ZimVie Inc. Price & Performance (ZIMV)

February twenty six, 2025. Zimbi 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, otherwise With that, I will turn the call over to Zappa Jumali, President and Chief Executive Officer of Finzi. Good afternoon and thank you for joining us. 2024 was a transformational year for Ximvie ZimVie by many achievements.

Through the sale of our spine business, we became a pure play dental company, fully focused on our portfolio of dental implants, biomaterials, digital dentistry solutions. We delivered $450,000,000 in full year revenue, as part of our commitment to the customers we serve, we innovated across our portfolio to fill product gaps and capitalize on opportunities in the market. In addition, we materially reshaped our operating profile by reducing our corporate costs and reducing manufacturing and supply chain As a result of these efforts, we improved adjusted EBITDA margins by over two percentage points for the year. In the fourth quarter alone, we generated over $21,000,000 in operating cash we used the proceeds from the sale of our Spine business to pay down debt and significantly delever the business. I would like to thank our team for the diligent execution to make this possible accomplishing all of this despite softness in our end markets. For twenty twenty five, look at us to drive even greater progress culminating with a line of sight to positive GAAP operating income for 2025. Our commercial growth drivers for 2025 will include strengthening our commercial team, continued focus on medical education and training programs, and expansion of the product portfolio.

On the topic of our commercial team, I'm very excited to announce we've appointed a new Vice President of America Sales.

This is our largest and most profitable market. Scott has been with our organization for over fifteen years and has a deep knowledge of the industry, strong relationships with our customers and DSO partners and [indiscernible] This is the approach that we need to access the best market opportunities and for optimum performance management. He's already hit the ground running and I'm excited to have him lead our sales organization. Moving on to education and training programs, these are courses offered at our world class Palm Beach Gardens Institute. With an aim to drive adoption of implant dentistry. Our programs continue to be in very high demand, therefore serving as a core growth driver for our commercial strategy. Looking at our portfolio, our key objective remains to prudently invest to fill product gaps and capitalize on opportunities in the market creating a holistic portfolio supporting every step of the implant process. While we focus on commercial execution, we will continue to work diligently to improve the overall efficiency of our company and to manage capital allocation effectively.

Rich will talk further about these priorities. We look forward to updating our stakeholders on our progress to increase cash flow and improve financial flexibility in order to further reduce debt and reinvest in the business. I will now give additional details on each piece of our portfolio. Starting with our dental implants. Our premium implants continue to be positively received by clinicians and patients. Our portfolio is led by our TSX and T3 Pro Implants, which we perceive to be the highest quality implants on the market. Our clinically proven implant technologies address common concerns in modern dental implantology, one of which is peri implant infection. That occurs in up to twenty percent of patients and can jeopardize long term implant success. A study recently published in the Journal of Biomedical Materials Research, a leading journal field of biological medical sciences compared to innovative coronal surface technology of our premium implants to other leading brands It showed our T3 Pro and TSX implants have bacterial athesion levels that may offer up to twenty percent lower risk of peri implantitis. Better patient outcomes are obviously better for the patients. Also they're better for the economics of the practice. We've also seen strong demand for our recently launched portfolio of Gentek Restorative Components.

This demand validates our strategy to continue expanding and improving the commercial reach of our [indiscernible] We aim to bring additional products to market in the coming months which complement the existing sales bag of our field reps. The market opportunity for dental implants remains underpenetrated and [indiscernible] We look forward to continue to deliver innovative and effective solutions for implantologists globally. Next, I'll shift to biomaterials. Our biomaterials portfolio continues to gain recognition for its quality, growing 2% during the year and adding many new customers. Implant is only as strong as the foundation you place it in. And our biomaterials portfolio provides clinicians with multiple options to create the ideal conditions for a successful implant procedure. Finally, I will highlight the ongoing success of our digital portfolio. Excluding oral scanner sales, are distributed products, 2024 was a record revenue year for digital dentistry business. Our Zenbe digital solutions, excluding scanner sales, grew over 10% for the year and finished strong. Growing over 20% in the fourth quarter. One of the most exciting areas in the digital portfolio is our implant concierge service.

Grew 14% for the year, This exceptional growth rate is due to the significant savings of service offer conditions reducing hours of labor from dental office workflow. We look forward to continue to expand the commercial reach of our implant concierge service in 2025 and we'll have more exciting updates to come. Surgical Guide sales have also been strong, especially following our 5.4 Real Guide software launch. Which drove RealGuide growth of 39% in the year. Our extensive experience in this area has created a massive library of digital images, The digital reference library allows our software to provide one click nerve detection and automated bone and tooth segmentation. This is a major benefit to clinicians, greatly increasing the safety of the with great accuracy and less times. Advancements like this are why we are bullish on the long term prospects for driving more users to adopt implant industry. Overall, we're confident that our advancements in digital technology complement top of align implant and biomaterials offerings positioning Ximvia advantageously in the dental implant solutions market going forward. Let me now turn the call over to Rich to review our financial performance as we look forward to greater detail. Thanks, Behar, and good afternoon, everyone.

I'll begin by reviewing our fourth quarter and full year 2024 results for continuing operations, and we'll close by providing commentary on our outlook for the full year 2025 and provide our expectations for the first quarter. As a reminder, finalized the sale of our spine business on 04/01/2024. Thus, our legacy spine segment is reflected in discontinued operation in our financial statements. Please refer to our 10 ks per financial results from discontinued operations. Beginning with our results for the fourth quarter twenty twenty four, total third party net sales for the fourth quarter were hundred and $11,500,000 a decrease of 1.4% in reported rates primarily due to declines in U. S. Implants and in oral scanners partially offset by growth in biomaterials and digital solutions. In The U. S, third party net sales for the fourth quarter of $64,400,000 declined 1.5% compared to the prior year.

Driven by weakness during the last two weeks of the quarter in implant sales, and lower oral scanner sales, partially offset by double digit growth in digital and growth in biomaterials. Outside of The U. S. Third party net sales of $47,100,000 decreased 1.2% on a reported basis and was flat [indiscernible] All three of our major product categories implants, biomaterials and digital, excluding scanner sales, grew in the quarter.

Fourth quarter twenty twenty four adjusted cost of products sold was 35% as a percentage of sales decreasing two forty basis points versus 37.4% in the prior year period.

Driven primarily by manufacturing efficiencies, and cost reductions partially offset by an unfavorable product mix. Fourth quarter adjusted research and development expenses of $5,800,000 or 5.2% of sales compares to $6,500,000 or 5.7% of sales in the prior year. The decrease was primarily due to lower third party fees as associated with new product development.

Fourth quarter adjusted selling, general and administrative expense of $57,200,000 was flat to $57,400,000 in the prior year. Other income of $2,700,000 primarily reflects income from transition service agreements and offsets stranded costs that remain in SG and A expense. Fourth quarter adjusted EBITDA attributable to continuing operations $18,400,000 translating to a 16.5% adjusted EBITDA margin. This reflects a $4,500,000 increase and four twenty basis of margin expansion versus $13,900,000 12.3% margin in the same period of the prior year. Our strong adjusted EBITDA performance underscores [indiscernible] during a time of transformational change and a challenging market environment.

We believe that this hard work positions us well for continued value creation as our end markets continue to show signs of in what is widely viewed as a cyclical trough in our industry. Fourth quarter adjusted earnings per share at of $0.27 per share on a fully diluted share count of 27,600,000 shares reflects an increase of 170% from 10% per share in the prior year period. Shifting to our results for the full year 2024. Total third party net sales for the full year 2024 were $449,700,000 a decrease of 1.6% in reported rates and a decline of 1.2% in constant currency versus the prior year. In The U. S, third party net sales for the full year 2024 up $266,800,000 reflects a decline of 1% versus the prior year.

Outside of The U. S. Third party net sales of $182,900,000 decreased 2.5% on a reported basis and 1.5% in constant currency. Full year 2024 adjusted cost of products sold was 35.8% a reduction of 40 basis points versus 36.2% in the prior year. Driven by cost reductions resulting from the relocation of products between our facilities and more efficient manufacturing operations. Full year adjusted research and development expense of $25,000,000 or 5.6% of sales compares to $23,300,000 or 5.1% of sales in the prior year due to ongoing product development Full year adjusted selling, general and administrative expense of $237,700,000 compares to $240,500,000 in the prior year. Driven by decreases in employee related expenses, third party fees and information technology expense. Adjusted EBITDA attributable to continuing operations in 2024 was $60,000,000 an 18% increase or nearly $10,000,000 higher than $50,800,000 in the prior year.

This translates to a full year adjusted EBITDA margin of 13.3% a two twenty basis point improvement in the prior year. Again, I would like to emphasize that our full year two twenty basis point improvement in adjusted EBITDA margin on lower sales reflects many quarters of work to optimize our position in our markets. Improve our cost of goods and drive operating efficiency. 2024 adjusted earnings per share attributable to continuing operations was $0.62 per share on a fully diluted share count of 27,400,000.0 shares 182% increase over the $0.22 per share we had in the prior year period. Now turning to the balance sheet. As of the end of the fourth quarter twenty twenty four, consolidated Zumvie continuing operations cash was $75,000,000 Gross debt at the end of the quarter was approximately $220,000,000 yielding net debt of approximately $145,000,000 As a reminder, our cash balance does not include include the $60,000,000 seller note from the sale of Spine.

Which continues to compound interest. This note matures in October 2029 but could be received earlier under certain circumstances. Additionally, we maintain our $175,000,000 revolving credit facility which remains undrawn. Now turning toward our 2025 guidance. Beginning with our expectations, for 2025 continuing operations. We expect 2025 revenue of between $445,000,000 to $460,000,000 reflecting a 1% decline to 2% reported growth.

Please note, when considering an 80 basis point or $3,600,000 headwind from the impact of currency, and a $1,000,000 impact from one less selling day in 2025 versus 2024 our guidance reflects flat to 3% constant currency growth, The low end of our guidance range assumes the dental market remains the same while the high end implies a moderate market recovery in the back half of twenty We plan to continue to generate operating leverage and expect adjusted EBITDA of between $65,000,000 to $70,000,000 reflecting an 8% to 17% improvement over 2024. We expect adjusted earnings per share to be $0.8 to $0.95 per share on a fully diluted share count of 29,000,000 shares.

Representing a substantial increase of 29% to 53% versus 2024. Interest expense following our significant pay down of debt and inclusive of accrued interest income from the seller note is expected to be in the range of $7,500,000 to $8,000,000 Share based compensation expense is expected to be $15,000,000 to $16,000,000 Capital expenditures are expected to be in the and include costs to transition our Oracle systems in The U. S. To the cloud.

Now that many of the expenses associated with Spine sale are winding down, we expect to generate operating cash flow of approximately $30,000,000 to $40,000,000 in 2025. More than double the amount of operating cash flow generated in 2024. Additionally, we are rapidly improving our bottom line and we expect to achieve positive GAAP operating income in 2025. Moving on to our expectations for the first quarter. We expect net sales in the first quarter twenty twenty five to be in the range of $112,000,000 to $114,000,000 inclusive of three headwinds.

More specifically, the impact of currency in the first quarter is $1,600,000 the impact of one less selling day is $1,000,000 and the termination of a reverse transition manufacturing agreement with our prior parents is $1,400,000 When normalizing for these headwinds, our Q1 expectation reflects a range of minus 2% to flat growth in the first quarter.

We expect adjusted EBITDA margin in the first quarter of between 1415% of sales.

Before handing the call back to Bapa, I also want to touch briefly on the topic of tariffs. Our team has been closely monitoring recent government commentary and actions and analyzing potential impacts. Our current guidance assumes that our business will not be materially impacted We will continue to follow the situation closely and provide updates to the market as needed. With that, I'll now turn the call back over to Beffa.

Thanks, Rich. Over the past year, we've made significant progress on our goals of improving our operating efficiency while continuing to innovate for our customers, and creating value for our shareholders. Are well positioned in the global dental implant biomaterials and digital dentistry market with a strong presence in the tooth replacement market and market leading positions in certain geographies. To conclude, I'd like to share my optimism for the year ahead In 2025, our focus will be driving expanded adjusted EBITDA margins, Earnings per share growth and strong operating cash flow. We will continue to invest in our business to increase our product offerings and expand our geographic reach while optimizing our expense profile. Ultimately delivering great value for shareholders. I look forward to providing updates on these activities throughout the year I believe our team is well positioned to execute upon each of these plans. With that, let me open it up to questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press To withdraw your question, Ready. Our first question will come from David Saxon, Needham and Great. Good afternoon, Balfe and Rich.

Thanks for taking my questions.

Let's see. I guess I wanted to start on some of the comments you made made in the script, Vafaa. When you're talking about The U. S. Performance, you noted in the last two weeks think it was implants, you saw some weakness. So So wanted to just understand what drove that Was that just the holidays or anything specifically? And then then how did January and February shape up Hey, thanks for the call. Thanks for the question. So the way we saw it was up to the December, we were actually at the upper range of our of our guidance. So we felt pretty good And then our POs really dried up for the last two weeks of December.

We did some extensive reviews with the region manager teams and they said there was extended holidays people just giving their staff the time off for the week and it was more than before. This is probably the second year of the role we've seen it the December not being as strong as as previous years were. But this one was a little bit heightened and I think that once I've listened to a bunch of commentary from different parts of the business, it feels like it was extended holidays that really caused that being [indiscernible] The timing of the of New Year's and Christmas. January came back So January was stable again. So So December first two weeks of summer was good. And then January was back to normal again. I think some blood blips in February, nothing material. I think I think they call out weather right now, but that's what we heard. But I would say much more stable now than the last two weeks of December. And it wasn't anything it wasn't share loss or competitive behavior. It was just truly a shutdown of offices that we experienced in The U. S. Okay, great. Thanks for that.

And then then I just want to understand kind of expectations for growth by product category.

I would assume kind of implants and scanners remain kind of the drag, but are you expecting like biomaterials and digital X scanners to grow for the year?

Yes. Rich, do you want to take that one? I think it's similar to this year. Rich will Yes, David. Yes, happy to take it.

Yes, so the way that we're thinking about it about 2025 by product category, even though we're not guiding is digital Digital has great momentum, right, as Vapam mentioned in the script and we grew again by double digits in the fourth quarter. So that business continues to perform well. Our biomaterials franchise continues to perform well also. We've got some really good offerings. We have the new product introduction about a year ago, I believe, on biomaterials and that business continues to do well. So on the other piece that you mentioned, I'll talk to oral scanners first and then I'll kind of switch over to implants. On the oral scanner side, that product for us is distributed product. So it's low margin product. We continue see pressure in the fourth quarter. We expect that to start to kind of level out probably after the first quarter and kind of get back to a little bit more normal see. But our real focus is going to be around implants. And VASA kind of alluded to a change in sales leadership that we had in The U. S. At the end of the year, kind of December. And And one of the things that Bap and I found was that we have good products.

We have an effective well covered sales force But one of the things that we weren't doing and found this after we sold Spine is We could be more data driven from a sales execution standpoint. And so you'll find that the implant market is still pressured, but you'll find a heightened degree of focus around implant growth in 2025 that are more data decisions that actually leverage leverage the full power of the entire portfolio, including of course the strength of the implant.

Okay, great. Thanks so much for taking my question.

Thank you. Our next question is from Kevin Caliendo with UBS. Go ahead, Kevin.

Thank you and thanks for taking my question. Guys, I want to talk a little bit about the implant market It doesn't sound like things got materially better. Obviously, you talked about the end of the fourth quarter and what happened.

And your expectations for this year are that it's stable, your guidance basically assumes it's stable and the high end assumes it gets better. What does that actually mean get better? Is it in terms of total volumes? Is it in terms of total mix? Like are you seeing any improvement in the more comprehensive cases, the half arches or full arches or anything like that? Are you seeing any signs of that coming back yet?

Yes.

I think the pressure is a bit of the more expensive cases. So the cases you just mentioned and that's really where the recovery needs to happen. And that typically is done at the specialist level, Kevin. So like that would be the big volume movers that are that are very loyal Zimbi customers. Would be where we would see that that growth and that hasn't fully recovered yet. Where you do see implants kind of moving along are the singles. The onesie twosies where it could be done a much broader number of practices than a purely specialist. So we are assuming that if there is a recovery, it'll be at the back end of the year. And the way we've got it, as we've said, if it stays the same, it's here. And with some moderate improvement What are we doing, which will have to include the specialist volume that you just mentioned. So that's really where we need to see a better. And I don't believe that it's Okay.

The We had anecdotally heard that there was more availability of financing out there for aligners and maybe for implants And that kind of helped a little bit in 4Q. Did you see any of that all? Was that in any way impacting the market in a positive way or or just too small to matter at this point?

I think it's too small to matter right now. We would need we would want to see some material change in terms of the overall interest rate Those would be probably the biggest drivers for that expense of So right? So those are the ones that I'm saying that can drive a whole lot of change in sentiment in this industry. And for that to happen, I think you do need to see a little bit bigger change than the onesie, twosie will be there good faith and they're great that they're doing them, but they're not impacting a big enough swath of the population. I don't think Last one from me, just on biomaterials. 2% growth. I think when we spoke in November, you talked about starting to see a little bit of an uptick in demand gave you maybe a little bit of optimism there. And I'm just wondering if that was if that continues at all and you talked about the demand in January on the implant side.

I'm just wondering if you are seeing anything in biomaterials So that's moving along nicely, which means there is implant volume out there. The piece that would give me great optimism, where I'll jump on the roof and wave a flag would be when I see the specialist return to full And that's the part where they would be would also be using biomeshows at a much greater rate Again, I haven't we haven't quite seen that come back robust enough yet. Be able to call it. But I do believe that the one thing that is in our favor is that these are patients that At some point, we'll require an intervention or procedure. And that buildup, like we saw in COVID will come back. It's just been very, very difficult to time it. But I think the fact that Biomaterials being used means there's volume out there It is not the very large multi implant volume that that drives a lot of growth.

Understood. Thanks for taking those questions. I appreciate it guys. [indiscernible] Thank you.

Our next question comes from Will William McMahon of Barclays. Go ahead, William. Good afternoon, Vapam. Reg, this is well on for Matt.

Thanks for taking my question. Just a really quick question on the full year guidance was in line with the kind of greater than 15% EBITDA margin expectations. But as we're kind of thinking about the cost efficiencies for 2025 from that sale, What are kind of the drivers for margin 2025? And then in terms of cadence, should we expect that to kind of improve throughout the year? Starting with the first quarter?

Yes, Michel. Rich, do you want to take that? Yes, I'll take that. So I'll start by saying that in the fourth quarter, actually starting in the third quarter, right, we saw gross margin improve, right? And so we saw gross margin tick up in the third quarter to I think it was about 5% and I think we ended a little bit higher than that. And then in the fourth quarter, and we kind of alluded to this on the last call, but we fixed Meneth many of the manufacturing inefficiencies that we had done some of the things, cost saving things we were otherwise planning on doing. And we executed again to 65% gross margin in the fourth quarter. As we think about 2025, we will continue to kind of track in that $65,000,000 65% gross gross profit range assuming the mix even stays the same that it is that it is now. And you'll see largely speaking, you'll see a little bit of a step down in OpEx in probably more in the SG and A side. And that will there's a step down after the transition service agreements with High Ridge Medical yes, High Ridge Medical fall off kind of in the early Q2 timeframe.

And so so what will happen is other income will go down to close to effectively zero if that goes as planned. And then you'll see SG and A kind of coming down correspondingly. You'll see a little bit of a step up from Q1 to Q2 in margin. And then Q3 will probably come down again in margin just because it's our softest quarter. Softest quarter and then Q4 probably goes back to where it was again for Q2.

One thing that's not contemplated though in here is just mix, right? So when the implant mix comes back, this company is really positioned well. Right? So this is all predicated on similar kind of dynamics as we've seen in the last twelve months.

Okay. That's helpful. And that kind of goes into my next one. Shifting gears here a little bit. On the last call, you talked about the plant in Valencia kind of running at full capacity great for TSX production. Can you update us on trends you're seeing there? Maybe any idea kind of understanding where the market is and you see it going in 2025 on capacity potential backlog and then maybe plans for growth there in 2025?

Yes. What we're really focused on is in core. You'll start Third party work that's being done into either Blanchard or PPG.

Yes. So Valencia, Valencia actually we still have capacity. What we've done is we've actually we've actually trimmed the workforce to match the manufacturing volume. But there's still scalability in that plant if we're not tapped out from capacity standpoint if volumes increase, we may have to hire a couple of people, but we're not tapped out. And as Zafar mentioned, the cost of produce in Valencia we said this before, is about 20% less than what it is to produce in Palm Beach Gardens. And so what we're doing is we're we did that as you alluded to in 2024, we moved TSX Production To Valencia. And so we'll continue to look for opportunities to transition volume manufacturing to areas like Valencia in 2025. That is a little bit more specialized in nature that we currently sell sorry, currently buy from third party vendors. And there's outsourcing opportunities to bring some of that business in house to drive capacity utilization and kind of the cost arbitrage in Palm Beach Gardens. So it's you'll continue to see that these projects take a while to actually effectuate themselves. So they'll probably effectuate themselves toward the back half of of 2025, but again position us for 2026.

So that's how we think right now about the footprint for manufacturing. Okay. All right. Thank you. And then if I can just sneak one more in here. In terms of the product launches kind of coming up and the question on digital dentistry earlier, As we're thinking about kind of R and D and the investments that need to be made there, is there anything you're thinking in terms of color for how we should think about that kind of going forward and how that places pressure within the EBITDA margin?

Yes. I think that the amount of spend that we have right now is correct. So I don't see massive variation there, which is I think part of your question. Is that right, Willem? Like do you see a blip coming up like is that what was that part of your question?

Yes. So just if there needed to be some sort of outside investment there?

No, because we've been pretty continuous in terms of the operations, in terms of the R and D investments, when you think about the digital and the enhancements. We have a pretty regular cadence of innovation. The spend should probably stay about the same. And then what we've done is we've allocated a certain certain amount of dollars and as one project drops off and everyone comes on and so far we've been on time with our launches. So that would indicate to me that you should see the same level of spend by the continuous kind of pipeline of new products coming out? So we don't anticipate a requirement for new money.

Okay. Very helpful. Thank you guys for taking our questions.

Pleasure.

Thank you. This does conclude our Q and A session and today's conference call. Thank you for your participation.

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