ZimVie Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to ZIMVY's First Quarter twenty twenty five Earnings Conference Call. Currently, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Webb Campbell from Gilmartin Group for today's introductory disclosures.

Speaker 1

Thank you all

Speaker 2

for joining today's call. Earlier today, Zimvy released financial results for the first quarter ended March 3125. A copy of the press release is available on the company's website, zimvy.com, as well as 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.

Speaker 2

Please refer to the company's most recent periodic report filed with the SEC and subsequent SEC filings for a detailed description of these risks and uncertainties. In addition, the discussion on this call will include certain non GAAP financial measures. Reconciliations to these measures to the most directly comparable GAAP financial measures are included within the earnings release and or investor deck issued today found on the Investor Relations section of the company's website. This conference call contains time sensitive information and is accurate only as of the live broadcast today, 05/08/2025. Zimbe disclaims any intention or obligation, except as required by law, to update or revise financial projections or forward looking statements, whether because of new information, future events or otherwise.

Speaker 2

With that, I will turn the call over to Vafa Jamali, President and Chief Executive Officer.

Speaker 3

Good afternoon, and thank you all for joining us. In the first quarter of twenty twenty five, we delivered $112,000,000 in total revenue. The highlight of our first quarter was continued progress on improving the margin profile of the business and generating over $17,000,000 of adjusted EBITDA. Our team delivered over three fifty basis points reduction in adjusted total cost of products sold. As a result, we achieved adjusted EBITDA margin of 15.7%, over 500 basis points of improvement over the first quarter of twenty twenty four.

Speaker 3

This was ahead of our previously announced goal of 15% plus EBITDA margin first year post our sale of the Spine business and represents an over 40% year over year increase in EBITDA, despite our top line being challenged by an overall soft market. Our performance in terms of profitability is coming in better than expected. This is a result of executing our strategy to improve and streamline our manufacturing and supply chain, reducing corporate infrastructure and refocusing sales and R and D on our proprietary premium line of implants. In relation to tariffs, we're keeping our guidance unchanged for the year and have incorporated the impact of any potential tariff related costs. We have plans in place to mitigate tariff costs, which we estimate today to be roughly $3,000,000 per year, largely attributed to the EU USA tariff rates.

Speaker 3

We have supply chain and manufacturing flexibility, which will allow us to absorb these possible costs through our commercial and operational efforts. Rich will provide greater clarity shortly. We will remain focused on driving continued margin improvement and cash flow as we are committed to delivering shareholder value. I'd like to provide a brief update on our commercial strategy. On our fourth quarter call, we announced that we appointed a new Vice President of Americas Sales.

Speaker 3

I'm pleased to report that he is quickly making an impact in his expanded role as we're making a number of changes to our sales process and strategy to ensure we are expanding our customer base and increasing customer share. Our overall commercial strategy is beginning to play out. We have focused our sales and R and D teams on proprietary implant sales and development versus low margin distributed products. Although less contribution from third party scanner sales in North America will be reflected in top line, and overall improvement in mix is favorable to ZIMBY and will allow us to focus on our core area of strength and differentiation. We are very confident that our strategy plays out.

Speaker 3

We will continue to see outsized returns. I look forward to providing additional updates and sharing the results of these changes as the year progresses. I'll now give additional details on each piece of our portfolio, starting with dental implants. Implant sales declined low single digits in Q1 at a roughly stable pace in the fourth quarter of twenty twenty four as a result of continued macro pressure. We believe our implant growth is consistent with the market's overall performance and maintain that an improvement in the macro environment will result in the adoption of our implants.

Speaker 3

At the same time, as mentioned earlier, our U. S. Sales execution is showing tangible signs of success. March implant volume showed improvement and April showed growth in implant units sold year over year. Our innovation pipeline also paints a positive picture for growth.

Speaker 3

We just launched our immediate molar implant system in the March, and it is progressing very well. In fact, we've exceeded internal expectations for growth. This line will remain a growth driver for the remainder of the year. The immediate molar system expands our clinically proven TSX and T3 Pro Implant systems with an immediate molar solution for new and existing customers, simplifying challenging clinical scenarios for providers and shortening treatment times for patients. Commercially speaking, advancing innovation across our implant portfolio fills profitable portfolio gaps.

Speaker 3

It allows our sales team to sell something new to existing customers and gives us a stronger competitive position when negotiating larger deals. Next, shifting to biomaterials. Our biomaterials portfolio continues to gain recognition for its quality and breadth, showing just over 1% growth during the quarter. This performance reflects our ongoing investments in innovation and our ability to deliver high quality and industry leading solutions. Looking ahead, we're excited about the continued potential in this space, and we're confident that our momentum will sustain our leadership and deliver long term value.

Speaker 3

Lastly, I'll provide an update on the continued success of our digital portfolio. Excluding oral scanner sales, which are distributed products, we saw continued uptake in growth in our digital dentistry business. Our ZIMBI digital solutions, excluding scanner sales, grew high single digits in the first quarter. Our implant concierge service performed especially well, growing 11% year over year, helping clinicians save hours of time and reducing costs by improving workflows. Looking ahead, we're excited to expand the reach of implant concierge service in 2025, with an exciting launch in Japan in the second quarter.

Speaker 3

Additionally, we've driven continued strength in sales of surgical guides with our RealGuide software sales growing in mid teens for the first quarter. We're optimistic about continuing this positive momentum. We continue to believe that workflow improvements are critical to adoption of implant dentistry, and we're extremely pleased with the strength of our portfolio. Finally, during the quarter, we also made a strategic decision to acquire a distributor partner located in Costa Rica. Costa Rica is a premium dental implant market that caters to dental tourism.

Speaker 3

The transaction closed on April 7, which will provide more color on the benefit to our financial portfolio. By bringing this distributor in house, we can leverage the infrastructure, customer relationships and the number one market position to expand our local footprint and reduce or eliminate third party selling costs. The acquisition provides an immediate benefit to our margin profile. I'll now turn the line over to Rich to review our financial performance and forward outlook in greater detail.

Speaker 4

Thanks, Bapha, and good afternoon, everyone. I'll begin by reviewing our first quarter twenty twenty five results, and we'll close by providing commentary on our outlook for the full year 2025, in addition to providing our expectations for the second quarter. As a reminder, we finalized the sale of our Spine business on 04/01/2024. Thus, our legacy Spine segment is reflected in discontinued operations in our financial statements. Please refer to our 10 Q for financial results from discontinued operations.

Speaker 4

Beginning with our results for the first quarter twenty twenty five. Net sales for the first quarter were $112,000,000 a decrease of 5.2% in reported rates and a decline of 4.1% in constant currency. When normalizing for the expiration of the transition manufacturing agreement with our prior parent, one less selling day, and the shift in focus away from oral scanners and China sales, constant currency net sales declined 1.4%. In The US, net sales for the first quarter of sixty five point eight million dollars declined 2.8% compared to the prior year, driven by lower implant sales, oral scanners, and the impact of one less selling day. When normalizing for scanner sales in one less selling day, sales declined 0.5%.

Speaker 4

Outside of The US, net sales of $46,200,000 decreased 8.5% on a reported basis and 5.9% in constant currency, driven by lower implant sales and headwinds totaling four thirty basis points from the expiration of a transition manufacturing agreement with our prior parent, one less selling day, and lower China sales. When normalizing for these headwinds, sales decreased outside of The US One Point Six Percent in constant currency. First quarter twenty twenty five adjusted cost of products sold was 33.6% as a percentage of sales, decreasing three sixty basis points versus 37.2% in the prior year period. The reduction is driven primarily by manufacturing efficiencies and cost reductions, but also includes a mix benefit as we prioritize higher margin implant and digital sales versus a lower margin scanner business and the elimination of the low margin transition manufacturing agreement with our prior parents. First quarter adjusted research and development expenses of $5,400,000 or 4.8% of sales compares to $6,300,000 or 5.3% of sales in the prior year.

Speaker 4

The decrease is primarily due to lower clinical expenses in the period. First quarter adjusted selling, general, and administrative expense of $58,700,000 decreased 2.7% from $60,300,000 in the prior year, driven by reductions in headcount and related expenses. Other income of $1,700,000 primarily reflects income from transition service agreements resulting from the sale of our Spine business and offsets stranded costs that remain in SG and A expense. As of the end of Q1, our transitionary service obligations to support our prior spine organization are effectively complete. First quarter adjusted EBITDA attributable to continuing operations was $17,600,000 translating to a 15.7% adjusted EBITDA margin.

Speaker 4

This reflects a 41% increase, or $5,100,000 and five twenty basis points of margin expansion versus $12,500,000 or 10.5% margin in the same period last year. Not only are we pleased with our Q1 EBITDA margin of 15.7%, we exceeded our previously communicated commitments to deliver 15% plus EBITDA margins one year post spine sale. Furthermore, we achieved GAAP operating income and pretax income positive in the first quarter, also exceeding our expectations and external commitments. Our strong profitability underscores our ability to drive optimization in our cost structure during a time of transformational change and a challenging market environment. We believe this hard work positions us well for continued value creation as our end markets continue to show signs of stability in what is widely viewed as a cyclical trough in our industry.

Speaker 4

First quarter adjusted earnings per share attributable to continued operations of $0.27 per share on a fully diluted share count of 27,700,000 shares reflects a 238% increase from $08 per share in the prior year period. Turning to the balance sheet. As of the end of the first quarter twenty twenty five, consolidated ZIMV continuing operations cash was $67,000,000 Gross debt at the end of the quarter was approximately $220,000,000 yielding net debt of approximately $153,000,000 As a reminder, our cash balance does not include our $60,000,000 sell in note from the sale of Spine, which continues to compound interest. This note matures in October of twenty twenty nine, but could be received earlier under certain circumstances. Additionally, we maintain our $175,000,000 revolving credit facility, which remains undrawn.

Speaker 4

Quickly touching on our disclosure regarding the acquisition of our Costa Rica distributor. During the first quarter, we made the strategic decision to acquire a local dental distributor located in Costa Rica. We expect the transaction to be beneficial to Zynvi as it converts our sales presence in Costa Rica to a direct sales force and also leverages our existing footprint in the country. We funded the transaction with $3,300,000 in cash, inclusive of $1,300,000 in book value of inventory and accounts receivable. The transaction closed in April of twenty twenty five.

Speaker 4

With respect to capital allocation, we will continue to prioritize debt reduction as our number one objective. However, we've always maintained an opportunistic stance toward potential tuck in activity, and with a revitalized balance sheet and in the current environment, we recognize that some compelling opportunities may arise that tactically and strategically make sense. Now shifting toward our 2025 guidance. Beginning with our expectations for full year 2025, we are reiterating our full year 2025 revenue guidance range of $445,000,000 to $460,000,000 reflecting a 1% decline to 2% reported growth for the full year. The low end of our guidance range assumes the dental market remains the same, while the high end implies a moderate market recovery, commercial strategy execution, and success of new introductions in the back half of twenty twenty five.

Speaker 4

We also are reiterating our adjusted EBITDA guidance of between $65,000,000 to $70,000,000 reflecting an 8% to 17% improvement over 2024. As Vafa mentioned, we anticipate that we can absorb the approximately $3,000,000 annualized impact of tariffs within our existing guidance. By leveraging the flexibility of our manufacturing and distribution global footprint, we've already taken actions to optimize our supply chain and replenishment nodes. We acknowledge that the situation is dynamic, and we'll continue to assess opportunities to further reduce the impact. We are also reiterating our earnings per share guidance of $0.80 per share to $0.95 per share on a fully diluted share count of 29,000,000 shares.

Speaker 4

Moving on to our expectations for the second quarter twenty twenty five. We expect net sales in the second quarter of twenty twenty five to be in the range of $112,000,000 to $114,000,000 inclusive of two headwinds. First, a $3,000,000 or two sixty basis point impact from order timing differences for an outside of The U. S. Distributor order that occurred in Q2 of twenty twenty four and second, the expiration of the transition manufacturing agreement with our prior parents is a $640,000 impact, or 60 basis points in the second quarter.

Speaker 4

When normalizing for these two items, we expect Q2 sales to be a 1% decline to 1% growth. We expect adjusted EBITDA margin in the second quarter of approximately 15% of sales. With that, I'll now turn the call back over to Vafa.

Speaker 3

Thank you, Rich. As we wrap up the first quarter, I'm excited about the continued progress towards improving our portfolio with new product introductions like the immediate molar, our commercial focus on what matters most for ZIMVI and our focus on improving profitability. We're building a strong foundation for success. We've maintained our position in a global dental implant market and our biomaterials and digital dentistry markets are growing. Continuous improvements in practitioner workflow are critically important element to driving dental implant adoption.

Speaker 3

Our focus on continuously innovating our portfolio and driving progress in digitizing dentistry will continue to yield benefit. I'm optimistic about the year ahead and look forward to sharing our progress as we execute on these plans. With that, I would like to open it up to questions.

Operator

Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Kevin Caliendo of UBS. Your line is now open.

Speaker 5

Thank you very much. Good afternoon. This is Dylan Finley on for Kevin. I'd love to start by double clicking on your comments about the uptick in implant units sold in April. Any expanded color there and whether this might be attributed to higher utilization, same store sales or new accounts?

Speaker 3

Hi, Dylan. Vafi here. Yes, we started to see you know, we felt like Q1 looked a lot like Q4, and then March was steadily getting better. Nothing yet to really write home about. And then April started to just show a little more resilience.

Speaker 3

So our number one piece that we've been looking for is essentially same store sales and that improving, and that's what we're seeing as improving right now. We have a number of commercial strategies in place that could help the other side of it as well with respect to new customers. But right now both the immediate molar, which is a new launch that we had is growing really much better than expected. And overall our implant units were up.

Speaker 5

Very helpful. Thank you. And then just as a follow-up on kind of pricing dynamics. Overall in dentistry, there was a bit of an uptick in pricing coming out of the pandemic. It seems like pricing has sort of kind of moderated and cooled, and now things are pretty stable.

Speaker 5

I guess, it pertains to your portfolio and implants specifically, how is pricing trending today? And follow-up to that, do you have any capacity to offset any tariff impact via price increases?

Speaker 3

So I'll start and then Rich, if you could just get into more of the detail, that'd be great. So, obviously we are in the premium market and the premium implant market has been less price competitive than where there's a lot of battles for price happening at the value lines and even in the challenger lines. So, we have largely not been in very large competitive price situations. There are occasions where we would like to do that where it might be a DSO specialist where we would want to be very competitive. And I think the broader our portfolio is, the more capacity it gives us to actually package a deal that is very good for the customer and is also very good for us without having to significantly drop price.

Speaker 3

So that's kind of how I see the premium market and Rich can give you the specifics. Then in terms of your second question, which was capacity, I think in times like this, you need to be really selective on where you put price and where you don't. So segmentation on market is going to be really critical. I believe there are segments of the market segments of our portfolio, which we could raise price and probably will raise price. And there's others that it probably wouldn't be to our benefit.

Speaker 3

It might actually put us at a competitive disadvantage if we do. So, we'll be really selective there and rely heavily on very, very accurate segmentation of our customer base.

Speaker 5

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Anderson Shock of B. Riley Securities. Your line is now open.

Speaker 1

Hi. Thank you for taking the questions and congrats on the progress. So first, could you just provide more color on the regional performance differences? The international segment saw about an 8.5% decline versus 2.8% in The US. I guess what's driving the greater decline internationally?

Speaker 3

Rich, you want take that one?

Speaker 4

Yeah. Yeah. Hey, good afternoon, Anderson. Yeah. So in The US, had a outside of The US, sorry, we had a number of headwinds that we called out the Q4 call that materialized, obviously, in the first quarter.

Speaker 4

And so, for us, the specific impact from The US was the FX impact of the euro dollar primarily was about two sixty basis points impact. The impact of the termination of our low margin transition manufacturing agreement with our prior parent in the first quarter is two seventy basis points. And then we had one less selling day, which is 100 basis points. And then we're de emphasized our focus on China, given kind of the situation currently, and so that's about 60 basis points. So when you normalize for those items, the OUS sales modestly declined about 1.6% versus the headline 8.5% because we had those headwinds that were called out in year over year impacts to us in the first quarter.

Speaker 1

Okay, got it. That's helpful. And then could you talk about your current position in the Japanese market and then maybe the size of that opportunity for the launch of implant concierge here?

Speaker 3

Right. So, our presence in Japan is relatively similar to where it is The US in terms of our share position. The pricing in Japan is good. So, it's a good pricing market for premium implants and the premium implant market is still healthy there. The idea of implant concierge is that it essentially can double the size of your business because that's kind of the rate at which a full program would cost.

Speaker 3

It'd be a cost of essentially a premium implant. So, we obviously don't extrapolate it that way, but we do think that it'll be one of the top three growth drivers for Japan in terms of just really, really solid revenue growth. Then what you're also doing is you're improving the workflow, which is usually a big barrier for practices. No different in Japan than it is in United States. We think that can really accelerate the growth of the overall implant adoption.

Speaker 3

So that's kind of how we see it. I haven't really put an number on it yet. I will and we'll launch it over the next couple of weeks.

Speaker 4

Yeah. And just in addition to that, to Anderson, just on Japan, we had talked a little bit last year around our recovery and a little bit in Japan. We do have a strong market position in that country to the point where we actually grew in the first quarter, you know, mid single digits. And so, you know, when you take, you know, a good fundamental foundational business like we have in Japan, and then you add something as differentiated as implant concierge on top, you know, we feel as though we haven't quantified the numbers Vafa mentioned, but, you know, we should be able to continue to accelerate momentum in that geography.

Speaker 3

It'll obviously be local for local to Anderson. So it'll it'll have a good customer intimacy aspect to it as well.

Speaker 1

Okay. Got it. Thank you for taking our questions.

Speaker 3

Pleasure. Thank

Operator

you. Our next question comes from the line of Matt Miksic of Barclays. Your line is now open.

Speaker 6

Hi, thanks so much for taking the questions. Bhavan, I wanted to maybe follow-up with you on your thoughts on drill down on the question on geographic performance to maybe talk about end market trends and where you think things are in terms of picking up if at all or anything that you can do to sort of improve continue to improve the top line performance? And I have one follow-up.

Speaker 3

Right. Hi, Matt. So, when we really look at probably an over index on The US market for Zambi, and that's good in a sense that that is the most profitable market with the highest prices. That has been the area that's been slower for all of us. And remember that we're premium.

Speaker 3

We don't play in the value or the challenger line. So, it really does rely largely on a specialist return to action. So, more and more specialists and more complicated cases are really what boost us, and that's what we started to see in March and we started to see in April. So, overall, I think that that market is good and getting healthier. I think that Europe is a whole bunch of countries and each of them a little bit different.

Speaker 3

So we have very, very high performance in France. Our team is doing exceptionally well. And then we have some cost threats, competitive threats that we experienced in Iberia, which specifically was Portugal, which was with a very low cost value implant and import. And those are areas that we are working on strategies right now to mitigate those within portfolio and within partnerships that we're forging right now. But those are some specific areas where price is more acutely required than others.

Speaker 3

So in those cases, we've got a little bit of a different strategy in The US. I believe that we've got the right strategy and like I said, the commercial team is really focused on the right things. And because of that, I do feel very optimistic that The US business is going to return strong.

Speaker 6

That's helpful. Thanks. And then maybe a follow-up you know, as we speak to different companies and try to understand, obviously, things like the economic sensitivities to tariffs, which you've talked about, as well as the economic or logistical sensitivities of the supply chain. If you could maybe talk a little bit about any actions that you've taken to shore that up or any color or commentary you can express about the confidence in how the business is operating logistically in terms of supply chain and manufacturing, know, to the extent that we can get a sense of how, you know, how you may be able to react as things kind of potentially start moving around or fluctuating here given the volatility we've seen in the last couple of months?

Speaker 3

So, I'm extremely confident in our manufacturing capabilities. We've really demonstrated that. We've worked on it for quite a while since we kicked that project off. And we have been able to demonstrate a tangible demonstration of results in terms of gross margin, etcetera, etcetera. We also have flexibility of manufacturing.

Speaker 3

We have a site in Florida. We have a site in Valencia. And that gives us great amount of flexibility. Like Rich said, we've already moved a lot of the nodes, the distribution nodes for OUS out of Valencia. So that way, skip the The U.

Speaker 3

S. Tariff part of it. And that has given us a lot of flex and will continue to give us an opportunity. So, we'll constantly measure if there's labor arbitrage in one site versus the other, outweighed by the is it outweighed by the tariff cost or not. But we do have that flex.

Speaker 3

And because we've largely exited China, we don't have that risk, which I think right now poses the greatest threat to our segment in our industry. But that one's the one that we don't have a lot of reliance on. We moved manufacturing as part of our one of our strategies early was to in source a lot of third party manufacturing and we in sourced our largest third party manufacturer from China into Valencia. And obviously if we didn't have that that would be a project we were working on right now but that's been a great part of the margin improvement and also just if you frankly think about it retrospectively a great tariff avoidance if we had the benefit of foresight. It nevertheless was a positive move.

Speaker 3

So I think I'm confident that we're able to do that. Again, no one can predict exactly what will happen and what the end tariffs will be, but based on what we know right now and what we see every day, we think we've got a plan that can mitigate it within our guidance.

Speaker 6

That's very helpful. Thanks, Vafa.

Speaker 3

Thanks, Matt.

Operator

Thank you. I am showing no further questions at this time, so I would like to turn it back to Vafa Jamali for closing remarks.

Speaker 3

Great. Thank you very much. So, we're really proud of our accomplishments towards driving overachievement and profitability, most notable in our gross margin. This is the result of a lot of hard work. You know, having a lot of hard work with no result is not fun.

Speaker 3

In this case, thanks to my fantastic colleagues who've shown great effort and generated great results. So, I really want to thank our employees. I also feel very optimistic that this same energy and the same focus is being directed right now towards our commercial strategies, and they'll yield similar results in this dynamic end market. So, I'm really, really proud of our team. We're focused on the very vital few priorities that will drive the most impact for our company.

Speaker 3

And our better than expected performance from the launch of this new implant, the immediate molar, is really a reflection of that focus. So, we believe the dental market the implant market's resilient, and we think that dental implants are still very much under adopted. So we do believe that this is still the greatest growth driver for our market. So I really thank you for your attention today, and I wish you a great evening.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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