, including disruptions and uncertainties related thereto, our ability to appoint a permanent successor with the desired level of experience and expertise in a timely manner, the potential impact on our business and future strategic direction resulting from our transition to a new chief executive officer, and our ability to retain other key members of senior management; the possibility that the anticipated synergies and other benefits from mergers and acquisitions will not be realized, or will not be realized within the expected time periods; the risks and uncertainties related to our ability to successfully integrate the operations, products, employees and distributors of acquired companies; the effect of the potential disruption of management’s attention from ongoing business operations due to integration matters related to mergers and acquisitions; the effect of mergers and acquisitions on our relationships with customers, vendors and lenders and on our operating results and businesses generally; compliance with the Deferred Prosecution Agreement entered into in January 2017; the success of our quality and operational excellence initiatives; challenges relating to changes in and compliance with governmental laws and regulations, including regulations of the U.S. Food and Drug Administration (FDA) and foreign government regulators, such as more stringent requirements for regulatory clearance of products; the ability to remediate matters identified in any inspectional observations or warning letters issued by the FDA, while continuing to satisfy the demand for our products; the outcome of government investigations; price and product competition; changes in customer demand for our products and services caused by demographic changes or other factors; the impact of healthcare reform measures; reductions in reimbursement levels by third-party payors and cost containment efforts of healthcare purchasing organizations; dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; control of costs and expenses; the ability to obtain and maintain adequate intellectual property protection; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures or examinations by tax authorities; product liability and intellectual property litigation losses; the ability to retain the independent agents and distributors who market our products; dependence on a limited number of suppliers for key raw materials and outsourced activities; changes in general industry and market conditions, including domestic and international growth rates and general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations; and the impact of the ongoing economic uncertainty affecting countries in the Euro zone on the ability to collect accounts receivable in affected countries.  For a further list and description of such risks and uncertainties, see our reports filed with the U.S. Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2016 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.  Copies of these filings, as well as subsequent filings, are available online at www.sec.gov, www.zimmerbiomet.com or on request from us.  Forward-looking statements speak only as of the date they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Readers of this release are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate.  This cautionary statement is applicable to all forward-looking statements contained in this release.

SOURCE Zimmer Biomet Holdings, Inc.