UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
|
☒ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
|
Emerging growth company |
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the Registrant’s Common Stock outstanding as of May 3, 2024 was
ZIMVIE INC.
QUARTERLY REPORT
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of federal securities laws, including, among others, any statements about our expectations, plans, intentions, strategies or prospects. We generally use the words “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “assumes,” “guides,” “targets,” “forecasts,” “sees,” “seeks,” “should,” “could,” “would,” “predicts,” “potential,” “strategy,” “future,” “opportunity,” “work toward,” “intends,” “guidance,” “confidence,” “positioned,” “design,” “strive,” “continue,” “track,” “look forward to” and similar expressions to identify forward-looking statements. All statements other than statements of historical or current fact are, or may be deemed to be, forward-looking statements. Such statements are based upon the current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual outcomes and results to differ materially from the forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to: dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; pricing pressures from competitors, customers, dental practices and insurance providers; changes in customer demand for our products and services caused by demographic changes or other factors; challenges relating to changes in and compliance with governmental laws and regulations affecting our United States (“U.S.”) and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators, such as more stringent requirements for regulatory clearance of products; competition; the impact of healthcare reform measures; reductions in reimbursement levels by third-party payors; cost containment efforts sponsored by government agencies, legislative bodies, the private sector and healthcare group purchasing organizations, including the volume-based procurement process in China; control of costs and expenses; dependence on a limited number of suppliers for key raw materials and outsourced activities; the ability to obtain and maintain adequate intellectual property protection; breaches or failures of our information technology systems or products, including by cyberattack, unauthorized access or theft; the ability to retain the independent agents and distributors who market our products; our ability to attract, retain and develop the highly skilled employees we need to support our business; the effect of mergers and acquisitions on our relationships with customers, suppliers and lenders and on our operating results and businesses generally; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including European Union rules on state aid, or examinations by tax authorities; product liability, intellectual property and commercial litigation losses; changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic and international economic conditions, including inflation and interest rate and currency exchange rate fluctuations; the effects of global pandemics and other adverse public health developments on the global economy, our business and operations and the business and operations of our suppliers and customers, including the deferral of elective procedures and our ability to collect accounts receivable; and the impact of the ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected countries.
See also Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of certain risks and uncertainties that could cause actual results and events to differ materially from the forward-looking statements. Readers of this Quarterly Report are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) from time to time.
i
Table of Contents
|
|
Page |
|
|
|
PART I. |
3 |
|
|
|
|
Item 1. |
3 |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
25 |
|
Item 4. |
26 |
|
|
|
|
PART II. |
27 |
|
|
|
|
Item 1. |
27 |
|
Item 1A. |
27 |
|
Item 5. |
27 |
|
Item 6. |
28 |
|
29 |
||
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net Sales |
|
|
|
|
|
|
||
Third party, net |
|
$ |
|
|
$ |
|
||
Related party, net |
|
|
|
|
|
|
||
Total Net Sales |
|
|
|
|
|
|
||
Cost of products sold, excluding intangible asset amortization |
|
|
( |
) |
|
|
( |
) |
Related party cost of products sold, excluding intangible asset amortization |
|
|
|
|
|
( |
) |
|
Intangible asset amortization |
|
|
( |
) |
|
|
( |
) |
Research and development |
|
|
( |
) |
|
|
( |
) |
Selling, general and administrative |
|
|
( |
) |
|
|
( |
) |
Restructuring and other cost reduction initiatives |
|
|
( |
) |
|
|
( |
) |
Acquisition, integration, divestiture and related |
|
|
( |
) |
|
|
( |
) |
Operating Expenses |
|
|
( |
) |
|
|
( |
) |
Operating Loss |
|
|
( |
) |
|
|
( |
) |
Other expense, net |
|
|
( |
) |
|
|
( |
) |
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Loss from continuing operations before income taxes |
|
|
( |
) |
|
|
( |
) |
Provision for income taxes from continuing operations |
|
|
( |
) |
|
|
( |
) |
Net Loss from Continuing Operations of ZimVie Inc. |
|
|
( |
) |
|
|
( |
) |
Earnings (loss) from discontinued operations, net of tax |
|
|
|
|
|
( |
) |
|
Net Loss of ZimVie Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Basic (Loss) Earnings Per Common Share: |
|
|
|
|
|
|
||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
|
|
|
|
( |
) |
|
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Diluted (Loss) Earnings Per Common Share: |
|
|
|
|
|
|
||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
|
|
|
|
( |
) |
|
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net Loss of ZimVie Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Other Comprehensive (Loss) Income: |
|
|
|
|
|
|
||
Foreign currency cumulative translation adjustments, net of tax |
|
|
( |
) |
|
|
|
|
Total Other Comprehensive (Loss) Income |
|
|
( |
) |
|
|
|
|
Comprehensive Loss |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ZIMVIE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net of allowance for credit losses of $ |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Current assets of discontinued operations |
|
|
|
|
|
|
||
Total Current Assets |
|
|
|
|
|
|
||
Property, plant and equipment, net of accumulated depreciation of $ |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Noncurrent assets of discontinued operations |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Income taxes payable |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Current liabilities of discontinued operations |
|
|
|
|
|
|
||
Total Current Liabilities |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Non-current portion of debt |
|
|
|
|
|
|
||
Noncurrent liabilities of discontinued operations |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' Equity: |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Additional paid in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total Stockholders' Equity |
|
|
|
|
|
|
||
Total Liabilities and Stockholders' Equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|||||
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|||||
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Total |
|
|||||
|
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|||||
Balance December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Net loss |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Stock plan activity |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Balance March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|||||
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|||||
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Total |
|
|||||
|
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|||||
Balance December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Net loss |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Stock plan activity |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows used in operating activities: |
|
|
|
|
|
|
||
Net loss of ZimVie Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Deferred income tax provision |
|
|
( |
) |
|
|
( |
) |
Loss on disposal of fixed assets |
|
|
|
|
|
|
||
Other non-cash items |
|
|
|
|
|
|
||
Adjustment of spine disposal group to fair value (Note 2) |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
||
Income taxes |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Related party receivable |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Related party payable |
|
|
|
|
|
( |
) |
|
Other assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows used in investing activities: |
|
|
|
|
|
|
||
Additions to instruments |
|
|
( |
) |
|
|
( |
) |
Additions to other property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Other investing activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows used in financing activities: |
|
|
|
|
|
|
||
Payments on debt |
|
|
|
|
|
( |
) |
|
Payments related to tax withholding for share-based compensation |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rates on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of year |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Presentation includes cash of both continuing and discontinued operations |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Income taxes (refunded) paid, net |
|
$ |
( |
) |
|
$ |
|
|
Interest paid |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ZIMVIE INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Background, Nature of Business and Basis of Presentation
Background
On March 1, 2022, ZimVie Inc. ("ZimVie," "we," "us" and "our") and Zimmer Biomet Holdings, Inc. ("Zimmer Biomet" or "Parent") entered into a Separation and Distribution Agreement (the "Separation Agreement"), pursuant to which Zimmer Biomet agreed to spin off its spine and dental businesses into ZimVie. The distribution resulted in ZimVie becoming a standalone, publicly traded company. Following the distribution, Zimmer Biomet initially retained
Nature of Business
ZimVie is a leading medical technology company dedicated to enhancing the quality of life for dental and spine patients worldwide. We develop, manufacture and market a comprehensive portfolio of products and solutions designed to support dental tooth replacement and restoration procedures and treat a wide range of spine pathologies. We are well-positioned in the growing global dental implant, biomaterials and digital dentistry market with a strong presence in the tooth replacement market with market leading positions in certain geographies. Our broad portfolio also addresses all areas of spine with market leadership in cervical disc replacement and vertebral body tethering to treat pediatric scoliosis. Our operations are principally managed on a products basis and have historically included
In the dental segment, our core services include designing, manufacturing and distributing dental implant systems. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing a more natural restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation. Our key products include the T3® Implant, Tapered Screw-Vent Implant System, Trabecular Metal™ Dental Implant, BellaTek Encode Impression System and Puros Allograft Particulate.
In the spine segment, our core services include designing, manufacturing and distributing medical devices and surgical instruments to deliver comprehensive solutions for individuals with back or neck pain caused by degenerative conditions, deformities or traumatic injury of the spine. We also provide devices that promote bone healing. Other differentiated products in our spine portfolio include Mobi-C® Cervical Disc, a motion-preserving alternative to fusion for patients with cervical disc disease, and The Tether™, a novel non-fusion device for treatment of pediatric scoliosis.
Basis of Presentation
The accompanying condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, and the related condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss, condensed consolidated statements of shareholders' equity and condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 of ZimVie are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for the fair statement of such condensed consolidated financial statements have been made. The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report. During the three months ended March 31, 2024, we recorded out of period adjustments that increased the Loss from continuing operations before income taxes and reduced Earnings from discontinued operations, net of tax, by $
Restricted Cash - As of both March 31, 2024 and December 31, 2023, we had $
8
Sale of Spine Business - On December 15, 2023, we entered into a definitive agreement to sell our spine segment to an affiliate of H.I.G. Capital for $
The historical results of our spine segment have been reflected as discontinued operations in our condensed consolidated financial statements as the sale represents a strategic shift in our business that has a major effect on operations and financial results. The assets and liabilities associated with this business are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheets. The disclosures presented in the notes to the condensed consolidated financial statements are presented on a continuing operations basis, unless otherwise noted.
Accounting Pronouncements Recently Issued
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. This ASU amends the interim and annual disclosure requirements related to a variety of subtopics in the Accounting Standards Codification, including those focusing on accounting changes, earnings per share, debt and repurchase agreements. The guidance will be applied prospectively. The effective date for each amendment will be the date when the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. We are currently evaluating the effect of this ASU, but we do not expect it will have a material impact on our condensed consolidated financial statements or disclosures.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The key amendments require disclosure of significant segment expenses on an annual and interim basis that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, including other segment items by reportable segment and a description of their composition, and to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Topic 280, Segment Reporting, in interim periods as well. This ASU includes certain clarifications for measuring a segment's profit or loss in assessment by the CODM, disclosure of title and position of the CODM and an explanation of how the CODM uses the reported measures in assessing segment performance and deciding how to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently in the process of evaluating the effect of this ASU.
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments included in the ASU related to rate reconciliation, income taxes paid disclosures and other disclosures requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2024. We are currently in the process of evaluating the effect of this ASU.
In March 2024, the SEC adopted final rules requiring public entities to provide certain climate-related information in their registration statements and annual reports. As part of the disclosures, entities will be required to quantify certain effects of severe weather events and other natural conditions in a note to their consolidated financial statements. While the SEC voluntarily stayed the rules due to pending judicial review, the rules in their current form would be effective for accelerated filers for annual periods beginning after December 15, 2025. We are currently in the process of evaluating the effect of these final rules.
Other recently issued ASUs, excluding ASUs discussed above, were assessed and determined to be not applicable, or are not expected to have a material impact on our condensed consolidated financial statements or disclosures.
9
2. Discontinued Operations
As discussed in Note 1, on December 15, 2023, we entered into a definitive agreement to sell our spine segment. The historical financial condition and results of operations of our spine segment have been reflected as discontinued operations in our condensed consolidated financial statements. The assets and liabilities associated with this segment are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheets.
On April 1, 2024, we completed the sale of our spine segment for a total purchase price of $
In conjunction with the sale, we entered into a Transition Services Agreement ("TSA") to provide certain support services for up to 12 months from the closing date of the sale. These services include, among others, accounting, information technology, human resources, quality assurance, regulatory affairs and customer support. Income recognized related to the TSA will be recorded as Other income in our condensed consolidated statements of operations.
Details of earnings (loss) from discontinued operations included in our condensed consolidated statement of operations are as follows (in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net Sales |
|
|
|
|
|
|
||
Third party, net |
|
$ |
|
|
$ |
|
||
Related party, net |
|
|
|
|
|
|
||
Total Net Sales |
|
|
|
|
|
|
||
Cost of products sold, excluding intangible asset amortization |
|
|
( |
) |
|
|
( |
) |
Related party cost of products sold, excluding intangible asset amortization |
|
|
|
|
|
( |
) |
|
Intangible asset amortization |
|
|
|
|
|
( |
) |
|
Research and development |
|
|
( |
) |
|
|
( |
) |
Selling, general and administrative |
|
|
( |
) |
|
|
( |
) |
Restructuring and other cost reduction initiatives |
|
|
( |
) |
|
|
( |
) |
Acquisition, integration, divestiture and related |
|
|
( |
) |
|
|
( |
) |
Other expense, net |
|
|
( |
) |
|
|
( |
) |
Interest expense, net (1) |
|
|
( |
) |
|
|
( |
) |
Loss from discontinued operations before income taxes |
|
|
( |
) |
|
|
( |
) |
Adjustment of spine disposal group to fair value (2) |
|
|
|
|
|
|
||
Benefit for income taxes from discontinued operations |
|
|
|
|
|
|
||
Earnings (loss) from discontinued operations, net of tax |
|
$ |
|
|
$ |
( |
) |
|
10
Details of assets and liabilities of discontinued operations are as follows (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, less allowance for credit losses |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total Current Assets of Discontinued Operations |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Noncurrent Assets of Discontinued Operations |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Income taxes payable |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total Current Liabilities of Discontinued Operations |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total Noncurrent Liabilities of Discontinued Operations |
|
$ |
|
|
$ |
|
||
Adjustment of spine disposal group to fair value (1) |
|
|
( |
) |
|
|
( |
) |
(1) This adjustment is reflected in Noncurrent assets of discontinued operations in the condensed consolidated balance sheets.
Cash flows attributable to our discontinued operations are included on our condensed consolidated statements of cash flows. Significant non-cash operating and investing activities attributable to discontinued operations consisted of the following (in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Depreciation and amortization |
|
$ |
|
|
$ |
|
||
Share-based compensation |
|
|
|
|
|
|
||
Adjustment of spine disposal group to fair value |
|
|
|
|
|
|
||
Additions to instruments |
|
|
|
|
|
|
||
Additions to other property, plant & equipment |
|
|
|
|
|
|
||
11
3. Goodwill and Other Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill by historical reportable segment (in thousands):
|
|
Total |
|
|
Balance at December 31, 2023 |
|
|
|
|
Goodwill, Gross |
|
$ |
|
|
Accumulated impairment losses |
|
|
( |
) |
Goodwill, Net |
|
|
|
|
Currency translation |
|
|
( |
) |
Balance at March 31, 2024 |
|
|
|
|
Goodwill, Gross |
|
|
|
|
Accumulated impairment losses |
|
|
( |
) |
Goodwill, Net |
|
$ |
|
|
The components of identifiable intangible assets were as follows (in thousands):
|
|
Technology |
|
|
Trademarks |
|
|
Customer Relationships |
|
|
Other |
|
|
Total |
|
|||||
As of December 31, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross carrying amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total identifiable intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
As of March 31, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross carrying amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total identifiable intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Estimated annual amortization expense for the years ending December 31, 2024 through 2028 based on exchange rates in effect at December 31, 2023 is as follows (in millions):
For the Years Ending December 31, |
|
|
|
|
2024 (remaining) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
4
Conversion Awards
Zimmer Biomet has share-based compensation plans under which it granted stock options, restricted stock units ("RSUs") and performance-based RSUs. In connection with the distribution, ZimVie employees with outstanding Zimmer Biomet share-based awards received replacement share-based awards. The ratio used to convert the Zimmer Biomet share-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the distribution when compared to the aggregate intrinsic value of the award immediately prior to the distribution. Outstanding RSUs and performance-based RSUs were converted into
12
ZimVie Awards
The ZimVie Inc. 2022 Stock Incentive Plan was established effective as of March 1, 2022, and was amended effective May 12, 2023 (as amended, the "2022 Plan"). A total of
Share-based compensation expense was as follows (in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Share-based compensation expense recognized in: |
|
|
|
|
|
|
||
Cost of products sold, excluding intangible asset amortization |
|
$ |
( |
) |
|
$ |
|
|
Research and development |
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Tax benefit related to awards |
|
|
( |
) |
|
|
( |
) |
Total expense, net of tax |
|
$ |
|
|
$ |
|
||
Share-based compensation expense related to discontinued operations is included in the table above and is disclosed in Note 2.
Stock option activity was as follows:
|
|
Three Months Ended March 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
|
|
||||
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
Stock Options |
|
|
Price |
|
|
Life (Years) |
|
|
Value (in Millions) |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
We used a Black-Scholes option-pricing model to determine the fair value of our stock options. For awards granted shortly after the distribution: expected volatility of
Aggregate intrinsic value was negligible at March 31, 2024. At March 31, 2024, we had unrecognized share-based compensation cost related to unvested stock options of $
13
RSU activity was as follows:
|
|
Three Months Ended March 31, 2024 |
|
|||||
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Number of |
|
|
Grant Date |
|
||
|
|
RSUs |
|
|
Fair Value |
|
||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
||
RSUs outstanding at March 31, 2024 included
At March 31, 2024, we had unrecognized share-based compensation cost related to unvested RSUs of $
14
5. Earnings Per Share
The calculation of weighted average shares for basic and diluted net loss per common share is as follows (in thousands, except per share data):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net Loss from Continuing Operations of ZimVie Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings (loss) from discontinued operations, net of tax |
|
|
|
|
|
( |
) |
|
Net Loss of ZimVie Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Weighted average shares outstanding for basic net loss per common share |
|
|
|
|
|
|
||
Effect of dilutive stock options and other equity awards (1) |
|
|
|
|
|
|
||
Weighted average shares outstanding for diluted net loss per common share |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Basic (Loss) Earnings Per Common Share: |
|
|
|
|
|
|
||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
|
|
|
|
( |
) |
|
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Diluted (Loss) Earnings Per Common Share: |
|
|
|
|
|
|
||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
|
|
|
|
( |
) |
|
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
(1) Since we incurred a net loss in each of the three months ended March 31, 2024 and 2023, no dilutive stock options or other equity awards were included as diluted shares in those periods.
For the three months ended March 31, 2024 and 2023, a weighted average of
6. Balance Sheet Details
Inventories consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Work-in-progress |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
Amounts related to cost of products sold in the condensed consolidated statements of operations for excess and obsolete ("E&O") inventory, including certain product lines we intend to discontinue, were an expense of $
Other current liabilities consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Other current liabilities: |
|
|
|
|
|
|
||
Salaries, wages and benefits |
|
$ |
|
|
$ |
|
||
Lease liabilities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
15
7. Fair Value Measurements of Assets and Liabilities
The fair value of foreign currency exchange forward contracts (see Note 9) are determined using Level 2 inputs. The carrying value of our debt (see Note 8) approximates fair value as it bears interest at floating rates. The carrying amounts of other financial instruments (i.e., cash and cash equivalents, restricted cash, bank time deposits, accounts receivable, net, and accounts payable) approximated their fair values at March 31, 2024 and December 31, 2023 due to their short-term nature.
The fair values of acquisition-related contingent payments are estimated using Level 3 inputs. Contingent payments related to acquisitions consist of sales-based payments and are valued using discounted cash flow techniques. The fair value of sales-based payments is based upon probability-weighted future revenue estimates and increases as revenue estimates increase.
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
|
|
Level 3 - Liabilities |
|
|
Contingent payments related to acquisitions |
|
|
|
|
Balance December 31, 2023 |
|
$ |
|
|
Settlements |
|
|
( |
) |
Balance March 31, 2024 |
|
$ |
|
|
8. Debt
Our debt consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Term loan |
|
$ |
|
|
$ |
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total debt |
|
|
|
|
|
|
||
Less: current portion |
|
|
( |
) |
|
|
|
|
Total debt due after one year |
|
$ |
|
|
$ |
|
||
We entered into a Credit Agreement, dated as of December 17, 2021 (the “Credit Agreement”), with JP Morgan Chase Bank, N.A., as administrative agent and syndication agent, and the lenders and issuing banks named therein. The Credit Agreement provides for revolving loans of up to $
As of March 31, 2024, $
Borrowings under the Credit Facility are collateralized by substantially all of our personal property, including intellectual property and certain real property, and we, along with our subsidiaries party to the Credit Facility, pledged our equity interests in our subsidiaries, subject to materiality thresholds and certain limitations with respect to foreign subsidiaries. The Credit Facility contains various covenants that restrict our ability to take certain actions, including incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, making certain investments, prepayments or redemptions of subordinated debt, or making certain restricted payments. In addition, the Credit Facility contains financial covenants that require us to maintain a maximum consolidated total net leverage ratio of
See Note 9 to our consolidated financial statements included in our Annual Report for additional information on our Credit Agreement.
In April 2023, we financed $
16
9. Derivatives
We enter into foreign currency exchange forward contracts with terms of to
of a negligible amount and $
10. Income Taxes
Our effective tax rate (“ETR”) on loss before income taxes was (
11. Segment Data
Our Chief Executive Officer is our Chief Operating Decision Maker. He allocates resources to achieve our operating profit goals and historically reviewed business performance through
We conduct business in the following countries that hold 10% or more of our total combined property, plant and equipment, net (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
U.S. |
|
$ |
|
|
$ |
|
||
Spain |
|
|
|
|
|
|
||
Other countries |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
17
U.S. and foreign sales (based on the location of the customer) are as follows (in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
U.S. |
|
$ |
|
|
$ |
|
||
Spain |
|
|
|
|
|
|
||
Other countries |
|
|
|
|
|
|
||
Third party sales |
|
$ |
|
|
$ |
|
||
Sales within any other individual country were less than
12. Commitments and Contingencies
We are subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial and other matters that arise in the normal course of business. On a quarterly and annual basis, we review relevant information with respect to loss contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. We record liabilities for loss contingencies when it is probable that a loss has been incurred and the amount can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. The recorded accrual balance for loss contingencies was $
Subject to certain exceptions specified in the Separation Agreement, we assumed the liability for, and control of, all pending and threatened legal matters related to our business, including liabilities for any claims or legal proceedings related to products that had been part of our business, but were discontinued prior to the distribution, as well as assumed or retained liabilities, and will indemnify Zimmer Biomet for any liability arising out of or resulting from such assumed legal matters.
13. Restructuring and Other Cost Reduction Initiatives
In January 2024, we initiated restructuring activities to better structure the organization to support our dental segment after the disposal of the spine segment. During the three months ended March 31, 2024, we recorded pre-tax charges of $
In April and July 2023, we initiated restructuring activities to better position our organization for future success based on the then-current business environment. These activities had the objective of reducing our global cost structure and streamlining our organizational infrastructure across all regions, functions and levels. During the three months ended March 31, 2024 and 2023, the pre-tax charges recorded under this plan were negligible and $
In June 2022, we initiated a restructuring plan with the objective of reducing costs and optimizing our global footprint. During the three months ended March 31, 2024, we recorded pre-tax charges of $
18
The following table summarizes the liabilities directly attributable to us that were recognized under the plans discussed above and excludes non-cash charges (in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
Employee |
|
|
Other |
|
|
Total |
|
|||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additions |
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read in conjunction with the interim condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. Certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed in this Quarterly Report and in our Annual Report, particularly in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”
OVERVIEW
Our History
ZimVie was incorporated in 2021 as a wholly owned subsidiary of Zimmer Biomet for the sole purpose of holding directly or indirectly the assets and liabilities associated with the dental and spine businesses of Zimmer Biomet for distribution. The distribution of the dental and spine businesses was completed on March 1, 2022, and resulted in ZimVie becoming a standalone, publicly traded company. Following the distribution, Zimmer Biomet initially retained 19.7% of the outstanding shares of ZimVie common stock, and all transactions between ZimVie and Zimmer Biomet from the distribution to February 1, 2023 were reported as related party transactions. As of February 1, 2023, Zimmer Biomet had sold all of its 19.7% ownership in ZimVie and is no longer considered a related party. As such, transactions with Zimmer Biomet subsequent to February 1, 2023 are reported as third party transactions.
Our Company
ZimVie is a leading medical technology company dedicated to enhancing the quality of life for dental and spine patients worldwide. Our operations are principally managed on a products basis and have historically included two operating segments, 1) the dental products segment, and 2) the spine products segment.
In the dental segment, our core services include designing, manufacturing and distributing dental implant systems. We develop, manufacture and market a comprehensive portfolio of products and solutions designed to support dental tooth replacement and restoration procedures. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing a more natural restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation.
In the spine segment, our core services include designing, manufacturing and distributing medical devices and surgical instruments to deliver comprehensive solutions for individuals with back or neck pain caused by degenerative conditions, deformities or traumatic injury of the spine. Our broad portfolio addresses all areas of spine with market leadership in cervical disc replacement and vertebral body tethering to treat pediatric scoliosis. We also provide devices that promote bone healing.
Sale of Spine Segment
On December 15, 2023, we entered into a definitive agreement to sell our spine segment to an affiliate of H.I.G. Capital. On April 1, 2024, we completed the sale of our spine segment for a total purchase price of $377.2 million (inclusive of $2.2 million in preliminary closing adjustments), subject to certain customary adjustments as set forth in the agreement, and received proceeds of $311.8 million, excluding the promissory note and transaction costs. See additional information in Notes 1 and 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
RESTRUCTURING AND OTHER COST REDUCTION INITIATIVES
Below is a summary of our restructuring and other cost reduction initiatives. For further information, refer to our discussion of expenses below under “Results of Operations - Three Months Ended March 31, 2024 and 2023 - Operating Expenses” and in Note 13 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
2024 Program
In January 2024, we initiated restructuring activities to better structure the organization to support our dental segment following the disposal of the spine segment, as discussed in the "Overview - Sale of Spine Segment" above.
20
2023 Programs
In April and July 2023, we initiated restructuring activities to better position our organization for future success based on the current business environment. These activities have the objective of reducing our global cost structure and streamlining our organizational infrastructure across all regions, functions and levels.
2022 Program
In June 2022, we initiated a restructuring plan with the objective of reducing costs and optimizing our global footprint. Remaining activities under this program primarily relate to final approval and execution of plans in Asia.
RESULTS OF OPERATIONS
As discussed above in the "Overview," we entered into a definitive agreement in December 2023 to sell our spine segment, which closed on April 1, 2024. As such, the historical results of our spine segment have been reflected as discontinued operations in our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report, and the following discussion is presented on a continuing operations basis. See Notes 1 and 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for details of the financial condition, results of operations and selected cash flows of our spine segment.
Three Months Ended March 31, 2024 and 2023
Net Sales
The following table presents net sales and the components of the percentage changes ($ in thousands):
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
% Inc/(Dec) |
|
|
Volume/Mix |
|
|
Price |
|
|
Exchange |
|
||||||
Third party, net |
|
$ |
118,195 |
|
|
$ |
120,170 |
|
|
|
(1.6 |
)% |
|
|
(0.3 |
)% |
|
|
(1.1 |
)% |
|
|
(0.2 |
)% |
Related party, net |
|
|
— |
|
|
|
236 |
|
|
|
(100.0 |
)% |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||
Total Net Sales |
|
$ |
118,195 |
|
|
$ |
120,406 |
|
|
|
(1.8 |
)% |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||
Volume/Mix Trends
Volume declined slightly in the three months ended March 31, 2024 compared to the same prior year period. Lower dental implant sales were mostly offset by increases in digital dentistry and biomaterials.
Pricing Trends
We experienced a price decline in the three months ended March 31, 2024 compared to the same prior year period, primarily related to pricing pressures on premium dental implant system sales in North America resulting from a customer mix shift and customer consolidation in the specialty segment.
Foreign Currency Exchange Rates
In countries where we have a subsidiary, we sell to customers in their local currencies. Accordingly, our net sales as reported in U.S. Dollars are affected by changes in foreign currency exchange rates. We are primarily exposed to foreign currency exchange rate risk with respect to net sales denominated in Euros and Japanese Yen. For the three months ended March 31, 2024, foreign exchange fluctuations had a negative effect on year-over-year sales, mainly due to the weakening of the Japanese Yen against the U.S. Dollar.
21
Expenses as a Percent of Net Sales
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs 2023 Inc/(Dec) |
|
|||
Cost of products sold including related party, excluding intangible asset amortization |
|
|
37.4 |
% |
|
|
35.8 |
% |
|
|
1.6 |
% |
Intangible asset amortization |
|
|
5.1 |
|
|
|
5.6 |
|
|
|
(0.5 |
) |
Research and development |
|
|
5.7 |
|
|
|
6.0 |
|
|
|
(0.3 |
) |
Selling, general and administrative |
|
|
51.0 |
|
|
|
55.6 |
|
|
|
(4.6 |
) |
Restructuring and other cost reduction initiatives |
|
|
(2.2 |
) |
|
|
(1.0 |
) |
|
|
(1.2 |
) |
Acquisition, integration, divestiture and related |
|
|
0.9 |
|
|
|
1.1 |
|
|
|
(0.2 |
) |
Operating Loss |
|
|
(2.3 |
) |
|
|
(5.1 |
) |
|
|
2.8 |
|
Cost of Products Sold and Intangible Asset Amortization
The increase in cost of products sold in dollars and as a percentage of net sales in the three months ended March 31, 2024 compared to the same prior year period was primarily due to the change in product mix discussed above in "Net Sales - Volume/Mix Trends."
Intangible asset amortization decreased in dollars and as a percentage of net sales in the three months ended March 31, 2024 as compared to the same prior year period, primarily due to certain intangible assets becoming fully amortized in 2023.
Operating Expenses
Research and development ("R&D") expenses decreased in dollars and as a percentage of net sales in the three months ended March 31, 2024 compared to the same prior year period, primarily due to savings from our restructuring and other cost reduction initiatives, which resulted in reductions in compensation and professional services fees.
Selling, general and administrative (“SG&A”) expenses decreased in dollars and as a percentage of net sales in the three months ended March 31, 2024 as compared to the same prior year period, generally due to savings from our announced restructuring and other cost reduction initiatives. Specifically, the decline in SG&A was attributable to decreases in professional services fees ($1.6 million), compensation and recruiting expense ($1.4 million), information technology expense ($1.2 million), share-based compensation expense ($1.1 million) and marketing expense ($1.0 million).
Expenses resulting from restructuring and other cost reduction initiatives relate to various restructuring plans as discussed above. We recognized expense of $2.6 million and $1.2 million in the three months ended March 31, 2024 and 2023, respectively. The expenses in the three months ended March 31, 2024 primarily related to employee termination benefits and professional services fees and expenses in the three months ended March 31, 2023 primarily related to professional services fees. For more information regarding these expenses, see Note 13 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Acquisition, integration, divestiture and related expenses include costs incurred to prepare for and complete the separation from our former parent (such as professional fees, transition services agreements, costs to stand up our corporate organization and infrastructure), changes in the fair value of contingent consideration for acquisitions closed prior to the separation date and transaction costs related to the disposal of our spine segment. Acquisition, integration, divestiture and related expenses decreased by $0.3 million for the three months ended March 31, 2024 as compared to the same prior year period, due primarily to decreases in separation-related expenses ($1.3 million), partially offset by transaction costs related to the evaluation of strategic options for our portfolio ($1.0 million).
Other (Expense) Income, net, Interest Expense, net, and Income Taxes
Our other (expense) income, net, primarily relates to the remeasurement of monetary assets and liabilities that are denominated in a currency other than the subsidiary’s functional currency. Therefore, the income or expense varies based upon the volatility of foreign currency exchange rates.
Interest expense, net, in the three months ended March 31, 2024 decreased compared to the same prior year period, primarily due to a shift in the allocation of interest expense to discontinued operations in connection with the finalization of the amount of the Term Loan prepayment using proceeds from the sale of our spine segment.
22
Our effective tax rate (“ETR”) on loss before income taxes was (55.0)% and (45.0)% for the three months ended March 31, 2024 and 2023, respectively. In the three months ended both March 31, 2024 and 2023, the income tax benefit was lower than the 21% U.S. federal statutory rate due to losses not benefited as a result of valuation allowances and unfavorable U.S. taxable income modifications such as GILTI and shortfalls on stock compensation.
Our ETR in future periods could also potentially be impacted by: changes in our mix of pre-tax earnings; changes in tax rates, tax laws or their interpretation; the outcome of various federal, state and foreign audits; and the expiration of certain statutes of limitations. Currently, we cannot reasonably estimate the impact of these items on our financial results.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion represents the combined liquidity and capital resources of continuing and discontinued operations.
As of March 31, 2024 and December 31, 2023, we had $68.6 million and $87.8 million, respectively, in cash and cash equivalents.
Sources of Liquidity
Cash flows used in operating activities were $11.5 million and $7.2 million in the three months ended March 31, 2024 and 2023 respectively. Working capital for the three months ended March 31, 2024 used cash of $5.4 million primarily due to cash used by accounts payable and accrued liabilities and accounts receivable, partially offset by cash provided by income taxes and inventories. Working capital for the three months ended March 31, 2023 used cash of $7.4 million due to cash used for related party payables, accounts payable and accrued liabilities and accounts receivable, partially offset by cash provided by related party receivables, income taxes and inventories.
Cash flows used in investing activities were $4.1 million and $5.8 million in the three months ended March 31, 2024 and 2023, respectively. The reduction in cash used in investing activities was primarily related to the reduction in capital expenditures for instruments and other property, plant and equipment.
Cash flows used in financing activities were $1.4 million and $10.9 million for the three months ended March 31, 2024 and 2023, respectively. In the prior year period, we made optional prepayments on the Term Loan of $10.5 million, which represented the aggregate amount of the mandatory scheduled principal payments due in the first six months of 2024.
Liquidity and Capital Resources
For additional information regarding our current debt arrangements, see Note 9 to our consolidated financial statements included in our Annual Report. In addition, for information regarding our other material estimated future cash requirements under our contractual obligations and certain other commitments, see “Material Cash Requirements” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. There have been no material changes to such information except as set forth herein.
We believe that available cash and cash equivalents, cash flows generated through operations and cash available under our revolving credit facility will be sufficient to meet our liquidity needs, including capital expenditures, for at least the next 12 months. On April 1, 2024, we prepaid $275.0 million on the Term Loan using proceeds from the sale of our spine segment (as discussed in Notes 1 and 2), and we wrote off $0.9 million of debt issuance costs. As a result of this prepayment, we have no more scheduled quarterly amortization payments on the Term Loan, and the remaining balance is due at maturity on February 28, 2027.
CRITICAL ACCOUNTING ESTIMATES
Our financial results are affected by the selection and application of accounting policies and methods and require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. There were no changes in the three months ended March 31, 2024 to the application of our critical accounting estimates as described in our Annual Report.
23
ACCOUNTING DEVELOPMENTS
See Note 1 to our condensed consolidated financial statements included in this Quarterly Report for information on how recent accounting pronouncements have affected or may affect our financial position, results of operations or cash flows.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in foreign currency exchange rates, interest rates and commodity prices that could affect our financial condition, results of operations and cash flows.
Foreign Currency Exchange Risk
We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Japanese Yen, British Pounds, Australian Dollars and Canadian Dollars. We manage our foreign currency exposure centrally, on a combined basis, which allows us to net exposures and to take advantage of any natural offsets. To reduce the uncertainty of foreign currency exchange rate movements on transactions denominated in foreign currencies, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. These forward contracts are designed to reduce the foreign exchange impact monetary assets and liabilities in non-functional currencies have on our financial results. Realized and unrealized gains and losses on these contracts are recognized in other (expense) income, net.
Commodity Price Risk
We purchase raw material commodities such as cobalt chrome, titanium, tantalum, polymer and sterile packaging. We enter into supply contracts generally with terms of 12 to 24 months, where available, on these commodities to alleviate the effect of market fluctuations in prices. As part of our risk management program, we perform sensitivity analyses related to potential commodity price changes. A 10% price change across all these commodities would not have a material effect on our condensed consolidated financial position, results of operations or cash flows.
Interest Rate Risk
Our interest expense and related risks as reported in our condensed consolidated statements of operations are due to borrowings under our credit agreement. As of March 31, 2024, we had $511.9 million of floating rate debt subject to the adjusted term secured overnight financing rate ("SOFR"). A hypothetical increase of 100 basis points in SOFR to our floating rate debt would, among other things, decrease our annual pre-tax earnings by $5.1 million.
Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, derivative instruments and accounts receivable.
We place our cash and cash equivalents with highly rated financial institutions and limit the amount of credit exposure to any one entity. We believe we do not have any significant credit risk on our cash and cash equivalents.
Our concentrations of credit risks with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across a number of geographic areas and by frequent monitoring of the creditworthiness of the customers to whom credit is granted in the normal course of business. Substantially all of our trade receivables are concentrated in the public and private hospital and dental practices in the healthcare industry in the U.S. and internationally or with distributors or dealers who operate in international markets and, accordingly, are exposed to their respective business, economic and country-specific variables. Our ability to collect accounts receivable in some countries depends in part upon the financial stability of these hospital and healthcare sectors and the respective countries’ national economic and healthcare systems. Most notably, in Europe healthcare is typically sponsored by the government. Since we sell products to public hospitals in those countries, we are indirectly exposed to government budget constraints. To the extent the respective governments’ ability to fund their public hospital programs deteriorates, we may have to record significant bad debt expenses in the future.
While we are exposed to risks from the broader healthcare industry in Europe and around the world, there is no significant net exposure due to any individual customer. Exposure to credit risk is controlled through credit approvals, credit limits and monitoring procedures, and we believe that reserves for losses are adequate.
25
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024 to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial and other matters that arise in the normal course of business. We currently do not expect the outcome of these matters to have a material adverse impact on our results of operations, cash flows or financial position. However, the outcome of such matters is unpredictable, our assessment of them may change, and resolution of them could have a material adverse effect on our financial position, results of operations or cash flows.
For additional information related to our contingencies, see Note 12 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference.
Item 1A. Risk Factors.
Careful consideration should be given to the factors discussed in Part I, Item 1A, “Risk Factors” of our Annual Report, which could materially affect our business, financial condition and results of operations. There have been no material changes in those risk factors. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 5. Other Information.
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
27
Item 6. Exhibits.
Exhibit Index
Exhibit Number |
|
Description |
2.1^ |
|
|
2.2*^ |
|
|
3.1 |
|
|
3.2 |
|
|
10.1 |
|
|
21* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
^ Schedules and exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. ZimVie hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the SEC.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ZimVie Inc. |
|
|
|
|
|
Date: May 8, 2024 |
|
By: |
/s/ Richard Heppenstall |
|
|
|
Richard Heppenstall |
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
|
|
|
|
29