Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zimmer Biomet Holdings Inc (ZBH, Financial) reported a 5.6% growth on a constant currency basis for Q2 2024, marking the 10th consecutive quarter of mid-single digit or above growth.
- The company achieved $2.01 in adjusted earnings per share, representing a 10% growth year-over-year.
- Strong performance in the S.E.T. category, with high-single digit growth in key areas like CMFT, upper extremities, and sports.
- International business outperformed expectations, with significant growth in key markets across both recon and S.E.T. categories.
- Zimmer Biomet Holdings Inc (ZBH) has made significant strides in its hips portfolio, addressing previous market share losses with new product introductions and approvals.
Negative Points
- The US knee business experienced softness in Q2 2024, attributed to high volume surgeons being out of the territory, supply constraints, and tough year-over-year comparisons.
- Gross margin was slightly lower than expected, driven by higher manufacturing costs and an unfavorable mix with stronger international sales.
- Despite positive pricing trends in the first half of the year, the company expects pricing to be flat to slightly down for the full year due to non-recurring benefits in EMEA.
- The company faces ongoing challenges with inflationary pressures on raw materials and third-party manufacturing costs, impacting gross margins.
- Zimmer Biomet Holdings Inc (ZBH) had to pull its TPT application as it did not make economic sense, indicating potential setbacks in monetizing certain technologies.
Q & A Highlights
Q: Can you help us think through the impact of the conversion to cementless and cementless robotic in the US knee business? How is that tracking?
A: Cementless continues to track very nicely with a high adoption rate. We are converting accounts and hope to have cementless not just in the US, but outside of the US very soon. The US knee business saw some temporary issues with high volume surgeons being out, supply constraints, and tough comps, but these have been resolved.
Q: Can you provide an update on the restructuring program and the level of reinvestment from the savings?
A: The restructuring program is slightly ahead of schedule, with $200 million of run rate savings expected by the end of 2025. This has contributed to operating margin expansion, and we are on track with reinvestment plans in R&D and commercial areas.
Q: What is the expected timeline and impact of the new ROSA robots launching over the next few quarters?
A: We plan to launch several new ROSA robots over the next four to eight quarters, including a posterior application for OUS markets, full launch of ROSA Shoulder, and new versions of ROSA for knees. These launches are expected to drive continued double-digit growth in enabling technologies.
Q: How do you view the potential for market share gains in the hip business with new product introductions?
A: We have already started regaining market share with the launch of the surgical impactor HAMMR and expect further gains with the upcoming launch of the triple taper stem and comprehensive navigation systems. The combination of these products positions us well to regain market share in both the US and OUS markets.
Q: Can you elaborate on the OrthoGrid acquisition and its impact on your large joint strategy?
A: The OrthoGrid acquisition provides Zimmer Biomet with AI surgical guidance, adding to our comprehensive suite of navigation solutions. This acquisition enhances our ability to offer faster, better solutions and supports our goal of regaining market share in hips.
Q: What are the drivers behind the strong international performance in hips and knees?
A: Strong international performance is driven by market dynamics, particularly in Europe, and the adoption of ROSA robotics. We continue to see fast adoption of ROSA in key markets outside the US, along with accelerated growth of the Persona family of implants.
Q: How do you view the pricing environment and its impact on gross margins?
A: We saw positive pricing in the first half of the year, driven by gains in EMEA and APAC. For the full year, we expect pricing to be flat to down 50 basis points. Gross margins are expected to step down sequentially in the second half due to inflationary pressures, but we still anticipate meaningful operating margin expansion for the full year.
Q: Can you provide more details on the growth within the S.E.T. category?
A: The S.E.T. category saw growth across all six businesses, with key focus areas like CMFT, sports, and shoulder growing either upper-single digit or double digit. Foot and ankle, trauma, and restorative therapies also showed growth, contributing to the overall strong performance.
Q: How are you approaching geographic diversification and resource allocation outside the US?
A: We have refocused our strategy on 15 key countries that account for 93-95% of the market potential. We are reallocating OpEx and CapEx to these geographies and modifying our commercial infrastructure to better focus on these key markets.
Q: What is the status of the Persona IQ launch and its impact on the market?
A: Persona IQ adoption is accelerating, with a full launch of the short stem extension expected by the end of 2024. We have crossed 3 billion data points and are leveraging this data for risk-sharing agreements with payers. The TPT application was pulled as it did not make economic sense, but we continue to see strong potential for Persona IQ.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
