ZimVie Inc. (NASDAQ:ZIMV) is a global life sciences leader in the dental market, developing, manufacturing, and delivering a comprehensive portfolio of products and solutions designed to support dental tooth replacement and restoration procedures. The company has recently undergone a significant transformation, reshaping its business to focus solely on the dental segment after the divestiture of its spine business.

Business Overview

ZimVie was incorporated in 2021 as a wholly owned subsidiary of Zimmer Biomet, with the purpose of holding the dental and spine businesses. In March 2022, the company was spun off from Zimmer Biomet, becoming a standalone, publicly traded entity. Following the distribution, Zimmer Biomet initially retained a 19.7% stake in ZimVie, which was subsequently sold by February 2023.

Prior to the sale of the spine segment, ZimVie operated two business segments: dental and spine. The core of the dental segment includes designing, manufacturing, and distributing dental implant systems, biomaterials, and digital workflow solutions. The spine segment was focused on developing and marketing medical devices and surgical instruments for the treatment of spinal conditions.

On December 15, 2023, ZimVie entered into a definitive agreement to sell its spine segment to an affiliate of H.I.G. Capital for a total consideration of $375 million, including $315 million in cash and a $60 million promissory note. The transaction closed on April 1, 2024, allowing ZimVie to fully focus on its dental business.

Financials

For the fiscal year ended December 31, 2023, ZimVie reported annual net sales of $457,433,000, a decrease of 1.7% compared to the prior year. The company's annual net income was -$393,282,000, while annual operating cash flow and free cash flow were $37,148,000 and $24,661,000, respectively.

In the first quarter of 2024, ZimVie's third-party net sales from continuing operations (the dental business) were $118,200,000, a decrease of 1.6% on a reported basis and 1.4% in constant currency compared to the same period in the prior year. The decline was primarily driven by lower sales of capital equipment, such as the iTero digital scanner, and softer demand for dental implants in the U.S. market, partially offset by strength in the company's biomaterials and digital solutions portfolios.

Adjusted EBITDA from continuing operations in the first quarter of 2024 was $12,500,000, representing a margin of 10.5%. Adjusted earnings per share from continuing operations was $0.08 for the quarter.

Geographic Breakdown

ZimVie's sales are diversified across geographic regions, with the United States and international markets contributing roughly equal shares. In the first quarter of 2024, U.S. third-party net sales from continuing operations were $67,700,000, a decrease of 3.1% compared to the prior year period. International third-party net sales were $50,400,000, up 1.1% in constant currency.

The company has a strong presence in Europe, where it has seen stability in the dental market over recent quarters. ZimVie's competitive position remains strong in its core international markets.

Segment Performance

ZimVie's dental business is composed of three main product categories: dental implants, biomaterials, and digital dentistry solutions.

Dental Implants:

ZimVie's premium dental implant portfolio, including the TSX and T3 PRO systems, has demonstrated rapid and strong commercial traction. However, the U.S. dental implant market has faced some softness, contributing to the overall decline in the company's first-quarter sales.

Biomaterials:

ZimVie's biomaterials portfolio, which includes bone graft substitutes, membranes, and regenerative products, has seen stable performance. These products are used in conjunction with dental implant procedures to provide the foundation and aesthetic outcomes.

Digital Dentistry:

ZimVie's digital dentistry offerings, including intraoral scanning solutions and guided surgery software, have experienced strong growth, with close to 50% year-over-year increase in the guided surgery line. These digital solutions enable greater efficiency, accuracy, and patient satisfaction in dental procedures.

Guidance and Outlook

For the full year 2024, ZimVie is guiding for net sales in the range of $450 million to $460 million, reflecting a modest increase of 0.2% at the midpoint compared to 2023. The company expects adjusted EBITDA to be in the range of $60 million to $65 million, resulting in an adjusted EBITDA margin of 13.3% to 14.1% of sales.

Management is committed to achieving an adjusted EBITDA margin of 15% or more by April 1, 2025, one year after the completion of the spine segment sale. To reach this target, the company is focused on streamlining its corporate infrastructure, reducing IT and legal expenses, and improving manufacturing efficiency.

Liquidity

As of April 2, 2024, ZimVie had a consolidated cash balance of approximately $66 million and a gross debt balance of $234 million, resulting in net debt of $178 million. The company also maintains an undrawn $175 million revolving credit facility.

Following the sale of the spine segment, ZimVie used $275 million of the proceeds to pay down a significant portion of its debt, strengthening its balance sheet and reducing its interest expense. The company's priority for capital allocation is to further reduce debt using excess cash flow.

Risks and Challenges

ZimVie faces several risks and challenges, including:

1. Dependence on new product development and innovation to maintain its competitive edge in the dental market. 2. Pricing pressures from competitors, customers, and insurance providers. 3. Regulatory changes and compliance requirements in the U.S. and international markets. 4. Potential disruptions in the supply chain and reliance on a limited number of suppliers. 5. Ability to retain and attract skilled employees to support the business. 6. Integration and operational challenges associated with mergers and acquisitions. 7. Exposure to macroeconomic conditions, such as changes in interest rates and currency exchange rates.

Conclusion

ZimVie has undergone a significant transformation, reshaping its business to focus solely on the dental market after the divestiture of its spine segment. As a pure-play dental company, ZimVie is well-positioned to leverage its comprehensive portfolio of dental implants, biomaterials, and digital solutions to drive growth and improve profitability. The company's commitment to innovation, operational efficiency, and strategic capital allocation positions it for long-term success in the $8 billion global dental implant, biomaterials, and digital dentistry market.