Inside the OEM: Zimmer Biomet

In August 2023, Zimmer Biomet appointed a new president and chief executive officer. With Ivan Tornos now at the helm, Zimmer has seen substantial improvement in end markets, with strong patient demand and procedure volume, particularly in knee and hip procedures. But a new strategic focus is front and center: Zimmer Biomet is making significant investments in innovation across all stages of the ambulatory surgery center process, including before, during, and after surgery. This investment aims to improve efficiency, outcomes, and safety for patients undergoing procedures at ambulatory surgery centers.

Tornos emphasizes that it is best in class in solving problems and delivering efficiency, outcomes, and safety in ambulatory surgery centers (ASCs). This suggests that Zimmer Biomet is committed to providing high-quality solutions for procedures performed in ambulatory surgery centers. He spoke about this new strategy at the company’s fourth quarter 2023 earnings conference call in February.

The ASC strategy outlined by Zimmer Biomet is not a short-term commitment but rather a multi-year commitment. The company is confident that its detailed plans will enable it to achieve its growth targets, including revenue growth and earnings per share growth. Tornos said Zimmer is confident in its ability to deliver on its commitments, help patients, create shareholder value, and fulfill its mission of improving healthcare outcomes through procedures performed at ASCs.

The company is focusing on developing and launching new products tailored for ASC settings. For example, the launch of ROSA Shoulder indicates a strategic emphasis on providing solutions specifically designed for ASC procedures. The company plans to leverage its commercial capabilities to penetrate the ASC market effectively. This includes targeted marketing efforts and ensuring that products are well positioned to meet the needs of ASCs.

The confidence in the growth potential of ASCs is driven by healthier market dynamics and a positive outlook for ASC utilization. Overall, Zimmer’s strategy for ASCs involves a combination of product innovation, targeted marketing, and leveraging market trends to capitalize on the growth opportunities presented by ASCs.

Performance and Pipeline

Zimmer Biomet experienced a successful year in 2023, with notable achievements such as revenue growth of 7.5 percent, adjusted earnings per share growth of almost 9.5 percent, and generating nearly a billion dollars in free cash flow.

“Simply put, 2023 was just a great year for our company — strong performance top to bottom. We did struggle with some supply challenges throughout some of the periods. I’m happy that’s behind us, but it was a headwind in many periods in 2023.

Zimmer Biomet has doubled the size of its product pipeline since 2018 and says it has exciting new product launches planned for 2024, particularly in the hip area, with a goal of regaining market momentum.

“We’ve got great new product launches happening in early 2024. We’ve created a stable supply environment. We are developing flawless commercial execution as evidenced by these growth rates. We have seen and we continue to see a substantial improvement in our end markets,” he said. “This is not the same market growth profile that we used to have. Patient demand is strong. Volume is very strong given a variety of reasons. As a market leader in both knees and hips, being in better markets is just very exciting as we enter 2024.”

He added, “We’re not going back to the 3 percent days when it comes to a market growth rates. Both internal and external dynamics give us confidence that the best is truly ahead. When you add to all of these variables the fact that we have the strongest balance sheet in the history of the company, there is no doubt then that we can claim that our future is nothing short of truly right.”

Long-Range Plans

Tornos emphasized that this turnaround is “not a one-year wonder” but rather a multiyear commitment, noting that Zimmer Biomet has entered a growth stage.

“We’re no longer in turnaround mode. We’re ready to deliver by being laser focused on the three strategic imperatives: people and culture, operational excellence, and innovation and diversification.”

People and culture is about having the right people in the right roles within the right culture. “We must make sure that we support team members to act as owners and operators of the business,” said Tornos. “This means decentralizing decision making, driving agility, and empowering team members at every level, across every function around the world. We must become leaner, and we’ve got to be closer to the customer,” he said.

Equally important, he said, is that Zimmer must truly live an environment of pay for performance. “This is something that has already kicked off in a very meaningful way in the fiscal year in this fiscal year 2024. An example of that is the fact that we are incentivizing free cash flow dollar generation or growth in a much more disciplined way across the enterprise, knowing that revenue is also the most durable driver of free cash flow performance.”

In operational excellence, Tornos points to the restructuring of the company. “Again this is about how we think about growing the business top to bottom. It is tough to restructure the company, and it’s certainly something that we don’t take lightly. We had to do it. It’s a tough choice once again, but we needed to make operational changes to simplify our restructure to deliver greater efficiency and to ensure that we enhance investments in the right areas of the business — again closer to the customer.”

Beyond the restructuring, other initiatives in the area of operational excellence include drastically reducing inventory levels at Zimmer Biomet. This will drive substantial improvement in the company’s free cash flow while also reducing days on hand by 50 days or more and reducing excess and obsolescence exposure. This, Tornos, said, is something that Zimmer had not done that well in previous years.

Zimmer also has a global initiative to drive new product launch excellence across the key new product introductions that we have in the year 2024. In simple terms, he said, for the seven or eight most meaningful product launches, the company will have a cadence of operating mechanisms with proper governance to ensure that it is maximizing these product launches across each key geography.

The company is also focused on doing better in the area of pricing dynamics. In the third strategic imperative of innovation and diversification, Zimmer is going to continue to invest in innovative R&D. “We’re going to continue to fuel our pipeline with meaningful product launches. I’m going to make sure that as we continue to launch new products, we also see margin expansion coming from these new products. The dollar value associated with our pipeline is twice what it was at the end of 2018. And as we enter 2024, we have very meaningful product launches, particularly in the hip area in where we lost market share in the last two years given the lack of products in key categories like surgical impactors, triple tapered stems, or hip navigation. So again, 2024 is the year where we will regain the momentum that we lost.

“I’m excited about where we are in Shoulder. Identity continues to generate great excitement. We will enter 2024 in full launch mode. We’re excited about stemless shoulders entering the market and very excited about being first to market in the category of shoulder robotics with a very highly differentiated offering,” he said.

In robotics for shoulder, that will apply for both anatomic and reverse surgeries, he said. Tornos said the company is also excited about next-generation robotic knees as well as partial, cementless knees. Zimmer will be entering the full launch for Persona IQ, the only smart knee implant that fully integrates data, technology and best in class implants in a way that nobody else is doing, Tornos said.

Zimmer will be launching more than 40 new products in the next 24 months or so, and Tornos said that most of them are going to enable category leadership. Most will be in market spaces that are growing 4 percent or above. The company is most excited about the innovation plans it has for ASC products.

“We made meaningful investments and innovation during all stages of the episode of care: what happens before surgery, what happens during surgery and what happens after surgery. We are best in class when it comes to solving problems and delivering efficiency, best in class in outcomes and safety.” The ASC category will remain the number one category when it comes to capital location, Tornos said.

Driving Growth

The “meat” of the business continues to be driven by Zimmer’s Persona product portfolio combined with its Rosa Robotics platform, said Suketu Upadhyay, executive vice president of finance, operations, and supply chain. “We remain excited about the positive feedback around our recently launched cementless form factor for Persona Osseo.”

Zimmer Biomet’s financial performance demonstrated growth in key segments, improved margins, and favorable earnings growth, reflecting the company’s solid operational performance.

According to Upadhyay, global knees grew by 10.2 percent for the full year, while global hips grew by 3.6 percent in the quarter and 5.1 percent for the full year. Key focus areas such as sports, CMT, and upper extremities showed strong growth. The “other” category grew by 15.9 percent in the quarter, driven by strong global sales of the Rosa robotic knee replacement system.

In the fourth quarter, the company reported gap diluted earnings per share of $2.01 compared to a loss per share of $0.62 in the prior year. This increase was driven by higher revenue, favorable one-time tax benefits, and a lower share count. Under the adjusted basis, diluted earnings per share were $2.20, representing a 17 percent year-over-year growth. Adjusted gross margin increased to 72.5 percent, driven by favorable mix, higher volumes, and lower royalties. Adjusted operating margin was 30.3 percent, up 100 basis points from the prior year, primarily driven by revenue leverage, better gross margin, and efficiencies across SG&A. Net interest and other adjusted nonoperating expenses were $43 million in the quarter and $194 million for the full year. The adjusted tax rate was 15.8 percent for the quarter and 16.3 percent for the full year.

A Robust Position

Zimmer Biomet’s cash and liquidity position remained robust, with operating cash flows of $588 million and free cash flow of $447 million for the period, said Upadhyay. The company ended the year with cash and cash equivalents totaling $416 million. Additionally, a $500 million share buyback program was completed in early 2024, exceeding the amount required to offset annual dilution.

For the full year, Upadhyay noted that operating cash flow was just under $1.6 billion, with free cash flow totaling $979 million. The company’s strong balance sheet, he said, provides continued financial flexibility and strategic options for the future. Looking ahead to 2024, Upadhyay said the financial outlook considers key assumptions such as pricing erosion of 100–150 basis points but indicates a continued improvement trend.

Revenue growth is forecast to be 5–6 percent in constant currency, with adjusted diluted earnings per share expected to range between $8 and $8.15, representing a growth of 6–8 percent. Despite headwinds from currency and the implementation of Pillar Two, the company anticipates operating margin expansion of greater than 50 basis points compared to 2023.

Upadhyay said that Zimmer anticipates slightly lower year-over-year gross margins, which will be offset by efficiency and restructuring programs initiated in 2023. Net interest and other nonoperating expenses are expected to be around $205 million, with an effective tax rate stepping up to 18 percent due to the implementation of Pillar Two. The company expects to end the year with approximately 207 million shares outstanding, lower than in 2023 due to a $500 million share buyback plan. Free cash flow is forecast to be in the range of $1.05 billion to $1.1 billion, reflecting a growth of about 10 percent at the midpoint.

Zimmer Biomet initiated a global restructuring program and other cost-saving initiatives in late 2023, with expected cash charges of $125 million to $150 million over the next two years and anticipated run rate savings of up to $200 million by the end of 2025. Revenue growth for the first half of 2024 is projected to be at the lower end of mid-single digits, with the second half expected to be at the higher end. Quarterly results may be “choppy” due to billing day impacts, Upadhyay said, with varying headwinds and tailwinds throughout the year. Gross margin is expected to decrease slightly compared to 2023, and operating margin is expected to be higher in the second half of the year, with Q4 projected to be the high watermark, followed by Q2. Overall, the company plans to maintain its momentum from 2023 into 2024 and beyond.

“We are very excited about where we’re at for the track record over the last two years, and most importantly, we’re deeply excited in terms of where we’re going to go in 2024 and beyond,” Tornos said. “The team is ready. We are establishing the right trend and we’re going to continue to drive execution, delivering our commitments along the way. We’re going to help patients, we’re going to create shareholder value, and we will have a mission of alleviating pain and improving the quality of life for people around the world.”

This article was written by Sherrie Trigg, Editor and Director of Medical Content. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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