- Zimmer Biomet's knee business grew 4.3% in its most recent earnings period, outpacing the 3.8% uptick seen during the third quarter. A little more than half of that momentum was tied to its Rosa robot-assisted surgery platform, management said Tuesday.
- Aside from Rosa, the base knee business had one of its best growth quarters since Zimmer and Biomet merged in 2015, CEO Bryan Hanson said. Still, sales of the company's knee products needs to be able to outperform the overall market and are "not there yet."
- The company also announced it's begun a restructuring plan it hopes will grow operating margins 30% by 2023 as it "turns the corner from stabilization to efficiency" almost five years after the roughly $14 billion combination of Zimmer and Biomet. It could see some of those margin gains as early as next year, execs said.
Momentum in the second half of 2019 in particular was reflected in Zimmer Biomet's stock price, which has risen more than 26% in the last eight months. Shares were up more than 5% Tuesday morning.
Quarterly revenue of nearly $2.13 billion, up 2.6% over the prior year, edged out Wall Street's consensus estimate by roughly $20 million. And growth in full-year net sales to about $7.98 billion was up by 0.6%, enough to top the company's expectations given at the outset of 2019 for growth between -0.5% and 0.5%.
For 2020, Zimmer Biomet expects revenue to grow between 2.5% and 3.5%. Analysts at both Needham and Jefferies see the company on a path to hitting 4% growth next year. Much of that confidence stems from the knee business, helped by the continued rollout of its Persona revision knee.
Regarding its Rosa robot-assisted surgery platform, Zimmer said sales of the total knee procedure version of the system ticked up from the third quarter, with the funnel of robot placements "strong as it's ever been" and belief 2020 will "absolutely" be a stronger year for Rosa than 2019.
But the company did not break out system placement figures like rival Stryker. It's going to "take a while to disrupt that inertia" from competitors' systems, Hanson said. Needham analyst Mike Matson estimated Zimmer placed 12 or 13 systems during the quarter, versus eight to 10 in the third quarter, per a note to investors Tuesday. By comparison, Stryker reported it sold 89 in the most recent quarter, up from 51 in the third quarter.
Zimmer execs expect partial knee and hip applications to be greenlighted in 2020, with more details to be presented at the American Academy of Orthopaedic Surgeons meeting in March.
The company is also looking ahead to launching a version of Rosa for spine procedures, which Hanson said is just "part of the equation" in achieving more predictable performance in its spine business. Other levers include 3D-printed implants, its Tether device for treating scoliosis, and its smaller robotic system, the WalterLorenz arm.
Throughout 2019, Zimmer collectively paid down $716 million in debt. Having ended 2019 with roughly $1.1 billion in free cash flow, the company expects to close 2020 with between $1.1 billion and $1.3 billion, which factors in expected restructuring charges. "If we see attractive M&A targets … we may decide to invest capital into M&A in 2020 and beyond," Hanson said.
The company is still working through a "comprehensive remediation plan" at a Warsaw, Indiana manufacturing site after receiving an FDA warning letter in 2018. Hanson said the company does not expect the issue to be fully resolved during 2020.
As part of ZB's restructuring, several businesses are being reorganized, which will lead to certain external reporting changes starting next quarter.
This story has been updated with analyst commentary.