Transcript Biomet Inc. Sponsor Meeting March 19, 2010

Goldman Sachs
Leveraged Finance Healthcare Conference 2013
March 6, 2013
Biomet, Inc.
Daniel P. Florin
Senior Vice President & Chief Financial Officer
Forward-Looking and Non-GAAP Financial Measures
Forward-Looking Statements
This 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; 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 ability of the Company to successfully integrate the Trauma Acquisition; 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; the impact of product liability
litigation losses; 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 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 Measures
This presentation uses non-GAAP financial measures, such as net sales excluding the impact of foreign currency (constant currency), free cash flow, unlevered free cash
flow, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as adjusted, net debt, senior secured leverage ratio, total leverage ratio, and cash and cash
equivalents (as defined by the Company’s credit agreement) 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 “adjusted” or “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, other income (expense), and/or exclude certain expenses as defined by our credit agreement, 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.
2
Biomet Profile*
Company Overview
H1 Fiscal 2013 Revenues by Product Category
$1.498 Billion

Global Participant in the $40 Bn Device Market Addressing
Osteoarthritis and Other Musculoskeletal Disorders
–
#4 Player in the ~$13 Bn Global Orthopedic Reconstructive Market

Legacy of Engineering Focus and Product Innovation

Strong Service Relationships with Surgeons

~8,000 Team Members

3,000+ Sales Representatives

Global Footprint with Operations in 50+ Locations

Products Distributed in ~90 Countries
Our Mission: One Surgeon Treating One Patient

Over a million times a year, it is our privilege to help one surgeon help one
patient get back to an active lifestyle

Offer surgeons the best tools possible to deliver personalized patient care

Provide extraordinary service and advocate for physicians and patients

We fight for surgeons’ freedom to choose the best implants for their
patients, and for rational reimbursement that preserves patient access

Treat every implant as if it were meant for a family member

We have a highly experienced management team, with an average tenure
in orthopedics of more than 20 years
10% y/y cc growth
3% ex-Trauma Acquisition
Other Products
(Microfixation/Biologics)
$105 M
Dental
$124 M
7%
8%
Sports,
Extremities &
Trauma (S.E.T.)
$280 M
19%
56%
10%
Spine & Bone
Healing
$152 M
Large Joint
Reconstructive
$837 M
H1 Fiscal 2013 Revenues by Geography
$1.498 Billion
Europe
$337 M
6% cc growth
22%
16%
62%
International
$238 M
18% cc growth
U.S.
$923 M
10% growth
Note: International primarily includes Canada, South America, Mexico and Asia Pacific region
*See Non‐GAAP Financial Measures Disclosure on Slide 2
3
Strong Record of Consistent Financial Performance*
Net Sales
Adjusted EBITDA
$3,000
$2,838.1
$2,698.0
2,700
4%
$2,504.1
7% cc
5%
$2,107.0
13%
2,100
4%
1% cc
$829.1
800
$1,031.1
37.0%
36.3%
FY
2010
FY
2011
FY
2012
5.7x
5.6x
1.0x
1.0x
1.6x
1.5x
$926.4
3% cc
8% cc
$1,010.4
$1,000.0
1,000
1%
8%
$2,383.3
2,400
1,800
$1,200
$2,732.2
$719.1
37.1%
37.0%
34.8%
9% cc
600
34.1%
2% cc
400
1,500
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2007
FY
2008
Free Cash Flow
FY
2009
Leverage
8.5x
1.4x
$240
$206.1
$198.0
1.2x
2.1x
180
1.1x
1.8x
120
5.0x
$58.4
6.5x
1.9x
$135.1
60
7.4x
4.3x
$58.8
3.6x
3.1x
3.1x
FY
2010
FY
2011
5.2x
1.0x
1.5x
2.7x
0
FY
2008
FY
2009
FY
2010
*See Non‐GAAP Financial Measures Disclosure on Slide 2
FY
2011
FY
2012
LBO
Close
FY
2008
FY
2009
Secured
Senior
Sub
FY
2012
4
Biomet WW Hip/Knee Performance vs. Market*
WW Hip/Knee Constant Currency Growth Rates by Calendar Quarter
BIOMET
5
Biomet’s WW Hip/Knee Market Share Growth
QE 03/31/07
MARKET
18%
+1.1%
16%
16%
14%
14%
12%
12%
QE 12/31/12
+3.2%
+2.2%
14.2%
12.9%
11.4%
10.3%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
WW Hips
-2%
Note: Biomet’s data reflects rates provided in our fiscal quarter press releases (ending one month prior to each calendar quarter end),
which have not been restated for product line reclassifications;
Market rates reflect our internal estimates and are based on calendar quarters
*See Non‐GAAP Financial Measures Disclosure on Slide 2
11.0%
WW Knees
10.7%
WW Hips/Knees
Biomet Sports, Extremities and Trauma (S.E.T.) WW CC Growth Rates*
Q4 FY'11
Q1 FY'12
Q2 FY'12
Q3 FY'12
Q4 FY'12
Q1 FY'13
Q2 FY'13
50%
199%
45%
Trauma
(ex-Acquisition)
Q1 FY’13 = 0%
Q2 FY’13 = 1%
40%
35%
30%
25%
22%
19%
20%
18%
15%
15%
16%
15%
14%
15%
12%
11%
10%
23%
22%
21%
9%
5%
0%
0%
0%
-3%
-5%
-6%
-10%
-15%
-19%
-20%
Sports
Extremities
FY’12 Biomet: 18%
FY’12 Market: 6%
FY’12 Biomet: 18%
FY’12 Market: 10%
*See Non‐GAAP Financial Measures Disclosure on Slide 2
Trauma
FY’12 Biomet: (2%)
FY’12 Market: 7%
272%
6
H1 FY’13 Financial Summary*
($ in millions)
H1 FY’13
Net Sales
Adjusted EBITDA
$
$
Adjusted EBITDA
1,497.5
526.0
H1 FY’12
$
$
1,389.7
Growth
Comments
8%
10% cc
 Ex-Trauma Acquisition:
Free Cash Flow
(1)As
$
7%
35.1%
35.5%
-
Impacted >100 bps by Trauma
Acquisition
5.5x
5.5x
-
$280M Trauma Acquisition
Refinancing Activities:
Annual Interest Savings of ~$80M
52.6
-
Impacted by Trauma Integration,
NPI Inventory & Instruments, and
Refinancing Activities
21.7
defined by our credit agreement
NOTE: Free Cash Flow Reflects Cash Flow Provided by Operations Minus Capex
*See Non‐GAAP Financial Measures Disclosure on Slide 2
Strong Increase Despite ShortTerm Costs Incurred in Connection
with Trauma Acquisition
492.9
(% of sales)
Total (Net Debt)
Leverage Ratio(1)
Net Sales: 1% as reported
3% constant currency
$
7
Fiscal 2013 Refinancing Summary
Debt Maturities Before Refinancing
$4,000
Extended $3.0 billion of our term loans
(90% of total outstanding) by 2.5 years
to July 2017, while preserving covenantlite structure
$3,500
 Fully refinanced our $2.5 billion of HY
Notes, maturing in Oct 2017 carrying a
weighted average coupon of 10.8% with
6.5% Notes maturing in 2020
$1,000
$3,323
$3,000
$2,547
$2,500
$2,000
$1,500
$750
$500
$0
2013
2014
2015
2016
2017
2018
2019
2020
Debt Maturities After Refinancing
 Replaced our $750M revolving credit
facilities, due to mature in 2013, with
new facilities of $830M maturing in 2017
$4,000
$3,500
$830
$3,000
$2,500
 Refinancing activities drive an $80 million
reduction in cash interest in FY13 versus
FY12
$2,625
$2,996
$2,000
$1,500
$1,000
$327
$500
$2013
2014
2015
2016
2017
2018
2019
2020
8
9
Value of Orthopaedics
16%
% Medicare Patients
66%
14%
64%
12%
62%
10%
60%
8%
58%
6%
56%
4%
54%
2%
Declining Revision Burden Resulted in Savings of >$2 Billion
52%
0%
1998
1999
2000
2001
2002
2003
2004
% Medicare
2005
Rev rate
2006
2007
2008
2009
2010
Revision Burden (% of Primary Cases)
Greater Proportion of Younger Patients, Yet Declining Revision Burden
Source: H-CUPnet database, 1998-2010, U.S. Dept. of Health and Human Services
Length of Hospital Stay for OA Treatment
TJR Improves General Health and Longevity
47% reduction in risk of death following TKA
48% reduction in risk of death following THA
Average Hospital LOS
(# in days)
8
7
6
5
4
3
2
1
0
Average LOS, OA hospital discharges
7.4
3.3
1990
2009
*Assuming LOS at 3.3 days in 2010. 1990 LOS data from “Health, United States 2011”; 2010 LOS data
from HCUPnet database. Est. cost per hospital day of $1853 in 2010 from Kaiser Family Foundation;
974,000 OA discharges (primary diagnosis) in 2010 from HCUPnet database.
Hazard ratio (reference = 1)
2010 Estimated Savings of $7.4 Bn Compared to LOS Remaining at 1990 Average*
1.2
Hazard ratio of death at 7 years1,2
1
0.8
0.6
0.4
0.2
0
TKA
No TKA
(reference
cohort)
THA
No THA
(reference
cohort)
Footnoted data outlined on next slide
Knee source: Lovald, et al., J. Arthroplasty, November, 2012
Hip source: Lovald, et al., publication pending. To be presented at 2013 AAOS Annual Meeting
Total Joint Replacement Improves General Health and Longevity
Total Knee Replacement1
•
•
25,904 Medicare TKA patients and 39,183
Medicare non-TKA patients with seven years
of follow-up
General health comparable
Results at seven years post-operation:
•
47% reduction in risk of death
•
7% reduction in risk of heart failure
•
Incremental cost per patient of $2800 per
year for TKA patients over seven years
•
Including estimated savings from prescription
drugs, incremental costs drops to $2100 per
patient per year over seven years.
Knee study: Lovald, et al., J. Arthroplasty, November, 2012
Hip study: Lovald, et al., publication pending. To be presented
at 2013 AAOS Annual Meeting
Total Hip Replacement2
•
•
10,523 Medicare THA patients and 13,443
Medicare non-THA patients with seven years
of follow-up
General health comparable
Results:
•
Mortality, heart failure, depression, and
diabetes were all reduced in the THA group.
•
48% reduction in risk of death at seven years
•
8% reduction in risk of heart failure at seven
years
•
10% reduction in risk of depression at seven
years
•
Incremental cost per patient of $909 per year
for patients receiving THA compared to
untreated patients.
•
Including estimated savings from prescription
drugs, THA is cost-saving over seven years.
10
Keys to Winning in the Current Health Care Reform Environment
®
Product
Differentiation
to Drive Share
and Mix
Increased Need
for Clinical and
Economic
“Proof” Sources
Service Offerings
to Create Value
Beyond Product
Technology
Focus on Pricing
to Full Value
11
Continued Product Innovation



Products Launched/Key Growth Drivers
–
Arcos® Modular Femoral Revision Hip System
–
Active Articulation™ E1® Dual Mobility Hip System
–
Taperloc® Complete Hip Stem
–
Signature™ System for Oxford® Partial Knee
–
Vanguard® SSK 360 Revision Knee System
–
JuggerKnot™ Soft Anchor
–
Comprehensive® Primary and Reverse Shoulders
–
DVR® and A.L.P.S. Plating Systems
–
Lineum® OCT Spine System (translation screw)
–
Cellentra™ VCBM (Viable Cell Bone Matrix)
–
BellaTek™ Digital Dentistry Solutions
Key New Products During FY’13:
–
Taperloc® Complete Microplasty® Stem (Q1 FY13 intro)
–
Signature™ Acetabular System (clinical eval: H1 FY13)
–
G7™ Acetabular System (clinical eval: Q2 FY13)
–
Vanguard® XP (clinical eval: Q2 FY13; pending 510k clearance)
–
Comprehensive® Segmental Revision System (S.R.S.)
–
DVR® Crosslock Distal Radius Plating System and DVR® Crosslock ePAK
Key Pipeline Product: Market Expanding/Game Changer
–
Autologous, Point-Of-Care; Potential Substitute for HA Injections
12
Biomet 3i*
Overview: Outlook
 Biomet has recorded eight consecutive quarters of U.S. dental sales growth
 Continued soft markets in Europe (primarily southern region) and Asia Pacific
 Continued investment necessary for growth in digital dentistry
 New leadership in place; Strong R&D pipeline
 In June 2012, Biomet announced it was evaluating potential separation of 3i dental business in tax-free spin-off
– Spin to facilitate investment in division currently not allocated sufficient capital or management attention
– No assurance that evaluation of potential separation of dental business will result in separation
New Products
Sales Growth
 BellaTek™ Digital Dentistry Solutions
– Designed to reduce the time, cost, and
complexity of implant dentistry
– Partnered with top 3 IOS providers:
– Align, 3M, and Sirona
* See Non‐GAAP Financial Measures Disclosure on Slide 2
Worldwide
(constant currency)
United States
FY’11
FY’12
FY’12
FY’12
FY’12
FY’13
FY’13
Q4
Q1
Q2
Q3
Q4
Q1
Q2
(2%)
(1%)
1%
(2%)
(4%)
1%
(7%)
6%
7%
11%
12%
3%
4%
4%
13
Biomet Strategies
Overriding Objectives
I.
II.
Fulfill our mission of serving “One Surgeon, One Patient”
Establish Biomet’s premium value in the orthopaedic sector by:
• Achieving sustainable above market sales growth
• Achieving sustainable double digit cash net income growth
• Generating strong cash flows for debt pay down and reinvestment
• Sustaining our pristine reputation
Cash Net Income Growth,
Cash Flow
Sales Growth
•
Above market growth in every product /
geography
•
High impact new product programs,
with clinical/economic evidence
•
•
•
Exploit attractive growth opportunities
in and adjacent to current business
•
Improve plant and COG’s productivity
•
Efficient & supportive central functions
•
Improved working capital management
•
Flexibility in distribution & service
models
Partner with surgeons and hospitals via
Rapid Recovery, DTC and other
programs
Tailored approaches to both developed
and emerging markets
• Cultivate vibrant “Can Do Family” culture
• Attract, retain and develop premier talent
Pristine
Reputation
•
Best-in-class product performance
& quality
•
Strong, consistent & user-friendly
healthcare compliance system
•
Best-in-class regulatory practices
with outstanding audit performance
•
Lead industry in advocacy around
orthopaedics
14
The Rapid Recovery® Advantage
15
Leader in Surgeon Education











Multiple Labs/Training Centers
 Orthopaedic Skills Academy
 Lorenz Skills Academy
 Miami Lab
 Parsippany Lab
 Irvine Lab
Courses
 National
 Regionally Focused
Events
 Cadaveric
 Didactic
Graduate Medical Education – GME
Mobile Cadaveric Labs
Surgeon Mentor Program
Surgeon-to-Surgeon Visitation Program
Tours
 Surgeons
 Residents and Fellows
 C-Suite
Tradeshow Exhibitions
Workshops at Third Party Events
Biomet Mobile Learning Center (Sports Med Bus)
16
Value Creation Initiatives
Value Creation Program Initiated Post LBO in Mid-2007 Has Delivered Significant Cash Savings
(+$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 Utilization
 Lean Manufacturing
 Strategic Sourcing
 SIOP and Inventory Management
 Program Now Embedded in Day to Day Operations
Medical Device Tax (2.3% of U.S. Sales) Adds Another Headwind……
Pursuing Additional Opportunities to Lower COGS & Improve our Supply Chain




Emphasis on Plant-Level KPIs
Continue to Evaluate Plant Network in Light of Evolving Health Care Environment
Lower Global Distribution/Warehousing Costs and E&O
One Patient Solutions Initiative
Improving Both Efficiency and Effectiveness in SG&A and R&D




Global Orthopaedics Product Engine Structure
Shared Service and Out-Sourcing Models
Ensure Sales Force Structure and Service Levels Provide Appropriate ROI
Corp Infrastructure
17
Goldman Sachs
Leveraged Finance Healthcare Conference 2013
March 6, 2013
Biomet, Inc.
Daniel P. Florin
Senior Vice President & Chief Financial Officer