biomet gs 2012 leveraged finan conf final.pptx [read-only] · 2012. 5. 1. · global footprint with...

Goldman SachsGoldman SachsL d Fi H l h C f 2012L d Fi H l h C f 2012Leveraged Finance Healthcare Conference 2012Leveraged Finance Healthcare Conference 2012

Biomet IncBiomet, Inc.May 1, 2012, 2012

Jeffrey R. BinderPresident &

Daniel P. FlorinSenior Vice President &

Chief Executive Officer Chief Financial Officer

Biologics ● Bracing ● Microfixation ● Orthopedics ● Osteobiologics ● Spine ● Sports Medicine ● Trauma ● 3i

Forward‐Looking and Non‐GAAP Financial Measures 2

Forward Looking StatementsForward-Looking StatementsThis presentation contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements are often indicated by the use of words such as “will,” “intend,” “anticipate,” “estimate,” “expect,” “plan” and similar expressions. Forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from those contemplated by the forward looking statements due to, among others, the following factors: the success of the Company’s principal product lines; the results of the ongoing investigation by the United States Department of Justice; the ability to successfully implement new technologies; the Company’s ability to sustain sales and earnings growth; the Company’s success in achieving timely approval or clearance of its products with domestic and foreign regulatory entities; the impact to the business as a result of compliance with federal, state and foreign governmental regulations and with the Deferred Prosecution Agreement and Corporate Integrity Agreement; the impact to the business as a result of the economic downturn in both foreign and domestic markets; theDeferred Prosecution Agreement and Corporate Integrity Agreement; the impact to the business as a result of the economic downturn in both foreign and domestic markets; the impact of federal health care reform; the impact of anticipated changes in the musculoskeletal industry and the ability of the Company to react to and capitalize on those changes; the ability of the Company to successfully implement its desired organizational changes and cost-saving initiatives; the impact to the business as a result of the Company’s significant international operations, including, among others, with respect to foreign currency fluctuations and the success of the Company’s transition of certain manufacturing operations to China; the impact of the Company’s managerial changes; the ability of the Company’s customers to receive adequate levels of reimbursement from third-party payors; the Company’s ability to maintain its existing intellectual property rights and obtain future intellectual property rights; the impact to the business as a result of cost containment efforts of group purchasing organizations; the Company’s ability to retain existing independent sales agents for its products; and other factors set forth in the Company’s filings with the SEC, including the Company’s most recent annual report on Form 10-K and quarterly reports on Form 10-Q. Although the Company believes that theCompany s filings with the SEC, including the Company s most recent annual report on Form 10 K and quarterly reports on Form 10 Q. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or non-occurrence of future events. There can be no assurance as to the accuracy of forward-looking statements contained in this presentation. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company’s objectives will be achieved. The Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements which speak only as of the date on which they were made.

Non-GAAP Financial MeasuresThis presentation uses non-GAAP financial measures, such as net sales excluding the impact of foreign currency (constant currency), operating income as adjusted, free cash flow, unlevered free cash flow, net debt, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as adjusted, net debt, senior secured leverage ratio, and total leverage ratio (net debt), as important financial measures to review and assess financial and operating performance of its principal lines of business. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included on the Biomet website at www.biomet.com

The term “as adjusted,” a non-GAAP financial measure, refers to financial performance measures that exclude certain income statement line items, such as interest, taxes, depreciation or amortization and/or exclude certain expenses, such as restructuring charges, non-cash impairment charges, integration and facilities opening costs or other business optimization expenses, new systems design and implementation costs, certain start-up costs and costs related to consolidation of facilities, certain non-cash charges, advisory fees paid to the private equity owners, certain severance charges, purchase accounting costs, stock-based compensation and payments, payments to distributors that are not in the ordinary course of business, litigation costs, and other related charges.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Biomet management believes that these non-GAAP measures provide useful information to investors; however, this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP.

Biologics ● Bracing ● Microfixation ● Orthopaedics ● Osteobiologics ● Spine ● Sports Medicine ● Trauma ● 3i

Summary Summary Business OverviewBusiness Overview Fiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD Revenuesby Productby Product CategoryCategory

Fiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD Revenuesby Productby Product CategoryCategory

Biomet Profile 3

Global Participant in the $40B Device Market Addressing Osteoarthritis and Other Musculoskeletal Disorders #4 Player in the ~$13B Global Orthopedic

Other Products(microfixation/biologics+)

8%

by Product by Product CategoryCategory$2,098.6M$2,098.6M

by Product by Product CategoryCategory$2,098.6M$2,098.6M

Spine & Bone HealinReconstructive Market

Experienced and Dedicated Management Team Senior Management Team with Average Tenure of Large Joint

Reconstructive

Healing11%

Sports, Extremities & Trauma (S.E.T.)

12%

20 Years in the Medical Device Industry

Legacy of Engineering Focus and Product Innovation

Reconstructive60% Dental

9%

Fiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD Revenues Strong Service Relationships with Surgeons

7,500+ Team Members International*14%

Fiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD Revenuesby Geographyby Geography

$2,098.6M$2,098.6M

Fiscal Q3 2012 YTD RevenuesFiscal Q3 2012 YTD Revenuesby Geographyby Geography

$2,098.6M$2,098.6M

3,000+ Sales Representatives

Global Footprint with Operations in 50+ LocationsUnited States

61%

Europe25%


Products Distributed in ~90 Countries61%

*International primarily includes Canada, South America, Mexico and the Asia Pacific region

4Post LBO: Overall Biomet Performance

($ in millions) Fiscal2007

Fiscal2010

2007‐10CAGR %

Fiscal2011

2010‐11 Growth %

Q3 FY12YTD

Q3 FY12YTD

Growth %

Net Sales $2,107 $2,698 9% $2,732 1% $2,099 4%Net Sales

Adjusted EBITDA* $ 719 $1,000 12% $1,010 1% $753 1%

Adjusted EBITDA* [% of sales]

34% 37% ‐ 37% ‐ 36% ‐

N D b L 7 8 *** 5 6 5 6 5 4Net Debt LeverageRatio**

7.8x*** 5.6x ‐ 5.6x ‐ 5.4x ‐

Free Cash Flow* $ 297 $ 135 ‐ $ 239 77% $169 0%

*See Non‐GAAP Financial Measures Disclosure on Slide 2**As defined by our credit agreement

***As of Merger Date: 09/25/07NOTE Free Cash Flow Reflects Cash Flow Provided by Operations Minus Capex FY’11 Includes $33 1M of Time Deposit Investments


NOTE: Free Cash Flow Reflects Cash Flow Provided by Operations Minus Capex; FY’11 Includes $33.1M of Time Deposit Investments

Sales Growth by Product Category at Constant Currency* 5

($ in millions) Sales Growth Rates

Q3’12 YTD % of Total FY’10 FY’11 Q3’12 YTD

Large Joint Recon $1,259 60% 8% 1% 3%

Knees 11% 1% 1%Knees 11% 1% 1%

Hips 6% 0% 5%

S.E.T. 258 12% 14% 10% 12%

Sports 11% 16% 17%

Extremities 28% 20% 16%

Trauma 4% ‐10% ‐2%

Spine/Bone Healing 230 11% 1% ‐5% ‐7%

Spine 5% ‐3% ‐7%

Bone Healing ‐7% ‐9% ‐8%

Dental 199 9% ‐3% 2% 0%

Other 153 8% 15% 2% 7%

T t l $2 099 100% 7% 1% 3%


Total $2,099 100% 7% 1% 3%

*See Non‐GAAP Financial Measures Disclosure on Slide 2

Sales Growth by Product Category at Constant Currency* 6

Q4 FY’11 Q1 FY’12 Q2 FY’12 Q3 FY’12

Large Joint Recon ‐1% 0% 3% 5%

Knees ‐1% ‐2% 1% 4%

Hips 0% 2% 6% 6%

S.E.T. 4% 8% 12% 16%

Sports 11% 9% 19% 22%

Extremities 15% 16% 14% 18%

Trauma ‐20% ‐6% ‐1% 1%

/Spine/Bone Healing ‐12% ‐11% ‐5% ‐5%

Spine ‐10% ‐11% ‐6% ‐3%

Bone Healing ‐15% ‐11% ‐4% ‐10%

Dental ‐2% ‐1% 1% ‐2%

Other 8% 6% 5% 9%

T t l 1% 0% 3% 5%


Total ‐1% 0% 3% 5%


7Fiscal 2012 Q3 YTD Sales by Geographic Region

($ in millions) Sales Constant Currency Growth Rates*

Q3’12 YTD FY 2011 Q4 FY 2012 Q1 FY 2012 Q2 FY 2012 Q3

United States $1,274 ‐3% ‐1% 2% 5%

Europe 520 0% ‐3% 1% 4%

International 305 3% 9% 8% 6%

Total $2,099 ‐1% 0% 3% 5%



8Biomet Strategic Imperatives

Consolidate share gains in global hip and knee business after brief lull New product cadence

Sales execution Sales execution

Strengthen newly created S.E.T. segment for critical mass and growth Continued strong execution in Sports and Extremities

Successful integration of DePuy Trauma business Successful integration of DePuy Trauma business

Restore 3i and BSBH to above market growth 3i: continue US momentum through digital dentistry, address challenges in Europe

BSBH: improve new product flow in spine; develop clinical evidence in stimulation BSBH: improve new product flow in spine; develop clinical evidence in stimulation

Develop sustainable partnerships with hospital customers through Rapid Recovery Aggressively manage costs and cash flow in face of device tax, continued price pressure

Manufacturing: continued plant network optimization and reduced plant costs Manufacturing: continued plant network optimization and reduced plant costs

Operating Expenses: drive broad‐based productivity initiatives

Continue focus on working capital


2012 Market Growth Factors: Hip and Knees 9

Price

• Reimbursement pressures and t i t ?

Volume

• Welcome to the demand curve!uncertainty?

• Hospital – surgeon alignment/ employment (exacerbated by impending gain‐sharing)

• Higher deductible

• Higher out‐of‐pocket maximum

• Higher co paysimpending gain sharing)

• Improved hospital negotiating tactics

• Information sharing

• Higher co‐pays

• New Competitors

• Governmental budget pressures

• “Regression to the mean”

• Governmental budget pressures

Outlook: Short term stability; short to

Outlook: Sustained pressure short‐medium term

Outlook: Short‐term stability; short to mid term growth acceleration due to demographics and clinical efficacy


• Biomet‐Commissioned Study on Total Knee Arthroplasty and General Health1

Total Joint Replacement as Preventive Care 10

• Results:– At 7 years, risk of mortality cut nearly in half for TKA group– Statistically significantly reduced risk of new diagnoses of heart failure

Incremental direct medical costs of TKA patients: $19 843– Incremental direct medical costs of TKA patients: $19,843– Incremental cost per year to reduce risk of death by half: $2,835

• Not included: est. $733 per year reduction in prescription drugs for TKA patients• Not included: productivity gains, other indirect costs, reported as high as $4,603 per year

– Compare to ~$32 000 (U K ) informal cost‐effectiveness threshold per year of healthy life gained2Compare to $32,000 (U.K.) informal cost‐effectiveness threshold per year of healthy life gained

• “TKA confers long term benefit in terms of improved survivorship and reduced cardiovascular conditions for Medicare patients with OA of the knee.”

• Exhibited at 2012 AAOS Annual Meeting

• Press coverage included New York Times, Medscape, Sirius/XM radio

• Submitted to J. Arthroplasty for publication

Reference: 1 Lovald S Ong K Lau E Schmier J Bozic K Parvizi J Kurtz S “ Medical Costs Mortality and Downstream Disease in Osteoarthritis


– 1. Lovald, S, Ong, K, Lau, E, Schmier, J, Bozic, K, Parvizi, J, Kurtz, S, Medical Costs, Mortality, and Downstream Disease in Osteoarthritis Patients with and without Total Knee Arthroplasty,” #1941, American Academy of Orthopaedic Surgeons Annual Meeting, 2012.

– 2. http://www.nice.org.uk/newsroom/features/measuringeffectivenessandcosteffectivenesstheqaly.jsp, converted to 2012 U.S. $.

WW Hip/Knee Constant Currency Growth Rates by Calendar Quarter* Biomet’s WW Hip/Knee Market Share Growth*

WW Hip/Knee Performance vs. Market 11

20%

BIOMET MARKET

14.3%14%

16%

QE 03/31/07 QE 12/31/11

+1.1% +3.3% +2.3%

10%

15%

10.3%11.0% 10.7%

11.4%

13.0%

10%

12%

5%

10%

6%

8%

0%

2%

4%

-5%

BIOMET 6.3% 7.8% 10.7% 12.9% 17.5% 10.5% 14.8% 11.7% 9.9% 10.1% 7.7% 8.4% 9.7% 10.6% 3.8% 1.8% -1.1% -0.6% -0.1% 2.6% 5.0%

0%WW Hips WW Knees WW Hips/Knees



MARKET 8.6% 9.2% 9.5% 10.3% 6.9% 9.0% 7.9% 5.9% 3.8% 2.6% 4.5% 5.2% 6.6% 4.0% 1.1% 2.1% -0.3% -0.1% 0.3% -0.5% 2.4%

Notes: Based on internal estimates; Represents fiscal quarter ending one month prior to calendar quarter for Biomet, calendar quarter for all others

Knee Growth Rate Trends at Constant Currency*

BIOMET MARKETWW Knees

12

4%6%8%

10%12%14%

WW Knees

-4%-2%0%2%4%

14%

BIOMET MARKETU.S. Knees

2%4%6%8%

10%12%

-6%-4%-2%0%2%




Hip Growth Rate Trends at Constant Currency*

BIOMET MARKETWW Hips

13

4%

6%

8%

10%WW Hips

-2%

0%

2%

4%

12%

BIOMET MARKETU.S. Hips

4%

6%

8%

10%

-2%

0%

2%




14Key Growth Drivers for Hips and Knees

Products Currently Launched Arcos® Modular Femoral Revision Hip System Active Articulation™ E1® Dual Mobility Hip System Active Articulation™ E1® Dual Mobility Hip System Taperloc® Complete Hip Stem Oxford® Partial Knee Line Extensions Signature™ System for Oxford® Partial Knee

Products Expected to be Launched Over Next 6 – 12 Months: Taperloc® Complete Microplasty® Stem (commercial intro: Q1 FY13) Signature™ Acetabular System (clinical eval: Q1 FY13, pending 510k clearance) Multi‐Bearing Acetabular System (clinical eval: Q2 FY13) Multi Bearing Acetabular System (clinical eval: Q2 FY13) Vanguard® SSK 360 Revision Knee System (commercial launch: Q4 FY12) Vanguard® XP (clinical eval: Q2 FY13)


15Sports, Extremities, and Trauma (S.E.T.)

Strong Growth Platform: Strong Growth Platform: 16% WW (c.c.) growth during Q3’12

Opportunities within and across Attractive Segments E l i th h ld i li t Example: serving the shoulder specialist

Rotator cuff repair: Sports Total Shoulder: Extremities Humeral fracture: Trauma Humeral fracture: Trauma

S.E.T. Key New Products for FY’13 SRS Shoulder Salvage System ACL in a Box ACL in a Box

Strategic Rationale for DePuy Transaction: Bolsters our S.E.T. franchise to ~ $500 million run rate Provides a valuable opportunity to quickly gain much broader worldwide Provides a valuable opportunity to quickly gain much broader worldwide

market penetration No significant overlap between Biomet and DePuy trauma products;

significant complementarity between internal and external fixation portfolios


significant complementarity between internal and external fixation portfolios

U S S i M k t C ti t b Ch ll d

16Biomet Spine and Bone Healing

U.S. Spine Market Continues to be Challenged: Payor push‐back affecting volumes Aggressive competition from both physician‐owned distributorships and conventional

competitorscompetitors Mid‐single digit price declines

N P d t Fl (diff ti t d d t ith f ) d l New Product Flow (differentiated products with proof sources) and sales execution are key to our improved sales results Solitaire™‐C Spacer (commercial intro: Q4 FY12, pending 510k clearance) Cellentra™ VCBM [Viable Cell Bone Matrix] (available: Q1 FY13) Cellentra VCBM [Viable Cell Bone Matrix] (available: Q1 FY13) Lineum™ Posterior OCT System (Q4 FY12 intro)

International Markets Provide Strong Growth Potential for Biomet Spine International Markets Provide Strong Growth Potential for Biomet Spine

Expect to Commence a Prospective Clinical Trial on Trauma Non‐Invasive Bone Healing in Early Fiscal 2013


Healing in Early Fiscal 2013

17Biomet 3i

U S D t l I l t M k t C ti t b St U.S. Dental Implant Market Continues to be Strong 3i performance in‐line with market growth

Continued Soft Markets in Europe (primarily southern region) and Asia Pacific Continued Investment in Digital Dentistry Strong R&D Pipeline

Fiscal2011 Q4

Fiscal2012 Q1

Fiscal2012 Q2

Fiscal2012 Q3

Worldwide Constant Currency*

‐2% ‐1% 1% ‐2%

United States 6% 7% 11% 12%



DIGITAL DENTISTRY SOLUTIONS

18

DIGITAL DENTISTRY SOLUTIONSFor Beautiful Restorations

• Patented Encode® Impression System –Creates Aesthetics and Optimizes Processes

B A Mill d U i P i CAD/CAM• Bars Are Milled Using Precise CAD/CAM Technologies – Creates High Quality Outcomes

• Copings Available In Six Shades –Copings Available In Six Shades More Than Most Leading Competitors

• Surgeon Model Using Encode® Impression System combined with Intraoral Scanning– Designed to reduce the time, cost and complexity of

implant dentistry– Partnered with top 3 IOS providers: Align, 3M and Sirona


Partnered with top 3 IOS providers: Align, 3M and Sirona– Q1 FY13 commercial intro

19Creating Customer Value through Rapid Recovery

Biomet’s Rapid Recovery Management Consulting Program is an advanced clinical pathway optimizing the processes of orthopedic patient care resulting in:

• Reduced cost per patient (up to ‐30% per patient)• Increased throughput of patients at reduced hospital cost• Improved patient satisfactionp p• Increased hospital profitability

Pre Surgery•Patient education

During Surgery•Surgical procedures

Post Surgery•Physiotherapy/mobilizationPatient education

•Process optimization•Patient care pathways

Surgical procedures•Anesthesia/pain protocols• Krauss efficiency program

Physiotherapy/mobilization •Data collection•Hospital marketing


20

YTD % vs.

Fiscal Q3 2012 Adjusted Operating Results*

($ in millions)

Q3 FY'12 % vs. PY PYNet Sales 708.9$ 4.6% 4.0%

Operating Income, As Adjusted 216.1$ 1.6% -0.5% Percentage of Sales 30.5%

EBITDA, As Adjusted 260.5$ 0.8% 0.5% Percentage of Sales 36.7%

Reported Cash from Operations 157.5$ 3.8% -3.9%

Free Cash Flow 116.0$ 8.7% -0.4%

Unlevered Free Cash Flow 168.3$ 38.3% 11.3%*See Non‐GAAP Financial Measures Disclosure on Slide 2


NOTE: Unlevered Free Cash Flow reflects cash flows before taking into account the interest payments required on outstanding debt;Unlevered FCF for fiscal Q3’11 reflects the purchase of $44.3M of investments

21Productivity Initiatives

Value Creation Program initiated post LBO in mid‐2007 has delivered significant cash g p gsavings (+$100M) and EBITDA contribution (+$65M) while maintaining the highest levels of quality and customer service Plant network optimization: reduced plant facilities from 17 to 11 (including 2 new China plants)

to lower cost of production and optimize capacity utilizationto lower cost of production and optimize capacity utilization Lean manufacturing Strategic Sourcing SIOP and Inventory managementy g Program now embedded in day to day operations

We continue to pursue additional opportunities to lower COGS Advanced manufacturing; new materials; manufacturing overhead; lower global

distribution/warehousing costs

Improving both Efficiency & Effectiveness in SG&A and R&D Improving both Efficiency & Effectiveness in SG&A and R&D Global Orthopaedics Product Engine structure Shared service and out‐sourcing models Sales force productivity initiatives


p y Corp infrastructure

CAPITAL EXPENDITURESRECEIVABLE DAYS*

Balance Sheet and Working Capital 22

88 9176 71 70 62 63 62 65

6080

100

99 112 107113

24

27

10%

12%

14%

16%

150

200

143

190185 186 174

0204060

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Q1 FY12 Q2 FY12 Q3 FY1267 64 73 79 61

52

99 113

6.7%8.0%

7.4% 6.9% 6.9% 5.8%

0%

2%

4%

6%

8%

0

50

100

*See Non‐GAAP Financial Measures Disclosure on Slide 2Note: Simple average of the quarterly calculations;

Fiscal ‘11 receivable days exclude $33.8M of Greece receivablesthat were converted to bonds and reclassified as investments

0%0FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Q3'12 YTD

Other Capex Instruments Placed Distributor Instrument BuybacksAs a % of Net Sales

1 15 1 14 1 30 1 34 1.50 1.45 1.44 1.46 1.462

INVENTORY TURNOVER, ADJUSTED*

$135 1

$239.2

$200

$300

FY'08 FY'09 FY'10 FY'11

1.15 1.14 1.30 1.34

00.5

11.5

2

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Q1 FY12 Q2 FY12 Q3 FY12

$58.4 $58.8

$135.1

$0

$100

Free Cash Flow*


*See Non‐GAAP Financial Measures Disclosure on Slide 2;Note: See reconciliation of COGS to exclude special items at www.biomet.com

*See Non‐GAAP Financial Measures Disclosure on Slide 2;Note: Free Cash Flow is defined as cash from operations less CAPEX

NET DEBT LEVERAGE RATIOS

Capital Structure 23

02/29/2012 05/31/20087.0x

5.4x

(1)

23% Gross Debt $5,920 M $6,301 M

Cash 496 M 128 M

Net Debt $5 424 M $6 173 M5/31/2008 Today(1) Net Debt $5,424 M $6,173 M

TOTAL LIQUIDITY: $1.2B

(1) As of Feb. 29, 2012, as defined by our Credit Agreement *See Non‐GAAP Financial Measures Disclosure on Slide 2

$496

$3,366.0

Cash $1,125.4

$714Available Revolving Borrowings $2,240.6

Flexible Capital Structure with Significant Liquidity; Attractive Maturity Profile

Our Undrawn $750M Revolvers Mature in September 2013

Our Bank Debt Priced at LIBOR +300 Matures in March 2015


Our Bank Debt Priced at LIBOR +300 Matures in March 2015

Bonds become callable in October 2012 (Senior Cash Pay: $105; Toggle: $105.188; Senior Subs: $105.813)

24


Goldman SachsGoldman SachsL d Fi H l h C f 2012L d Fi H l h C f 2012Leveraged Finance Healthcare Conference 2012Leveraged Finance Healthcare Conference 2012

Biomet IncBiomet, Inc.May 1, 2012, 2012

Jeffrey R. BinderPresident &

Daniel P. FlorinSenior Vice President &

Chief Executive Officer Chief Financial Officer


biomet gs 2012 leveraged finan conf final.pptx [read-only] · 2012. 5. 1. · global footprint with...

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