Zimmer Biomet Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet third quarter 2021 earnings conference call. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, November 4th, 2021. Following today's presentation, there will be a question and answer session. At this time, all participants are in a listen-only mode. If you have a question, please press the star followed by the one on your push-button phone. I would now like to turn the conference over to Carrie Maddox, Senior Vice President, Investor Relations, and Chief Communications Officer. Please go ahead.

Thank you, Operator, and good morning, everyone. I hope you are all well and safe. Welcome to Zimmer Biomet's third quarter 2021 earnings conference call. Joining me today are Brian Hansen, our Chairman, President, and CEO, and EVP and CFO, Suki Upadhyay. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. Please note we assume no obligation to update these forward-looking statements, even if actual results or future expectations change materially. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties in addition to the inherent limitations of such forward-looking statements. The discussions on this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within our Q3 earnings release, which can be found on our website, ZimmerBiomet.com. With that, I'll now turn the call over to Brian. Brian?

All right, great. Thanks, Kerry, and thanks, everyone, for joining us this morning. Let me just start with the things that I'm happy about when it comes to Q3. First of all, I'm happy on our progress with our new product introductions. They're going quite well. Our execution on recent M&A is going as planned, if not better. Our commercial focus and our discipline is as good as I've seen it. And I'm very happy with our growth versus our key competitors in both large joints and in set, particularly when it comes to the U.S. The team, in my view, continues to drive results in the areas under our control. And as a result, I continue to be proud of them for doing so. Alternatively, Q3 was also a quarter with unexpected negative environmental impacts that are, for the most part, out of our control. Q3 brought greater COVID pressure than I think anybody expected. More customer staffing shortages certainly than we expected, and an earlier China VVP impact than we anticipated. And this resulted in Q3 revenues that were lower than we had projected. And unfortunately, we expect these pressure points to continue into Q4. And as a result, we need to update our 2021 financial guidance and really the view we have of the fourth quarter. As we look forward, until we see a fundamental shift in these trends, we're just going to assume that these pressure points aren't going away, but will be with us into Q4 and possibly into early 2022. Let's just start by taking a look at COVID and staffing concerns kind of together, because I believe they're somewhat related. As I think most of us know by now, there was a significant Delta variant surge in Q3 that drove more COVID pressure than, again, I think anybody expected. We previously thought COVID pressure would lessen through the back half of the year, but instead, while procedures did seasonally step up in September, it wasn't by as much as we expected, again, due to the enhanced COVID and staffing pressures. And as a result, September was our least attractive month relative to growth. And until we see a real shift in COVID and staffing-related recovery, we're projecting that the pressure we saw in September will continue through the end of the year. Okay, so that's a view of COVID. If we think about China VBP, the process in China is moving forward. And although it's still fluid, we are getting more clarity on what it will mean this year and in 2022. And our assumption going into the process was that VBP would pose no more than a 1% risk in terms of impact to ZB's overall revenue. And although, for a number of reasons, the overall impact will likely be greater than what we originally anticipated, we do believe that sizing this at around 1% of revenue impact is still accurate. That is the right way to size it. That said, the timing of the revenue impact has definitely shifted forward, and we now expect that much of this impact will be felt in 2021. And there are a few factors that are driving this shift into 2021. The first one is around current year inventory reductions by distributors. The second is around just ongoing negotiations we have with our distributor partners that are beginning to include price concessions on existing inventory. And then, unfortunately, we're now seeing patients defer their surgeries until after the lower VVP pricing is in effect. Apparently, even though China achieves near universal public medical coverage, there are out-of-pocket expenses that increase or decrease based on implant pricing. And this is substantial enough for patients to defer their procedures. So clearly in summary, although we feel very good about our execution in the areas we can control, these macro environmental issues continue to mute our overall performance. And these are fluid. These issues for sure, they're fluid. But we've done our best to incorporate our current view of their impact in our revised guidance. And I think that's a pretty good segue to move to Sukhi's section, where he's going to focus on Q3 financial performance, and I think very importantly, our forward-looking guidance. Okay, Sukhi?