Q3 2024 ZimVie Inc Earnings Call
[inaudible]
Speaker Change: Good afternoon and welcome to Zimface 3rd quarter 2024, Arnie's Conference Call.
Speaker Change: Currently, operative defense aren't a listen-only mode. We will be facilitating a questioning answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.
Speaker Change: I will now like to turn the call over to Marissa Bych from Guild Martin Group for introductory disclosures.
Marissa Bych: Thank you all for joining today's call. Earlier today, then be released financial results for the quarter ended September 30, 2024. The copy of the press release is available on the company's website, then V.com, as well as on SEC.gov.
Marissa Bych: Before we begin, I'd like to remind you that management will make comments during this call that include forward-looking statements.
Marissa Bych: Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties.
Marissa Bych: 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.
Marissa Bych: In addition, the discussion on this call will include certain non-gap financial measures.
Marissa Bych: Reconciliation with these measures to the most directly comparable gaps on initial measures are included within the earnings release or the investor deck issued today found on the investor relations section of the company's website.
Marissa Bych: This conference call contains time-sensitive information and is accurate only as of the live broadcast today October 30, 2024.
Marissa Bych: Zimbee declaimed 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.
Speaker Change: And with that, I will turn the call over to Vafa Jamali, President and Chief Executive Officer of DIMB.
Vafa Jamali: Good afternoon, thank you for joining us.
Vafa Jamali: Our team executed another strong quarter delivering revenue of 103 million as we can do to innovate across the portfolio of Vimplant, Biomaterial and Digital Solutions.
Vafa Jamali: During the quarter we continue to make significant progress improving the operating profile of our business.
This included improving our manufacturing efficiency, increasing the cost of product sold on both a year over year, and to clank to basis for the quarter.
Vafa Jamali: In addition, we paid down $50 million in debt, living out from the gross debt up to $220 million, and then net debt balance of $153 million, when including our quarter-end cash of $67 million.
We continue to think carefully about capital allocation in the interest expense planning in order to improve both the profile and the profitability of our business.
Vafa Jamali: Meanwhile, we continue to make thoughtful investments in our sales teams, our training programs, expanding our digital dentistry, some positive to accommodate more physicians.
Vafa Jamali: and Dr. Semero, some of the other sessions.
Vafa Jamali: We're also making some incremental investments in R&D to fill the product portfolio gaps and capitalize on opportunities that we see in this market today.
Vafa Jamali: Before discussing updates on our product offerings, I would like to comment on the recent hurricanes that affected the large portion of the Southeast of the United States, including near our headquarters in Bombay, Gardens, Florida.
Fortunately, we did not experience any material impact to our operations or financial results in the third quarter or early fourth quarter associated with these storms.
Vafa Jamali: More importantly, our best wishes go to all that we're affected. We're doing our best to support our local community, our employees, and the customers that were impacted.
Vafa Jamali: Let me help you provide a portfolio update.
Sorry we did the lip lights.
Vafa Jamali: We are seeing resilience in the U.S. dental market as we drove another quarter of modest, overall year on year growth.
In certain practices and regions, we are beginning to see improvements in the health and North American dental market. And we are confident that should these trends be no further, we have positions in the advantageous way to capitalize on improving market conditions.
Following up the last quarter's U.S. launch of our portfolio of GenTech restorative components, we have seen our mark and wood option these offerings as part of our expanded portfolio.
Additionally, our latest implemented elections, the TS-Action T3 Pro, have continued to be positive leadership by providers.
We believe our important portfolios growth is out facing the premium market and we are working to expand market share through innovation and quality of our products.
Vafa Jamali: Now there are minor, dentulating plants that predominantly pay by patients not a pocket.
Vafa Jamali: Given this dynamic, we believe that a lower interest rate environment in the United States may allow patients to access or faithful financing arrangements and thus drive implant procedure for us.
The market opportunity for dental implants remains under penetrated and exciting. We look forward to continuing the deliverative and effective solutions for implantologists around the world.
Vafa Jamali: Next, shifting the bio materials.
Our Biomichail portfolio grew at a healthy rate in the corner reflecting what we believe is a leading indicator of future and plant procedures.
Patients with Disease or Damage II structure received these bone substitutes to provide a suitable surface for future and plants insertion.
Vafa Jamali: As such, growth and environmental shifts are as a leading indicator for patients to receive in class.
Finally, our digital portfolio feels growth and procedure adoption. By offering solutions a greatly increased efficiency and dental practices.
Vafa Jamali: Our complete digital portfolio, excluding nitriot scanner sales, grew over 10% in the third quarter. Fueled by the increasing adoption of our recent leader, we all guide 5.4 software and our metapartner ship.
Our implant counts here, service group 20% in the quarter and is receiving various odds of feedback from a doctor. Reflecting the value we provide to dentists by removing hours of labor and cost from the dental office.
We're also continuing to drive further updick of surgical guide sales, which grew over 30% driven in large part by the adoption of recently launched Real Guys 5.4 software.
Vafa Jamali: We're contained to innovate on this software and we'll continue launching meaningful updates.
Vafa Jamali: By making the emphasis you're faster and more effective, our digital platform aims to further drive further adoption and grow the market for this under-premise traded solution.
With our community investments into our sales force, our product portfolio and focus on medical education and training efforts, we are positioning them to be for a growth into the future.
Vafa Jamali: Our now-turned-aligned-der-rich to a VR financial performance and forward outlook in greater detail.
Thanks, Vafa and good afternoon everyone. I'll begin by reviewing our third quarter 2020 four results for continuing operations and will close by providing commentary on our outlook for the full year 2024.
Vafa Jamali: As a reminder, we find a lot of the sale of our spine business on April 1, 2024. Thus our spine segment is reflected in discontinued operations in our financial state.
Please refer to our 10 key for financial results from discontinued operations.
Vafa Jamali: Beginning with sales.
Total third party net sales from the third quarter of 2024, where $13.2 million, a decrease of 2% in reported rates and a decline of 2.2% in constant currency versus prior to your period.
In the US, third-party net sales for the third quarter, 20, 24 of $65.4 million reflects an increase of 0.5%.
When excluding the impact of oral scanner sales, which continue to remain soft, US sales grew by 1.6% driven by our portfolio of restorative products, digital dentistry, and biometrials.
Vafa Jamali: Outside of the US, third-party net sales of $37.9 million decreased 6% on a reported basis and 6.6% in cost and currency.
The decline was primarily driven by the timing of orders in Japan, indiddly, and a slower market in Spain.
3rd quarter 2024 adjusted cost of product sold was 34.4%.
In decreased 40 basis points versus 34.8% in the prior year period.
More importantly, adjusted cost of product sold decreased 260 basis points sequentially from the second quarter of 2024.
Vafa Jamali: We have been signaling for some time now that we have been focusing on our manufacturing cost efficiency following the sails of spine and we are pleased that our needs of our paying off.
Q3, 2024 adjusted research and development expense of $6.6 million or $6.4% of sales compares to $5.3 million or 5% of sales in the prior year.
Due to the timing of certain professional service arrangements related to new product innovation.
Q32024, adjusted sales, general administrative expenses, a $57.8 million, compares to $55.8 million in the year and includes increased investment in our U.S. direct sales force.
Other income into 3.2024, $3.5 million primarily reflects income from transition service agreements resulting from the sale of our supply and business.
and Offset, Stranded Costs that remain in the gene A expense.
As just a deep adapt, the tribute of all to continuing operations in the third quarter was $13.1 million.
A 12.7% Agesity of a Dom Margin compared to a 12.2 million dollars or 11.6% margin in the prior year period.
The Jeffet earnings for share attribute of all to continuing operations was 12 cents per share on a fully deleted share count of 27.6 million shares.
Our solid performance in the third quarter, underscores our continued commitment to the execution of our manufacturing efficiency initiatives and the further utilization of some of these benefits to expand investment in R&D and US sales to position us for long-term growth.
We remain committed to achieving our financial objective of 15% plus EVID-DOM margin, one of your post-completion of the sale of slime.
Turning to the balance sheet, as at the end of the third quarter 2024, Consolidated Zimd, Continuing Operations and Cash for $67 million.
During the third quarter, we were a Zoom-Dar initiative of shifting value from debt holders to equity holders by repaying $15 million of principal on our term loan debt.
Growth debt at the end of the quarter was approximately $220 million, yielding a net debt of approximately $153 million, including the $67 million of cash.
Note our net debt balance does not include the seller note from the sale of the spine business.
Additionally, we continue to maintain our $175 million revolving credit facility which continues to remain undrawn.
Turning toward our outlook for the full year 2024, we are narrowing our full year revenue guidance range to $450 million to $455 million.
from $450 million to $460 million previously.
We are also narrowing our 40 year adjusted EBITDA guidance range to $60 million to $62 million.
Resulting in the Justice League at Dunlard in the range of 13.3% to 13.6% of sales for the full year 2024.
As mentioned earlier, we also are made committed to a 15% plus to just leave a dumb margin when you're able to save a sign or April 1st, 2025.
The Expect Service Compensation Expents to be approximately $6.3 million for the full year 2024.
And lastly, we are narrowing our adjusted EPS guidance.
Vafa Jamali: Specifically, we expected to generate adjusted earnings per share between 57 cents and 62 cents per share on a fully diluted share count of 27.6 million shares.
With that, I'll now turn the call back over to Vafa.
Thank you, Rich. We've been city progress in the third quarter of our goals and improving our profitability profile. We're continuing to make a mess into the business to innovate and grow.
We also have great teams whose containers please operate it diligently.
Vafa Jamali: With that, I'm open up the questions.
Vafa Jamali: i
Speaker Change: Thank you. At this time we will conduct the question and session. As a reminder to ask a question, you will need a press star 1-1 on your telephone. And wait for your name to be announced.
To withdraw your question, please press star one one again. Please stand by why we compare the Q&A roster.
Vafa Jamali: i
Our first question comes from David Sachsen, a need in-prem company.
Great afternoon, Vafa and Richard Heppenstall, take my questions. Maybe I'll start briefly on guidance. I'd love to just hear how you're thinking about the recovery in specifically in the US, as guidance assume the market recovers, it sounds like you might be kind of cautious, they optimistic.
and then internationally it sounds like the third quarter of these awesome orders.
Vafa Jamali: Pushed to the fourth quarter, maybe can you quantify that and just confirm like do those or is actually come back.
Or do they flip and then, you know, can international grow in the fourth quarter or will over all results be driven by the US.
Speaker Change: Thanks David. I'll start my pass on the rich. I think that we are feeling optimistic about growth in North America returning in the fourth quarter.
Regard, so that's something that we've been anxiously waiting for and feeling better and better with that.
I believe Japan will resume the course of this coming quarter.
Italy was a bit of timing.
and then the rest of it was a little bit of macro in Europe. I think that there is a bit of a macro pressure in Europe right now that we're feeling.
and then the rest of it would finally and Japan would likely resume. We would pick up those orders as you asked.
Rich: Rich Yeah, I just had a couple of additional data points to Vafa's commentary. So first and foremost...
The U.S. business up to rise is 60% of our older, overall revenue profile. So obviously we're really pleased with...
The fact that we generated when he exclude the impact of Ontario sales as we mentioned on the call David, that the US actually grew 1.6% in the third quarter. And so we're really pleased with that result and encouraged.
For the fourth quarter, where we expect to continue to grow in the U.S.
But we also believe that we're executing in the US business toward the top end of our peer group.
As a result, so we're really pleased with how well we're positioned in the U.S.
and as I also mentioned during the call we continue to invest in our US sales force to continue that path going forward.
On the OUF side, Vafa Vafa's right, there was a timing of orders, we had a bowl of sub orders, in Japan in Q3 of last year. The obviously, the European pair this year is also correctly mentioned.
Vafa Jamali: Japan to return to growth in the fourth quarter. And then in Europe, you know, that was...
Timing of distributor orders in Italy which can be a little bit choppy and then Spain. You know was softer for us. We there was a lost deal so that we had and that impact is probably about $3 million for us.
But you know we also are looking to after the European Business Team A business or US business rather to what to grow in the fourth quarter to based on the guidance that we put forward.
Speaker Change: Okay, that was helpful thanks for all that and so just on the restorative side, I mean you talked about
This whole dynamic, I believe you started talking about it last quarter where you know you believe it's a lady indicator. So maybe you know I'd love to hear how you started seeing those patients return to the funnel and actually get the implants or if it's too early for that. Anyway, to kind of size that patient backlog.
We haven't been able to to size it accurately so I probably would be just in Daniel's if I gave you a number. But we do think that especially bymaterials is a good lady indicator of work and we are seeing particular pockets.
Vafa Jamali: in the US that is coming back. Remember the US is our most problem market so as we perform there.
It funds a lot of activity for us. So we haven't quite seen it. I can't I'm quite quantified it, but we are we are actively trying to to parse those those numbers and see where they come back, but I still do think that it is a living indicator and just don't exactly
Vafa Jamali: had to put the numbers in the funk.
Speaker Change: Okay, all right, and then...
Okay, and then just lastly for Rich on the P&L. So, Chris Margin was hired. It sounds like you're working on some efficiency initiatives. As she and A, was also hired. This is relative to my estimate at least.
So, you know, does can you sustain this kind of?
Call it mid 60.
Cross-Margin going forward is that kind of the normal for you. And then on the SGA and ASI kind of talk about, you know, puts in takes there and how we should think about that going forward. Thanks so much.
Speaker Change: So, so, first we go on on Rose Margin.
We're obviously really pleased with the problems in the quarter right 8, 260 basis point.
Vafa Jamali: Sequential Improvement Quarter of Quarter, you know, adds as a lot of additional financial flexibility to P&L and was the main driver of
Vafa Jamali: of the increase in EBITDA, year of year, over a hundred basis points.
and as we mentioned on the call day we've been...
Towards the end of last year we had some under absorption in the manufacturing facilities.
We talked about how we did an organizational resizing in our plant in Valencia. And also started moving production of our high-runner products.
from to Valencia, which has about a 20% benefit in cost of production, then on the to bought gardens location. And so all of those initiatives really kind of manifested themselves in the third quarter.
and we started running TSX production in Valencia right now. At the full war, the organization has been resized in the manufacturing bearings, so that we're sitting on the balance sheet of all them flush through it. We're expecting growth margin to stay in the similar range that it was in the third quarter. Frankly, into the fourth quarter and then we haven't talked about 2025, but a plan would be for that to continue.
Vafa Jamali: is going down further down to the TNL side of things.
You know, Vapena, I didn't give you a lot of detail on this one, as Vapena talked about.
Being a Marissaocracy and we've been in a position historically where we have to do some of these things to get the business to where it is and we feel really good about where the business currently is positioned.
Vafa Jamali: You know, a balance sheet isn't really good shape, you know, a gross margin is higher and sales is particularly stabilizing in the US.
And so what we're doing is we're taking some of those proceeds from gross margin and we're continuing to invest in innovation which has been a really successful driving for us over the last
18 months on some of the sales initiatives that we haven't placed and then also the US sales force. And so, we invested in the sales force in the third quarter. And we expect that we're going to continue to look at making sure that we can drive long-term sustainable growth.
As a result, and so we'll make sure that we balance the income statement across all of those areas to make sure that we're getting the best value out of the business in the long term.
Speaker Change: I think you know David Mix mixes a big driver for Marissa and too, so I think the implant mix improves you should also see improvement there.
Okay, yeah, that makes sense great thanks so much everyone
Speaker Change: Thanks, thank you.
Vafa Jamali: [inaudible]
Thank you. As a reminder to ask a question you would need to press star 1-1 on your telephone and wait for your name to be announced.
The End
Our next question comes from Matt Meek'sick at Barclays.
Matt Meek'sick: Hey, guys, thanks for taking the questions and I'll just for some of the background noise here. Well, I just wanted to...
I'm a first congrats on the quarter and wanted to just maybe get a sense of
Matt Meek'sick: and what the confidence is and some of the volumes in...
and maybe if you haven't covered already and I apologize or just jumped in a few different calls here, but maybe, you know, any color you can give us on how you're feeling like you're going to be exiting the year and entering next year and I have one quick follow up.
We've regained the guidance, so we're comfortable about the way the years ending. Like I said, the North American market is the largest for us and most profitable.
Matt Meek'sick: and we are seeing that return to health and to growth. So in many respects this is...
Matt Meek'sick: One of the more companies on this for us are relative to the past 12 months.
Matt Meek'sick: Rich, not.
Yeah, yeah, I know that's right Matt, you know, I think this regress in the US, you know
It's quite really better than I think we did for the second quarter so that's
That's positive for us and then like I said, some of the U.S.
Matt Meek'sick: You know, issues that we had in the quarter, you know, are kind of one time, and so we also expect that. The US doesn't have to grow, you know, and so we're narrowing the guy. We had a pretty broad range before, and so we're narrowing that to the 450 to 450 to 450, 5 on the full year basis.
And then next year we're obviously not going to guide for next year on this particular call and we will have a later date but it's just kind of qualitatively speaking, you know, I think
If you look at the landscape for the present V.
I think it puts us in a pretty good place, right? I think the business is stabilizing, or gross margin is up.
Matt Meek'sick: You know, S.T.N.A. is being invested in, brutally, where we see fit.
Matt Meek'sick: We're paying down debt, cash balance, healthy interest rates, first starting to drop.
and the sale was fine in the TSAs that we have with HIG or proceeding well. We feel like we're in a really good position going in the next year, but we're not obviously going to guide that on the specific of the call. This is still some roads to run before we get to that.
Yeah, of course.
That's helpful though. Appreciate the color and then again it apologies if you've already covered this but just some sense of how the sort of digital side of the business
Real Guide and Instology, the Lysation metrics that you have already shared them. I'd love to hear how that's progressing and how you feel about it and where you think it can go. Thanks so much.
It is a little bit of a real highlight for us. We think that because this market is still very much under penetrated in most markets that we serve.
The digital is a real enabler for a growth and we see that uptake pretty significantly. So, you know, Richard, we have growth in both real-guy and in implant concierge both from, you know, are essentially constituted the major portion of the digital business.
Speaker Change: Yeah, so just further to that comment, right? Or digital, what we cost by digital, I'm like, screwed, I drove from that, right?
is been a sales drag, you know work.
We're up, you know, it helps in 10% you know, on a global basis and internationalized degree would have faster rates than the US did in the quarter.
Matt Meek'sick: But then kind of carving back from that specifically, you know, the software piece of the business which is
which is real gag was up over 30% on a year over your basis. So you know, that business is highly differentiated and pretty sticky and so we're pretty pleased with that continuing progress.
Matt Meek'sick: The End
Thank you.
Speaker Change: Okay, I'll bring it up. Matt, are you?
Speaker Change: Hello Matt. Oh, yes, I'm sorry. No, that was that was me. Let's follow up. I'm sorry.
Bye bye
Speaker Change: Thank you.
This concludes the question and session. I will now look at turning back to Vafa for closing remarks.
Vafa Jamali: Thanks very much for what I said before. We're feeling good about the progress we're making, the improvement in the overall company and we feel up the market is...
Vafa Jamali: and we're feeling quite better about where we are right now and have confidence in the next quarter. Appreciate everybody being on the call and wish you a great rest of the day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Matt Meek'sick: [inaudible]
The End
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Speaker Change: Good afternoon and welcome to Zimbee's third quarter 2024 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 Marissa Bych from Gilmartin Group for introductory disclosures.
Thank you all for joining today's call. Earlier today, Zimvee released financial results for the quarter ended September 30, 2024. A copy of the press release is available on the company's website, zimvee.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.
Speaker Change: Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties.
Speaker Change: These are part of the company's most recent periodic report filed with the SEC and subsequent SEC filings for a detailed discussion of these risks and uncertainties.
Speaker Change: In addition, the discussion on this call will include certain non-GAAP financial measures.
This conference call contains time-sensitive information and is accurate only as of the live broadcast today, October 30, 2024.
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.
And with that, I will turn the call over to Vafa Jamali, President and Chief Executive Officer of Zimbee.
Good afternoon and thank you for joining us.
Our team executed another strong quarter delivering revenue of $103 million as we continue to innovate across the portfolio of implants, biomaterials, and digital solutions.
During the quarter we continue to make significant progress improving the operating profile of our business.
This included improving our manufacturing efficiency, decreasing the cost of products sold on both a year-over-year and sequential basis for the quarter.
Speaker Change: In addition, we paid down $50 million in debt, leaving us with a gross debt of $220 million and a net debt balance of $153 million, when including our quarter-end cash of $67 million.
We continue to think carefully about capital allocation and the interest expense planning in order to improve both the profile and the profitability of our business.
Meanwhile we continue to make thoughtful investments in our sales teams, our training programs, expanding our digital dentistry symposia to accommodate more positions.
after several sold-out sessions.
We're also making some incremental investments in R&D to fill the product portfolio gaps and capitalize on opportunities that we see in this market today.
Before discussing updates on our product offerings, I would like to comment on the recent hurricanes that affected a large portion of the southeastern United States, including near our headquarters in Palm Beach Gardens, Florida.
Fortunately, we did not experience any material impact to our operations or financial results in the third quarter or early fourth quarter associated with these storms.
More importantly, our best wishes go to all that were affected. We're doing our best to support our local community, our employees, and the customers that were impacted.
Let me now provide a portfolio update.
starting with dental implants.
We are seeing resilience in the U.S. dental market as we drove another quarter of modest overall year-over-year growth.
In certain practices and regions, we are beginning to see improvements in the health of the North American dental market, and we are confident that should these trends develop further, we have positions that would be advantageous to capitalize on improving market conditions.
Following up from last quarter's U.S. launch of our portfolio of GenTech restorative components, we have seen a remarkable adoption of these offerings as part of our expanded portfolio.
Additionally, our latest implanted injections, the TSX and T3 probe, have continued to be positively received by providers.
Speaker Change: We believe our impact portfolio's growth is outpacing the premium market, and we are working to expand market share through innovation and quality of our products.
Speaker Change: As a reminder, dental implants are predominantly paid by patients out-of-pocket.
Speaker Change: Given this dynamic, we believe that a lower interest rate environment in the United States may allow patients to access more favorable financing arrangements and thus drive implant procedure growth.
Speaker Change: The market opportunity for dental implants remains underpenetrated and exciting. We look forward to continuing to deliver innovative and effective solutions for implantologists around the world.
Next, shifting to biomaterials.
Our biomaterials portfolio grew at a healthy rate in the quarter, reflecting what we believe is a leading indicator of future implant procedures.
Patients with diseased or damaged tooth structures receive these bone substitutes to provide a suitable surface for future implants insertion.
Speaker Change: As such, growth in biomaterials should serve as a leading indicator for patients to receive implants.
Finally, our digital portfolio fuels growth and procedure adoption by offering solutions that greatly increase the efficiency of dental practices.
Speaker Change: Our complete digital portfolio, excluding Nitero scanner sales, grew over 10% in the third quarter, fueled by the increasing adoption of our recently introduced RealGuide 5.4 software and our Meta partnership.
Speaker Change: Our in-plant concierge service grew 20% in the quarter and is receiving very positive feedback from adopters, reflecting the value we provide to dentists by removing hours of labor and cost from the dental office.
We're also continuing to drive further uptake of surgical guide sales, which grew over 30 percent, driven in large part by the adoption of our recently launched RealGuide 5.4 software.
We'll continue to innovate on this software, and we'll continue launching meaningful updates.
By making implant procedures faster and more effective, our digital platform aims to drive further adoption and grow the market for this underpremetrated solution.
Speaker Change: With our continued investments into our sales force, our product portfolio, and a focus on medical education and training efforts, we are positioning Zimby for growth into the future.
Speaker Change: I will now turn the line to Rich to review our financial performance and Forward Outlook in greater detail.
Thanks Vafa and good afternoon everyone. I'll begin by reviewing our third quarter 2024 results for continuing operations and we'll close by providing commentary on our outlook for the full year 2024.
Speaker Change: As a reminder, we finalized the sale of our spine business on April 1st, 2024. Thus, our 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 sales.
Speaker Change: In the U.S., third-party net sales for the third quarter of 2024 of $65.4 million reflects an increase of 0.5 percent.
When excluding the impact of oral scanner sales, which continue to remain soft, U.S. sales grew by 1.6%, driven by our portfolio of restorative products, digital dentistry, and biomaterials.
Outside of the U.S., third-party net sales of $37.9 million decreased 6% on a reported basis and 6.6% in costs and currency.
The decline was primarily driven by the timing of orders in Japan and Italy and a slower market in Spain.
Third quarter 2024 adjusted cost of products sold was 34.4 percent.
decreased 40 basis points versus 34.8% in the prior year period.
More importantly, adjusted cost of products sold decreased 260 basis points sequentially from the second quarter of 2024.
Q3 2024 Adjusted Research and Development Expense of $6.6 million or 6.4% of sales compares to $5.3 million or 5% of sales in the prior year.
due to the timing of certain professional service arrangements related to new product innovation.
Speaker Change: Q3 2024 Adjusted Sales General Administrative Expenses of $57.8 million compares to $55.8 million in the prior year and includes increased investment in our U.S. direct sales force.
Other income in Q3 of 2024 of $3.5 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.
Adjusted EBITDA attributable to continuing operations in the third quarter was $13.1 million.
Speaker Change: A 12.7% adjusted EBITDA margin compared to $12.2 million or 11.6% margin in the prior year period.
Adjusted earnings per share attributable to continuing operations was 12 cents per share on a fully diluted share count of 27.6 million shares.
Our solid performance this third quarter underscores our continued commitment to the execution of our manufacturing efficiency initiatives and the further utilization of some of these benefits to expand investment in R&D and U.S. sales to position us for long-term growth.
We remain committed to achieving our financial objective of 15% plus EBITDA margin one year post-completion of the sale of SPINE.
Speaker Change: Turning to the balance sheet, as of the end of the third quarter 2024, consolidated ZIMV continuing operations cash was 67 million dollars.
During the third quarter we resumed our initiative of shifting value from debt holders to equity holders by repaying 15 million dollars of principal on our term loan debt.
Speaker Change: Gross debt at the end of the quarter was approximately $220 million, yielding a net debt of approximately $153 million, including the $67 million of cash.
Note, our net debt balance does not include the seller note from the sale of the spine business.
Speaker Change: Additionally, we continue to maintain our $175 million Revolving Credit Facility, which continues to remain undrawn.
Turning toward our outlook for the full year 2024.
Speaker Change: We are narrowing our four-year revenue guidance range to $450 million to $455 million.
from $450 million to $460 million previously.
We are also narrowing our full year adjusted EBITDA guidance range to $60 million to $62 million.
resulting in an adjusted EBITDA margin in the range of 13.3% to 13.6% of sales for the full year 2024.
As mentioned earlier, we also remain committed to a 15%-plus suggested EBITDA margin one year post-sales fine, or April 1, 2025.
We expect share-based compensation expense to be approximately $6.3 million for the full year 2024.
And lastly, we are narrowing our adjusted EPS guidance.
Specifically, we expect to generate adjusted earnings per share between $0.57 and $0.62 per share on a fully diluted share count of 27.6 million shares.
With that, I'll now turn the call back over to Vafa.
Thank you, Rich. We've made steady progress in the third quarter on our goals and improving our profitability profile while continuing to make investments in the business to innovate and grow.
We also have a great team who has continuously operated diligently.
Thank you for watching!
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Our first question comes from David Saxon at Needham Hemp Company.
Great, good afternoon Vafa and Rich. Thanks for taking my questions. Maybe I'll start briefly on guidance. I'd love to just hear how you're thinking about
the recovery in specifically in the U.S. Does guidance assume the market recovers? It sounds like you might be kind of cautiously optimistic. And then internationally, it sounds like the third quarter you saw some orders.
Speaker Change: pushed to the fourth quarter. Maybe can you quantify that and just confirm, like, do those orders actually come back or do they slip? And then, you know, can international grow in the fourth quarter or will overall results be driven by the U.S.?
Thanks, David. I'll start and I'll pass it on to Rich. I think that we are feeling optimistic about growth in North America returning in the fourth quarter.
So that's something that we've been anxiously waiting for and feeling better and better with that.
Speaker Change: With regard to international orders, I believe Japan will resume to growth this coming quarter.
Speaker Change: Italy was a bit of timing and then the rest of it was a little bit of macro in Europe. So I think that there is a bit of a macro pressure in Europe right now that we're feeling.
and then the rest of it would, Italy and Japan would likely resume, would pick up those orders as you asked.
Speaker Change: Richard Heppenstall Yeah, just add a couple of additional data points to Vafa's commentary. So first and foremost...
The U.S. business for us is 60% of our overall revenue profile, so obviously we're really pleased with
Speaker Change: The fact that, you know, we generated, you know, when you exclude the impact of iTero sales, as we mentioned on the call, David,
Speaker Change: that the U.S. actually grew 1.6% in the third quarter. And so we're really pleased with that result and encouraged for the fourth quarter where we expect to continue to grow in the U.S.
But we also, you know, we also believe that we're executing in the U.S. business.
Speaker Change: you know, toward the top end of our peer group.
you know, as a result. So we're really pleased with how well we're positioned in the U.S.
And as also mentioned during the call, we continue to invest in our U.S. sales force to continue that path going forward.
On the OUS side, you know, Vafa is right. There was a timing of orders. We had a bolus of orders in Japan in Q3 of last year that obviously impact the year-over-year compared this year. As Vafa also correctly mentioned, we expect.
Speaker Change: Japan to return to growth in the fourth quarter. And then in Europe, that was
timing of distributor orders in Italy, which can be a little bit choppy, and then Spain, you know, was softer for us. There was a lost DSO that we had and that impact is probably about three million dollars for us.
Speaker Change: But, you know, we also are looking to the European business, DMA business, or U.S. business rather, to grow in the fourth quarter too, based on the guidance that we've put forward.
Okay, that was helpful. Thanks for all that. And then, so just on the restorative side, I mean, you talked about...
This whole dynamic I believe you started talking about it last quarter where you know you you believe it's a leading indicator
So maybe, you know, I'd love to hear, have you started seeing those patients return to the funnel and actually get the implants, or is it too early for that? Any way to kind of size that patient backlog?
We haven't been able to size it accurately, so I'd probably be disingenuous if I gave you a number, but we do think that especially biomaterials is a good leading indicator of work, and we are seeing particular pockets.
in the U.S. that is coming back. Remember, the U.S. is our most profitable market, so as we perform there.
It funds a lot of activity for us, so we haven't quite seen it. I can't, I haven't quite quantified it, but we are actively trying to parse those numbers and see where they come back, but I still do think that it is a leading indicator. I just don't know exactly.
how to put the numbers in the funnel.
Okay, all right, and then...
Okay, and then just lastly for Rich on the P&L, so gross margin was higher. It sounds like you're working on some efficiency initiatives. SG&A was also higher, this is relative to my estimates at least.
So, you know, can you sustain this kind of...
call it mid-60 gross margin going forward. Is that kind of normal for you? And then on the SG&A side, kind of talk about, you know, put some takes there and how we should think about that going forward. Thanks so much.
Yeah, no problem. So, firstly, on gross margin,
sequential improvement quarter of quarter, you know, adds a lot of additional financial flexibility to P&L and was the main driver of
of the increase in EBITDA year-over-year of over 100 basis points.
And as we mentioned on the call, David, we've been...
Toward the end of last year, you know, we had some underabsorption in the manufacturing facilities. You know, we'd also talked about how we did an organizational resizing in our plant in Valencia, and I've also started moving production of our high runner products.
to Valencia, which has about a 20% benefit in cost of production than our Farm to Garden location. And so all of those initiatives really kind of manifested themselves in the third quarter.
Speaker Change: and we're running TSX production in Valencia right now. At full bore, the organization has been resized and then the manufacturing variances that were sitting on the balance sheet have all been flushed through. We're expecting gross margin to stay in the similar range that it was.
Speaker Change: in the third quarter, frankly, into the fourth quarter, and then we haven't talked about 2025, but our plan will be for that to continue. And Vafa and I, going further down to the P&L side of things
Vafa and I, I'm gonna give you a lot of detail on this one, is Vafa and I have talked about.
Speaker Change: you know, being a meritocracy. And we've been in a position historically where we've had to do some of these things to get the business to where it is. And we feel really good about where the business currently is positioned. You know, our balance sheet is in really good shape. You know, our gross margin is higher and sales is particularly stabilizing in the U.S.
Speaker Change: And so what we're doing is we're taking some of those proceeds from gross margin and we're continuing to invest in innovation, which has been a really successful driver for us over the last
18 months on some of the sales initiatives that we have in place, and then also the U.S. Salesforce. And so, you know, we invested, you know, kind of quietly in the Salesforce in the third quarter, and, you know, and we expect that, you know, we're going to continue to look at making sure that we can drive long-term sustainable growth.
Speaker Change: Richard Heppenstall, Ph.D.: As a result, and so we'll make sure that we balance the income statement across all all of those areas to make sure that we're getting the best value out of the business in the long term.
Just to add to that too, I think, you know, David, mix, mix is a big driver for margin too, so as the implant mix improves, you should also see improvement there.
Speaker Change: Okay. Yeah, that makes sense. Great. Thanks so much, everyone.
Thanks. Thanks, David.
Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Our next question comes from Matt Miksic at Barclays.
Matt Miksic: Thank you.
Hey guys, thanks for taking the questions and apologize for some of the background noise here. I just wanted to...
First, congrats on the quarter and wanted to just maybe get a sense of
in Q4, and maybe if you haven't covered it already, and I apologize, I'm just jumping a few different calls here, but maybe, you know, any color you can give us on how you're feeling like you're going to be exiting the year and entering next year. And I have one quick follow up.
Speaker Change: And we are seeing that return to health and to growth. So, in many respects, this is...
Speaker Change: One of the more confident moments for us relative to the past 12 months.
Speaker Change: Rich, I'm not...
Yeah, yeah, Vafa's right, Matt, you know, we, you know, I think this, we grew in the U.S., you know,
It feels sequentially better than I think we did for the second quarter, so that's...
That's a positive for us, and then, like I said, some of the OUS.
You know, issues that we have in the quarter, you know, are kind of one-timers, and so we also expect that the OUS business to grow, you know, and so we're narrowing the guide. We had a pretty broad range before, and so we're narrowing that to the 450 to 455 on a four-year basis.
You know, and then next year, I mean, we're obviously not going to guide for next year on this particular call and we will at a later date, but, you know, just kind of qualitatively speaking, you know, I think.
If you look at the landscape for ZimV, you know, I think it puts us in a pretty good place, right? I think the business is stabilizing, our gross margin is up, you know, as the G&A is being invested in prudently where we see fit.
We're paying down debt, the cash balance is healthy, interest rates are starting to drop.
and the sale of Spine and the TSAs that we have with HIG are proceeding well, and so we feel like we're in a really good position going into next year, but we're not obviously going to guide that on this particular call. There's still some road to run before we get to that.
Speaker Change: Yeah, of course
That's helpful though, appreciate the color. And again, apologies if you've already covered this, but just some sense of how the sort of digital side of the business.
real guide and sort of instills utilization metrics that you, you know, if you haven't already shared them, love to hear how that's progressing and how you feel about it and where you think it can go. Thanks so much.
Speaker Change: Digital has been a real highlight for us. We think that because this market is still very much under penetrated in most markets that we serve.
Speaker Change: The digital is a real enabler for growth, and we see that uptake pretty significantly.
You know, Rich, I know we had growth in both Real Guide and in Implant Concierge, both of them, you know, essentially constitute a major portion of the digital business.
Yeah, yeah. So, so just further further to that to that comment, right, you know, our, our digital what we classify as digital, you know, like exclude ITERO from that, right, because
been a sales drag. You know, we're up, you know, healthy 10% on a global basis and international actually grew at a faster rate than the US did in the quarter. But then kind of carving back from that specifically, you know, the software piece of the business, which is real gag was up over 30% on a year-over-year basis. So, you know, that business is
You know, highly differentiated and pretty sticky, and so we're pretty pleased with that continued progress.
Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Okay, Operator, is that it? Matt, are you...
Hello, Matt? Oh, yes, I'm sorry. No, that was that was my last follow-up. I'm sorry.
Speaker Change: Hello from,
Speaker Change: Thank you.
This concludes the question and answer session. I would now like to turn it back to Vafa for closing remarks.
Thanks very much. Like, like I said before, we're feeling good about the progress we're making, the improvements to the overall company, and we feel that the market is
is starting to turn, so we're feeling quite a bit better about where we are right now and have confidence in the next quarter.
Speaker Change: Appreciate everybody being on the call and wish you a great rest of the day.
Speaker Change: David Saxon, Marissa Bych,