Q2 2023 ZimVie Inc Earnings Call
Okay.
Good afternoon, and welcome to <unk> second quarter 2023 earnings Conference call. Currently all participants are in 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 him ERISA bias Bye Goodbye.
<unk> group for a Doctor you disclosures.
Thank you all for joining today's call earlier today <unk> released financial results for the quarter ended June 32023.
Copy of the press release is available on the company, but then the dot com as well as on SEC Gov before.
Before we begin I'd like to remind you that management will make comments. During this call that include forward looking statements.
Results may differ materially from those indicated by the forward looking statements.
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 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 or the investor deck issued today.
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 August two 2023.
<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.
With that I will turn the call over to Jim Lally, President and Chief Executive Officer of Dnb.
Good afternoon, and thank you all for joining us in the second quarter, we continued to drive steady progress against our most vital objectives of innovation and commercial execution.
We're taking deliberate steps to improve our operating profile.
Our most critical imperative to introduce be organization platform as we work actively reshape our portfolio and lean further into the markets with the best long term growth potential.
On this note we continue to build traction in the second quarter with our recently launched dental solutions, including our Q3 pro and TSS implants, Indienne code emerges healing abutments.
We have been actively expanding the reach of these premium portfolio additions to markets around the globe.
This includes the launch of <unk> Pro and <unk> in the Asia Pacific region, as well as the expansion of incurred emergence into the European market.
We also continue to rollout new products with the addition of two new bone graft solutions.
The Regeneron Cc, allograph articulate and Regeneron Stone-ground slug.
As we shared at the time of the launch these two bone graft solutions broadens <unk> presence in the dental bond materials market and expand our comprehensive suite of offerings.
Our sales team and DSO partners are having success engaging existing and new customers on the heels of this cadence of launches and we believe that the pace of adoption of our new to market products.
Outpacing growth in the overall market.
Turning to other areas of progress in our dental portfolio as we announced in April we have now opened a state of the art Dental Science educational and training Institute at our Palm Beach Gardens Delta facility.
Been a great pleasure hosting current and prospective dental customers at the Institute in recent months.
And we had been receiving great feedback on the trading you posted thus far.
As of today, we hosted 23 different courses with over 500 questions in a short span of roughly 12 weeks since opening.
We anticipate hosting many additional events this year and ultimately hosting over 1000 clinicians in 2023.
In summary, I am pleased with our position in dental and remain confident in our ability to perform at or above market in our core product areas going forward.
Turning to our spine business. We are also driving incremental success within the spine portfolio with noteworthy success in our international markets.
An accelerant for growth was O U S growth of Mobi C. I've been showcasing the importance of clinical evidence in our spine portfolio for the past 18 months and <unk> truly differentiated clinical evidence dossier was rewarded here.
Mobi C received French government reimbursement and the highest quality rating from the British clinical panel Oh that early in the second quarter. These developments have helped drive strong European performance, which is particularly relevant as Europe's been historically underpenetrated and under adopted region for cervical disc replacement.
Building on our spine presence outside the U S. We are also excited to announce that we're continuing to expand our commercial efforts for the tether our differentiated non fusion spinal device for the treatment of idiopathic scoliosis and key countries in both Europe and in Asia Pacific.
Finally, we are advancing our Greenland partnership as a reminder, in March we announced a global development agree with brand lateral spine, enabling technologies to provide our customers and patients the deepest level of integration between zombie products and <unk> industry, leading portfolio of spine imaging planning navigation and robotic.
<unk> solutions.
Today, we continue to work on achieving compatibility between our spinal implant and brain spinal trauma navigation systems, allowing us to enhance workflow and accuracy in the operating room, while reducing intra operative X rays and radioshack exposure.
We are now collaborating much more deliberately at the customer level and I look forward to sharing some customer successes in coming quarters with you.
Looking forward, we will continue to engage with our key surgeon customers innovate on and around our existing solutions and ultimately optimize our position in markets. We are positioned to win.
Okay.
Turning to our continued operational improvement.
I am excited to announce that we have now completed all TSA related to the separation from our former parent as a refinement.
And these transition agreements with the parent we refreshed our core it systems moving over 950 servers Datacenters are transitioning over 200 applications to moderate largely cloud based platforms.
We are also finalizing the ERP conversions with our last conversion in Barcelona set to finalize this fall.
In addition, we've made meaningful reductions to our physical footprint receivables and corporate overhead.
We have more work to do surrounding optimizing inventory levels and optimizing manufacturing output.
These actions are in accordance with plan, we laid out at the time of the spin and are included in our 2020 financial guidance.
I'll now turn the call over to rich to outline our financial performance.
Thanks, Bob and good afternoon, everyone I'll begin by reviewing our second quarter 2023 results from will close by providing our updated outlook for the full year 2023.
Total third party net sales for the second quarter of 2023 were $224 9 million.
A decrease of three 6% on a reported basis and a decrease of three 4% in constant currency.
Moving on to our two segments.
Mobile Dentals third party net sales were $118 7 million.
Current quarter, representing 40 basis points of growth in both reported and constant currency when compared to the prior year period.
Although the dental market as a whole was relatively soft in the second quarter solid commercial execution and the continued market acceptance of our new implants position us very well for the longer term. Additionally.
Additionally, we continue to see strength in our digital offerings, which grew high single digits in Q2 versus the prior year period.
In the U S Dental third party net sales of $69 $3 million declined.
Slightly by one 3% driven by slightly weaker implant market offset by strength in our digital solutions sales.
Outside of the U S. Dental third party net sales of $49 4 million increased by two 9% on a reported basis and two 8% in constant currency driven by growth across all three of our product families and plants biomaterials and digital.
In particular, we are pleased to see strong market acceptance of our <unk> pro and <unk> implant launches.
Second quarter Global spine third party net sales were $106 $2 million.
A decrease of seven 8% on a reported basis and a seven 2% decrease in constant currency when compared to the prior year period.
The decrease was primarily driven by continued competition by market and our decision to exit China following volume based procurement.
Offset by sales of our previously attributed to Zimmer environment.
As <unk> intimated, we are pleased with our <unk> and <unk> performance relative to the balance of our core spine portfolio led by growth in Europe .
In the U S spine third party net sales of $84 5 million.
Decreased by 9% driven by competitive pressure in corresponding partially offset by a relative improvement in <unk> and together.
Outside of the U S spine third party net sales of $21 $7 million.
Decreased by two 9% on a reported basis, but grew 10 basis points in constant currency.
The impact of our decision to exit China is estimated to be $2 $7 million versus prior year and is offset by $3 $8 million of sales previously recognized by Zimmer Biomet that analysis. These sales.
Second quarter, adjusted gross profit of $151 4 million <unk>.
Compared to a $153 $4 million in the prior year period adjusted gross margin of 67, 3% reflects an increase of 160 basis points when compared to 65, 7% in Q2 of 2022.
The increase in gross margin versus prior year is driven by a further reduction of inventory charges in our spine segment, resulting from our operational initiatives to better manage inventory, partially offset by higher cost of products sold in our dental segment due to product mix.
Adjusted research and development expense of $11 $5 million.
Was five 1% as a percentage of third party net sales.
Second quarter 2023, adjusted selling general and administrative expenses of $125 6 million.
Or 55, 8% of third party net sales was 250 basis points higher than the prior year period.
This increase was due to lower net sales higher marketing and medical education related expenses and year over year differences in our corporate expense structure.
Note that this time last year <unk> was a newly spun company and we were still building our infrastructure as a newly independent company.
Adjusted EBITDA in the second quarter of 2023, it was $29 7 million or 13, 2% of third party net sales and reflects a modest decline of 20 basis points from 13, 4% in the prior year period.
The decrease in adjusted EBITDA margin is primarily due to lower net sales and higher selling general administrative costs as previously discussed offset by higher gross margin.
Adjusted earnings per share in the second quarter was 17.
On a fully diluted weighted average share count of $26 3 million shares.
Touching on working capital liquidity and debt in.
In Q2, we continued to make progress on our initiatives to capitalize on the strength of assets on our balance sheet and the application of our disciplined financial framework. We have much work to do in these areas that have seen a reduction in inventory related charges in the first half of the year that have manifested themselves in a higher gross margin and we.
Have reduced net inventory by $6 3 million since December of 2022.
In addition, well funded assets on our balance sheet have allowed us to further reduce capital spending by $7 $1 million year over year.
We ended the second quarter was $66 $2 million of cash and equivalents roughly flat Q1.
As a reminder, $175 million credit facility revolver remains undrawn.
I'll now turn to our revised full year 2023 outlook.
We are pleased with our progress we are making and are subsequently revising our full year 2020 financial outlook.
Starting with revenue.
We are revising our expected full year 2023, net sales to be in the range of $850 million to $870 million up from our previous guidance range of 835 million to $860 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.
We now expect 2023 spine net sales to decline in the high single digits to low double digits relative to 2022 inclusive of an approximate 3% negative impact from our decision to exit the China market.
To provide some additional transparency into our third quarter revenue expectations, we are expecting a more pronounced impact from seasonality during the summer months versus historical periods.
As of today, we expect net sales to be sequentially lower in the third quarter down low double digits versus our second quarter with dental roughly flat year over year, reflecting this historical seasonality.
Moving to adjusted EBITDA margin.
We expect full year adjusted EBITDA margin to be in the range of 13, 5% to 14% of net sales the same as previously guided.
We are pleased with our year to date 2023 financial performance and will continue to uncover and execute on opportunities to optimize our income statement and balance sheet.
For Q3, we expect EBITDA margins to be sequentially down versus Q2 commensurate with the impact of seasonality on our Q3 revenue has just mentioned.
Consistent with our raising our revenue expectations and year to date earnings per share performance.
We are revising our adjusted earnings per share guidance range to <unk> 50 per share and <unk> 70 per share on a fully diluted share count of $26 5 million shares increasing.
Increasing the bottom and top end of our previous guidance range of <unk> 40.
To <unk> 60 per share.
With that I'll now turn the call back over to vapor.
Okay.
Thank you rich I'm pleased with our progress in 2023 to date as well as our execution on streamlining objectives.
Although we've had additional work ahead to return our business to durable growth I am confident in the strength of the assets in our portfolio and our presence in underserved end markets, which ultimately bring great value to patients.
As we continue to improve the efficiency of our teams evolve our product platforms and execute commercially we look forward to showcasing the results of this work will deliver in the back half of the year and beyond.
With that we will open it up to questions.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Today's first question comes from the line of Robert Marcus from Jpmorgan. Please proceed.
Great. Thanks.
Thanks for taking the questions and congrats on a nice quarter.
Maybe to start.
It looks like a lot of the outperformance at least versus my forecast came.
From outside the U S dental and particularly outside the U S. Alright, I mean outside the U S dental and outside the U S spine.
Rather than the U S, which was roughly in line. So maybe speak to some of the trends youre seeing outside the U S. What's driving.
The outsized growth there versus estimates and how should we think about that.
Those two line items as we move through the rest of the year and into next year.
Yeah, Hey, Ravi ill talk to you again this is rich app install so I'll talk I'll start with dental and then I'll kind of rather that was fine.
No use perspective and so on.
On the dental side, we actually saw pretty good growth in our EMEA region.
And it was it was pretty strong growth versus kind of our internal expectations and we grew.
Actually all three of our major product categories very nicely in that particular region, including our biomaterials offerings. Our digital solutions and then also implants group. So we saw we saw some fundamental recovery in Europe across.
Many of our geographies that we serve in Europe on the dental side. So we're pleased with that performance.
On the on the spine side of things.
Pardon me there was.
That announcement that was made a few weeks ago regarding the French reimbursement of Mobi C. In that particular country and we're the only cervical disk device in France, where there is actually reimbursed by the government and we're actually getting a lot of traction.
But we see growth, particularly in France, and at certain permeate through the rest of Europe , and so our <unk> growth in Europe is actually accelerating and then secondarily.
There is also as we geographically expand to multiple geographies is also growing really nicely in Europe , and so we're seeing some foundational strength, particularly in our core products in EMEA, It's really it's really an uplift on the spine side.
Great.
Really helpful and then.
Again, good EBITDA in the quarter showing upward improvement you talked about some of the trends there, but as we.
As some of these improvements youre planning to make an inventory and.
It is a 2020 for a.
Secondarily, you'll see and Q2 that we actually expand a margin again in queue to despite you know a little bit of a a headwind around product mix within the dental business and the reason for that is is is we have we have to implement a purchasing controls on the spine side that is really uhm live.
Hitting the amount of excess and obsolete inventory charges that were taking and so we we expect to be able to continue that effort and and be able to continue to expand margins. Despite kind of what's going on on the top line, but obviously you know we're encouraged by the by the strength of the <unk>, Oh U S and our dental business. So U S is.
<unk> is a baseline is you'll be exit the ear.
Great I appreciate it thanks for taking the questions.
Alright.
One moment please.
Our next question comes from the line of <unk> from Mark Lane. Please proceed.
Hi, Thanks, so much for taking the question and I just wanted to follow up on.
Some some of the trends that you talked about.
In particular, you know the competitive.
E as competitive and kind of market trends that you tried to that's fine.
Can you maybe give some color as to you know.
What are what are driving.
Pressure points for you if if that's the right way to describe it in terms of competition.
And and what types of things are you seeing any organization that that might give us. Some some some sense that things could stabilize you know in a <unk>.
Warner and two quarters and three quarters.
On the spot and then I have one quick follow up.
Sure Hey, Matt So really on the on the spine side, we we really decided that that we had to invest.
More seriously more heavily in our our platform sandwiches, both to correspond which is arguably the most competitive part of spine and also not forgetting movie ceded tethered, which is our our our most differentiated assets.
So overall as we as we looked at where are the areas, where we get the biggest impact US places, where we spent we spent the energy the resources and and I do think that that space is very very competitive, but I do think that we are addressing the areas of concern one was.
You know, enabling technologies and how would you complete there against others that have enabling technologies and and with brain <unk>. We're really secure in a good place. There was a very very stayed in state of the art technology platform added to our devices, which I think are going to be a really really great match. So that's an area that we address.
There with with Moby C. You know we all of course, we've had some success in Europe lunching, it with cat or we've had success in in in Europe , and Asia pack with that with with great great New new users.
And really successful procedures, but we've also reinvigorated those portfolios. So look at us considering to build on that and what what do we bring out to the market to re energize D. The U S market, which is obviously the biggest market there.
Reimbursement work and a lot of our handiwork, that's gonna really satisfying.
Satisfying fortified those technology so.
It's a competitive space I think we've got a really really good opportunity to continue to differentiate and get back some business with some gaps in the core area that we're selling right now which are really really critical and I I. I also look at you know using some of the disruption in the spine <unk> spine world.
To our benefit as well frankly for for the balance of this year and into next so those are the areas that I'd be focused on prescribed to to get it.
So ultimately to growth.
Right. That's helpful and then just done that.
And I apologize if this was covered as kind of having back and forth between.
Some other causes a lot of folks so I think this evening the.
Just just one of the one.
One of the concerns as you are and everyone's aware that that.
Is that there may be some.
Tending pressure consumer driven pressure on the on the dental side of the business and you know Ironically, you know when when when recession fears were higher and things.
Seem to be kind of moving better and it seems like maybe things are swelling a little bit do you think you know any any color as to whether that has anything to do with like the you know the consumers consumer market generally or is this this accomplish you or you know any color that you're picking up on the field.
Related to the demand for implants, and the sustainability of of you know a growth in that key segment.
Alright, so right now we believe we're outperforming the market for payment premium implants. So that is definitely the case. So we are we are gaining more customers.
And we're failing our training programs and we are in servicing around the clock. So I do believe that we have new users coming on board.
Regarding the market as a whole I think it's for sure softer than it was a few quarters ago, but I do believe that that's very temporary and as long as we can hold up here not lose customers and.
And continue to kind of bring on new customers I think we're in pretty good shape. So as far as the market can market's concerned <unk> premium pleasure doing quite well.
On the back of both the innovation that we've done which which is really good uptake in the market.
And on the back of a really solid digital dentistry platform that allows users to onboard pretty quickly and to become Implantologist uhm.
With with with relative certainty that they could perform detached uhm protested hassle overall I'm feeling okay, we've been watching for a slowdown and so far again, our numbers, let's say, it's it's the the volume per unit per per user is probably you know not.
Not not anywhere near the the the peak, but but so far we're doing okay relative to our competitors, yeah and that message and you just know about this this branch just just a quick comment you know one of one of our kind of fundamental strength I think it's really been around kind of our commercial execution, I'm, focusing and and it gives you mentioned.
<unk> your last year was a relatively tough compare for the dental business and you know, we we grew 40 basis points and and and plastic I'll go backwards. So you know, which we think is is outpacing the market generally speaking.
That's helpful and it just maybe it's just the same topic of just one quick follow up to that topic is obviously you know.
<unk> there was a number of consumer segments right that that sort of benefited from you know cash in people's pockets and so on coming out of the pandemic and.
I I don't know if this was one of them, but you know is that is that your perception and and you know last year. This quarter was a tough comp is is it just a matter of working is is part of it I'm working some of that out of the market sort of whenever that was buying ahead strong demand.
Your your and a half ago and getting any other side of that is that I understand you're executing well against the market, which is great, but just as a market dynamic do you think that's one of the factors or is that not really so much something to think about for grand plans.
Yeah, I think that bullets came Q1 of last year in queue to watch here, where where we really saw robust demand. We we we we really saw that so that was that was terrific and I think that was kind of the the fundamentally what what you're referring to.
Should make us really confident that we'd be both of those quarters.
This year, so that that on itself blinds me to believe that you know we built a platform and we haven't gone backwards on itself.
I think that probably indicates some some.
<unk> to pick up on on our part so I do think that those were boomer quarters.
Probably because of some cash in pocket, but we haven't gone backwards from us.
Oh, that's great I appreciate the color.
Thanks for the questions.
Thank you and that concludes the Q&A portion I will now hand, the linebacker with the verified Somali for closing remarks.
Thank you very much again, we look forward to continuously improving the performance of this business and we really appreciate the questions and your attention.
You know.
This concludes today's conference call. Thank you for participating.
Disconnect.
Mmm.
[music].
[music].
[music].
[music].