Zimmer Biomet Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet fourth 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, February 7th, 2022. 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 fourth quarter 2021 earnings conference call. Joining me today are Brian Hampson, 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. Additionally, 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 Q4 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, Carrie, and thanks, everyone, for joining us this morning. I'm going to just give you an outline of how we want the call to proceed this morning. I'm going to spend the first part of the discussion briefly talking about our fourth quarter results. And I'm also going to spend a little bit of time talking about what we're seeing so far in 2022. I know it's early, but I want to give you a sense of what we're seeing already. And then just speak more broadly about our views of 2022 as a whole. And then I'm going to turn it over to Suki, who's going to provide more detail on fourth quarter and obviously more detail on our guidance going forward. And then finally, it'll come back to me before we move to Q&A. I just got a few things I want to close out the prepared remarks with, and then we'll again jump into Q&A. Okay, so first let's start with Q4, and I'm going to break this into really three categories. The first will be around COVID impact in Q4 and how it compared to our expectations. The second will be around VBP impact and again, how that compared to our expectations. And then finally, just performance outside of those environmental impacts and how we performed there. Okay, so let's take a step back first. I think that will help. When we gave our updated Q4 guidance on our Q3 earnings call back in November, we actually outlined our expectations around how COVID and staffing pressure would likely impact our fourth quarter results. And unfortunately, our assumptions largely played out in the quarter. As you probably remember, we felt that the pressure from the end of Q3 would continue into Q4, and thus the overall pressure from COVID and staffing would actually accelerate from Q3 to Q4. And really the big reason this played out, of course, we know now is because of the Omicron surge that occurred towards the end of the fourth quarter. And as many have already stated, a lot of that impact truly came in December itself. So, you know, what's interesting about this surge though, is that even though the overall impact of COVID was about what we expected, the way it manifested was different. Right, so ICU capacity was definitely a factor, but we did not see it as the primary driver of cancellations of procedures during the quarter. Instead, what we actually saw was more cancellations that occurred due to really either the patient or staffing member being diagnosed with COVID or actually having been around someone with COVID and they were quarantining as a result and couldn't show up for the procedure. So that was really the shift that we saw in the quarter. So the overall impact was about what we expected, but the way, again, it manifested in the numbers was slightly different. Okay. So transitioning from there to VBP, remember again, on our Q3 call, we discussed what we thought the impact of China hip and knee VBP would be on our fourth quarter results. And we actually, we were largely right on how that played out. And so our expected headwind and large joints was in line with the expectations that we had and also what we communicated to you. So that was pretty much in check when we think about large joints. Now, what changed during the quarter, actually even post the quarter, was that on January 24th, the Chinese government announced that it was formally nationalizing one of its provincial trauma BBP tenders. And that was kind of new to us. But based on that confirmation from the Chinese government, And really just our knowledge of how the VBP process will work from here. We did take a sales reserve in the fourth quarter, which obviously results then in a negative Q4 impact to both our net sales and adjusted diluted EPS. And what I'll tell you is, you know, that even though this trauma VBP adjustment came earlier than we anticipated, it is pretty consistent with the overall scale of the impact and consistent with our expectations and what we've been talking about more recently. Now, I would say looking forward, you know, the good news is, is we have a lot more visibility now. We're a lot smarter on the topic and we understand what the impact of VBP will now be on our 2022 business. And that has been included in our guidance, which Suki is going to talk about in just a minute. Okay, so now looking past VBP and COVID in the fourth quarter, I'm very proud of the team when we focus on the things we can control. You know, ZB's business execution against a challenging backdrop has been strong. You know, our strength of our team right now, that kind of one ZB culture is as evident as it's ever been, and I think more important than ever. And the team has really been able to move our strategy forward, even in these challenging times. And a few proof points to be able to point at, you know, the team was able to drive continued strong demand and momentum for ROSA. And that is globally, not just in the US, but globally. We actually more than doubled the number of installed ROSAs in 2021. versus our cumulative total at the end of 2020. That's a pretty significant jump up, and again, speaks to the momentum that we have in robotics and orthopedics. And those roses are paying off. In the fourth quarter, those installed roses allowed us to reach 10% in total knee procedure penetration in the US for the first time as a company. That's a huge milestone for the organization, and it's just the beginning of this ROSA journey for us. The team also delivered a successful limited launch of the world's first and really only smart knee, the Persona IQ. Now it's early, obviously early days. We're in the mid-launch right now, as I said, but the launch trajectory feels great. The feedback is good and we're looking forward to a full launch later this year. And then finally, and I think importantly, the team continues to execute in large joints across the board, driving again above market performance in Q4 in the US for both knees and hips versus 2019. Okay, so let's transition from Q4 and talk about what we're seeing so far in early 2022. And I'm going to speak specifically about COVID and staffing challenges. What I would tell you is that the challenges that we saw in Q4, in particular in December, are unfortunately continuing into January. And as a practice, and I think prudently so, our team is continuing to build our financial models using what I'm going to call a recency bias in those models. And as a result of that, we're expecting that December and really now January pressure in COVID and staffing will continue through Q1. So we're basically saying is that overall we anticipate that Q1 will likely be more pressured than Q4 was. And so what does that mean for our outlook for the full year? Well, again, we're going to follow that same approach. We're going to look at 2022 in a similar way, actually in a very similar way in the way we gave guidance for Q4 2021. Until we see a fundamental shift in the current state and what's happening today in the environment, we are projecting that the COVID pressure will continue throughout the year and will actually follow a similar peak and valley trend that we saw in 2021. As I'm sure you can appreciate, given that about 80% of our revenues come from elective procedures, ZB must be highly attuned to this topic, and trust me, we are. We're highly focused in this area, and that has been captured in our assumptions for guidance. And with that, I'm going to transition to Sukhi to give you, again, more detail on Q4 and also our 2022 guidance. Okay, Sukhi?