ZimVie Inc (ZIMV): Executing a Focused Growth Strategy in the Dental Market

Business Overview and History

ZimVie Inc (ZIMV) is a global life sciences leader dedicated to enhancing the quality of life for dental patients worldwide. With a comprehensive portfolio of products and solutions designed to support dental tooth replacement and restoration procedures, the company has established a strong presence in the growing global dental implant, biomaterials, and digital dentistry market.

ZimVie was incorporated in 2021 as a wholly owned subsidiary of Zimmer Biomet, with the sole purpose of holding the company's dental and spine businesses. The distribution of these businesses was completed on March 1, 2022, resulting in ZimVie becoming a standalone, publicly traded company.

Following the distribution, Zimmer Biomet initially retained a 19.7% ownership stake in ZimVie, with all transactions between the two companies reported as related party transactions until February 1, 2023, when Zimmer Biomet sold its remaining stake.

Prior to the sale of its spine segment on April 1, 2024, ZimVie operated two business segments: dental and spine. The core services of the dental segment included designing, manufacturing, and distributing dental implant systems, dental prosthetic products, and dental regenerative products. The spine segment focused on delivering comprehensive solutions for individuals with back or neck pain caused by degenerative conditions, deformities, or traumatic injury.

Following the sale of the spine segment, ZimVie now operates as a single segment, with its core services centered around the dental business. The company continues to develop, manufacture, and market a comprehensive portfolio of dental products and solutions, including dental reconstructive implants, dental prosthetic products, and dental regenerative products.

In 2022, ZimVie faced several challenges as a newly independent company, including navigating the ongoing impact of the COVID-19 pandemic on dental procedure volumes. The company implemented restructuring activities in 2022 and 2023 to reduce costs and streamline its organizational infrastructure. These initiatives resulted in charges related to employee termination benefits and professional fees.

Despite these headwinds, ZimVie made progress in strengthening its product portfolio, expanding its digital dentistry offerings, and improving manufacturing efficiency. The company's dental business maintained market leadership positions in certain geographies. However, the spine business continued to face competitive pressures, leading ZimVie to ultimately divest that segment in April 2024 in order to focus on its core dental operations.

Financial Performance and Metrics

In the latest reported quarter (Q3 2024), ZimVie generated third-party net sales from continuing operations of $103.2 million, a decrease of 2% in reported rates and 2.2% in constant currency compared to the prior year period. This decline was primarily driven by lower dental implant and capital equipment sales, partially offset by growth in digital dentistry and biomaterials sales. Pricing pressure on premium dental implant systems in North America also negatively impacted revenue.

The company's U.S. sales increased 0.5% in the third quarter, and when excluding the impact of oral scanner sales, the U.S. business grew by 1.6%, driven by the portfolio of restorative products, digital dentistry, and biomaterials. Internationally, sales declined 6% on a reported basis and 6.6% in constant currency, primarily due to the timing of orders in Japan and Italy, as well as a softer market in Spain.

Adjusted cost of products sold in the third quarter was 34.4%, a decrease of 40 basis points year-over-year and 260 basis points sequentially, as the company continued to focus on manufacturing cost efficiencies following the sale of the spine segment. Adjusted research and development expenses increased to $6.6 million or 6.4% of sales, up from $5.3 million or 5% of sales in the prior year period, reflecting increased investment in new product development and launches.

Adjusted selling, general, and administrative expenses were $57.8 million, up from $55.8 million in the prior year, as the company continued to invest in its U.S. direct sales force. Adjusted EBITDA from continuing operations in the third quarter was $13.1 million, representing a 12.7% adjusted EBITDA margin, compared to $12.2 million or 11.6% margin in the prior year period.

For the full fiscal year 2023, ZimVie reported revenue of $457.43 million, with a net loss of $393.28 million. The company generated operating cash flow of $37.15 million and free cash flow of $24.66 million.

In Q3 2024, ZimVie reported a net loss of $3.05 million, with operating cash flow of $1.20 million and free cash flow of $4.61 million.

Liquidity and Capital Structure

As of the end of the third quarter 2024, ZimVie had $67 million in cash and cash equivalents. The company paid down $15 million of principal on its term loan debt during the quarter, leaving it with gross debt of approximately $220 million and net debt of approximately $153 million, excluding the seller note from the sale of the spine business.

ZimVie also maintains a $175 million revolving credit facility, which remained undrawn as of the end of the third quarter. The company's balance sheet and liquidity position provide it with the financial flexibility to execute on its strategic initiatives and invest in growth opportunities.

Additional financial metrics as of Q3 2024 include: - Debt/Equity ratio: 0.54 - Current ratio: 1.94 - Quick ratio: 1.38

Market Position and Geographic Performance

The United States is ZimVie's largest market, accounting for 63.4% of total revenue in Q3 2024. U.S. revenue grew 0.5% year-over-year, or 1.6% excluding oral scanner sales, driven by the portfolio of restorative products, digital dentistry, and biomaterials.

Internationally, revenue declined 6% on a reported basis and 6.6% in constant currency, primarily due to the timing of orders in Japan and Italy, as well as a slower market in Spain.

The global dental implants market is expected to grow at a compound annual growth rate (CAGR) of 5.3% from 2023 to 2030, driven by an aging population, increased awareness of dental care, and advancements in implant technology. ZimVie is well-positioned to capitalize on this growth with its comprehensive portfolio of dental implant, biomaterial, and digital dentistry products.

Guidance and Outlook

For the full year 2024, ZimVie has narrowed its revenue guidance range to $450 million to $455 million, down from the previous range of $450 million to $460 million. The company has also narrowed its adjusted EBITDA guidance range to $60 million to $62 million, resulting in an adjusted EBITDA margin in the range of 13.3% to 13.6% for the full year.

Furthermore, ZimVie expects to generate adjusted earnings per share between $0.57 and $0.62 per share on a fully diluted share count of 27.6 million shares for the full year 2024. The company remains committed to achieving a 15%+ adjusted EBITDA margin one year post the completion of the spine segment sale, which occurred on April 1, 2024.

ZimVie also expects share-based compensation expense to be approximately $6.3 million for the full year 2024.

Conclusion

ZimVie's focused strategy in the dental market, combined with its strong financial position and ongoing operational improvements, positions the company well to navigate the current market challenges and capitalize on the significant growth opportunities in the global dental industry. The company's commitment to innovation, investment in its sales force, and disciplined approach to cost management are key drivers of its long-term success.

While facing some headwinds in terms of revenue growth and profitability, ZimVie continues to make progress in streamlining its operations and improving its product portfolio. The company's strong liquidity position and narrowed guidance for 2024 demonstrate management's focus on executing its strategic plan and driving long-term value for shareholders in the growing dental implant and digital dentistry markets.