ZimVie Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 1, 2023

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the ZEMVI Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Marissa Beich.

Speaker 1

Thank you all for joining today's call. Earlier today, Symbi released financial results for the quarter ended September 30, 2023. Copy of the press release is available on the company's website, zimvi.com,

Speaker 2

as well as

Speaker 1

on sec.gov. Before we begin, I'd like to remind you that management will make comments during this call that include forward looking statements. Actual results may differ materially from those indicated by the forward looking statements due to a variety of risks and uncertainties. Please refer to the company's most recent periodic report filed with the SEC and subsequent SEC filings for a detailed discussion of these risks and uncertainties. In addition, the discussion on this call will include Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the earnings release and the investor deck issued today found on the Investor Relations section of the company's website.

Speaker 1

This conference call contains time sensitive information as accurate only as of the live broadcast today, November 1, 2023. Zimby disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. With that, I will turn the call over to Vafajamali, President and Chief Executive Officer of Denbigh.

Speaker 2

Good afternoon and thank you all for joining us. In the Q3, we continue to make progress on our innovation platform, actively reshaping our portfolio further penetrate markets with best long term growth potential. In parallel, we are improving our operational efficiency and driving better cash flow generation. In dental, our sales team and DSO partners continue to have success engaging existing and new customers. We've seen strong traction for our product Launched in the past year with both our legacy customers and our ever emerging DSO channel, driving new customer acquisition across the board.

Speaker 2

We're also very pleased with the cadence of new product introductions, the most recent being BIOTOVY and Azure. The Bioactivity HD Plus membrane, now part of the Dental Biomaterials portfolio, delivers a common request we receive from the field to offer a growth factor rich Bioactive barrier. The bioactivity membrane, which is derived from human placental tissue, conforms nicely for site coverage and is now being used in a variety of regenerative procedures. Turning to our Azure Multi Platform Product Solutions. With Azure, the portfolio offers a more comprehensive selection of components to effectively cater to the dental lab market.

Speaker 2

This solution set includes 13 lab focused prosthetic and restorative solutions designed to integrate into digital workflows. In summary, I'm very pleased with our position in Dental and remain confident in our ability to perform at or above market in core product areas into the year ahead. Turning to our spine business, we're also driving incremental success within our spine portfolio. Our position with Moby C is improving also. Earlier in the quarter, we announced FDA approval for a new smaller height OPC in 7 footprints.

Speaker 2

This approval allows for the usage of OPC to address more anatomical needs, expanding access for patients across the U. S. I'm pleased to report that we've implanted our first device and I look forward to seeing further adoption. Continuing with Molbicie, we received FDA approval to launch groundbreaking IDE clinical study of cervical arthroplasty adjacent to fusion. This study will further deepen Moby C's truly differentiated clinical evidence to OCA And Aiden explained the suitable patient population for cervical raspritinib.

Speaker 2

I'm also pleased to share that we recently crossed the milestone for 2,000 patients We are leading Tethr system to patients diagnosed with adolescent idiopathic scoliosis and we look forward to treating more patients with this therapy into the future. Finally, we continue to advance our Brainlab partnership and have recently expanded our development cooperation agreement to include co marketing. We continue to work on achieving compatibility between our spinal implant and brainless spine and trauma navigation systems, allowing us to enhance workflow and accuracy in the operating room, while reducing your operating activities and radiation exposure. We'll continue to engage with key strategic customers, innovate on and around existing solutions and ultimately optimize our position in markets where we can win. Turning to our continued operational improvements.

Speaker 2

As I mentioned in past quarters, We've made meaningful reductions to our physical footprint and corporate overhead while working through excess inventory receivables. Although there is still room for further optimization, I'm pleased that we're making excellent progress and have improved cash position in our balance sheet by nearly $10,000,000 this quarter. We're continuing to leverage our cash position to pay down the principal balance of our debt and prepay 2024 interest payments, a topic which will provide more detail on shortly. Finally, I am very excited to announce that we've completed all of our ERP concordance. This concludes a heavy operational lift, Completing all TSAs related to our 2022 spin off, moving over 9 50 servers to new data centers and transitioning over 200 applications to modern and largely cloud based I'll now turn the call over to Rich to outline our financial performance.

Speaker 3

Thanks, Bapa, and good afternoon, everyone. I'll begin by reviewing our Q3 2023 results and we'll close by providing our updated outlook for the full year 2023. Total third party net sales for the Q3 of 2023 were $202,900,000 a decrease of 4.9% on a reported basis and a decrease of 5.0% in constant currency. As we mentioned towards the conclusion of our Q2 earnings call, we expected Q3 to be impacted by slightly Higher than normal seasonality for our businesses in the summer months and our sales performance exceeded these expectations. Moving on to our 2 segments.

Speaker 3

Global Dental's 3rd party net sales were $105,300,000 in the 3rd quarter, representing 20 basis points of growth as reported and a decline of 1.2% in constant currency when compared to the prior year period, driven entirely by one less selling day in Q3 of 2023 versus Q2 2022. While the dental market in aggregate was relatively soft in the Q3, we continue to execute well commercially And the market acceptance of our new premium implants contributed to effectively flat year over year implant sales on a global basis. In the U. S, dental third party net sales of $65,000,000 declined by 2.5%, driven by one less selling day and a slightly weaker implant market, partially offset by ongoing strength in our digital solutions sales. Outside of the U.

Speaker 3

S, Dental third party net sales of $40,300,000 increased by 4.9% on a reported basis and 1.2% in constant currency, driven by growth across all three of our 5 families, Implants, biomaterials and digital dentistry, partially offset by one less selling day in Q3 of 2023. Our new product launches in 20222023, particularly T3PRO and TSX, Continued their early and impressive trend of market acceptance during the Q3. 3rd quarter Global Spine third party net sales and an 8.9% decrease in constant currency when compared to the prior year period. The decrease was primarily driven by continued competition in the spine market, our decision to exit China following volume based procurement and one less selling day, partially offset by the recognition of sales that were previously attributed to Zimmer Biomet and growth in both our EMEA and Asia Pacific regions. As Vafu commented, we are pleased with our Moby C and Tether performance relative to the balance of our core Spine portfolio led by growth in Europe and Asia Pacific.

Speaker 3

In the U. S, Spine third party net sales of $78,300,000 decreased by 10.2% driven by competitive pressure in core Outside of the U. S, Spine's 3rd party net sales of $19,300,000 decreased by 8.3% on a reported basis and 3.6% in constant currency. Moby C and Tether outside of the U. S.

Speaker 3

Continue to leverage our differentiated best in class Clinical evidence by growing 67% 62% respectively during the 3rd quarter. 3rd quarter adjusted cost of products sold of 31.8% of sales compares to 27.2% Sales in the prior year period. As a reminder, in Q3 of 2022, our cost of sales benefited from the settlement of We are pleased with our ongoing progress to reduce cost of products sold as we look to continue to better manage inventory and inventory related charges. Adjusted research and development expense of $10,500,000 represents 5.2% as a percentage of third party sales. Q3 2023 adjusted selling, general and administrative expenses of $115,700,000 for 57.0 percent of 3rd party net sales was $13,100,000 lower versus the prior year period.

Speaker 3

Lower SG and A expenses year over year are due to less variable expenses from lower net sales and savings from our previously announced restructuring initiatives and cost containment measures. Adjusted EBITDA in the Q3 of 2023 was $25,800,000 or 12.7 percent of third party net sales, reflecting a decline of 110 basis points from 13.8% in the prior year period. The decrease in adjusted EBITDA margin is primarily due to lower net sales, the benefit of the contingent liability with our prior parent in Q3 of 2022, partially offset by savings from restructuring and cost containment. Adjusted earnings per share in the Q3 was $0.08 on a fully diluted weighted average share count of 27,000,000 shares. Regarding working capital, liquidity and debt, In Q3, we accelerated our progress on initiatives to monetize the strength of assets on our balance sheet and the application of our disciplined financial framework.

Speaker 3

In the quarter, we added over $9,000,000 in cash to end at $75,400,000 including a $7,000,000 prepayment of required principal payments on our term loan debt. Net working capital improved by $8,000,000 including a $12,000,000 reduction in inventory and a $14,000,000 reduction in accounts receivable. Although we have further opportunity to improve our financial profile, we are pleased that our focus on the operationalization of the business As a reminder, our $175,000,000 credit facility revolver remains undrawn. Looking ahead, please note that we expect our interest expense to increase by a couple of $1,000,000 in 2024 relative to 2023, given the current rate environment and debt balance. I'll now turn to our updated full year 2023 outlook.

Speaker 3

We are pleased with the progress we are making and are subsequently revising our full year 2023 financial outlook. Starting with revenue, we are revising our expected full year 2023 net sales to be in the range of $860,000,000 to $870,000,000 narrowing our range from our previous guidance of $850,000,000 to $870,000,000 Looking at our segments, we continue to expect 2023 Dental net sales to be flat or to grow in the low single digits versus 2022 And we continue to expect 2023 Spine net sales to decline in the high single digits to low double digits versus 2022. Moving to adjusted EBITDA margin, we expect full year adjusted EBITDA margin to be in the range of 13.5% to 14.0 percent of net sales, the same as previously guided. With regard to adjusted earnings per share, We are revising our adjusted earnings per share guidance range to $0.60 per share and $0.70 per share on a fully diluted share count of 26,600,000 shares, narrowing the range of our previous guidance range of $0.50 to $0.70 a share. With that, I'll now turn the call back over to Vafa.

Speaker 2

Thank you, Rich. I'm pleased with our progress in 2023 to date as well as our execution on streamlining objectives. Although we have additional work ahead To return our business to durable growth, I am confident in the strength of the assets in the portfolio and our presence in underserved end markets, which ultimately bring great value to patients. As we continue to improve the efficiency of our company, evolve our product platforms and execute commercially, we look forward to showcasing the results that we'll work to deliver. With that, we will open it up to questions.

Operator

Thank you. At this time, we'll conduct a question and answer session. And wait for your name to be announced. Our first question comes from the line of Robbie Marcus with JPMorgan. Your line is open.

Speaker 4

Hi. This is actually Lily on for Robbie. Thanks for taking the question. A lot of the upside, at least relative to our own expectations, came from spine. So can you talk about any progress And the trends you're seeing there, particularly in terms of competition and what signals are you seeing that could potentially indicate a stabilization moving forward?

Speaker 2

Right. Thanks for the question, Dafir. We are seeing international growth contribute the most To the spine recovery, we still believe that we've got some work to do in the U. S. And we have plans in place that can get us there.

Speaker 2

But the primary Drivers for the recovery are MobySea sales internationally, both EMEA and APAC and Tether sales in EMEA. Those are the primary drivers for The improved spine performance.

Speaker 3

Yes. This is Rich. Thanks again for the question. Just to kind of add to that comment that Vas made. If you look at our international our international supply actually impact was only down about 3.6% and that included The impact of exiting China for the year.

Speaker 3

But when you look at the international markets specifically, particularly around our flagship products, Moby C and Tether, In our EMEA region, we mentioned before that Moby C is the only cervical disc replacement in France that's Approved for reimbursement and that business in our EMEA region grew by almost 40% year over year in the quarter. And then Tether, we've also had great uptick in Tether. And in Europe, in EMEA, our Tether business also grew by about 29%. So To Bass' point, we're really starting to see some stability in the U. S.

Speaker 3

Or U. S. Environment. So those green shoots continue to take root.

Speaker 4

Got it. That's good to hear. And then maybe on the flip side, dental was A little bit softer compared to our numbers. So and you called out a weaker dental market this quarter. So what are the drivers of that?

Speaker 4

And how do you see that Trending into the back half of the year. Thank you.

Speaker 2

Right. So we feel that we're doing well relative to the But we do see a slower dental implant market in the United States. So that is where we're seeing the softest parts. It's Primarily macro driven. It's not gloss customer.

Speaker 2

We're actually doing well on that front. We're doing well on new customers, but we do see softer Existing user sale in dental in the U. S. Rich, internationally?

Speaker 3

Yes. So dental is largely driven by 1st and foremost year over year we had one less selling day. And it's largely macroeconomic pressure in the U. S. But to Vatha's point, we actually the dental business, we're actually pleased with our performance Year over year and we've seen similar strength particularly in Europe on the dental side.

Speaker 3

Our dental business INIMEA grew almost 12% year over year in reported and about 4% in constant currency. And so we're really pleased with our digital portfolio. It continues to grow double digits for us. Our Biomaterials offerings continue to do well. And on a year over year basis, our flagship implants are basically flat year over year, which Despite the macroeconomic pressures, we think that we're outpacing some of our competitors in the market.

Speaker 2

Yes, we think we're positioned really well Within that Deco portfolio. So when the market should return, we should be in a very, very good place competitively with respect to our portfolio, our price and our customers.

Speaker 4

Great. Thank you.

Operator

Thank you. One moment for our next question. This question comes from the line of Matt Miksic of Barclays. Your line is now open.

Speaker 5

Hey, thanks for taking the question. So Appreciate all the color. I wanted to get a sense of following up on the question on spine. It seems like when you described at NAF the opportunity Just sort of get after a more significant part of the cervical disc replacement market with the new sizes that you've rolled out in the Based on, I think it was like 30% of the European market was addressed by these new sizes. Can you would you actually describe the current competitive environment in the U.

Speaker 5

S. Like you've been at a disadvantage because These other these patients stay a third roughly of the U. S. Population is possibly Yes, Ben, inaccessible to you and this is going to open that up or would you say, this is kind of Market expansion opportunity for folks who are maybe looking at a patient saying, you know what, we have to fuse this because we just don't have the size for this patient. I'd love To get a sense for how big of an inflection you think this is for the U.

Speaker 5

S. Market? And I have one follow-up.

Speaker 2

Sure. Hey, Matt. So I think the underlying concern that we had with our portfolio was we hadn't innovated since the acquisition Of LDR, and we needed to continue to innovate the portfolio, specifically to what we see. So there's a couple of things we're doing there. The sizes just adds to our portfolio, so adds more suitable patients to that portfolio And puts us competitively at parity with the newer launch that's come out.

Speaker 2

So that's important to be able to at least offer everything that's happening there. At the same time, we think that we can we have the biggest opportunity is still to expand the market in terms of who is eligible for a DISC versus Fusion. And so the combination of the sizes that we are offering now along with the newly announced Hybrid study, which will allow a surgeon to put a fusion next to a cervical disc. These are really, really important drivers of new market growth. So we haven't input a hard number on either one of those, but look at it as a way for us to become more and more competitive Within the cervical disc market, but never lose sight of the fact that really the greatest opportunity with cervical disc is improving the users And the patient population is to get disc versus fusion versus going after competitive share.

Speaker 5

Got it. Thanks. Super helpful. And the and just one more on spine. There's a lot of what's being categorized as Sort of disruption or dislocation because of some major spine deals and actions as you're aware of, I'm sure.

Speaker 5

Is there has there been any effect on your ability to or to either recruit Reps or distributors or your the pressure on you to sort of other folks trying to pick off some of your better Distributors, what's that dynamic like? And then I have just one more follow-up on dental.

Speaker 2

Yes. So, on that Particular situation, that's a situation we were on the wrong side of that when we announced the spin. And right now, I feel like there is a lot of very, very excellent talent out there, Particularly in the United States, where we hope to be the recipient of a lot of that talent to improve our sales channel or to go into areas where we have less penetration. So We're feeling like we will be a net beneficiary of that disruption, and I look forward to sharing that news with you over the next It won't be something we do suddenly. All these things take a little bit of time, but never fast enough.

Speaker 2

But nevertheless, I think we'll be the beneficiary of some positive

Speaker 5

That's great. And then just finally on dental, any sense of How much it may be I apologize if you answered this in your last in the question around dental, but just elements of seasonality That either came into play in Q3 or may come into play in Q4. And any sense of whether that's a market that's Stabilizing or potential for improving, just Some color as to which way the winds of growth are blowing in the dental market in the moment.

Speaker 2

Sure. So particular to us, just I'll start and then Rich will have some further color on it. We are happy with the new customer acquisition that we have. So we're doing really well with DSOs and we're doing really well with newer non implant customers that are starting to do implants. So that's very, very positive for us.

Speaker 2

I would say that we did experience seasonality in Q3 And there is a softness in the U. S. Market that is not evident in Asia Pacific nor in EMEA, but we do feel that, Which is probably adding a little bit of conservatism to how we see Q4 working out.

Speaker 3

Yes. Hey, Matt. This Rich, good to talk to you again. Yes, just to expand on what Baffa said, Q3 in the dental business is always Our weakest quarter and a lot of it is because of summer vacations. And obviously, a large portion of our business, almost half of it actually is U.

Speaker 3

S. And of course, Europe has their vacations. And so that being said, we did call out at the end of our Q2 call That we did see a little bit higher seasonality than normal. The dental business put up 105.3%, I believe, for the quarter, Which was actually a little bit better than what our expectations were, maybe $1,000,000 or so given Better than our expectations. And so we have seen seasonality, but the positioning of the dental business And our commercial execution frankly continues to perform well particularly OUS, which is where we thought the seasonality was going to come from.

Speaker 3

And so We actually kind of combated that seasonality with outperformance in those regions.

Speaker 5

Well, that's great. Congrats on that and look forward to hearing more about how things progress through the end of the year. But thanks for taking the questions.

Speaker 2

Thank you, Nat. Thank you.

Operator

I'm showing no further questions at this time. So this does conclude the question and answer session. Thank you everyone for your participation.

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Earnings Conference Call
ZimVie Q3 2023
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