5/8/2025

speaker
Operator
Conference Call Operator

Good afternoon and welcome to ZMV's first quarter 2025 earnings conference call. Currently, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Webb Campbell from Gilmartin Group for today's introductory disclosures.

speaker
Webb Campbell
Introductory Disclosures Moderator, Gilmartin Group

Thank you all for joining today's call. Earlier today, Zimvi released financial results for the first quarter ended March 31st, 2025. A copy of the press release is available on the company's website, zimvi.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. Please refer to the company's most recent periodic report filed with the SEC and subsequent SEC filings for a detailed description of these risks and uncertainties. In addition, the discussion on this call will include certain non-GAAP financial measures. Reconciliations to these measures to the most directly comparable GAAP financial measures are included within the earnings release and or 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, May 8th, 2025. Zimbi disclaims any intention or obligation, except as required by law, to update or revise financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I will turn the call over to Vafa Jamali, President and Chief Executive Officer.

speaker
Vafa Jamali
President and Chief Executive Officer

Good afternoon, and thank you all for joining us. In the first quarter of 2025, we delivered $112 million in total revenue, Highlight of our first quarter was continued progress on improving the margin profile of the business and generating over 17 million of adjusted EBITDA. Our team delivered over 350 basis points reduction in adjusted total cost of products sold. As a result, we achieved adjusted EBITDA margin of 15.7%, over 500 basis points of improvement over the first quarter of 2024. This was ahead of our previously announced goal of 15% plus EBITDA margin first year post our sale of the SPY business and represents an over 40% year-over-year increase in EBITDA, despite our top line being challenged by an overall soft market. Our performance in terms of profitability is coming in better than expected. This is a result of executing our strategy to improve and streamline our manufacturing and supply chain, reducing corporate infrastructure, and refocusing sales and R&D on our proprietary premium line of implants. In relation to tariffs, we're keeping our guidance unchanged for the year and have incorporated the impact of any potential tariff-related costs. We have plans in place to mitigate tariff costs, which we estimate today to be roughly $3 million per year, largely attributed to the EU-USA tariff rates. We have supply chain and manufacturing flexibility which will allow us to absorb these possible costs through our commercial and operational efforts. Rich will provide greater clarity shortly. We will remain focused on driving continued margin improvement and cash flow as we are committed to delivering shareholder value. I'd like to provide a brief update on our commercial strategy. On our fourth quarter call, we announced that we appointed a new Vice President of America's Sales. I'm pleased to report that he is quickly making an impact in his expanded role as we're making a number of changes to our sales process and strategy to ensure we are expanding our customer base and increasing customer share. Our overall commercial strategy is beginning to play out. We have focused our sales and R&D teams on proprietary implant sales and development versus low-margin distributed products. Although less contribution from third-party scanner sales in North America will be reflected in top line, an overall improvement in mix is favorable to Zimbi and will allow us to focus on our core area of strength and differentiation. We are very confident that our strategy plays out. We will continue to see outsized returns. I look forward to providing additional updates and sharing the results of these changes as the year progresses. I'll now give additional details on each piece of our portfolio, starting with dental implants. Implant sales declined low single digits in Q1 at a roughly stable pace to the fourth quarter of 2024 as a result of continued macro pressure. We believe our implant growth is consistent with the market's overall performance and maintain that an improvement in the macro environment will result in the adoption of our implants. At the same time, as mentioned earlier, our U.S. sales execution is showing tangible signs of success. March implant volume showed improvement, and April showed growth in implant units sold year over year. Our innovation pipeline also paints a positive picture for growth. We just launched our immediate molar implant system in the middle of March, and it is progressing very well. In fact, we've exceeded internal expectations for growth. This line will remain a growth driver for the remainder of the year. The immediate molar system expands our clinically proven TSX and T3 Pro implant systems with an immediate molar solution for new and existing customers, simplifying challenging clinical scenarios for providers and shortening treatment times for patients. Commercially speaking, advancing innovation across our implant portfolio fills profitable portfolio gaps. It allows our sales team to sell something new to existing customers, and gives us a stronger competitive position when negotiating larger deals. Next, shifting to biomaterials. Our biomaterials portfolio continues to gain recognition for its quality and breadth, showing just over 1% growth during the quarter. This performance reflects our ongoing investments in innovation and our ability to deliver high-quality and industry-leading solutions. Looking ahead, we're excited about the continued potential in this space, And we're confident that our momentum will sustain our leadership and deliver long-term value. Lastly, I'll provide an update on the continued success of our digital portfolio. Excluding oral scanner sales, which are distributed products, we saw continued uptake and growth in our digital dentistry business. Our Zimbi digital solutions, excluding scanner sales, grew high single digits in the first quarter. Our implant concierge service performed especially well, growing 11% year over year, helping clinicians save hours of time and reducing costs by improving workflows. Looking ahead, we're excited to expand the reach of implant concierge service in 2025, with an exciting launch in Japan in the second quarter. Additionally, we've driven continued strength in sales of surgical guides, with our RealGuide software sales growing in mid-teens for the first quarter. We're optimistic about continuing this positive momentum. We continue to believe that workflow improvements are critical to adoption of implant dentistry, and we're extremely pleased with the strength of our portfolio. Finally, during the quarter, we also made a strategic decision to acquire a distributor partner located in Costa Rica. Costa Rica is a premium dental implant market that caters to dental tourism. The transaction closed on April 7th. Rich will provide more color on the benefit to our financial portfolios. By bringing this distributor in-house, we can leverage the infrastructure, customer relationships, and the number one market position to expand our local footprint and reduce or eliminate third-party selling costs. The acquisition provides an immediate benefit to our margin profile. I'll now turn the line over to Rich to review our financial performance and forward outlook in greater detail.

speaker
Rich
Chief Financial Officer

Thanks, Papa, and good afternoon, everyone. I'll begin by reviewing our first quarter 2025 results And we'll close by providing commentary on our outlook for the full year 2025, in addition to providing our expectations for the second quarter. As a reminder, we finalized the sale of our spine business on April 1st, 2024. Thus, our legacy spine segment is reflected in discontinued operations in our financial statements. Please refer to our 10-Q for financial results from discontinued operations. beginning with our results for the first quarter of 2025. Net sales for the first quarter were $112 million, a decrease of 5.2% in reported rates, and a decline of 4.1% in constant currency. When normalizing for the expiration of the transition manufacturing agreement with our prior parent, one less selling day, and the shift in focus away from oral scanners and China sales, constant currency net sales declined 1.4%. In the U.S., net sales for the first quarter of $65.8 million declined 2.8% compared to the prior year, driven by lower implant sales, oral scanners, and the impact of one less selling day. When normalizing for scanner sales and one less selling day, sales declined 0.5%. Outside of the U.S., Net sales of $46.2 million decreased 8.5% on a reported basis and 5.9% in constant currency, driven by lower end plant sales and headwinds totaling 430 basis points from the expiration of a transition manufacturing agreement with our prior parent, one less selling day, and lower China sales. When normalizing for these headwinds, sales decreased outside of the U.S. 1.6 percent in constant currency. First quarter 2025 adjusted cost of products sold was 33.6 percent as a percentage of sales, decreasing 360 basis points versus 37.2 percent in the prior year period. The reduction is driven primarily by manufacturing efficiencies and cost reductions, but also includes a mixed benefit as we prioritize higher margin implant and digital sales versus a lower margin scanner business and the elimination of the low margin transition manufacturing agreement with our prior parents. First quarter adjusted research and development expenses of $5.4 million or 4.8% of sales compares to $6.3 million or 5.3% of sales in the prior year. The decrease is primarily due to lower clinical expenses in the period. First quarter adjusted selling general and administrative expense of $58.7 million decreased 2.7% from $60.3 million in the prior year, driven by reductions in headcount and related expenses. Other income of $1.7 million primarily reflects income from transition service agreements resulting from the sale of our spine business, and offsets, stranded costs that remain in SG&A expense. As of the end of Q1, our transitionary service obligations to support our prior spine organization are effectively complete. First quarter adjusted EBITDA attributable to continuing operations was $17.6 million, translating to a 15.7% adjusted EBITDA margin. This reflects a 41% increase or $5.1 million and 520 basis points of margin expansion versus $12.5 million or 10.5% margin in the same period last year. Not only are we pleased with our Q1 EBITDA margin of 15.7%, we exceeded our previously communicated commitment to deliver 15% plus EBITDA margins one year post-buy and sale. Furthermore, we achieved GAAP operating income and pre-tax income positive in the first quarter, also exceeding our expectations and external commitments. Our strong profitability underscores our ability to drive optimization in our cost structure during a time of transformational change and a challenging market environment. We believe this hard work positions as well for continued value creation as our end markets continue to show signs of stability in what is widely viewed as a cyclical trough in our industry. First quarter adjusted earnings per share attributable to continued operations of 27 cents per share on a fully diluted share count of 27.7 million shares reflects a 238% increase from $0.08 per share in the prior year period. Turning to the balance sheet. As of the end of the first quarter of 2025, consolidated ZMV continuing operations cash was $67 million. Gross debt at the end of the quarter was approximately $220 million, yielding net debt of approximately $153 million. As a reminder, our cash balance does not include our $60 million sell-in note from the sale of Spine which continues to compound interest. This note matures in October of 2029, but could be received earlier under certain circumstances. Additionally, we maintain our $175 million revolving credit facility, which remains undrawn. Quickly touching on our disclosure regarding the acquisition of our Costa Rica distributor. During the first quarter, we made the strategic decision to acquire a local dental distributor located in Costa Rica. We expect the transaction to be beneficial to Zinvi as it converts our sales presence in Costa Rica to a direct sales force and also leverages our existing footprint in the country. We funded the transaction with $3.3 million in cash, inclusive of $1.3 million in book value of inventory, and accounts receivable. The transaction closed in April of 2025. With respect to capital allocation, we will continue to prioritize debt reduction as our number one objective. However, we've always maintained an opportunistic stance toward potential tuck-in activity, and with a revitalized balance sheet and in the current environment, we recognize that some compelling opportunities may arise that tactically and strategically make sense. Now shifting toward our 2025 guidance. Beginning with our expectations for a full year 2025, we are reiterating our full year 2025 revenue guidance range of $445 million to $460 million, reflecting a 1% decline to 2% reported growth for the full year. The low end of our guidance range assumes the dental market remains the same, while the high end implies a moderate market recovery commercial strategy execution, and success of new product introductions in the back half of 2025. We also are reiterating our adjusted EBITDA guidance of between $65 million to $70 million, reflecting an 8% to 17% improvement over 2024. As Baffa mentioned, we anticipate that we can absorb the approximately $3 million annualized impact of CARES within our existing guidance. By leveraging the flexibility of our manufacturing and distribution global footprint, we've already taken actions to optimize our supply chain and replenishment nodes. We acknowledge that the situation is dynamic and will continue to assess opportunities to further reduce the impact. We are also reiterating our earnings per share guidance of 80 cents per share to 95 cents per share on a fully diluted share count of 29 million shares. Moving on to our expectations for the second quarter of 2025, we expect net sales in the second quarter of 2025 to be in the range of $112 million to $114 million, inclusive of two headwinds. First, a $3 million or 260 basis point impact from order timing differences for an outside of the U.S. distributor order that occurred in Q2 of 2024, and second, The expiration of the transition manufacturing agreement with our prior parent is a $640,000 impact or 60 basis points in the second quarter. When normalizing for these two items, we expect Q2 sales to be a 1% decline to 1% growth. We expect adjusted EBITDA margin in the second quarter of approximately 15% of sales. With that, I'll now turn the call back over to Vatha.

speaker
Vafa Jamali
President and Chief Executive Officer

Thank you, Rich. As we wrap up the first quarter, I'm excited about the continued progress towards improving our portfolio with new product introductions like the immediate molar, our commercial focus on what matters most for Zimbi, and our focus on improving profitability. We're building a strong foundation for success. We've maintained our position in a global dental implant market, and our biomaterials and digital dentistry markets are growing. Continuous improvements in practitioner workflow are a critically important element to driving dental implant adoption. Our focus on continuously innovating our portfolio and driving progress in digitizing dentistry will continue to yield benefit. I'm optimistic about the year ahead and look forward to sharing our progress as we execute on these plans. With that, I would like to open it up to questions.

speaker
Operator
Conference Call Operator

Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Kevin Caliendo of UBS. Your line is now open.

speaker
Dylan Finlay
Representative for Kevin Caliendo (UBS)

Thank you very much. Good afternoon. This is Dylan Finlay on for Kevin. I'd love to start by, you know, double-clicking on your comments about the uptick in implant units sold in April. You know, any expanded color there and whether this might be attributed to higher utilization, same-source stales, or new accounts?

speaker
Vafa Jamali
President and Chief Executive Officer

Hey, Dylan. Vafa here. Yes. We started to see, you know, we felt like Q1 looked a lot like Q4. And then March was steadily getting better. Nothing yet to really write home about. And then April started to just show a little more resilience. So our number one piece that we've been looking for is essentially same store sales and that improving. And that's what we're seeing as improving right now. We have a number of commercial strategies in place that could help the other side of it as well with respect to new customers. But right now, both the immediate molar, which is a new launch that we had, is growing really much better than expected. And overall, our implant units were up.

speaker
Dylan Finlay
Representative for Kevin Caliendo (UBS)

Very helpful. Thank you. And then just as a follow-up on kind of pricing dynamics, You know, overall in dentistry, you know, there was a bit of an uptick in pricing coming out of the pandemic. It seems like pricing is sort of kind of moderated and cooled, and now things are pretty stable. I guess as it pertains to your portfolio and implants specifically, you know, how is pricing trending today? And follow-up to that, you know, do you have any capacity to, you know – offset any tariff impact via price increases?

speaker
Vafa Jamali
President and Chief Executive Officer

So I'll start, and then Rich, if you could just get into some more of the detail, it'd be great. So we obviously, we are in the premium market, and the premium implant market has been less price competitive than where there's a lot of battles for price happening at the value lines and even in the challenger lines. So we have largely not been in very large competitive price situations. There are occasions where we would like to do that, where it might be a DSO or a larger deal or a larger specialist where we would want to be very competitive. I think the broader our portfolio is, the more capacity it gives us to actually package a deal that is very good for the customer and is also very good for us without having to significantly drop price. That's kind of how I see the premium market and Rich could give you the specifics. And then in terms of your second question, which was capacity, I think in times like this, you need to be really selective on where you put price and where you don't. So segmentation on the market is going to be really critical. I believe there are segments of the market, segments of our portfolio, which we could raise price and probably will raise price. And there's others that it probably wouldn't be to our benefit. It might actually put us at a competitive disadvantage if we do. So we'll be really selective there and rely heavily on very, very accurate segmentation of our customer base.

speaker
Dylan Finlay
Representative for Kevin Caliendo (UBS)

Great. Thank you very much.

speaker
Operator
Conference Call Operator

Thank you. Our next question comes from the line of Anderson Shock of B. Riley Securities. Your line is now open.

speaker
Anderson Shock
Analyst, B. Riley Securities

Hi, thank you for taking the questions, and congrats on the progress. So, first, could you just provide more color on the regional performance differences? The international segment saw about an 8.5 percent decline versus 2.8 percent in the U.S. I guess what's driving the greater decline internationally?

speaker
Vafa Jamali
President and Chief Executive Officer

Richard, you want to take that one?

speaker
Rich
Chief Financial Officer

Yeah, yeah. Hey, good afternoon, Andrew. Yeah, so in the U.S., we've had a – outside of the U.S., sorry. We had a number of headwinds that we called out in the Q4 call that materialized, obviously, in the first quarter. And so, you know, for us, the specific impact from the U.S. was the FX impact of the euro to dollar primarily was about 260 basis points impact. The impact of the termination of our low margin transition manufacturing agreement with our prior parent in the first quarter is 270 basis points. And then we had one less selling day, which is 100 basis points. And then we've de-emphasized our focus on China, given kind of the situation currently. And so that's about 60 basis points. So we're in You normalize for those items, the OUS sales modestly declined about 1.6% versus the headline 8.5% because we had those headwinds that were called out in year-over-year impacts to us in the first quarter.

speaker
Anderson Shock
Analyst, B. Riley Securities

Okay, got it. That's helpful. And then could you talk about your current position in the Japanese market and then maybe the size of that opportunity for the launch of implant concierge here?

speaker
Vafa Jamali
President and Chief Executive Officer

Right, so our presence in Japan is relatively similar to where it is in the U.S. in terms of our share position. The pricing in Japan is good, so it's a good pricing market for premium implants, and the premium implant market is still healthy there. The idea of implant concierge is that it essentially can double the size of your business because that's kind of the – the rate at which a full program would cost and be the cost of essentially a premium implant. So we obviously don't extrapolate it that way, but we do think that it'll be one of the top three growth drivers for Japan in terms of just really, really solid revenue growth. And then what you're also doing is you're improving the workflow, which is usually a big barrier for practices. No different in Japan than it is in the United States. So we think that can really accelerate the growth of the overall implant adoption. So that's kind of how we see it. I haven't really put an number on it yet. I will, and we'll launch it over the next couple of weeks.

speaker
Rich
Chief Financial Officer

Yeah. And just in addition to that, just Anderson, just on Japan, you know, we had talked a little bit last year around our recovery and a little bit in Japan. And we do have a strong market position in that country to the point where we actually grew in the first quarter you know, mid single digits. And so, you know, when you take, you know, a good fundamental foundational business like we have in Japan, and then you add something as differentiated as implant concierge on top, you know, we feel as though we haven't quantified the numbers Vafa mentioned, but, you know, we should be able to continue to accelerate momentum in that geography.

speaker
Vafa Jamali
President and Chief Executive Officer

It'll obviously be local for local too, Anderson. So it'll, it'll have a good customer, you know, intimacy aspect to it as well.

speaker
Anderson Shock
Analyst, B. Riley Securities

Okay, got it. Thank you for taking our questions.

speaker
Vafa Jamali
President and Chief Executive Officer

Pleasure.

speaker
Operator
Conference Call Operator

Thank you. Our next question comes from the line of Matt Mixick of Barclays. Your line is now open.

speaker
Matt Mixick
Analyst, Barclays

Hi, thanks so much for taking the questions. So, Bob, I wanted to maybe follow up with you on your thoughts on, you know, drill down on the question on geographic performance maybe talk about end market trends and where you think things are in terms of picking up, if at all, or anything that you can do to sort of improve, continue to improve the top line performance. And I have one follow-up.

speaker
Vafa Jamali
President and Chief Executive Officer

Right. So we really look at probably an over-index on the U.S. market for Zambi. And that's good in a sense that that is the most profitable market with the highest prices. That has been the area that's been slower for all of us. And remember that we're premium. We don't play in the value or the challenger line. So it really does rely on largely on a specialist return to action. So more and more specialists and more complicated cases are really what boost us. And that's what we started to see. in March and we started to see in April. So overall, I think that that market is good and getting healthier. I think that Europe is a whole bunch of countries and each one is a little bit different. So we have very, very high performance in France. TV is doing exceptionally well. And then we have some cost threats, competitive threats that we experienced in Iberia, which specifically was Portugal. which was with a very low cost value implant and import. And those are areas that we are working on strategies right now to mitigate those. within our portfolio and within partnerships that we're forging right now. But those are some specific areas where price is more acutely required than others. So in those cases, we've got a little bit of a different strategy in the U.S. I believe that we've got the right strategy. And like I said, the commercial team is really focused on the right things. And because of that, I do feel very optimistic that the U.S. business is going to return strong.

speaker
Matt Mixick
Analyst, Barclays

That's helpful. Thanks. And then maybe a follow-up on, you know, as we, you know, speak to different companies and try to understand, obviously, things like the economic sensitivities to tariffs, which you talked about, as well as the, you know, economic or you know, logistical sensitivities of the supply chain. If you could maybe talk a little bit about, you know, any actions that you've taken to shore that up or any color or commentary you can express about the confidence in how the business is operating logistically in terms of supply chain and manufacturing. you know, to the extent that, that we can get a sense of how, you know, how you may be able to react as things kind of potentially start moving around or, or, or fluctuating here, given, given the volatility we've seen in the last couple of months.

speaker
Vafa Jamali
President and Chief Executive Officer

So I'm extremely confident in our manufacturing capabilities. We've really demonstrated that we've worked on it for quite a while since we, we, we kicked that project off and we have been able to demonstrate a tangible demonstration of, of a, of results in terms of gross margin, et cetera, et cetera. We also have flexibility of manufacturing. We have a site in Florida and we have a site in Valencia, and that gives us a great amount of flexibility. Like Rich said, we've already moved a lot of the nodes, the distribution nodes for OUS out of Valencia, so that way we skip the US tariff part of it. And that has given us a lot of flex and will continue to give us an opportunity. So we'll constantly measure if there's labor arbitrage in one site versus the other outweighed by the, is it outweighed by the tariff cost or not? But we do have that flex. And because we've largely exited China, we don't have that risk, which I think right now poses the greatest threat to our, probably to our segment in our industry. But that one's the one that we don't have a lot of reliance on. We moved manufacturing as part of our – one of our strategies early was to insource a lot of third-party manufacturing. And we insourced our largest third-party manufacturer from China into Valencia. And obviously, if we didn't have that, that would be a project we were working on right now. But that's been a great part of the margin improvement. And also, just if you frankly think about it retrospectively, a great tariff avoidance. if we had the benefit of foresight, but it nevertheless was a positive move. So I think I'm confident that we're able to do that. Again, no one can predict exactly what will happen and what the end tariffs will be, but based on what we know right now and what we see every day, we think we've got a plan that can mitigate it within our guidance.

speaker
Matt Mixick
Analyst, Barclays

That's very helpful. Thanks, Baba.

speaker
Operator
Conference Call Operator

Thanks, Matt. Thank you. I am showing no further questions at this time, so I would like to turn it back to Vafa Jamali for closing remarks.

speaker
Vafa Jamali
President and Chief Executive Officer

Great. Thank you very much. So we're really proud of our accomplishments towards, you know, driving over achievement and profitability, most notable in our gross margin. This is the result of a lot of hard work. Having a lot of hard work with no result is not fun. In this case, thanks to my fantastic colleagues, we've shown great effort and generated great results. So I really want to thank our employees. I also feel very optimistic that this same energy and the same focus is being directed right now towards our commercial strategies, and they'll yield similar results in this dynamic end market. I'm really, really proud of our team. We're focused on the very vital few priorities that will drive the most impact for our company. And, you know, our better-than-expected performance from the launch of this new implant, the immediate molar, is really a reflection of that focus. So we believe the dental market is resilient, and we think that dental implants are still very much under-adopted. So we do believe that this is still the greatest growth driver for our market. So I really thank you for your attention today, and I wish you a great evening.

speaker
Operator
Conference Call Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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