ZimVie Inc.

Good day, and thank you for standing by. Welcome to the Zimby Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone, and you'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Marissa Beisch.

Thank you all for joining today's call. Earlier today, Zimby released financial results for the quarter ended September 30, 2023. Copy of the press release is available on the company's website, zimby.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. These refer to the company's most recent periodic report filed with the SEC and subsequent SEC filings for a detailed discussion of these risks and uncertainties. In addition, the discussion on this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the earnings release and the 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, November 1st, 2023. Zimby 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, or otherwise. With that, I will turn the call over to Zafa Jamali, President and Chief Executive Officer of DIMBY.

Good afternoon, and thank you all for joining us. In the third quarter, we continue to make progress on our innovation platform, actively reshaping our portfolio to further penetrate markets with best long-term growth potential. In parallel, we are improving our operational efficiency and driving better cash flow generation. In dental, our sales team and DSO partners continue to have success engaging existing and new customers. We've seen strong traction for our products launched over the past year with both our legacy customers and our ever-emerging DSO channel, driving new customer acquisition across the board. We're also very pleased with the cadence of new product introductions, the most recent being Biotivity and Azure. The Biotivity AC Plus membrane, now part of the dental biomaterials portfolio, delivers a common request we receive from the field. to offer a growth factor-rich bioactive barrier. The bioactivity membrane, which is derived from human placental tissue, conforms nicely for site coverage and is now being used in a variety of regenerative procedures. Turning to our Azure multi-platform product solutions, with Azure, the portfolio offers a more comprehensive selection of components to effectively cater to the dental lab market. This solution set includes 13 lab-focused prosthetic and restorative solutions designed to integrate into digital workflows. In summary, I'm very pleased with our position in Dexil. We're made confident in our ability to perform at or above market in core product areas into the year ahead. Turning to our spine business, we're also driving incremental success within our spine portfolio. Our position with MobiSea is improving also. Earlier in the quarter, we announced FDA approval for a new, smaller-height Mobi-C in seven footprints. This approval allows for usage of Mobi-C to address more anatomical needs, expanding access for patients across the U.S. I'm pleased to report that we've implanted our first device, and I look forward to seeing further adoption. Continuing with Mobi-C, we received FDA approval to launch groundbreaking ID clinical study of cervical arthroplasty adjacent to fusion. and differentiatedclinicalevidence.j, and aid in expanding the suitable patient population for cervical heart surgery. I'm also pleased to share that we recently crossed the milestone for 2,000 patients treated with the Tether device. As a reminder, the Tether is a high-impact solution for pediatric patients. Over 50 surgeons have performed VBT using the market-leading Tether system to treat patients diagnosed with adolescent idiopathic scoliosis. We look forward to treating more patients with this therapy into the future. Finally, we continue to advance our BrainLab partnership, having recently expanded our development cooperation agreement to include co-marketing. We continue to work on achieving compatibility between our spinal implant and BrainLab spine and trauma navigation systems, allowing us to enhance workflow and accuracy in the operating room while reducing your operative x-ray and radiation exposure. We'll continue to engage with key surgery customers, innovate on and around existing solutions, and ultimately optimize our positions in markets where we can win. Turning to our continued operational improvements, as I mentioned in past quarters, we've made meaningful reductions to our physical footprint and corporate overhead while working through excess inventory receivables. Although there's still room for further optimization, I'm pleased that we're making excellent progress and have improved cash position in our balance sheet by nearly $10 million this quarter. We're continuing to leverage our cash position to pay down the principal balance of our debt and prepaid 2024 interest payments, a topic which we'll provide more detail on shortly. Finally, I am very excited to announce that we've completed all of our ERP conversions. This concludes a heavy operational lift, completing all TSAs related to our 2022 spinoff moving over 950 servers to new data centers, and transitioning over 200 applications to modern and largely cloud-based platforms. I'll now turn the call over to Rich to outline our financial performance. Thanks, Bafa, and good afternoon, everyone. I'll begin by reviewing our third quarter of 2023 results, and we'll close by providing our updated outlook for the full year of 2023. Total third-party net sales for the third quarter of 2023 were $202.9 million, a decrease of 4.9% on a reported basis, and a decrease of 5.0% in constant currency. As we mentioned toward the conclusion of our Q2 earnings call, we expected Q3 to be impacted by slightly higher than normal seasonality for our businesses in the summer months. And our sales performance exceeded these expectations. Moving on to our two segments. Global Dental's third-party net sales were $105.3 million in the third quarter, representing 20 basis points of growth as reported and a decline of 1.2% in constant currency when compared to the prior year period, driven entirely by one less selling day in Q3 of 2023 versus Q2 2022. While the dental market in aggregate was relatively soft in the third quarter, We continue to execute well commercially, and the market acceptance of our new premium implants contributed to effectively flat year-over-year implant sales on a global basis. In the U.S., dental third-party net sales of $65.0 million declined by 2.5%, driven by one less selling day and a slightly weaker implant market, partially offset by ongoing strength in our digital solutions sales. Outside of the US, dental third-party net sales of $40.3 million increased by 4.9% on a reported basis and 1.2% in constant currency, driven by growth across all three of our product families, implants, biomaterials, and digital dentistry, partially offset by one less selling day in Q3 of 2023. Our new product launches in 2022 and 2023 particularly T3 Pro and TSX, continued their early and impressive trend of market acceptance during the third quarter. Third quarter global spine third party net sales were $97.6 million, a decrease of 9.8% on a reported basis, and an 8.9% decrease in constant currency when compared to the prior year period. The decrease was primarily driven by continued competition in the spine market, our decision to exit China following volume-based procurement, and one less selling day, partially offset by the recognition of sales that were previously attributed to Zimmer Biomet and growth in both our EMEA and Asia-Pacific regions. As Vapa commented, we are pleased with our MobiSea and Tether performance relative to the balance of our core spine portfolio led by growth in Europe and Asia Pacific. In the U.S., spine third-party net sales of $78.3 million decreased by 10.2%, driven by competitive pressure in core spine and one less selling day, and partially offset by a relative improvement in MobiSea and the tether. Outside of the U.S., spine third-party net sales of $19.3 million decreased by 8.3% on a reported basis, and 3.6% in constant currency. MoVC and Tether outside of the U.S. continue to leverage our differentiated best-in-class clinical evidence by going 67% and 62% respectively during the third quarter. Third quarter adjusted cost of products sold of 31.8% of sales compares to 27.2% of sales in the prior year period. As a reminder, in Q3 of 2022, our cost of sales benefited from the settlement of a contingent liability with our prior parents. We are pleased with our ongoing progress to reduce cost of products sold as we look to continue to better manage inventory and inventory related charges. Adjusted research and development expense of $10.5 million represents 5.2% as a percentage of third party sales. Third quarter 2023 adjusted selling general and administrative expenses of $115.7 million for 57.0% of third party net sales was $13.1 million lower versus the prior year period. Lower SG&A expenses year over year are due to less variable expenses from lower net sales and savings from our previously announced restructuring initiatives and cost containment measures. Adjusted EBITDA in the third quarter of 2023 was $25.8 million, or 12.7% of third-party net sales, reflecting a decline of 110 basis points from 13.8% in the prior year period. The decrease in adjusted EBITDA margin is primarily due to lower net sales, the benefit of the contingent liability with our prior parent in Q3 of 2022 partially offset by savings from restructuring and cost containment. Adjusted earnings per share in the third quarter was $0.08 on a fully diluted weighted average share count of 27.0 million shares. Regarding working capital, liquidity, and debt, in Q3, we accelerated our progress on initiatives to monetize the strength of assets on our balance sheet and the application of our disciplined financial framework. In the quarter, we added over $9 million in cash to end at $75.4 million. including a $7 million prepayment of required principal payments on our term loan debt. Networking capital improved by $8 million, including a $12 million reduction in inventory and a $14 million reduction in accounts receivable. Although we have further opportunity to improve our financial profile, we are pleased that our focus on the operationalization of the business is yielding continued progress. As a reminder, our $175 million credit facility revolver remains undrawn. Looking ahead, please note that we expect our interest expense to increase by a couple million dollars in 2024 relative to 2023, given the current rate environment and debt balance. I'll now turn to our updated full year 2023 outlook. We are pleased with the progress we are making and are subsequently revising our full year 2023 financial outlook. Starting with revenue, we are revising our expected full year 2023 net sales to be in the range of $860 million to $870 million, narrowing our range from our previous guidance of $850 million to $870 million. Looking at our segments, We continue to expect 2023 dental net sales to be flat or to grow in the low single digits versus 2022, and we continue to expect 2023 spine net sales to decline in the high single digits to low double digits versus 2022. Moving to adjusted EBITDA margin, we expect full-year adjusted EBITDA margin to be in the range of 13.5% to 14.0% of net sales, the same as previously guided. With regard to adjusted earnings per share, we are revising our adjusted earnings per share guidance range to 60 cents per share and 70 cents per share on a fully diluted share count of 26.6 million shares, narrowing the range of our previous guidance range of 50 cents to 70 cents a share. With that, I'll now turn the call back over to VAPA. Thank you, Rich. I'm pleased with our progress in 2023 to date, as well as our execution on streamlining objectives. Although we have additional work ahead to return our business to durable growth, I am confident in the strength of the assets in the portfolio and our presence in underserved ad markets, which ultimately bring great value to patients. As we continue to improve the efficiency of our company, evolve our product platforms, and execute commercially, we look forward to showcasing the results that will work to deliver. With that, we will open it up to questions.