Executive Summary / Key Takeaways

• ZimVie has successfully transformed into a focused pure-play dental company following the divestiture of its spine segment, significantly improving its financial flexibility through substantial debt reduction.
• The company is demonstrating strong execution on operational efficiency and cost reduction initiatives, driving significant expansion in adjusted EBITDA margins, exceeding initial targets.
• ZimVie possesses a differentiated portfolio in the premium dental implant and digital dentistry markets, leveraging proprietary technology and services like RealGUIDE and Implant Concierge to enhance workflow efficiency and patient outcomes.
• While navigating a soft global dental market, particularly impacting implant and scanner sales, the company is seeing signs of stability and is strategically positioned for growth through new product introductions and commercial execution.
• Management guidance for 2025 reflects expectations for continued profitability improvement and strong operating cash flow generation, underpinned by operational discipline and strategic investments in the core dental business.

A Focused Future: ZimVie's Dental Pivot

ZimVie Inc. is undergoing a significant strategic transformation, shedding its legacy as a diversified medical technology company to emerge as a focused player in the global dental market. This pivot, centered on dental implants, biomaterials, and digital dentistry solutions, represents a deliberate effort to leverage core strengths and improve financial performance in a dynamic industry landscape. The company's journey began as a spin-off from Zimmer Biomet (ZBH) in March 2022, initially encompassing both dental and spine businesses. Recognizing the distinct market dynamics and operational requirements of these segments, ZimVie made the strategic decision to divest its spine business, a transaction completed on April 1, 2024. This move was pivotal, allowing ZimVie to concentrate resources, streamline operations, and, importantly, significantly delever its balance sheet by using proceeds to prepay $275 million on its Term Loan.

This transformation sets the stage for ZimVie's current strategy: driving profitability through operational excellence and targeted investment in its differentiated dental portfolio. The company operates within a competitive environment characterized by large, diversified players like Zimmer Biomet, Stryker Corporation (SYK), and Medtronic plc (MDT), as well as more specialized competitors like Alphatec Holdings Inc. (ATEC). While larger peers benefit from scale and broader market presence, ZimVie aims to carve out its position by focusing on the premium segment and leveraging technological advantages.

Differentiated Technology and Strategic Pillars

ZimVie's investment thesis is fundamentally linked to the strength and differentiation of its core dental technologies and solutions across its three main pillars:

• Dental Implants: The company focuses on the premium segment with key products like the TSX and T3 PRO implant systems. These implants feature proprietary surface technologies, such as DAE and Osseotite, which clinical studies suggest may offer tangible benefits. Specifically, the dual acid-etched (DAE) coronal surface technology has been shown to exhibit bacterial adhesion levels comparable to smooth machined surfaces while promoting crestal bone maintenance, potentially reducing the risk of peri-implantitis by up to 20% compared to other leading brands. This focus on clinical outcomes and long-term implant success is a key differentiator in the premium market. Recent innovations, like the Immediate Molar Implant System launched in the U.S. in April 2025, aim to simplify challenging procedures and shorten treatment times, expanding the addressable market and providing new growth drivers.
• Biomaterials: Complementing the implant portfolio, ZimVie offers a range of biomaterials for bone and tissue regeneration. These products are essential for creating a stable foundation for implants and are seen by management as a leading indicator of future implant procedures.
• Digital Dentistry Solutions: This is a rapidly growing area for ZimVie, designed to enhance practice efficiency and facilitate implant adoption. The RealGUIDE software suite provides tools for precise implant planning, surgical guide design, and restorative design. Recent enhancements, such as one-click nerve detection and automated bone and tooth segmentation in RealGUIDE 5.4, significantly improve safety, accuracy, and reduce planning time. The Implant Concierge service offers outsourced treatment planning and guided surgery solutions, removing labor and cost from the dental office workflow. This service has shown high growth (11-20% year-over-year) and is viewed as addressing a large unmet need, with a market size potential potentially equivalent to that of the premium implant market itself. Partnerships, like the one with Medit for oral scanners, expand the digital ecosystem and offer a broader range of price points to customers.

The "so what" for investors is that these technological differentiators, particularly the clinical benefits of the implant surfaces and the workflow efficiencies offered by the digital solutions, provide ZimVie with a competitive moat. They support the company's position in the premium market, justify pricing, and can drive adoption by improving outcomes and practice economics. While larger competitors like ZBH and SYK have broader digital offerings, ZimVie's focused approach and specific features like Implant Concierge provide a distinct value proposition.

Financial Performance and Operational Efficiency

The strategic pivot is yielding tangible results in ZimVie's financial performance, particularly in profitability. The first quarter of 2025, the first full quarter operating solely as a dental company post-spine sale, showed net sales of $112.0 million, a decrease of 5.2% reported and 4.1% in constant currency year-over-year. This decline was attributed to headwinds including the exit of a transition manufacturing agreement, one less selling day, lower oral scanner sales (a distributed product), and unfavorable foreign exchange. Normalizing for these factors, constant currency net sales declined 1.4%.

Despite the top-line pressure, profitability saw significant improvement. The cost of products sold as a percentage of sales decreased to 33.9% in Q1 2025 from 37.4% in the prior year period. This 350 basis point reduction was primarily driven by manufacturing efficiencies, cost reductions, and a favorable mix shift away from lower-margin distributed products. Operating expenses also saw some reductions, with R&D decreasing to $5.4 million from $6.7 million and SG&A decreasing to $59.0 million from $60.3 million, reflecting lower clinical expenses, compensation, and insurance costs, partially offset by increases in IT and professional fees. Restructuring and acquisition-related costs totaled $2.8 million in the quarter.

The most striking improvement was in adjusted EBITDA, which rose to $17.6 million in Q1 2025, translating to a 15.7% adjusted EBITDA margin. This represents a 41% increase and 520 basis points of margin expansion compared to $12.5 million or 10.5% margin in Q1 2024. This performance exceeded the company's previously communicated goal of achieving 15%+ EBITDA margin one year post-spine sale. The company also achieved GAAP operating income ($0.8 million) and pretax income ($0.4 million) positive in the first quarter.

Looking at TTM figures (which still include some legacy spine impact), ZimVie's TTM Gross Profit Margin is 44.07%, TTM Operating Profit Margin is -2.31%, and TTM EBITDA Margin is 1.75%. These TTM figures lag significantly behind larger peers like ZBH (71% Gross, 17% Op) and SYK (64% Gross, 16% Op), and even ATEC (69% Gross, -22% Op). However, the Q1 2025 results demonstrate a clear trajectory of improvement, with the adjusted EBITDA margin of 15.7% moving closer to the profitability levels of established players, albeit on a smaller revenue base.

Liquidity has also improved post-spine sale. As of March 31, 2025, ZimVie had cash and cash equivalents of $66.8 million. Gross debt stood at approximately $220 million, resulting in net debt of approximately $153 million. This is a substantial improvement from prior periods, enhancing financial flexibility. The company also holds a $60 million seller note from the spine sale, which accrues interest and matures in October 2029. Debt reduction remains the primary capital allocation priority. Cash flows used in operating activities were $13.9 million in Q1 2025, primarily due to changes in working capital.

Outlook and Risks

For the full year 2025, ZimVie has reiterated its revenue guidance range of $445 million to $460 million, representing a 1% decline to 2% reported growth. Normalizing for currency and selling days, this implies flat to 3% constant currency growth. The guidance assumes the dental market remains stable at the low end and experiences a moderate recovery in the back half of the year at the high end, supported by commercial execution and new product launches.

The company also reiterated its adjusted EBITDA guidance of $65 million to $70 million, reflecting an 8% to 17% improvement over 2024 and implying an adjusted EBITDA margin in the range of 14.6% to 15.6%. This outlook underscores management's confidence in driving continued operational leverage and cost discipline. Adjusted earnings per share are guided to be between $0.80 and $0.95. Interest expense is expected to be significantly lower, in the range of $7.5 million to $8 million for the year. The company anticipates generating strong operating cash flow of $30 million to $40 million in 2025, more than double the amount generated in 2024, and expects to achieve positive GAAP operating income for the full year.

Near-term, Q2 2025 net sales are expected to be between $112 million and $114 million, including headwinds from order timing and the transition manufacturing agreement exit. Adjusted EBITDA margin is expected to be approximately 15% in Q2.

Key risks to this outlook include the pace and extent of recovery in the global dental market, particularly the return of higher-value implant procedures performed by specialists. Pricing pressures, especially in certain international markets, could also impact revenue and margins. Foreign currency fluctuations remain a factor. Changes in U.S. trade policy, including potential tariffs, could impact costs, although management has incorporated an estimated $3 million annual impact into guidance and has mitigation plans leveraging supply chain flexibility. Competition from larger, well-resourced players and smaller, agile innovators presents ongoing challenges to market share and pricing power. The ability to successfully execute on commercial strategies and new product launches is critical.

Conclusion

ZimVie's transformation into a pure-play dental company is well underway, marked by the successful divestiture of its spine segment and a clear focus on its core dental business. The company's strategic emphasis on operational efficiency and cost reduction is translating into significant adjusted EBITDA margin expansion, positioning it for improved profitability and cash flow generation. While the global dental market presents ongoing challenges, ZimVie's differentiated portfolio, particularly its premium implants with clinically supported surface technology and its growing digital dentistry solutions, provides a foundation for future growth. The company's ability to continue executing on its operational improvement plans, successfully launch and drive adoption of new products, and navigate competitive and market headwinds will be key determinants of its success in realizing its full potential as a focused dental player. The guidance for 2025 signals confidence in sustaining the positive momentum seen in early results, offering investors a clearer path towards value creation.