zimmer-biomet-announces-intent-to-spin-off-spine-and-dental-businesses

Zimmer Biomet Announces Intent to Spin Off Spine and Dental Businesses

 

Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH), a global leader in musculoskeletal healthcare, today announced its intention to spin off the Company’s Spine and Dental businesses to form a new and independent, publicly traded company (“NewCo”).  The planned transaction will enhance the focus of both Zimmer Biomet and NewCo to meet the needs of patients and customers and is expected to achieve faster growth and deliver greater value for all stakeholders.

“As part of the third phase of ZB’s ongoing transformation, we are changing the complexion of our business through active portfolio management in order to accelerate growth and drive value creation,” said Bryan Hanson, President and CEO of Zimmer Biomet.  “For Zimmer Biomet, the transaction is an important step toward shifting our portfolio mix to higher-growth markets where we have a clear path to leadership and right to win.  We believe NewCo will thrive as an independent company with prioritized capital allocation to pursue strategic growth opportunities and investment strategies in the large and growing Spine and Dental markets.  This planned transaction underscores our commitment to ensuring our long-term priorities remain aligned with shareholders’ best interests as we drive the business forward to meet customer needs and advance our mission to alleviate pain and improve the quality of life for people around the world.”

The planned tax-efficient spin-off of NewCo is expected to create value for all stakeholders by achieving the following key goals:

  • Create a stronger growth profile for each company with enhanced management focus, while better aligning resources and processes more directly with the strategic priorities of each business;
  • Improve capital allocation based on the objectives of each independent company;
  • Reduce complexity and improve operating efficiencies; and
  • Provide each company with a compelling financial profile that more accurately reflects the strengths and opportunities of each business and as a result, offers investors a more targeted investment opportunity.

Zimmer Biomet to Sharpen Focus on High Growth, High Priority Areas in Knees, Hips, S.E.T. and CMFT

Following the spin-off, Zimmer Biomet will remain a leader in attractive segments within the orthopedics market, including Knees, Hips, Sports Medicine, Extremities and Trauma (S.E.T.), and Craniomaxillofacial and Thoracic (CMFT).  With a total market of $43.5 billion, the Company has significant opportunities to capture growth and market share.  The Zimmer Biomet portfolio includes highly innovative products, such as ROSA® Knee for robotically-assisted surgeries, the Persona® Primary, Partial, Cementless and Revision Knee Systems, Oxford® Partial Knee, mymobility® with Apple Watch®, OrthoIntel Intelligence Platform, the Avenir Complete™ Hip System, the G7® Acetabular Hip System, Comprehensive® Shoulder System, X Series™ Power Equipment and the Signature™ ONE Surgical Planner.

Zimmer Biomet expects the spin-off to result in an improved financial profile.  The Company delivered 2019 and 2020 pro forma revenue totaling $6.96 billion and $6.128 billion, respectively.  The transaction is expected to be accretive to revenue growth by approximately 50 basis points over the course of the Company’s five-year strategic planning period, accelerate adjusted earnings per share growth and expand the Company’s adjusted EBITDA and operating margins by approximately 125 basis points on a pro forma basis, making its adjusted margin profile compelling among med tech companies.

The Company will maintain its capital allocation priorities of maintaining its investment grade rating while continuing to invest in innovation and execute tuck-in acquisitions in attractive, higher growth markets.

NewCo to Leverage Comprehensive Portfolio of Established Brands and Products

NewCo will be well-positioned in the $21 billion combined global Spine and Dental markets that benefit from attractive fundamentals.  The Spine portfolio addresses all areas of spinal surgery, with enabling technologies to drive pull-through of core spine sales.  The most differentiated products include ROSA® ONE Spine, Mobi-C® Cervical Disc and The Tether™.  The Dental business is a global leader in oral reconstruction and is well-positioned in premium segments of the dental market, including surgical, restorative and digital, and regenerative solutions.  Key products include the T3® Implant, Tapered Screw-Vent® Implant System, Trabecular Metal™ Dental Implant, BellaTek® Encode Impression System and Puros® Allograft Particulate.

NewCo’s 2019 and 2020 pro forma revenue totaled approximately $1.022 billion and $897 million, respectively, supported primarily by a broad geographic revenue base, with meaningful exposure for enhanced revenue growth and margin expansion coming from both established and emerging markets.  NewCo is expected to benefit from free cash flow diversification and a capital structure supportive of innovation and investment.  The Spine and Dental platforms will provide flexibility to pursue multiple avenues to accelerate growth and operating margins.  The planned transaction will also position NewCo to commercialize key new product launches and existing product offerings with a focused execution strategy for each geography in which it operates.  NewCo is expected to drive innovation and extend its competitiveness through product and technology enhancements fueled by optimized resource allocation and targeted deployment, enabling it to meet customer needs more directly.

Leadership

Bryan Hanson will continue to lead Zimmer Biomet as its President and CEO. The search for a NewCo CEO is in its final stages.  The NewCo Board of Directors, management and headquarters will be announced as they are finalized.

Transaction Details   

The transaction is intended to qualify as a tax-free distribution, for U.S. federal income tax purposes, to U.S. shareholders of new publicly traded stock in NewCo.

Zimmer Biomet is targeting completion of the spin-off in mid-2022, subject to the satisfaction of certain conditions including, among others, final approval of Zimmer Biomet’s Board of Directors, receipt of a favorable opinion and Internal Revenue Service ruling with respect to the tax-free nature of the transaction, and the effectiveness of a Form 10 registration statement that will be filed with the U.S. Securities and Exchange Commission.  There can be no assurance regarding the ultimate timing of the proposed transaction or that the transaction will be completed.

Advisors

J.P. Morgan is serving as lead financial advisor to Zimmer Biomet, with Guggenheim Securities serving as financial advisor.  White & Case LLP is acting as legal advisor to Zimmer Biomet.

Conference Call and Webcast

Zimmer Biomet separately reported today fourth quarter and full-year 2020 financial results.  The Company has posted an investor presentation to its website and will host a conference call today at 8:30 a.m. ET to discuss the results and today’s announcement.

The presentation and live audio webcast can be accessed via Zimmer Biomet’s Investor Relations website at https://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 https://investor.zimmerbiomet.com.  A digital recording will be available after the completion of the conference call, from February 5, 2021 to April 6, 2021.  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.

zimmer-biomet-announces-third-quarter-2020-financial-results

Zimmer Biomet Announces Third Quarter 2020 Financial Results

Zimmer Biomet Holdings, Inc. (NYSE and SIX: ZBH) today reported financial results for the quarter ended September 30, 2020.  The Company reported third quarter net sales of $1.929 billion, an increase of 2.0% over the prior year period, and an increase of 1.1% on a constant currency basis.  Net earnings for the third quarter were $242.5 million.  Net earnings on an adjusted basis were $376.8 million.

Diluted earnings per share were $1.16 for the third quarter, a decrease of 44.2% from the prior year period.  Adjusted diluted earnings per share were $1.81 for the third quarter, an increase of 2.3% over the prior year period.

“While the stronger than expected recovery of elective procedures in the third quarter was encouraging, we also remain focused on ZB’s strong operational execution, which continues to drive confidence in our underlying business,” said Bryan Hanson, President and CEO of Zimmer Biomet.  “It is important to note that the challenges and fluidity around COVID-19 persist as we move into the end of the year. Still, we will continue to transform our business, invest for greater value and prioritize innovation to better position the Company for accelerated growth over the long term.  I am so proud of our global team for the support we provide healthcare professionals and patients every day and our ongoing commitment to the ZB mission to better the lives of people around the world.”

While the recovery from COVID-19 continued in the third quarter, the pace of procedure volume and patient returns slowed toward the end of the period, with overall performance still negatively impacted by the pandemic. Stronger recovery was seen in the Americas and Asia Pacific in the quarter, with a slower return in regions within Europe, the Middle East and Africa (EMEA).

Please see the attached schedules accompanying this press release for additional details on performance in the quarter, including sales by Zimmer Biomet’s three geographies and five product categories.

Recent Highlights

Aligned with Zimmer Biomet’s active portfolio management strategy and the ongoing transformation of the business, the Company has invested in priority and right-to-win areas to drive long-term growth, including two recently completed acquisitions.  Collectively, these deals total approximately $80 million in initial spend and up to $98 million in deferred and milestone payments and add new or soon-to-be launched product offerings to the Zimmer Biomet portfolio:

  • Incisive LLC, a privately-held operating room (OR) solutions company in the expanding $1.2 billion global integrated OR market; Incisive’s technology drives efficiency in the surgical setting through a comprehensive offering of “smart OR” infrastructure, including surgical booms and lights with a smaller footprint as well as proprietary data analytics and artificial intelligence capabilities; this approach reduces acquisition and construction costs and is especially attractive to ambulatory surgery center (ASC) customers; revenues will be recorded in the Company’s S.E.T. segment
  • Relign Corp., a privately-held company in the attractive and growing $1.6 billion arthroscopy market and overall $5 billion sports medicine market; Relign’s offerings include the consolidation of three differentiated arthroscopy tower components into a single system, a first in the industry, and address a key portfolio gap for Zimmer Biomet in the sports medicine and broader ASC markets; revenues will be recorded in the Company’s S.E.T. segment

Geographic and Product Category Sales

The following sales tables provide results by geography and product category for the three and nine-month periods ended September 30, 2020, as well as the percentage change compared to the prior year periods, on both a reported basis and a constant currency basis.

NET SALES – THREE MONTHS ENDED SEPTEMBER 30, 2020

(in millions, unaudited)

Constant

Net

Currency

Sales

% Change

% Change

Geographic Results

Americas

$

1,216.5

3.2

%

3.3

%

EMEA

366.2

(2.3)

(5.7)

Asia Pacific

346.6

2.3

0.7

Total

$

1,929.3

2.0

%

1.1

%

Product Categories

Knees

Americas

$

402.6

0.9

%

0.9

%

EMEA

126.6

(6.4)

(9.5)

Asia Pacific

119.5

1.7

(0.1)

Total

648.7

(0.5)

(1.4)

Hips

Americas

268.6

7.9

8.0

EMEA

109.7

0.8

(2.6)

Asia Pacific

105.8

4.4

2.9

Total

484.1

5.4

4.4

S.E.T *

359.9

3.3

2.5

Dental, Spine & CMFT**

295.5

7.3

6.5

Other

141.1

(10.3)

(11.1)

Total

$

1,929.3

2.0

%

1.1

%

* Sports Medicine, Extremities and Trauma

** Craniomaxillofacial and Thoracic

 

NET SALES – NINE MONTHS ENDED SEPTEMBER 30, 2020

(in millions, unaudited)

Constant

Net

Currency

Sales

% Change

% Change

Geographic Results

Americas

$

3,051.5

(14.9)

%

(14.8)

%

EMEA

983.0

(23.0)

(22.7)

Asia Pacific

904.7

(8.8)

(9.0)

Total

$

4,939.2

(15.7)

%

(15.6)

%

Product Categories

Knees

Americas

$

1,003.9

(17.9)

%

(17.9)

%

EMEA

344.5

(27.4)

(27.0)

Asia Pacific

304.3

(13.6)

(13.4)

Total

1,652.7

(19.4)

(19.2)

Hips

Americas

671.8

(10.3)

(10.2)

EMEA

291.9

(20.6)

(20.4)

Asia Pacific

282.7

(7.0)

(7.2)

Total

1,246.4

(12.3)

(12.2)

S.E.T *

946.1

(10.9)

(10.8)

Dental, Spine & CMFT**

729.7

(14.7)

(14.7)

Other

364.3

(22.2)

(22.2)

Total

$

4,939.2

(15.7)

%

(15.6)

%

* Sports Medicine, Extremities and Trauma

** Craniomaxillofacial and Thoracic

Cash Flow and Balance Sheet

Cash provided by operating activities for the third quarter was $381.3 million and free cash flow was $287.2 million.  At September 30, 2020, the Company had $967.3 million in cash and cash equivalents on the balance sheet.  In the third quarter, the Company paid $49.6 million in dividends and declared a dividend of $0.24 per share.  As previously announced, Zimmer Biomet refinanced $1.5 billion in debt that came due April 1, 2020, renegotiated the terms of its $1.5 billion revolver and secured an additional $1.0 billion credit facility.  No borrowings are outstanding under these credit facilities.

Financial Guidance

While Zimmer Biomet saw encouraging recovery in elective procedures during the third quarter, there continues to be uncertainty around the scope and duration of COVID-19 and its ongoing impact. Therefore, the Company is currently unable to quantify the expected impact on its results of operations, financial condition and cash flows, which could be material, for 2020 and is not providing fourth quarter financial guidance at this time.

Conference Call

The Company will conduct its third quarter 2020 investor conference call today, November 6, 2020, at 8:30 a.m. ET.  The audio webcast can be accessed via Zimmer Biomet’s Investor Relations website at https://investor.zimmerbiomet.com.  It will be archived for replay following the conference call.