Zimmer Biomet Holdings, Inc. (NYSE:ZBH) Q4 2022 Earnings Call Transcript

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Bryan Hanson: Yes, clearly a lot of variables that are still moving, but if I just think about kind of the here and now and just look at what we’ve already accomplished in January, I’d just say it was a really strong start to the year. Again, we’re still looking at those variables, but when I think about the things that we can control, things around execution or innovation, they’re going in the direction we want. When I think about the things we can’t control, it’s procedural recovery and supply challenges. Those are also coalescing in a nice way, so I guess suffice to say based on those things, the momentum right now, and it’s early days, but the momentum right now in 2023 is feeling really good. Again, we’ll continue to monitor those other variables, but we feel pretty good about how we’re starting.

Ryan Zimmerman: Very helpful. Then if I could ask a follow-up, Suke, the street’s margin expectations going into today for operating margins were essentially flat, maybe up 10 basis points, so really in line with your guidance. But just maybe walk us through the levers that you think are at your disposal here on the operating margin line that could maybe move that up a little bit higher than where we’re starting today.

Suketu Upadhyay: Yes, I think one of the key drivers is obviously going to be revenue growth, right, so if we continue to navigate the challenges around supply as we have been and as we saw in the fourth quarter, if we continue to see stabilization in the market and start to trend towards the upper half of the range, clearly that will help drive some margin expansion as we continue to leverage our overall cost base. Beyond that, it’s just the normal block and tackling that this company has gotten accustomed to over the last four or five years. We’re going to continue to drive sourcing improvements around site optimization, six sigma procurement. I’ll tell you, the commercial team has really stepped up. I’ve never seen a focus on mix, on simplification of the supply chain and SKU rationalization, on pricing before in the company’s history, so I think we’ve made really good strides from a commercial perspective, which I think could be some leverage to the potential upside.

Then across SG&A, we’re still in the early innings of fully leveraging our shared service operating model, which we started through the pandemic, so I think we have a number of things at our disposal that can help either expand margins or de-risk our margin aspirations in a downturn, so feeling really good about what the overall team has been able to accomplish and where we can go with this.

Keri Mattox: Ryan, thanks so much for the questions. Katie, can we go to the next one in the queue?

Operator: We’ll go next to Mike Matson with Needham.

Mike Matson: Yes, good morning. Thanks for taking my questions. I guess I’ll start with the recon market. It looks like it grew about 8% in 2022, and this is well above the 3% to 4% that we were seeing prior to COVID. What do you think is driving this above-normal growth? It seems like it’s got to be the COVID backlog, because I don’t think pricing has been all that strong, but maybe you could comment on that, and do you think that this type of high single digit market growth can carry into 2023?

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