Q2 2022 ZimVie Inc Earnings Call
Good day and thank you for standing by welcome to the <unk> second quarter 2022 earnings 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 this session you will need to press star one one on your telephone.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Marissa by Investor.
Investor Relations. Please go ahead.
Hi, and thank you all for joining today's call earlier today <unk> released financial results for the quarter ended June 32022.
A copy of the press release is available on the company's website at <unk> Dot com as long as that D. C Dot 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.
Please refer to the company's 2021 Form 10-K, and subsequent SEC filings for a detailed discussion of these risks and uncertainties.
Additionally, 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 already Investor deck issued today and on the Investor Relations section of the company's web site <unk> Dot com.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 10 2022.
<unk> 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.
And with that I will turn the call over to backup Jamali, President and Chief Executive Officer of MB.
Good afternoon, and thank you all for joining us on the call today with rich App install our chief financial Officer.
I'd like to kick off our call by Reacquaint investors with who we are at <unk>, including our dental and spine businesses.
And then reviewing our financial performance for the quarter ended June 32022, our first full quarter as a newly independent company.
Company.
Jimmy <unk> is a global medical technology leader dedicated restoring life for dental implant patients and we participate in the $20 billion global market opportunity across those markets.
We are the number five largest player in the worldwide dental market and the number six in spine, we have over 20 brands trusted by clinicians and surgeons worldwide. We operate 70 plus countries and we have approximately 2700 team members.
Our vision is that everyone deserves to feel better healthier and stronger.
Mission is to advance clinical technology foundational to restoring daily life.
As I mentioned earlier, we are unfortunately, being a leading player in two substantial and growing markets our product platform to address a broad set of critical patient needs across those markets.
And our substantially differentiated from competitive solutions in several cases.
Our dental business is very well positioned in the growing global dental implant in biomaterials markets. Within this segment. We continue to operate three key categories that we're in.
<unk> solutions, which is our largest contributor.
Our materials, which support the implant, including its durability and sustainability.
In digital dentistry.
Digital dentistry are an emerging technology provides significant workforce report to the clinician across our authors and Durably.
<unk> improved the quality of the implant, while reducing the time that the patient spends in the chair as.
As we scale our digital Dentistry solutions, we're also driving strong adoption in pull through of our implant business.
In the second quarter, I'm, especially pleased to highlight our launch of the tier three.
Three pro tapered implant and the incurred emergence healing above it designed to optimize distorted care anesthetics, both the <unk> pro and incurred emergence reflect significant innovation to <unk> previous products.
And optimized implant experience for both debt and.
And patients.
Both products have recognized strong early traction with tier three pro receiving positive feedback on primary stability.
And favorable reception to encode emergent centered on seating at the tissue level enhance ease of use and eliminating the need for Boeing profiling based.
Based on recent market data, we see three pro capturing modest early share in the premium implant segment.
Our spine business comprises a broad portfolio of spinal implants.
Instruments, and biologics as well as <unk> solutions.
Addition to our largest client segment of core and complex solutions. We also have exposure to two exciting emerging categories motion preservation devices and.
And minimally invasive surgery.
Motion preservation as an area, we are actively leading and remain very excited about including <unk> the market, leading cervical disc replacement and the tether.
<unk> treatment for pediatric scoliosis.
Minimally invasive surgery, which typically benefits from the addition of enabling technology is an area in which we intend to further expand.
Regarding our motion preservation solutions I'm excited to highlight our recent receipt.
A positive policy decision from anthem for the tether device, which expense potential treatment eligibility to patients indicated for anterior vertebral body tethering or ADT.
Within the 30 million plus members covered under anthem Blue Cross Blue Shield.
We have seen firsthand the positive impact that <unk> had on the lives of children and their families.
Domestic that this decision will pave the way for additional favorable policy changes to continue expanding therapy access.
Turning to our performance as we exit the first full quarter as an independent company I would like to reiterate that it remains very early days at <unk>.
Nonetheless, I am pleased to announce we recognized $233 4 million.
In total net sales for the second quarter declining roughly 8% year over year on a constant currency basis, but offering a baseline against we are confident we can grow overtime.
Our results in the quarter were impacted to some extent by short term facility staffing.
The elective nature of some of our procedures damage, which many of our peers are also savings.
However, we are not allowing a challenging macro environment to detract from our focus on strengthening our foundation and positioning to drive future growth for example by launching two new products in dental, which I referred to earlier.
Three pro and the <unk> emergence.
Healing abutments, we intend to stay at the forefront of the premium implant digital energy markets by delivering a cadence of dental product enhancements over the coming year and beyond.
As I touched on earlier, we saw the culmination of years of our teams work driving awareness of the tethers value in pediatric scoliosis and the form of a positive policy decision from anthem.
Although the tethered contributes a smaller piece of our spine portfolio today ensure.
<unk> coverage has proven the greatest headwinds to.
To adoption in the past and we expect the tethered to grow meaningfully.
It has improved over time.
I would also like to highlight that we improved our cash balance by approximately $25 million sequentially from first quarter and through second quarter and closing June with $130 million in cash and equivalents.
We drove cash cash flow improvement through greater fiscal discipline, including spending scrutiny.
<unk> of certain aspects of our balance sheet as rich will detail shortly.
As we said during our analyst and Investor Day earlier. This year, we are committed to advancing our operational efficiency of our business.
Including improving cash flow and reducing leverage over time, we are pleased with our early progress increase cash provided greater greater flexibility and confidence in achieving our goals.
I will now hand, the line over to rich App install our chief financial Officer to review more details of our second quarter performance and financial outlook.
Thanks, Pat and.
And good afternoon, everyone I'll begin by reviewing our second quarter 2022 results and we will then close by providing commentary on our outlook for the full year 2022.
Beginning with sales.
Total third party net sales for the second quarter of 2022 or $233 4 million.
A decrease of 11, 5% on a reported basis and eight 3% in constant currency compared to the prior year period.
Shifting to our two segments global dental <unk> third party net sales were $118 2 million.
Adding a one 8% decrease on a reported basis and a two 9% increase in constant currency when compared to the prior year period.
Primarily driven by implants, and digital dentistry net sales growth and an extra selling day in Q2 of 2022 offset by foreign currency exchange headwinds, mainly net sales denominated in euro.
Geographically U S third party net sales of $72 million increased by three 7% outside of the U S sales of $48 zero million dollars decreased.
<unk> decreased by eight 9% on a reported basis, but increased one 9% when excluding the impact of currency.
<unk> double digit implant growth in the U S was fuelled by pull through from our digital demonstrating biomaterials offerings and leveraging our medical education programs.
The overshadowed by a more challenging macroeconomic environment outside of the U S, particularly in Europe .
Global spine third party net sales were $115 2 million in the second quarter of 2000 22000.
19, 6% decrease on a reported basis and a 17, 8% decrease in constant currency when compared to the prior year period the.
The decrease in spine sales is driven by the exit of certain unprofitable markets in late 2021, the discontinuation of products as part of our brand rationalization program the impact.
The net sales retained by Zimmer biomet until we complete our separation activities in certain markets and continued competitive pressures in the spot market when.
When adjusting for these items and taking into consideration one additional selling day.
<unk> sales decreased by 13, 2% and 11, 3% on a reported and constant currency basis, respectively.
Adjusted gross profit was $153 4 million compared.
Compared to a $177 9 million in the prior year period.
Adjusted gross margin was 65, 7% a decrease of 180 basis points when compared to 67, 5% in Q2 of 2021 for.
The decline versus prior year is primarily due to lower net sales, which drives higher excess and obsolete inventory in spine, partially offset by higher gross margins in our dental segment due to a higher margin contribution from implant growth.
Adjusted research and development expenses as a percentage of third party sales of five 5% is flat the prior year period.
Adjusted selling general and administrative expenses of $124 5 million.
Or 53, 3% of third party net sales reflects a reduction of $13 zero million dollars over the prior year period.
The decline year over year is due to less variable selling expenses from lower net sales.
Timing delays with cost to continue to stand up <unk> as an independent public company.
And operational initiatives intended to reduce our cost structure.
G&A as a percentage of third party sales increased 120 basis points year over year.
Adjusted EBITDA of $31 3 million or 13, 4% of third party sales reflects a decrease of 110 basis points from 14, 5% in the prior year period.
Constant currency adjusted EBITDA was $32 6 million or 13, 5% of sales.
Our profit margins are generally naturally hedged against currency fluctuations, which meets the volatility we're seeing in the global currency markets. In addition, we instituted a balance sheet hedging program immediately following the spin to hedge against currency transaction risk.
This program is working as designed reflected by a modest <unk>.
$5 million of currency gains, making their way into our income statement in Q2 of 2022.
Adjusted earnings per share was <unk> 67.
On a fully diluted weighted average share count of $26 1 million shares.
During the quarter, we realized a tax benefit of $6 $3 million on an adjusted basis or approximately <unk> 24 per share due in large part to account for income tax previously recognized for intercompany inventory when we were part of Zimmer Biomet.
This inventory is non taxable <unk> as it is sold.
Touching on working capital and liquidity.
We are in the early stages of capitalizing on the strength of assets on our balance sheet with a focus on optimizing the allocation of capital and the monetization of certain assets to drive cash.
Increased financial flexibility.
Our early efforts have resulted in a reduction in net inventory of 23.
$3 million since.
<unk> 2021, and a reduction of $8 $6 million and the planned amount of capital spent on spine instruments.
We ended the second quarter with approximately $130 million of cash and equivalents up $26 million from $104 million at March 22, 2022 <unk>.
This includes approximately $22 million of cash earmarked to settle certain post spin related transactions and to fund ERP implementations to decouple from our prior year prior parent company.
I'll now turn to our revised full year 2020 outlook.
Inclusive of a greater than anticipated impact of foreign exchange headwinds, we are revising our full year 2022, net sales outlook to a range of $915 million to $930 million. This compares to our prior guidance of 1.0 or $1 billion in net sales.
Over $30 million or slightly less than half of our total reduction is due to foreign exchange headwinds at prevailing rates.
As it relates to the segments. We now expect full year 2022, net sales growth in the mid single digits on a constant currency basis for our dental business.
This is at the lower end of our prior expectations for mid to high single digit growth due to macroeconomic headwinds, particularly in Europe .
For our <unk> segment, we now expect full year 2022, net sales to decline in the low double digits versus our prior expectation for mid to high single digits.
The decline is due to choppiness in procedural volumes, China volume based procurement acceleration into 2022 and commercial execution challenges.
We have made progress identifying inconsistencies and our team's commercial approach and continue to execute against our longer term initiatives to return this business to growth.
We are pleased with the operational actions we've taken in our first few months since spin to right size, the business and optimize our cost structure.
We are maintaining our adjusted EBITDA margin range of 13, 1% to 13, 6%.
Turning to our bottom line expectations.
We are revising our full year 2022 adjusted earnings per share outlook to a range of $1 80 to $2 per share from $2 10.
To $2 30 per share previously.
This is due in large part to the impact of lower revenue and higher interest expense, partially offset by the full year impact of the tax benefit we realized in Q2.
Before I close and hand back over to wrap up I want to underscore that we've launched a number of operational initiatives and the four months since spin to control operating expenses right size, our business rationalize our real estate and geographic footprint.
And monetize the strength of assets on our balance sheet.
Although the realization of many of these projects will manifest themselves in the income statement coming quarters, we are seeing an immediate benefit to liquidity and financial flexibility as I just discussed.
We are pleased with our progress in the short time since spin and we will continue to apply our disciplined financial framework as we continue to operate operationalize the business.
With that I'll now turn the call back over to Beth.
Thank you rich I want to close our call by looping back to the positive policy decision from anthem Blue Cross Blue shield for the tether expanding potential treatment eligibility within their 30 plus million members covered under anthem Blue Cross Blue Shield.
Our tablet devices, a first of its kind non fusion scoliosis treatment and the first and only FDA approved device for interior versus cheap robotic gathering.
Its humanitarian device exemption.
<unk> was granted based on over seven years of clinical data validating its safety and effectiveness in scoliosis correction.
Over 200 children have received tethers since HBU approval in August 2019, with approximately 50 U S surgeons performing the procedure today.
Today I want to highlight the story of a 13 year old male patients with scoliosis.
For whom coverage was the prior barrier to therapy.
All of the doctors at children's Hospital call round, a recommended PBT his original claim and appeal or deny.
Scoliosis worse and his family spent hours on the phone to fight this.
Three weeks ago, the family got word that insurance would cover the procedure due to the updated policy deeming the treatment medically necessary for indicated patients. They were thrilled to access the best option for their son.
Expanded coverage removes a significant barrier to treatment for many patients like this one and we are optimistic that anthem decision will pave the way for even greater therapy from additional insurers overtime.
In summary, we are pleased to be doing what we said to do from the time of our spin just a few months ago, which is.
Operating the company with greater efficiency and leverage our differentiated therapies like the tether to leave the foundation for future growth.
This remains a priority as we continue our mission to transform patients' lives.
With that I want to thank you for your time and open it up for any questions.
Thank you.
Hi, and thank you all for joining today's call.
Earlier today <unk> released financial.
Hi, and thank you all for joining today's call earlier today.
Hi, and thank you all for joining today's call.
Hi, and thank you all for joining us today.
Hi, and thank you all for joining today.
Yes.
Hi, and thank you all for joining today's call earlier today <unk> released financial results operator, if it's okay, just taking chunks.
A copy of <unk> don't worry about it available.
Sorry about that our next our first question comes from.
Robbie Marcus one moment.
Hi can you hear me okay.
Yes go ahead Robin go ahead.
Great. Thanks for taking my questions.
Maybe to start.
Just so we have a framework of guidance here what were you assuming for currency in the prior guidance range.
The currency headwind now assumed in this just so we can get a better sense of whats the FX and what's underlying performance.
Yes, Hey, good afternoon, Roger could talk to you again, so the original guidance when we when we provided the.
The range or the point estimate of the $1 billion in February .
At the prevailing rates at the end of the year, what we're seeing right now with the Euro basically close to parity, we're seeing over $30 million.
FX headwind as you recall, our dental businesses is almost half hour.
Outside of the U S and so we're seeing over $30 million of.
FX headwind in the guidance revision.
Got it so.
There was a shortfall in second quarter. It looks like there is more shot shortfall.
And then third and fourth quarter, how should we think about.
We're the biggest pressure points are.
Whats assumed in the guidance here relative to market recovery.
And I have a few follow ups after that thanks.
Yes, So let me provide a little bit just a color of how we're thinking about the balance of the year and I'll break it up between between dental and spine. So on the dental business we guided.
Mid single digits to mid high single digits, we expect to be at the lower end of the range. The way I'd think about it is if Q3 sequentially is our is our lower quarter for dental and so what we expect to see.
As a kind of a modest decline in Q3 due to seasonality and then Q4 is typically our strongest quarter and seasonality for dental will largely be roughly the same as it was say in 2019.
On the spine side of things.
We expect.
The the balance of the year to be in the.
In the low single digit decline.
Again Q4 is.
The stronger of the two remaining quarters because of seasonality, but we still expect Q3 to be impacted by seasonality in spine.
Got it.
Last for me is the good news is you had good expansion in Haynesville.
Yes, Im sorry, Im sorry to interrupt.
Low single digit I think low double digit declines Michael.
Got it okay that helps.
Good news is expense control was pretty good in the quarter.
And you're holding your margin targets here, maybe speak to where you're seeing the cost savings is it coming from variable comp are you cutting back on projects are you.
Really.
Holding spend tight.
Line.
Or are you more limiting spend or are you reallocating spend that would have been.
Okay.
To drive the topline.
Yes.
Okay.
To drive the top line. Thanks.
Hey, Rob exactly here.
So we really look at the company and we said we had we had a number of obstacles that we wanted to overcome and one was.
Just the operations, primarily within spine, where we were wasting a lot of money in the operations. We didn't have very good DC distribution center performance.
We fixed that so by.
By early summer we were back on to service levels. We wanted and that was that was basically a savings.
We werent duplicating spend there.
But we've been really really prudent on what we've been spending on but we haven't done that to sacrifice any projects or pipeline looks really good.
I'm looking forward to sharing that pipeline with with you guys later on as we get a little more granular on what we have but I think that we are.
We're doing well there.
And we spent.
We've really been been certain on what we're going to spend on and where the areas that we can save them, but we haven't done it.
Expense of any kind of commercial forward commercial activities and projects rich any thoughts you have on that one yes, Robby we actually took some initiatives in in the second quarter to really do a number of things, including rationalizing our global footprint looking at our real estate in determining how much we need how much we.
Actually don't we also took some steps to.
Right size, the businesses and flattened the organization structure, a little bit and so that's also in there for <unk>.
Part of Q2.
And listen we mentioned before.
We're looking at operational operationalized, the business and look to really take out a lot of waste and so as we're continuing to turn over rocks, we're finding areas of inefficiency and so we're just we're putting them through the same <unk>.
<unk> that we have all along and just really scrutinizing, what we're spending our money on to make sure that we're getting the best return out of the investments that we're making.
Great and.
Last from me.
Yeah.
We've moved.
About a month month and a half since the.
At the end of second quarter have you seen any of these difficult trends improve.
So far over the summer any any signs of light that.
Some of the pressure points are loosening up thanks a lot.
Sure. So internally speaking we're continue to make some progress against some of these operational gains you've made so I think youll continue to see that theme. So thats a good thing.
Macroeconomically, which I think is the crux of your question.
I think the summer has been slow and I think that.
That's why we're being very conservative.
Into the back half of the year, but I do believe the summer is slow and we don't see.
Especially outside of the U S. U S is large.
Pretty good market.
But outside the U S. We are seeing.
<unk>.
Extended vacations for lack of a better way to explain it but not necessarily.
We go to visit the customers, we're not seeing a loss of customer we're seeing.
Absolutely.
Customer Weil.
Vacation for good reason, so I see that MSC FX being something that will carry on through the rest of the year Richard anything else you think no.
Thats Fair I think.
I think you mentioned that.
One.
Great. Thanks, a lot.
Thanks sure. Thanks Robert.
Thank you and there are no other questions in the queue I would like to turn the call back to management for any closing remarks.
Okay.
Thank you very much for joining the call.
Ravi Thanks for your questions I appreciate the interest we are feeling really optimistic about the business. It's again.
Turnarounds are bumpy and we're in the early stages, but we feel like we we see a path to do great things and ultimately a <unk>.
Rich and robust pipeline as well as a well operated company so.
Thank you very much for your time, and we look forward to talking to you in a quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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