UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30,March 31, 20232024
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: 001-41242
ZIMVIE INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 87-2007795 |
( 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: (303800) 443-7500342-5454
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
| ZIMV |
| The Nasdaq Stock Market LLC |
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. Yes ☒ No ☐
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). Yes ☒ No ☐
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 | ☐ | 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 July 28, 2023May 3, 2024 was 26,529,64227,288,700.
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; a determination by the Internal Revenue Service that the distribution or certain related transactions should be treated as taxable transactions; financing transactions undertaken in connection with the separation and risks associated with additional indebtedness; the impact of the separation on our businesses and the risk that the separation and the results thereof may be more difficult, time consuming and/or costly than expected, which could impact our relationships with customers, suppliers, employees and other business counterparties; restrictions on activities following the distribution in order to preserve the tax-free treatment of the distribution; 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 the COVID-19 global pandemicpandemics 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, 20222023 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
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| Page |
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|
PART I. | 3 | |
|
|
|
Item 1. | 3 | |
| 3 | |
| Condensed Consolidated Statements of Comprehensive |
|
|
| |
|
| |
|
| |
| Notes to Unaudited Condensed Consolidated Financial Statements |
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
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PART II. |
| |
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|
|
Item 1. |
| |
Item 1A. |
| |
Item 5. |
| |
Item 6. |
| |
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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 June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Third party, net |
| $ | 224,896 |
|
| $ | 233,367 |
|
| $ | 449,984 |
|
| $ | 468,049 |
|
Related party, net |
|
| — |
|
|
| 1,197 |
|
|
| 339 |
|
|
| 2,116 |
|
Total Net Sales |
|
| 224,896 |
|
|
| 234,564 |
|
|
| 450,323 |
|
|
| 470,165 |
|
Cost of products sold, excluding intangible asset amortization |
|
| (74,500 | ) |
|
| (80,011 | ) |
|
| (145,217 | ) |
|
| (165,021 | ) |
Related party cost of products sold, excluding intangible asset amortization |
|
| — |
|
|
| (1,061 | ) |
|
| (328 | ) |
|
| (1,858 | ) |
Intangible asset amortization |
|
| (20,663 | ) |
|
| (19,916 | ) |
|
| (41,172 | ) |
|
| (40,821 | ) |
Research and development |
|
| (13,231 | ) |
|
| (15,282 | ) |
|
| (28,604 | ) |
|
| (32,935 | ) |
Selling, general and administrative |
|
| (128,480 | ) |
|
| (126,052 | ) |
|
| (256,448 | ) |
|
| (260,164 | ) |
Restructuring and other cost reduction initiatives |
|
| (8,445 | ) |
|
| (5,055 | ) |
|
| (13,420 | ) |
|
| (5,797 | ) |
Acquisition, integration, divestiture and related |
|
| (1,396 | ) |
|
| (8,723 | ) |
|
| (3,079 | ) |
|
| (17,728 | ) |
Operating Expenses |
|
| (246,715 | ) |
|
| (256,100 | ) |
|
| (488,268 | ) |
|
| (524,324 | ) |
Operating Loss |
|
| (21,819 | ) |
|
| (21,536 | ) |
|
| (37,945 | ) |
|
| (54,159 | ) |
Other income (expense), net |
|
| 598 |
|
|
| 107 |
|
|
| (308 | ) |
|
| 362 |
|
Interest expense, net |
|
| (9,005 | ) |
|
| (4,894 | ) |
|
| (17,971 | ) |
|
| (5,605 | ) |
Loss Before Income Taxes |
|
| (30,226 | ) |
|
| (26,323 | ) |
|
| (56,224 | ) |
|
| (59,402 | ) |
Income tax benefit |
|
| 6,853 |
|
|
| 17,611 |
|
|
| 2,883 |
|
|
| 25,034 |
|
Net Loss |
| $ | (23,373 | ) |
| $ | (8,712 | ) |
| $ | (53,341 | ) |
| $ | (34,368 | ) |
Net Loss Per Common Share - Basic |
| $ | (0.89 | ) |
| $ | (0.33 | ) |
| $ | (2.02 | ) |
| $ | (1.32 | ) |
Net Loss Per Common Share - Diluted |
|
| (0.89 | ) |
|
| (0.33 | ) |
|
| (2.02 | ) |
|
| (1.32 | ) |
| For the Three Months Ended March 31, |
| ||||||
| 2024 |
|
| 2023 |
| |||
Net Sales |
|
|
|
|
|
| ||
Third party, net |
| $ | 118,195 |
|
| $ | 120,170 |
|
Related party, net |
|
| — |
|
|
| 236 |
|
Total Net Sales |
|
| 118,195 |
|
|
| 120,406 |
|
Cost of products sold, excluding intangible asset amortization |
|
| (44,258 | ) |
|
| (42,875 | ) |
Related party cost of products sold, excluding intangible asset amortization |
|
| — |
|
|
| (231 | ) |
Intangible asset amortization |
|
| (6,022 | ) |
|
| (6,794 | ) |
Research and development |
|
| (6,701 | ) |
|
| (7,206 | ) |
Selling, general and administrative |
|
| (60,330 | ) |
|
| (66,973 | ) |
Restructuring and other cost reduction initiatives |
|
| (2,579 | ) |
|
| (1,172 | ) |
Acquisition, integration, divestiture and related |
|
| (1,037 | ) |
|
| (1,342 | ) |
Operating Expenses |
|
| (120,927 | ) |
|
| (126,593 | ) |
Operating Loss |
|
| (2,732 | ) |
|
| (6,187 | ) |
Other expense, net |
|
| (311 | ) |
|
| (30 | ) |
Interest expense, net |
|
| (4,366 | ) |
|
| (5,075 | ) |
Loss from continuing operations before income taxes |
|
| (7,409 | ) |
|
| (11,292 | ) |
Provision for income taxes from continuing operations |
|
| (4,074 | ) |
|
| (5,077 | ) |
Net Loss from Continuing Operations of ZimVie Inc. |
|
| (11,483 | ) |
|
| (16,369 | ) |
Earnings (loss) from discontinued operations, net of tax |
|
| 3,722 |
|
|
| (13,599 | ) |
Net Loss of ZimVie Inc. |
| $ | (7,761 | ) |
| $ | (29,968 | ) |
|
|
|
|
|
|
| ||
Basic (Loss) Earnings Per Common Share: |
|
|
|
|
|
| ||
Continuing operations |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
Discontinued operations |
|
| 0.13 |
|
|
| (0.52 | ) |
Net Loss |
| $ | (0.29 | ) |
| $ | (1.14 | ) |
|
|
|
|
|
|
| ||
Diluted (Loss) Earnings Per Common Share: |
|
|
|
|
|
| ||
Continuing operations |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
Discontinued operations |
|
| 0.13 |
|
|
| (0.52 | ) |
Net Loss |
| $ | (0.29 | ) |
| $ | (1.14 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS (UNAUDITED)
(in thousands)
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net Loss |
| $ | (23,373 | ) |
| $ | (8,712 | ) |
| $ | (53,341 | ) |
| $ | (34,368 | ) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency cumulative translation adjustments, net of tax |
|
| 580 |
|
|
| (45,674 | ) |
|
| 11,097 |
|
|
| (60,340 | ) |
Total Other Comprehensive Income (Loss) |
|
| 580 |
|
|
| (45,674 | ) |
|
| 11,097 |
|
|
| (60,340 | ) |
Comprehensive Loss |
| $ | (22,793 | ) |
| $ | (54,386 | ) |
| $ | (42,244 | ) |
| $ | (94,708 | ) |
|
| For the Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net Loss of ZimVie Inc. |
| $ | (7,761 | ) |
| $ | (29,968 | ) |
Other Comprehensive (Loss) Income: |
|
|
|
|
|
| ||
Foreign currency cumulative translation adjustments, net of tax |
|
| (15,439 | ) |
|
| 10,517 |
|
Total Other Comprehensive (Loss) Income |
|
| (15,439 | ) |
|
| 10,517 |
|
Comprehensive Loss |
| $ | (23,200 | ) |
| $ | (19,451 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
34
ZIMVIE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)
(in thousands, except per share data)
| As of |
| ||||||
| June 30, 2023 |
|
| December 31, 2022 |
| |||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 66,212 |
|
| $ | 89,601 |
|
Accounts receivable, net of allowance for credit losses of $14,546 and $15,026, respectively |
|
| 168,121 |
|
|
| 168,961 |
|
Related party receivable |
|
| — |
|
|
| 8,483 |
|
Inventories |
|
| 227,532 |
|
|
| 233,854 |
|
Prepaid expenses and other current assets |
|
| 45,514 |
|
|
| 36,964 |
|
Total Current Assets |
|
| 507,379 |
|
|
| 537,863 |
|
Property, plant and equipment, net of accumulated depreciation of $393,422 and $392,888, respectively |
|
| 129,671 |
|
|
| 148,439 |
|
Goodwill |
|
| 261,211 |
|
|
| 259,999 |
|
Intangible assets, net |
|
| 624,614 |
|
|
| 654,965 |
|
Other assets |
|
| 37,664 |
|
|
| 40,790 |
|
Total Assets |
| $ | 1,560,539 |
|
| $ | 1,642,056 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 59,418 |
|
| $ | 43,998 |
|
Related party payable |
|
| — |
|
|
| 13,176 |
|
Income taxes payable |
|
| 4,544 |
|
|
| 14,356 |
|
Other current liabilities |
|
| 125,778 |
|
|
| 145,779 |
|
Total Current Liabilities |
|
| 189,740 |
|
|
| 217,309 |
|
Deferred income taxes |
|
| 92,773 |
|
|
| 98,062 |
|
Lease liability |
|
| 17,583 |
|
|
| 22,287 |
|
Other long-term liabilities |
|
| 10,334 |
|
|
| 13,561 |
|
Non-current portion of debt |
|
| 522,267 |
|
|
| 532,233 |
|
Total Liabilities |
|
| 832,697 |
|
|
| 883,452 |
|
Commitments and Contingencies (Note 11) |
|
|
|
|
|
| ||
Stockholders' Equity: |
|
|
|
|
|
| ||
Common stock, $0.01 par value, 150,000 shares authorized |
|
| 265 |
|
|
| 262 |
|
Preferred stock, $0.01 par value, 15,000 shares authorized, 0 shares issued and outstanding |
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 908,507 |
|
|
| 897,028 |
|
Accumulated deficit |
|
| (100,873 | ) |
|
| (47,532 | ) |
Accumulated other comprehensive loss |
|
| (80,057 | ) |
|
| (91,154 | ) |
Total Stockholders' Equity |
|
| 727,842 |
|
|
| 758,604 |
|
Total Liabilities and Stockholders' Equity |
| $ | 1,560,539 |
|
| $ | 1,642,056 |
|
| As of |
| ||||||
| March 31, 2024 |
|
| December 31, 2023 |
| |||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 43,528 |
|
| $ | 71,511 |
|
Accounts receivable, net of allowance for credit losses of $2,823 and $3,222, respectively |
|
| 68,931 |
|
|
| 65,168 |
|
Inventories |
|
| 77,235 |
|
|
| 79,600 |
|
Prepaid expenses and other current assets |
|
| 17,132 |
|
|
| 23,825 |
|
Current assets of discontinued operations |
|
| 248,315 |
|
|
| 242,773 |
|
Total Current Assets |
|
| 455,141 |
|
|
| 482,877 |
|
Property, plant and equipment, net of accumulated depreciation of $127,085 and $126,624, respectively |
|
| 52,120 |
|
|
| 54,167 |
|
Goodwill |
|
| 260,356 |
|
|
| 262,111 |
|
Intangible assets, net |
|
| 109,480 |
|
|
| 114,354 |
|
Other assets |
|
| 27,016 |
|
|
| 26,747 |
|
Noncurrent assets of discontinued operations |
|
| 267,494 |
|
|
| 265,089 |
|
Total Assets |
| $ | 1,171,607 |
|
| $ | 1,205,345 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 26,955 |
|
| $ | 27,785 |
|
Income taxes payable |
|
| 4,382 |
|
|
| 2,863 |
|
Other current liabilities |
|
| 62,419 |
|
|
| 67,108 |
|
Current portion of long-term debt |
|
| 7,013 |
|
|
| — |
|
Current liabilities of discontinued operations |
|
| 68,879 |
|
|
| 75,858 |
|
Total Current Liabilities |
|
| 169,648 |
|
|
| 173,614 |
|
Deferred income taxes |
|
| 165 |
|
|
| 265 |
|
Lease liability |
|
| 9,795 |
|
|
| 9,080 |
|
Other long-term liabilities |
|
| 9,340 |
|
|
| 9,055 |
|
Non-current portion of debt |
|
| 502,056 |
|
|
| 508,797 |
|
Noncurrent liabilities of discontinued operations |
|
| 92,274 |
|
|
| 95,041 |
|
Total Liabilities |
|
| 783,278 |
|
|
| 795,852 |
|
Commitments and Contingencies (Note 12) |
|
|
|
|
|
| ||
Stockholders' Equity: |
|
|
|
|
|
| ||
Common stock, $0.01 par value, 150,000 shares authorized |
|
| 273 |
|
|
| 271 |
|
Preferred stock, $0.01 par value, 15,000 shares authorized, 0 shares issued and outstanding |
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 925,030 |
|
|
| 922,996 |
|
Accumulated deficit |
|
| (448,575 | ) |
|
| (440,814 | ) |
Accumulated other comprehensive loss |
|
| (88,399 | ) |
|
| (72,960 | ) |
Total Stockholders' Equity |
|
| 388,329 |
|
|
| 409,493 |
|
Total Liabilities and Stockholders' Equity |
| $ | 1,171,607 |
|
| $ | 1,205,345 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
45
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |||||||
|
|
|
| Additional |
|
|
|
|
| Net Parent |
|
| Other |
|
|
|
| |||||||
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Company |
|
| Comprehensive |
|
| Total |
| |||||||
| Stock |
|
| Capital |
|
| Deficit |
|
| Investment |
|
| (Loss) Income |
|
| Equity |
| |||||||
Balance March 31, 2023 |
| $ | 264 |
|
| $ | 901,476 |
|
| $ | (77,500 | ) |
| $ | — |
|
| $ | (80,637 | ) |
| $ | 743,603 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (23,373 | ) |
|
| — |
|
|
| — |
|
|
| (23,373 | ) |
Stock activity under stock plans |
|
| 1 |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
Share-based compensation expense |
|
| — |
|
|
| 5,815 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,815 |
|
Employee stock purchase plan |
|
| — |
|
|
| 1,167 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,167 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 580 |
|
|
| 580 |
|
Balance June 30, 2023 |
| $ | 265 |
|
| $ | 908,507 |
|
| $ | (100,873 | ) |
| $ | — |
|
| $ | (80,057 | ) |
| $ | 727,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance March 31, 2022 |
| $ | 261 |
|
| $ | 878,948 |
|
| $ | (9,307 | ) |
| $ | — |
|
| $ | (57,446 | ) |
| $ | 812,456 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (8,712 | ) |
|
| — |
|
|
| — |
|
|
| (8,712 | ) |
Stock activity under stock plans |
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28 |
|
Share-based compensation expense |
|
| — |
|
|
| 6,459 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,459 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (45,674 | ) |
|
| (45,674 | ) |
Balance June 30, 2022 |
| $ | 261 |
|
| $ | 885,435 |
|
| $ | (18,019 | ) |
| $ | — |
|
| $ | (103,120 | ) |
| $ | 764,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |||||||
|
|
|
| Additional |
|
|
|
|
| Net Parent |
|
| Other |
|
|
|
| |||||||
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Company |
|
| Comprehensive |
|
| Total |
| |||||||
| Stock |
|
| Capital |
|
| Deficit |
|
| Investment |
|
| (Loss) Income |
|
| Equity |
| |||||||
Balance December 31, 2022 |
| $ | 262 |
|
| $ | 897,028 |
|
| $ | (47,532 | ) |
| $ | — |
|
| $ | (91,154 | ) |
| $ | 758,604 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (53,341 | ) |
|
| — |
|
|
| — |
|
|
| (53,341 | ) |
Stock activity under stock plans |
|
| 3 |
|
|
| (344 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (341 | ) |
Share-based compensation expense |
|
| — |
|
|
| 10,656 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,656 |
|
Employee stock purchase plan |
|
| — |
|
|
| 1,167 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,167 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,097 |
|
|
| 11,097 |
|
Balance June 30, 2023 |
| $ | 265 |
|
| $ | 908,507 |
|
| $ | (100,873 | ) |
| $ | — |
|
| $ | (80,057 | ) |
| $ | 727,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance December 31, 2021 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,494,157 |
|
| $ | (42,780 | ) |
| $ | 1,451,377 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (18,019 | ) |
|
| (16,349 | ) |
|
| — |
|
|
| (34,368 | ) |
Net transactions with Zimmer Biomet Holdings, Inc., including separation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (70,430 | ) |
|
| — |
|
|
| (70,430 | ) |
Net consideration paid to Zimmer Biomet Holdings, Inc. in connection with distribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (540,567 | ) |
|
| — |
|
|
| (540,567 | ) |
Reclassification of net parent company investment to additional paid-in capital |
|
| 261 |
|
|
| 866,550 |
|
|
| — |
|
|
| (866,811 | ) |
|
| — |
|
|
| — |
|
Stock activity under stock plans |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Share-based compensation expense |
|
| — |
|
|
| 18,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,889 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60,340 | ) |
|
| (60,340 | ) |
Balance June 30, 2022 |
| $ | 261 |
|
| $ | 885,435 |
|
| $ | (18,019 | ) |
| $ | — |
|
| $ | (103,120 | ) |
| $ | 764,557 |
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
| ||||||
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Total |
| ||||||
| Stock |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||
Balance December 31, 2023 |
| $ | 271 |
|
| $ | 922,996 |
|
| $ | (440,814 | ) |
| $ | (72,960 | ) |
| $ | 409,493 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (7,761 | ) |
|
| — |
|
|
| (7,761 | ) |
Stock plan activity |
|
| 2 |
|
|
| (1,439 | ) |
|
| — |
|
|
| — |
|
|
| (1,437 | ) |
Share-based compensation expense |
|
| — |
|
|
| 3,473 |
|
|
| — |
|
|
| — |
|
|
| 3,473 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,439 | ) |
|
| (15,439 | ) |
Balance March 31, 2024 |
| $ | 273 |
|
| $ | 925,030 |
|
| $ | (448,575 | ) |
| $ | (88,399 | ) |
| $ | 388,329 |
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
| ||||||
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Total |
| ||||||
| Stock |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||
Balance December 31, 2022 |
| $ | 262 |
|
| $ | 897,028 |
|
| $ | (47,532 | ) |
| $ | (91,154 | ) |
| $ | 758,604 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (29,968 | ) |
|
| — |
|
|
| (29,968 | ) |
Stock plan activity |
|
| 2 |
|
|
| (393 | ) |
|
| — |
|
|
| — |
|
|
| (391 | ) |
Share-based compensation expense |
|
| — |
|
|
| 4,841 |
|
|
| — |
|
|
| — |
|
|
| 4,841 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,517 |
|
|
| 10,517 |
|
Balance March 31, 2023 |
| $ | 264 |
|
| $ | 901,476 |
|
| $ | (77,500 | ) |
| $ | (80,637 | ) |
| $ | 743,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
56
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
(in thousands)
|
| For the Six Months Ended June 30, |
| |||||
| 2023 |
|
| 2022 |
| |||
Cash flows (used in) provided by operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (53,341 | ) |
| $ | (34,368 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 64,588 |
|
|
| 62,267 |
|
Share-based compensation |
|
| 10,656 |
|
|
| 19,694 |
|
Deferred income tax provision |
|
| (7,935 | ) |
|
| (32,817 | ) |
Loss on disposal of fixed assets |
|
| 1,129 |
|
|
| — |
|
Other non-cash items |
|
| 1,380 |
|
|
| 590 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Income taxes |
|
| (16,023 | ) |
|
| 11,333 |
|
Accounts receivable |
|
| 1,271 |
|
|
| (25,371 | ) |
Related party receivable |
|
| 8,483 |
|
|
| (22,367 | ) |
Inventories |
|
| 8,401 |
|
|
| 11,765 |
|
Prepaid expenses and other current assets |
|
| (2,097 | ) |
|
| (18,381 | ) |
Accounts payable and accrued liabilities |
|
| (4,825 | ) |
|
| 8,556 |
|
Related party payable |
|
| (13,177 | ) |
|
| 45,536 |
|
Other assets and liabilities |
|
| (5,450 | ) |
|
| 4,240 |
|
Net cash (used in) provided by operating activities |
|
| (6,940 | ) |
|
| 30,677 |
|
Cash flows used in investing activities: |
|
|
|
|
|
| ||
Additions to instruments |
|
| (1,951 | ) |
|
| (6,089 | ) |
Additions to other property, plant and equipment |
|
| (3,154 | ) |
|
| (6,165 | ) |
Other investing activities |
|
| (1,994 | ) |
|
| (1,949 | ) |
Net cash used in investing activities |
|
| (7,099 | ) |
|
| (14,203 | ) |
Cash flows (used in) provided by financing activities: |
|
|
|
|
|
| ||
Net transactions with Zimmer Biomet |
|
| — |
|
|
| 6,920 |
|
Dividend paid to Zimmer Biomet |
|
| — |
|
|
| (540,567 | ) |
Proceeds from debt |
|
| 4,760 |
|
|
| 595,000 |
|
Payments on debt |
|
| (15,279 | ) |
|
| (37,506 | ) |
Debt issuance costs |
|
| — |
|
|
| (5,170 | ) |
Payments related to tax withholding for share-based compensation |
|
| (419 | ) |
|
| — |
|
Proceeds from stock option activity |
|
| 1,167 |
|
|
| 51 |
|
Net cash (used in) provided by financing activities |
|
| (9,771 | ) |
|
| 18,728 |
|
Effect of exchange rates on cash and cash equivalents |
|
| 421 |
|
|
| (5,549 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (23,389 | ) |
|
| 29,653 |
|
Cash and cash equivalents, beginning of year |
|
| 89,601 |
|
|
| 100,399 |
|
Cash and cash equivalents, end of period |
| $ | 66,212 |
|
| $ | 130,052 |
|
Supplemental cash flow information: |
|
|
|
|
|
| ||
Income taxes paid, net |
| $ | 18,755 |
|
| $ | 5,204 |
|
Interest paid |
|
| 17,452 |
|
|
| 3,939 |
|
|
| For the Three Months Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| |||
Cash flows used in operating activities: |
|
|
|
|
|
| ||
Net loss of ZimVie Inc. |
| $ | (7,761 | ) |
| $ | (29,968 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 8,430 |
|
|
| 32,631 |
|
Share-based compensation |
|
| 3,473 |
|
|
| 4,841 |
|
Deferred income tax provision |
|
| (233 | ) |
|
| (4,208 | ) |
Loss on disposal of fixed assets |
|
| 413 |
|
|
| — |
|
Other non-cash items |
|
| 1,596 |
|
|
| 1,556 |
|
Adjustment of spine disposal group to fair value (Note 2) |
|
| (11,143 | ) |
|
| — |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Income taxes |
|
| 6,586 |
|
|
| 7,047 |
|
Accounts receivable |
|
| (6,651 | ) |
|
| (4,958 | ) |
Related party receivable |
|
| — |
|
|
| 8,483 |
|
Inventories |
|
| 4,588 |
|
|
| 5,431 |
|
Prepaid expenses and other current assets |
|
| 323 |
|
|
| 1,311 |
|
Accounts payable and accrued liabilities |
|
| (10,264 | ) |
|
| (11,572 | ) |
Related party payable |
|
| — |
|
|
| (13,176 | ) |
Other assets and liabilities |
|
| (868 | ) |
|
| (4,614 | ) |
Net cash used in operating activities |
|
| (11,511 | ) |
|
| (7,196 | ) |
Cash flows used in investing activities: |
|
|
|
|
|
| ||
Additions to instruments |
|
| (1,316 | ) |
|
| (1,951 | ) |
Additions to other property, plant and equipment |
|
| (835 | ) |
|
| (1,887 | ) |
Other investing activities |
|
| (1,987 | ) |
|
| (1,994 | ) |
Net cash used in investing activities |
|
| (4,138 | ) |
|
| (5,832 | ) |
Cash flows used in financing activities: |
|
|
|
|
|
| ||
Payments on debt |
|
| — |
|
|
| (10,519 | ) |
Payments related to tax withholding for share-based compensation |
|
| (1,437 | ) |
|
| (417 | ) |
Net cash used in financing activities |
|
| (1,437 | ) |
|
| (10,936 | ) |
Effect of exchange rates on cash and cash equivalents |
|
| (2,098 | ) |
|
| 777 |
|
Decrease in cash and cash equivalents |
|
| (19,184 | ) |
|
| (23,187 | ) |
Cash and cash equivalents, beginning of year |
|
| 87,768 |
|
|
| 89,601 |
|
Cash and cash equivalents, end of period |
| $ | 68,584 |
|
| $ | 66,414 |
|
Presentation includes cash of both continuing and discontinued operations |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Supplemental cash flow information: |
|
|
|
|
|
| ||
Income taxes (refunded) paid, net |
| $ | (2,366 | ) |
| $ | 1,664 |
|
Interest paid |
|
| 9,360 |
|
|
| 8,121 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
67
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(the "Separation Agreement"), pursuant to which Zimmer Biomet agreed to spin off its dentalspine and spinedental businesses into ZimVie. The distribution resulted in ZimVie becoming a new,standalone, publicly traded company. Zimmer Biomet effected the separation through a pro rata distribution of 80.3% of the outstanding shares of common stock of ZimVie. Following the distribution, on March 1, 2022, Zimmer Biomet stockholders as of the record date for the distribution owned 80.3% of the outstanding shares of ZimVie common stock; Zimmer Biomet initially retained 19.7% of the outstanding shares of ZimVie common stock. The distribution is intended to qualify as generally tax-free tostock, and all transactions between ZimVie and Zimmer Biomet stockholders for United States ("U.S.") federal income tax purposes, except for any cash received by stockholders in lieu of fractional shares. The distribution on March 1, 2022 resulted in ZimVie becoming a standalone, publicly traded company, and it was completed pursuant to the Separation Agreement and other agreements with Zimmer Biomet related tofrom the distribution including, but not limited to a tax matters agreement, an employee matters agreement, a transition services agreement and transition manufacturing agreements. See Note 12 for further description of the impact of the distribution and post-spin activities with Zimmer Biomet.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. See Note 17 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 ("Annual Report") for further description of the impact of the distribution and post-spin activities with Zimmer Biomet.
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 includehave historically included two operating segments, 1) the dental products segment, and 2) the spine products segment.
In the dental products market,segment, our core services include designing, manufacturing and distributing dental implant solutions.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 products market,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
Prior toThe accompanying condensed consolidated balance sheets as of March 1, 2022, we existed31, 2024 and functioned as partDecember 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 business of Zimmer Biomet.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 prepared on a standalone basispresented as permitted by Regulation S-X and for periods prior to March 1, 2022, were prepared on a carveout basis from Zimmer Biomet’s consolidateddo not contain certain information included in our annual financial statements and accounting records, and, accordingly, may not be indicative ofnotes thereto. Accordingly, the financial position, results of operations or cash flows had we operated as a standalone company during those periods, or comparable to our financial position subsequent to March 1, 2022.
On March 1, 2022, ZimVie became a standalone publicly traded company, and our financial statements are now presented on a consolidated basis. The unaudited financial statements for all periods presented, including our historical results prior to March 1, 2022, are now referred to as "Condensed Consolidated Financial Statements," and have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles ("GAAP") for completeaccompanying condensed consolidated financial statements are not included herein. In our opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. These interim statementsinformation should be read in conjunction with the audited consolidated financial statements and notes thereto includedpresented in our Annual Report on Form 10-K forReport. During the yearthree months ended DecemberMarch 31, 2022 ("Annual Report").The results2024, we recorded out of period adjustments that increased the Loss from continuing operations before income taxes and reduced Earnings from discontinued operations, net of any interim period are not necessarily indicative of the results of operations for the full year.
7
Prior to the distribution, our equity balance in these condensed consolidated financial statements represented the excess of total assets over liabilities including the due to/from balances between us and Zimmer Biomet (referred to as "net parent investment" or "NPI") and accumulated other comprehensive income (loss). NPI was primarily impactedtax, by contributions from Zimmer Biomet that were the result of treasury activities and net funding provided by or distributed to Zimmer Biomet.
Following the distribution, certain functions that Zimmer Biomet provided to us prior to the distribution either continue to be provided to us by Zimmer Biomet under a transition services agreement or are being performed using our own resources or third-party service providers. Additionally, under manufacturing and supply agreements, we manufacture certain products for Zimmer Biomet and Zimmer Biomet manufactures certain products for us. We have incurred, and expect to continue to incur, certain costs to establish ourselves as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.
As of June 30, 2023 and December 31, 2022, we had $1.41.8 million and $0.7 million, respectively. We have concluded these out of period adjustments did not have a material impact on our interim condensed consolidated financial statements for the three months ended March 31, 2024, nor were they material to previously issued interim and annual consolidated financial statements.
Restricted Cash - As of both March 31, 2024 and December 31, 2023, we had $1.5 million respectively, in restricted cash. The restriction as of March 31, 2024 and December 31, 2023 is on cash held in China as a result of ongoing litigation with a spine products distributor in China related to our decision to exit our spine products business in China (seeChina.
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 $375 million in total consideration, comprised of $315 million in cash, subject to certain customary adjustments as set forth in the agreement, and $60 million in the form of a promissory note that will accrue interest at a rate of 10% per annum, compounded semi-annually, payable in kind. 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 Note 132 for further information).additional discussion.
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
ThereIn 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 nocurrently 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 accounting pronouncements that we haveASUs, excluding ASUs discussed above, were assessed and determined to be not yet adopted thatapplicable, or are not expected to have a material effectimpact on our condensed consolidated financial position, results of operationsstatements or cash flows.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 $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.
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 |
| $ | 93,824 |
|
| $ | 104,918 |
|
Related party, net |
|
| — |
|
|
| 103 |
|
Total Net Sales |
|
| 93,824 |
|
|
| 105,021 |
|
Cost of products sold, excluding intangible asset amortization |
|
| (28,441 | ) |
|
| (27,842 | ) |
Related party cost of products sold, excluding intangible asset amortization |
|
| — |
|
|
| (97 | ) |
Intangible asset amortization |
|
| — |
|
|
| (13,715 | ) |
Research and development |
|
| (6,654 | ) |
|
| (8,168 | ) |
Selling, general and administrative |
|
| (54,121 | ) |
|
| (60,995 | ) |
Restructuring and other cost reduction initiatives |
|
| (1,851 | ) |
|
| (3,802 | ) |
Acquisition, integration, divestiture and related |
|
| (6,373 | ) |
|
| (341 | ) |
Other expense, net |
|
| (344 | ) |
|
| (876 | ) |
Interest expense, net (1) |
|
| (5,294 | ) |
|
| (3,891 | ) |
Loss from discontinued operations before income taxes |
|
| (9,254 | ) |
|
| (14,706 | ) |
Adjustment of spine disposal group to fair value (2) |
|
| 11,143 |
|
|
| — |
|
Benefit for income taxes from discontinued operations |
|
| 1,833 |
|
|
| 1,107 |
|
Earnings (loss) from discontinued operations, net of tax |
| $ | 3,722 |
|
| $ | (13,599 | ) |
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 |
| $ | 25,056 |
|
| $ | 16,257 |
|
Accounts receivable, less allowance for credit losses |
|
| 84,622 |
|
|
| 83,871 |
|
Inventories |
|
| 125,115 |
|
|
| 130,430 |
|
Prepaid expenses and other current assets |
|
| 13,522 |
|
|
| 12,215 |
|
Total Current Assets of Discontinued Operations |
|
| 248,315 |
|
|
| 242,773 |
|
Property, plant and equipment, net |
|
| 63,488 |
|
|
| 62,692 |
|
Intangible assets, net |
|
| 468,008 |
|
|
| 477,110 |
|
Other assets |
|
| 14,311 |
|
|
| 14,743 |
|
Total Noncurrent Assets of Discontinued Operations |
|
| 545,807 |
|
|
| 554,545 |
|
Accounts payable |
| $ | 22,547 |
|
| $ | 24,186 |
|
Income taxes payable |
|
| 512 |
|
|
| 410 |
|
Other current liabilities |
|
| 45,820 |
|
|
| 51,262 |
|
Total Current Liabilities of Discontinued Operations |
|
| 68,879 |
|
|
| 75,858 |
|
Deferred income taxes |
|
| 83,712 |
|
|
| 86,037 |
|
Lease liability |
|
| 7,102 |
|
|
| 8,032 |
|
Other long-term liabilities |
|
| 1,460 |
|
|
| 972 |
|
Total Noncurrent Liabilities of Discontinued Operations |
| $ | 92,274 |
|
| $ | 95,041 |
|
Adjustment of spine disposal group to fair value (1) |
|
| (278,313 | ) |
|
| (289,456 | ) |
(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 |
| $ | — |
|
| $ | 24,003 |
|
Share-based compensation |
|
| 712 |
|
|
| 617 |
|
Adjustment of spine disposal group to fair value |
|
| 11,143 |
|
|
| — |
|
Additions to instruments |
|
| 1,316 |
|
|
| 1,951 |
|
Additions to other property, plant & equipment |
|
| 88 |
|
|
| 795 |
|
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):
| Dental |
|
| Spine |
|
| Total |
| ||||
Balance at December 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Goodwill, Gross |
| $ | 401,999 |
|
| $ | 1,089,400 |
|
| $ | 1,491,399 |
|
Accumulated impairment losses |
|
| (142,000 | ) |
|
| (1,089,400 | ) |
|
| (1,231,400 | ) |
Goodwill, Net |
|
| 259,999 |
|
|
| — |
|
|
| 259,999 |
|
Currency translation |
|
| 1,212 |
|
|
| — |
|
|
| 1,212 |
|
Balance at June 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Goodwill, Gross |
|
| 403,211 |
|
|
| 1,089,400 |
|
|
| 1,492,611 |
|
Accumulated impairment losses |
|
| (142,000 | ) |
|
| (1,089,400 | ) |
|
| (1,231,400 | ) |
Goodwill, Net |
| $ | 261,211 |
|
| $ | — |
|
| $ | 261,211 |
|
| Total |
| ||
Balance at December 31, 2023 |
|
|
| |
Goodwill, Gross |
| $ | 404,111 |
|
Accumulated impairment losses |
|
| (142,000 | ) |
Goodwill, Net |
|
| 262,111 |
|
Currency translation |
|
| (1,755 | ) |
Balance at March 31, 2024 |
|
|
| |
Goodwill, Gross |
|
| 402,356 |
|
Accumulated impairment losses |
|
| (142,000 | ) |
Goodwill, Net |
| $ | 260,356 |
|
The components of identifiable intangible assets were as follows (in thousands):
| Technology |
|
| Trademarks |
|
| Customer Relationships |
|
| Other |
|
| Total |
|
| Technology |
|
| Trademarks |
|
| Customer Relationships |
|
| Other |
|
| Total |
| |||||||||||
As of December 31, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of December 31, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Gross carrying amount |
| $ | 844,730 |
|
| $ | 137,785 |
|
| $ | 364,917 |
|
| $ | 53,955 |
|
| $ | 1,401,387 |
|
| $ | 168,841 |
|
| $ | 37,056 |
|
| $ | 143,565 |
|
| $ | 47,670 |
|
| $ | 397,132 |
|
Accumulated amortization |
|
| (444,603 | ) |
|
| (63,012 | ) |
|
| (188,913 | ) |
|
| (49,894 | ) |
|
| (746,422 | ) |
|
| (113,354 | ) |
|
| (23,393 | ) |
|
| (98,361 | ) |
|
| (47,670 | ) |
|
| (282,778 | ) |
Total identifiable intangible assets |
| $ | 400,127 |
|
| $ | 74,773 |
|
| $ | 176,004 |
|
| $ | 4,061 |
|
| $ | 654,965 |
|
| $ | 55,487 |
|
| $ | 13,663 |
|
| $ | 45,204 |
|
| $ | — |
|
| $ | 114,354 |
|
As of June 30, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of March 31, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Gross carrying amount |
| $ | 854,876 |
|
| $ | 139,631 |
|
| $ | 367,863 |
|
| $ | 54,054 |
|
| $ | 1,416,424 |
|
| $ | 168,787 |
|
| $ | 36,782 |
|
| $ | 141,595 |
|
| $ | 47,564 |
|
| $ | 394,728 |
|
Accumulated amortization |
|
| (471,002 | ) |
|
| (68,046 | ) |
|
| (202,770 | ) |
|
| (49,992 | ) |
|
| (791,810 | ) |
|
| (115,456 | ) |
|
| (23,941 | ) |
|
| (99,787 | ) |
|
| (46,064 | ) |
|
| (285,248 | ) |
Total identifiable intangible assets |
| $ | 383,874 |
|
| $ | 71,585 |
|
| $ | 165,093 |
|
| $ | 4,062 |
|
| $ | 624,614 |
|
| $ | 53,331 |
|
| $ | 12,841 |
|
| $ | 41,808 |
|
| $ | 1,500 |
|
| $ | 109,480 |
|
8
Estimated annual amortization expense for the years ending December 31, 20232024 through 20272028 based on exchange rates in effect at December 31, 20222023 is as follows (in millions):
For the Years Ending December 31, |
|
|
|
|
|
| ||
2023 (remaining) |
| $ | 34.7 |
| ||||
2024 |
|
| 72.4 |
| ||||
2024 (remaining) |
| $ | 18.2 |
| ||||
2025 |
|
| 70.6 |
|
|
| 22.2 |
|
2026 |
|
| 68.9 |
|
|
| 22.2 |
|
2027 |
|
| 63.6 |
|
|
| 16.9 |
|
Thereafter |
|
| 314.4 |
| ||||
Total |
| $ | 624.6 |
| ||||
2028 |
|
| 11.8 |
|
3.4. Share-Based Compensation
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 0.3 million ZimVie RSUs at a weighted average fair value of $31.55, and outstanding stock options were converted into 2.1 million ZimVie stock options at a weighted average fair value of $14.76. Due to the conversion, ZimVie incurred $21.3 million of incremental share-based compensation expense. Of this amount, $10.3 million was related to unvested and/or unexercised share-based awards and was recognized at the distribution date. The remaining $11.0 million is being recognized over the remainder of the share-based awards' weighted average vesting period of 2.5 years from the date of the distribution.
12
ZimVie Awards
The ZimVie Inc. 2022 Stock Incentive Plan was originally established effective as of March 1, 2022, and was amended effective May 12, 2023 (as amended, the "2022 Plan"). A total of 6.0 million shares of common stock are authorized for issuance under the 2022 Plan. Shares issued pursuant to converted Zimmer Biomet share-based awards do not count against this limit. At June 30, 2023,March 31, 2024, 3.32.9 million shares were available for future grants and awards under the 2022 Plan. The 2022 Plan provides for the grant of various types of awards including stock options, stock appreciation rights, performance shares, performance units, restricted stock and RSUs. Generally, awards have a three-year vesting period and stock options have a term of ten years. Vesting may accelerate upon retirement after the first anniversary date of the award if certain criteria are met. Additionally, in cases of special circumstances as determined by the Compensation Committee of the Board of Directors, the Compensation Committee may, it its sole discretion, accelerate vesting. We recognize expense on a straight-line basis over the requisite service period, less awards expected to be forfeited using estimated forfeiture rates. Stock options are granted with an exercise price equal to the market price of our common stock on the date of grant, except in limited circumstances where local law may dictate otherwise.
Share-based compensation expense was as follows (in thousands):
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Three Months Ended March 31, |
| ||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| |||||||
Share-based compensation expense recognized in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cost of products sold, excluding intangible asset amortization |
| $ | 303 |
|
| $ | 289 |
|
| $ | 569 |
|
| $ | 2,086 |
|
| $ | (18 | ) |
| $ | 265 |
|
Research and development |
|
| 383 |
|
|
| 466 |
|
|
| 805 |
|
|
| 2,544 |
|
|
| 401 |
|
|
| 422 |
|
Selling, general and administrative |
|
| 5,129 |
|
|
| 5,467 |
|
|
| 9,282 |
|
|
| 15,064 |
|
|
| 3,090 |
|
|
| 4,154 |
|
|
|
| 5,815 |
|
|
| 6,222 |
|
|
| 10,656 |
|
|
| 19,694 |
|
|
| 3,473 |
|
|
| 4,841 |
|
Tax benefit related to awards |
|
| (1,471 | ) |
|
| (1,572 | ) |
|
| (2,680 | ) |
|
| (4,601 | ) |
|
| (861 | ) |
|
| (1,209 | ) |
Total expense, net of tax |
| $ | 4,344 |
|
| $ | 4,650 |
|
| $ | 7,976 |
|
| $ | 15,093 |
|
| $ | 2,612 |
|
| $ | 3,632 |
|
For periods prior to the distribution, we specifically identified employees who were associated with our historical operations and calculated expense based upon the awards received under the Zimmer Biomet plans, as well asShare-based compensation expense related to corporate or shared employees allocated to us on a proportional cost allocation method, primarily based on revenue.discontinued operations is included in the table above and is disclosed in Note 2.
9
Stock option activity was as follows:
|
| Period Ended June 30, 2023 |
|
| Three Months Ended March 31, 2024 |
| ||||||||||||||||||||||||||
|
|
|
| Weighted |
| Weighted Average |
|
|
|
|
|
|
| Weighted |
| Weighted Average |
|
|
| |||||||||||||
|
|
| Average |
| Remaining |
| Aggregate |
|
|
|
| Average |
| Remaining |
| Aggregate |
| |||||||||||||||
| Number of |
| Exercise |
| Contractual |
| Intrinsic |
|
| Number of |
| Exercise |
| Contractual |
| Intrinsic |
| |||||||||||||||
| Stock Options |
|
| Price |
|
| Life (Years) |
|
| Value (in Millions) |
|
| Stock Options |
|
| Price |
|
| Life (Years) |
|
| Value (in Millions) |
| |||||||||
Outstanding at December 31, 2022 |
|
| 2,403,635 |
|
| $ | 26.74 |
|
|
|
|
|
|
| ||||||||||||||||||
Outstanding at December 31, 2023 |
|
| 2,303,143 |
|
| $ | 26.83 |
|
|
|
|
|
|
| ||||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||||
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
| (1,117 | ) |
|
| 18.58 |
|
|
|
|
|
|
| ||||
Forfeited |
|
| (76,670 | ) |
|
| 23.10 |
|
|
|
|
|
|
|
|
| (82,798 | ) |
|
| 26.10 |
|
|
|
|
|
|
| ||||
Outstanding at June 30, 2023 |
|
| 2,326,965 |
|
| $ | 26.86 |
|
|
| 6.6 |
|
| $ | — |
| ||||||||||||||||
Exercisable at June 30, 2023 |
|
| 1,602,377 |
|
| $ | 26.21 |
|
|
| 5.9 |
|
| $ | — |
| ||||||||||||||||
Outstanding at March 31, 2024 |
|
| 2,219,228 |
|
| $ | 26.87 |
|
|
| 5.5 |
|
| $ | — |
| ||||||||||||||||
Exercisable at March 31, 2024 |
|
| 1,852,652 |
|
| $ | 26.72 |
|
|
| 5.0 |
|
| $ | — |
|
We used a Black-Scholes option-pricing model to determine the fair value of our stock options. For new awards granted shortly after the distribution: expected volatility of 52.29% was derived from a peer group's combined historical volatility that was de-levered and re-levered for ZimVie as ZimVie doesdid not have sufficient historical volatility based on the expected term of the underlying options; the expected term of the stock options of 6.0 years was determined using the simplified method; and the risk-free interest rate of 1.94% was determined using the implied yield then available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options. The dividend yield was zero as ZimVie has no plans to pay a dividend for the foreseeable future.
Aggregate intrinsic value was negligible at June 30, 2023.March 31, 2024. At June 30, 2023,March 31, 2024, we had unrecognized share-based compensation cost related to unvested stock options of $8.34.2 million, which is expected to be amortized over the remaining weighted average vesting period of approximately 1.71.1 years.
13
RSU activity was as follows:
|
| Period Ended June 30, 2023 |
|
| Three Months Ended March 31, 2024 |
| ||||||||||
|
|
|
| Weighted |
|
|
|
|
| Weighted |
| |||||
|
|
| Average |
|
|
|
| Average |
| |||||||
| Number of |
| Grant Date |
|
| Number of |
| Grant Date |
| |||||||
| RSUs |
|
| Fair Value |
|
| RSUs |
|
| Fair Value |
| |||||
Outstanding at December 31, 2022 |
|
| 1,382,500 |
|
| $ | 24.64 |
| ||||||||
Outstanding at December 31, 2023 |
|
| 1,942,210 |
|
| $ | 15.13 |
| ||||||||
Granted |
|
| 1,526,343 |
|
|
| 10.34 |
|
|
| 738,939 |
|
|
| 17.58 |
|
Vested |
|
| (222,306 | ) |
|
| 28.07 |
|
|
| (278,865 | ) |
|
| 28.13 |
|
Forfeited |
|
| (79,935 | ) |
|
| 22.62 |
|
|
| (132,728 | ) |
|
| 14.22 |
|
Outstanding at June 30, 2023 |
|
| 2,606,602 |
|
| $ | 16.98 |
| ||||||||
Outstanding at March 31, 2024 |
|
| 2,269,556 |
|
| $ | 14.38 |
|
RSUs granted in the six months ended June 30, 2023outstanding at March 31, 2024 included 367,928326,321 RSUs (at target) with performance-based vesting provisions ("PRSUs"). PRSUs may vest from 0-150% of target based on the level of achievement of pre-defined performance metrics. PRSUs are payable in common shares and do not have the right to vote until vested. Compensation expense related to PRSUs is recognized over a 36-month cliff vesting period, and is adjusted as needed for changes in the projected level of achievement of the performance metrics.
At June 30, 2023,March 31, 2024, we had unrecognized share-based compensation cost related to unvested RSUs of $26.622.1 million, which is expected to be amortized into net incomeearnings over the remaining weighted average vesting period of approximately 1.81.5 years. The total fair value of RSUs granted during the three months ended March 31, 2024 and 2023 was $13.0 million and negligible, respectively. The total fair value of RSUs that vested during the sixthree months ended June 30,March 31, 2024 and 2023 was $6.27.8 million.million and $6.1 million, respectively.
4.14
5. Earnings Per Share
On March 1, 2022, 26.1 million ZimVie common shares were distributed in connection with the distribution. For comparative purposes, and to provide a more meaningful calculation for weighted average shares, this amount was assumed to be outstanding throughout all periods presented up to and including March 1, 2022 in the calculation of basic weighted average shares. For periods prior to the distribution, it was assumed that there were no dilutive equity instruments, as there were no equity awards of ZimVie outstanding prior to the distribution.
10
The calculation of weighted average shares for the basic and diluted net loss per common share is as follows (in thousands, except per share data):
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Net loss |
| $ | (23,373 | ) |
| $ | (8,712 | ) |
| $ | (53,341 | ) |
| $ | (34,368 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted Average shares outstanding for basic net loss per share |
|
| 26,328 |
|
|
| 26,073 |
|
|
| 26,343 |
|
|
| 26,069 |
|
Effect of dilutive stock options and other equity awards (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted Average shares outstanding for diluted net loss per share |
|
| 26,328 |
|
|
| 26,073 |
|
|
| 26,343 |
|
|
| 26,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net loss per common share |
| $ | (0.89 | ) |
| $ | (0.33 | ) |
| $ | (2.02 | ) |
| $ | (1.32 | ) |
| For the Three Months Ended March 31, |
| ||||||
| 2024 |
|
| 2023 |
| |||
Net Loss from Continuing Operations of ZimVie Inc. |
| $ | (11,483 | ) |
| $ | (16,369 | ) |
Earnings (loss) from discontinued operations, net of tax |
|
| 3,722 |
|
|
| (13,599 | ) |
Net Loss of ZimVie Inc. |
| $ | (7,761 | ) |
| $ | (29,968 | ) |
|
|
|
|
|
|
| ||
Weighted average shares outstanding for basic net loss per common share |
|
| 27,125 |
|
|
| 26,263 |
|
Effect of dilutive stock options and other equity awards (1) |
|
| — |
|
|
| — |
|
Weighted average shares outstanding for diluted net loss per common share |
|
| 27,125 |
|
|
| 26,263 |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Basic (Loss) Earnings Per Common Share: |
|
|
|
|
|
| ||
Continuing operations |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
Discontinued operations |
|
| 0.13 |
|
|
| (0.52 | ) |
Net Loss |
| $ | (0.29 | ) |
| $ | (1.14 | ) |
|
|
|
|
|
|
| ||
Diluted (Loss) Earnings Per Common Share: |
|
|
|
|
|
| ||
Continuing operations |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
Discontinued operations |
|
| 0.13 |
|
|
| (0.52 | ) |
Net Loss |
| $ | (0.29 | ) |
| $ | (1.14 | ) |
(1) Since we incurred a net loss in each of the three and six months ended June 30,March 31, 2024 and 2023, and 2022, no dilutive stock options or other equity awards were included as diluted shares in those periods.
For the three months ended June 30,March 31, 2024 and 2023, and 2022, a weighted average of 4.02.4 million and 3.7 million, respectively, and for the six months ended June 30, 2023 and 2022, a weighted average of 3.7 million and 2.43.4 million, respectively, options to purchase shares of common stock were not included in the computation of diluted earningsnet loss per share as the exercise prices of these options were greater than the average market price of the common stock.
5.6. Balance Sheet Details
Inventories consisted of the following (in thousands):
| June 30, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||
Finished goods |
| $ | 193,264 |
|
| $ | 200,098 |
|
| $ | 50,007 |
|
| $ | 54,456 |
|
Work-in-progress |
|
| 21,055 |
|
|
| 21,199 |
|
|
| 21,159 |
|
|
| 20,659 |
|
Raw materials |
|
| 13,213 |
|
|
| 12,557 |
|
|
| 6,069 |
|
|
| 4,485 |
|
Inventories |
| $ | 227,532 |
|
| $ | 233,854 |
|
| $ | 77,235 |
|
| $ | 79,600 |
|
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 $1.60.7 million and a benefit of $9.21.0 million in the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, and were $0.6 million and $17.6 million in the six months ended June 30, 2023 and 2022, respectively.
Other current liabilities consisted of the following (in thousands):
| June 30, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||
Other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
License and service agreements |
| $ | 19,233 |
|
| $ | 25,337 |
| ||||||||
Salaries, wages and benefits |
|
| 32,172 |
|
|
| 47,812 |
|
| $ | 18,155 |
|
| $ | 23,171 |
|
Lease liabilities |
|
| 9,681 |
|
|
| 9,617 |
|
|
| 3,700 |
|
|
| 4,053 |
|
Accrued liabilities |
|
| 64,692 |
|
|
| 63,013 |
| ||||||||
Other liabilities |
|
| 40,564 |
|
|
| 39,884 |
| ||||||||
Total other current liabilities |
| $ | 125,778 |
|
| $ | 145,779 |
|
| $ | 62,419 |
|
| $ | 67,108 |
|
15
6.7. Fair Value Measurements of Assets and Liabilities
The fair value of foreign currency exchange forward contracts (see Note 8)9) are determined using Level 2 inputs. The carrying value of our debt (see Note 7)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, 2022 and June 30, 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. See Note 3 to our
11
consolidated financial statements included in our Annual Report for additional information regarding contingent payments related to acquisitions.
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 |
|
| Level 3 - Liabilities |
| |||
Contingent payments related to acquisitions |
|
|
|
|
|
| ||
Balance December 31, 2022 |
| $ | 13,250 |
| ||||
Balance December 31, 2023 |
| $ | 9,799 |
| ||||
Settlements |
|
| (3,451 | ) |
|
| (2,963 | ) |
Balance June 30, 2023 |
| $ | 9,799 |
| ||||
Balance March 31, 2024 |
| $ | 6,836 |
|
7.8. Debt
Our debt consisted of the following (in thousands):
| June 30, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||
Term loan |
| $ | 525,938 |
|
| $ | 536,456 |
|
| $ | 511,912 |
|
| $ | 511,912 |
|
Debt issuance costs |
|
| (3,671 | ) |
|
| (4,223 | ) |
|
| (2,843 | ) |
|
| (3,115 | ) |
Total debt |
|
| 522,267 |
|
|
| 532,233 |
|
|
| 509,069 |
|
|
| 508,797 |
|
Less: current portion |
|
| — |
|
|
| — |
|
|
| (7,013 | ) |
|
| — |
|
Total debt due after one year |
| $ | 522,267 |
|
| $ | 532,233 |
|
| $ | 502,056 |
|
| $ | 508,797 |
|
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 $175.0 million (the “Revolver”) and term loan borrowings of up to $595.0 million (the “Term Loan” and, together with the Revolver, the “Credit Facility”).
On March 31, 2023, we made a principal paymentAs of $10.5 million to cover the March 31, 2024, and June 30, 2024 mandatory scheduled principal payments on the Term Loan. As of June 30, 2023, $525.9511.9 million was outstanding on the Term Loan, following such payments, and there were no outstanding borrowings under the Revolver. 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.
As of June 30, 2023,March 31, 2024, our interest rate was the secured overnight financing rate plus the applicable margin of 1.75% for term benchmark borrowings. Commitments under the Revolver are subject to a commitment fee on the unused portion of the Revolver of 25 basis points.
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 6.00 to 1.00. We were in compliance with all covenants as of June 30, 2023.March 31, 2024.
See Note 109 to our consolidated financial statements included in our Annual Report for additional information on our Credit Agreement.
In April 2023, we financed $4.8 million of our corporate insurance premium, all of which was repaid by June 30, 2023.
16
8.9. Derivatives
We enter into foreign currency exchange forward contracts with terms of one to three months in order to manage currency exposures related to monetary assets and liabilities denominated in a currency other than an entity’s functional currency. Any foreign currency remeasurement gains or losses recognized in earnings are generally offset with gains or losses on the foreign currency exchange forward contracts in the same reporting period. The amount of these gains (losses) is recorded in Other (expense) income, net. Outstanding contracts are recorded on thein our condensed consolidated balance sheet at fair value as of the end of the reporting period. The aggregate notional amounts of these contracts were $48.438.0 million as of June 30, 2023March 31, 2024 and $69.125.0 million as of December 31, 2022.2023.
Current derivative assets of a negligible amount and $0.90.4 million as of June 30, 2023March 31, 2024 and $0.6 million as of December 31, 20222023, respectively, were included in Prepaid expenses and other current assets on our condensed consolidated balance sheets. Current derivative liabilities of $0.1 million as of June 30, 2023
12
and $0.30.2 million as of March 31, 2024 and December 31, 20222023, respectively, were included in Other current liabilities in our condensed consolidated balance sheets. LossesGains (losses) from these derivative instruments recognized onin our condensed consolidated statements of operations in Other (expense) income,expense, net were $0.30.1 million and $($0.50.1 millionmillion) for the three and six months ended June 30,March 31, 2024 and 2023, respectively, and $1.4 million for each of the three and six months ended June 30, 2022.respectively.
9.10. Income Taxes
Our effective tax rate (“ETR”) on loss before income taxes was (22.755.0)% and (66.945.0)% for the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, and 5.1% and 42.1% for the six months ended June 30, 2023 and 2022, respectively. In the three months ended June 30, 2023, the income tax benefit was higher than the 21% U.S. federal statutory rate due to releases in prior year valuation allowances primarily driven by method changes in accounting for inventories for tax purposes in the U.S. In the six months ended June 30,both March 31, 2024 and 2023, the income tax benefit was lower than the 21% U.S. federal statutory rate due to losses in certain jurisdictions with fullnot benefited as a result of valuation allowances resulting in no tax benefit. In the three and six months ended June 30, 2022, the additionalunfavorable U.S. taxable income tax benefit compared to the statutory rate was driven by the impact of losses recorded prior to the distribution that were calculatedmodifications such as Global Intangible Low-Taxed Income (“GILTI”) and shortfalls on a “carve-out” basis, which applied the accounting guidance as if we filed income tax returns on a standalone, separate return basis and are not reflective of the tax results we expect to generate in the future. Additionally, for the three and six months ended June 30, 2023 and 2022, profit in inventory recorded prior to the distribution is non-taxable as the inventory is sold post-separation to third parties, resulting in a significant benefit to the foreign rate differential.
During the six months ended June 30, 2022, income tax balances were adjusted to reflect the income tax positions after distribution, including those related to tax loss and credit carryforwards, other deferred tax assets and liabilities and valuation allowances. These separation-related adjustments resulted in a $3.9 million increase to the net deferred tax liability, primarily due to inventory and intangible assets transferred in the separation, tax rate changes and changes to the permanent reinvestment assertion in the post-separation environment. The increase in the net deferred tax liability was offset by a corresponding decrease in NPI.stock compensation.
10.11. 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 two operating segments, 1) the dental segment, and 2) the spine segment, which also represented our reportable segments. As discussed in Notes 1 and 2, the spine segment is presented as discontinued operations and is not required to be presented in the segment disclosures.
NetWe 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. |
| $ | 33,933 |
|
| $ | 35,444 |
|
Spain |
|
| 14,354 |
|
|
| 14,431 |
|
Other countries |
|
| 3,833 |
|
|
| 4,292 |
|
Property, plant and equipment, net |
| $ | 52,120 |
|
| $ | 54,167 |
|
17
U.S. and foreign sales and operating profit (loss) by segment(based on the location of the customer) are as follows (in thousands):
| Net Sales |
|
| Operating Profit (Loss) |
| |||||||||||
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Dental |
| $ | 118,649 |
|
| $ | 118,149 |
|
| $ | 21,090 |
|
| $ | 24,973 |
|
Spine |
|
| 106,247 |
|
|
| 115,218 |
|
|
| 10,386 |
|
|
| 7,262 |
|
Segment Total |
|
| 224,896 |
|
|
| 233,367 |
|
|
| 31,476 |
|
|
| 32,235 |
|
Related party transactions |
|
| — |
|
|
| 1,197 |
|
|
| — |
|
|
| 136 |
|
Expenses related to Parent products |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Intangible asset amortization |
|
| — |
|
|
| — |
|
|
| (20,663 | ) |
|
| (19,916 | ) |
Restructuring and other cost reduction initiatives |
|
| — |
|
|
| — |
|
|
| (8,445 | ) |
|
| (5,055 | ) |
Acquisition, integration, divestiture and related |
|
| — |
|
|
| — |
|
|
| (1,396 | ) |
|
| (8,723 | ) |
Other |
|
| — |
|
|
| — |
|
|
| (22,791 | ) |
|
| (20,213 | ) |
Total |
| $ | 224,896 |
|
| $ | 234,564 |
|
| $ | (21,819 | ) |
| $ | (21,536 | ) |
| Net Sales |
|
| Operating Profit (Loss) |
| |||||||||||
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Dental |
| $ | 238,819 |
|
| $ | 238,718 |
|
| $ | 44,691 |
|
| $ | 50,632 |
|
Spine |
|
| 211,165 |
|
|
| 229,331 |
|
|
| 17,885 |
|
|
| 12,361 |
|
Segment Total |
|
| 449,984 |
|
|
| 468,049 |
|
|
| 62,576 |
|
|
| 62,993 |
|
Related party transactions |
|
| 339 |
|
|
| 2,116 |
|
|
| 11 |
|
|
| (12,118 | ) |
Expenses related to Parent products |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (616 | ) |
Intangible asset amortization |
|
| — |
|
|
| — |
|
|
| (41,172 | ) |
|
| (40,821 | ) |
Restructuring and other cost reduction initiatives |
|
| — |
|
|
| — |
|
|
| (13,420 | ) |
|
| (5,797 | ) |
Acquisition, integration, divestiture and related |
|
| — |
|
|
| — |
|
|
| (3,079 | ) |
|
| (17,728 | ) |
Other |
|
| — |
|
|
| — |
|
|
| (42,861 | ) |
|
| (40,072 | ) |
Total |
| $ | 450,323 |
|
| $ | 470,165 |
|
| $ | (37,945 | ) |
| $ | (54,159 | ) |
|
| For the Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
U.S. |
| $ | 67,748 |
|
| $ | 69,907 |
|
Spain |
|
| 15,347 |
|
|
| 15,726 |
|
Other countries |
|
| 35,100 |
|
|
| 34,537 |
|
Third party sales |
| $ | 118,195 |
|
| $ | 120,170 |
|
13Sales within any other individual country were less than 10% of our combined sales in each of those periods. No single customer accounted for 10% or more of our sales in the three months ended March 31, 2024 and 2023.
11.12. 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 $6.92.5 million and $9.52.6 million as of June 30, 2023March 31, 2024 and December 31, 2022, respectively.2023, respectively, and mostly relates to discontinued operations. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued.
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.
12. Related Party Transactions
Prior to the distribution, we did not operate as a standalone business and had various relationships with Zimmer Biomet whereby Zimmer Biomet provided services to us. Following the distribution, certain functions that Zimmer Biomet provided to us prior to the distribution either continue to be provided to us by Zimmer Biomet under a transition services agreement or are being performed using our own resources or third-party service providers. The following disclosures summarize activities between us and Zimmer Biomet that are included in our condensed consolidated financial statements.
Prior to Distribution
Corporate Overhead and Other Allocations from Zimmer Biomet
Zimmer Biomet provided certain services, which included, but were not limited to, executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and other corporate departments. The expenses related to these services have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on net trade sales, as applicable. When specific identification is not practicable, a proportional cost method was used primarily based on sales.
Corporate allocations reflected in the condensed consolidated statements of operations are as follows (in thousands):
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Cost of products sold |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (78 | ) |
Selling, general & administrative |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,271 |
|
Acquisition, integration, divestiture and related |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (357 | ) |
Management believes that the methods used to allocate expenses to ZimVie are a reasonable reflection of the utilization of services provided to, or the benefit derived by, ZimVie during the periods presented. However, the allocations may not necessarily reflect the condensed consolidated financial position, results of operations and cash flows in the future or what they would have been had ZimVie been a separate, standalone entity during the periods presented.
Share-Based Compensation
As discussed in Note 3, our employees participated in Zimmer Biomet’s share-based compensation plans, the costs of which were allocated and recorded in cost of products sold, R&D, and selling, general and administrative expenses in the condensed consolidated statements of operations. Share-based compensation benefit related to our employees prior to the distribution were $1.0 million for the six months ended June 30, 2022.There were no share-based compensation costs allocated during the three months ended June 30, 2022.
In connection with the distribution, the awards held by employees were modified and resulted in incremental compensation expense as discussed in Note 3.
14
Centralized Cash Management
Zimmer Biomet used a centralized approach to cash management and financing of operations. The majority of our subsidiaries were party to Zimmer Biomet’s cash pooling arrangements with several financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances were swept regularly from our accounts. Cash transfers to and from Zimmer Biomet’s cash concentration accounts and the resulting balances at the end of each reporting period were reflected in NPI and net transactions with Zimmer Biomet in the condensed consolidated balance sheets and statements of cash flows, respectively.
Prior to the distribution, we borrowed $595.0 million under our Credit Agreement and subsequently distributed $561.0 million of the proceeds to Zimmer Biomet. After this distribution and the impact of various transactions between the parties related to the separation, we had approximately $100.0 million of cash at distribution to operate as a standalone company.
Manufacturing Services to Zimmer Biomet
We have certain manufacturing facilities that also produce orthopedic products that continue to be sold by Zimmer Biomet after the separation. The condensed consolidated statements of operations reflect the sales of these orthopedic products to Zimmer Biomet as related party transactions in periods in which Zimmer Biomet was a related party as follows (in thousands):
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Related party net sales |
| $ | — |
|
| $ | 1,197 |
|
| $ | 339 |
|
| $ | 2,116 |
|
Related party cost of products sold, excluding intangible asset amortization |
|
| — |
|
|
| 1,061 |
|
|
| 328 |
|
|
| 1,858 |
|
We will continue to sell these products to Zimmer Biomet in future periods pursuant to a transition manufacturing and supply agreement as described below. 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.
Net Parent Company Investment
As discussed in Note 1, NPI is primarily impacted by contributions from Zimmer Biomet, which are the result of treasury activity and net funding provided by or distributed to Zimmer Biomet. For the six months ended June 30, 2023 and 2022, net transactions with Zimmer Biomet reflected in the cash flows pre-distribution were nil and $6.9 million, respectively. There were nonet transactions with Zimmer Biomet reflected in the cash flows pre-distribution during the three months ended June 30, 2023 and 2022. Activities that impacted the net transfers from Zimmer Biomet include corporate overhead, share-based compensation, debt agreements between the parties and other allocations and centralized cash management. For the six months ended June 30, 2023 and 2022, the total impact on NPI from these transactions was nil and $70.4 million, respectively. There were no activities that impacted the net transfers from Zimmer Biomet including corporate overhead, share-based compensation, debt agreements between the parties and other allocations and centralized cash management during the three months ended June 30, 2023 and 2022.
For all periods prior to the distribution, transfers between ZimVie and Zimmer Biomet affiliates were recognized in Net transactions with Zimmer Biomet. In connection with the distribution, certain net assets of approximately $79.0 million that were included in our pre-distribution balance sheet were retained by Zimmer Biomet, with the offset of the non-cash transaction reflected as a distribution within NPI. Separation-related adjustments were also recognized in Net transactions with Zimmer Biomet.
After Distribution
In connection with the distribution, ZimVie entered into various agreements that govern activity between the parties, including, but not limited to, the Separation Agreement, the Transition Services Agreement, interim operating model agreements, the Tax Matters Agreement, the Employee Matters Agreement and transition manufacturing and supply agreements. 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.
15
The amounts due from and to Zimmer Biomet under the various agreements described below that were included in related party receivable or payable, as applicable, in our condensed consolidated balance sheets were as follows (in thousands):
| June 30, 2023 |
|
| December 31, 2022 |
| |||
Related party receivable |
| $ | — |
|
| $ | 8,483 |
|
Related party payable |
|
| — |
|
|
| 13,176 |
|
The Separation Agreement sets forth our agreements with Zimmer Biomet regarding the principal actions taken in connection with the separation and the distribution. It also sets forth other agreements that govern aspects of our relationship with Zimmer Biomet following the separation and the distribution. The Separation Agreement provides for, among other things, (i) the assets transferred, the liabilities assumed and the contracts assigned to each of us and Zimmer Biomet as part of the separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the ZimVie businesses with us and financial responsibility for the obligations and liabilities of Zimmer Biomet’s remaining businesses with Zimmer Biomet, (iii) procedures with respect to claims subject to indemnification and related matters and governing our and Zimmer Biomet’s obligations and allocations of liabilities with respect to ongoing litigation matters and (iv) the allocation between us and Zimmer Biomet of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the distribution.
The Separation Agreement also provides that, in order to obtain certain requisite governmental approvals, or for other business reasons, following the distribution date, Zimmer Biomet and certain of its affiliates will continue to operate certain activities relating to the ZimVie businesses in certain jurisdictions until the requisite approvals have been received or the occurrence of all other actions permitting the legal transfer of such activities, and we will receive, to the greatest extent possible, all of the economic benefits and burdens of such activities.
The agreements that we entered into with Zimmer Biomet that govern aspects of ZimVie's relationship with Zimmer Biomet following the distribution are described in Note 18 to our consolidated financial statements included in our Annual Report.
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 $2.4 million related to these activities. The restructuring charges incurred under this plan were primarily related to employee termination benefits. We anticipate total charges of approximately $7.0 million related to this plan.
In April and July 2023, we initiated additional restructuring activities to better position our organization for future success based on the currentthen-current business environment. These initiatives haveactivities had the objective of reducing our global cost structure and streamlining our organizational infrastructure across all regions, functions and levels. During the three and six months ended June 30,March 31, 2024 and 2023, wethe pre-tax charges recorded under this plan were negligible and $1.2 million , respectively, primarily related to professional fees. We have incurred pre-tax charges of $7.04.1 million from inception through March 31, 2024 and $8.6 million, respectively, related to these actions. The restructuringno future charges incurred in the three and six months ended June 30, 2023are expected under this plan were primarily related to severance and professional feesplan., and we anticipate total charges related to this plan of approximately $15-16 million will be incurred in 2023 and 2024, including projects in process or under final evaluation as of June 30, 2023.
In June 2022, we initiated a restructuring plan with the objective of reducing costs and optimizing our global footprint. In addition, the national volume-based procurement program for spine products in China took place in late September 2022, and we were not successful in our bid. After evaluating our alternatives, in the fourth quarter of 2022 we approved a plan to exit our spine products activities in China. During each of the three and six months ended June 30, 2022, actions under the June 2022 plan resulted in a pre-tax charge of $1.7 million. During the three and six months ended June 30, 2023,March 31, 2024, we recorded pre-tax charges of $1.40.2 million and $4.7 million, respectively, related to the actions under these plans.this plan, primarily related to employee termination benefits. During the three months ended March 31, 2023, actions under this plan resulted in pre-tax charges that were negligible. We have incurred pre-tax charges of $13.73.0 million from inception through June 30, 2023,March 31, 2024, and we anticipate total charges of approximately $18-193.8 million related to these plans. The restructuring charges incurred in the three and six months ended June 30, 2023 under these plans were primarily related to accelerated depreciation, severance and impairment of assets. this plan. We anticipate incurring the remaining charges through 2023.throughout the remainder of 2024.
18
In December 2019 and December 2021, Zimmer Biomet initiated restructuring plans (the "ZB Restructuring Plans") with an objective of reducing costs to allow further investment in higher priority growth opportunities. We incurred pre-tax charges related to the ZB Restructuring Plans of $3.4 million and $4.1 million in the three and six months ended June 30, 2022, respectively. The restructuring charges incurred under these plans primarily related to employee termination benefits, contract terminations and retention period compensation and benefits. We do not expect to incur material expenses from the ZB Restructuring Plans after June 30, 2022.
16
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):
|
| Six Months Ended June 30, |
| |||||||||
| Employee |
|
| Other |
|
| Total |
| ||||
Balance, December 31, 2022 |
| $ | 1,893 |
|
| $ | 2,173 |
|
| $ | 4,066 |
|
Additions |
|
| 7,821 |
|
|
| 2,942 |
|
|
| 10,763 |
|
Cash payments |
|
| (3,734 | ) |
|
| (3,249 | ) |
|
| (6,983 | ) |
Balance, June 30, 2023 |
| $ | 5,980 |
|
| $ | 1,866 |
|
| $ | 7,846 |
|
|
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2021 |
| $ | 1,099 |
|
| $ | 1,150 |
|
| $ | 2,249 |
|
Additions |
|
| 1,500 |
|
|
| 2,511 |
|
|
| 4,011 |
|
Non-cash adjustments |
|
| — |
|
|
| (320 | ) |
|
| (320 | ) |
Cash payments |
|
| (1,207 | ) |
|
| (1,572 | ) |
|
| (2,779 | ) |
Balance, June 30, 2022 |
| $ | 1,392 |
|
| $ | 1,769 |
|
| $ | 3,161 |
|
|
| Three Months Ended March 31, |
| |||||||||
| Employee |
|
| Other |
|
| Total |
| ||||
Balance, December 31, 2023 |
| $ | 947 |
|
| $ | — |
|
| $ | 947 |
|
Additions |
|
| 2,507 |
|
|
| 71 |
|
|
| 2,578 |
|
Cash payments |
|
| (1,613 | ) |
|
| (71 | ) |
|
| (1,684 | ) |
Balance, March 31, 2024 |
| $ | 1,841 |
|
| $ | — |
|
| $ | 1,841 |
|
We do not include charges for restructuring and other cost reduction initiatives in the operating profit of our reportable segments.19
17
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 Form 10-Q.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 Form 10-QQuarterly Report and in our Annual Report, particularly in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”
OVERVIEW
Our History
ZimVie Inc. (“ZimVie,” “we,” “us,” “our” or the “Company”) was incorporated in the State of Delaware on July 30, 2021 as a wholly owned subsidiary of Zimmer Biomet Holdings, Inc. (“Zimmer Biomet” or “Parent”). We were formed solely for the sole purpose of effecting the distribution of our outstanding shares of common stock on a pro rata basis to holders of Zimmer Biomet common stock and to holdholding directly or indirectly the assets and liabilities associated with the dental and spine businesses of Zimmer Biomet prior to thefor 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. Prior to March 1, 2022, ZimVie’s financial statements were prepared on a carve-out basis and were derived from Zimmer Biomet’s consolidated financial statements and accounting records.
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 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 include two operating segments, 1) the dental products segment, and 2) the spine products segment.
In the dental products market, our core services include designing, manufacturing and distributing a comprehensive portfolio of dental implant solutions, biomaterials and digital dentistry solutions.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 aesthetic and functionala more natural restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation.
In the spine products market,segment, our core services include designing, manufacturing and distributing a full suite of spinal surgerymedical devices and surgical instruments to deliver comprehensive solutions to treat patientsfor individuals with back or neck pain caused by degenerative conditions, deformities tumors 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
We haveOn December 15, 2023, we entered into a broad geographic revenue base, with meaningful exposuredefinitive agreement to both establishedsell 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 emerging markets. We have six manufacturing site locations,received proceeds of $311.8 million, excluding the promissory note and a global presencetransaction costs. See additional information in approximately 25 countries.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 and Six Months Ended June 30,March 31, 2024 and 2023 and 2022 - 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 additional restructuring activities to better position our organization for future success based on the current business environment. In July 2023, we expanded the scope of these activities and took additional actions. These activities have the overall objective of reducing our global cost structure and streamlining our organizational infrastructure across all regions, functions and levels. As a result of these initiatives, we expect an approximate 5% reduction in our global workforce, in addition to reductions in discretionary spending.
18
2022 ProgramsProgram
In June 2022, we initiated a restructuring plan with the objective of reducing costs and optimizing our global footprint. In addition, the national volume-based procurement (“VBP”)Remaining activities under this program for spine productsprimarily relate to final approval and execution of plans in China took place in late September 2022, and we were not successful in our bid. After evaluating our alternatives, in the fourth quarter of 2022 we approved a plan to exit our spine products activities in China. Annual 2022 spine product sales in China represented less than 1% of our consolidated annual sales.Asia.
The national VBP program for dental products in China took place in January 2023, and we were not successful in our bid. We plan to continue to operate our dental product activities in China by focusing on the private market. Annual 2022 dental product sales in China represented less than 1% of our consolidated annual sales
RESULTS OF OPERATIONS
ThreeAs 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 Sixthe 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 June 30,March 31, 2024 and 2023 and 2022
Net Sales by Product Category
The following tables presenttable presents net sales by product category and the components of the percentage changes (dollars($ in thousands):
| Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
| Foreign |
| ||||||||||
| 2023 |
|
| 2022 |
|
| % Inc (Dec) |
|
| Volume/Mix |
|
| Price |
|
| Exchange |
| |||||||
Dental |
| $ | 118,649 |
|
| $ | 118,149 |
|
|
| 0.4 | % |
|
| 0.7 | % |
|
| (0.3 | )% |
|
| (0.0 | )% |
Spine |
|
| 106,247 |
|
|
| 115,218 |
|
|
| (7.8 | ) |
|
| (6.7 | ) |
|
| (0.5 | ) |
|
| (0.6 | ) |
Third Party Sales |
|
| 224,896 |
|
|
| 233,367 |
|
|
| (3.6 | ) |
|
| (3.0 | ) |
|
| (0.4 | ) |
|
| (0.2 | ) |
Related Party |
|
| — |
|
|
| 1,197 |
|
|
| (100.0 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||
Total |
| $ | 224,896 |
|
| $ | 234,564 |
|
|
| (4.1 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
| Foreign |
| ||||||||||
| 2023 |
|
| 2022 |
|
| % Inc (Dec) |
|
| Volume/Mix |
|
| Price |
|
| Exchange |
| |||||||
Dental |
| $ | 238,819 |
|
| $ | 238,718 |
|
|
| 0.0 | % |
|
| 1.5 | % |
|
| (0.3 | )% |
|
| (1.2 | )% |
Spine |
|
| 211,165 |
|
|
| 229,331 |
|
|
| (7.9 | ) |
|
| (6.8 | ) |
|
| (0.7 | ) |
|
| (0.4 | ) |
Third Party Sales |
|
| 449,984 |
|
|
| 468,049 |
|
|
| (3.9 | ) |
|
| (2.6 | ) |
|
| (0.5 | ) |
|
| (0.8 | ) |
Related Party |
|
| 339 |
|
|
| 2,116 |
|
|
| (84.0 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||
Total |
| $ | 450,323 |
|
| $ | 470,165 |
|
|
| (4.2 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 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 |
|
Demand (Volume/Mix)Volume/Mix Trends
Demand in the dental product category increasedVolume declined slightly in the three months ended June 30, 2023March 31, 2024 compared to the same prior year period, primarily due to a growingperiod. Lower dental implant sales were mostly offset by increases in digital dentistry market. Demand in the spine product category was negatively impacted in the three months ended June 30, 2023 compared to the same prior year period by continued competition, distributor turnover and lower sales due to our exit from our spine products activities in China. Demand in the dental product category increased in the six months ended June 30, 2023 compared to the same prior year period, primarily due to higher demand for tooth replacement procedures combined with a growing digital dentistry market. Demand in the spine product category was negatively impacted in the six months ended June 30, 2023 compared to the same prior year period by increased competition and lower sales due to our exit from our spine products activities in China. The net sales declines for the three and six months ended June 30, 2023 were partially offset by net spine product sales retained by Zimmer Biomet in the same prior year periods in certain geographies where our separation and transition activities extended beyond the distribution date that did not recur in 2023 (for more information, see "After Distribution - Interim Operating Agreements" in Note 18 to our consolidated financial statements included in our Annual Report).biomaterials.
Pricing Trends
The dental product categoryWe experienced price improvement in the majority of geographic regions, including outside of North America (excluding China); however, there was an overalla price decline for the three and six months ended June 30, 2023 due to the timing of price changes year-over-year in North America. We expect the full year 2023 price impact to be positive for the dental portfolio. The spine product category continued to experience governmental healthcare cost pricing pressure efforts and similar efforts at local hospitals and health systems in the three and six months ended June 30, 2023.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.
19
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 Chinese Renminbi, Israeli Shekel, New Zealand Dollar,and Japanese Yen, Canadian Dollar and Swedish Krona.Yen. For the three months ended June 30, 2023, foreign exchange fluctuations had a positive effect on year-over-year sales, while for the six months ended June 30, 2023,March 31, 2024, foreign exchange fluctuations had a negative effect on year-over-year sales, mainly due to fluctuationsthe weakening of the U.S. DollarJapanese Yen against the Euro.U.S. Dollar.
21
Expenses as a Percent of Net Sales
| Three Months Ended June 30, |
| |||||||||||
| 2023 |
|
| 2022 |
|
|
| 2023 vs. |
| ||||
Cost of products sold, excluding intangible asset |
|
| 33.1 | % |
|
| 34.1 | % |
|
|
| (1.0 | )% |
Related party cost of products sold, excluding intangible |
|
| — |
|
|
| 0.5 |
|
|
|
| (0.5 | ) |
Intangible asset amortization |
|
| 9.2 |
|
|
| 8.5 |
|
|
|
| 0.7 |
|
Research and development |
|
| 5.9 |
|
|
| 6.5 |
|
|
|
| (0.6 | ) |
Selling, general and administrative |
|
| 57.1 |
|
|
| 53.7 |
|
|
|
| 3.4 |
|
Restructuring and other cost reduction initiatives |
|
| 3.8 |
|
|
| 2.2 |
|
|
|
| 1.6 |
|
Acquisition, integration, divestiture and related |
|
| 0.6 |
|
|
| 3.7 |
|
|
|
| (3.1 | ) |
Operating Loss |
|
| (9.7 | ) |
|
| (9.2 | ) |
|
|
| 0.5 |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 vs. |
|
| 2024 |
|
| 2023 |
|
| 2024 vs 2023 Inc/(Dec) |
| ||||||||
Cost of products sold, excluding intangible asset |
|
| 32.2 | % |
|
| 35.1 | % |
|
| (2.9 | )% | |||||||||||||
Related party cost of products sold, excluding intangible |
|
| 0.1 |
|
|
| 0.4 |
|
|
| (0.3 | ) | |||||||||||||
Cost of products sold including related party, excluding intangible asset amortization |
|
| 37.4 | % |
|
| 35.8 | % |
|
| 1.6 | % | |||||||||||||
Intangible asset amortization |
|
| 9.1 |
|
|
| 8.7 |
|
|
| 0.4 |
|
|
| 5.1 |
|
|
| 5.6 |
|
|
| (0.5 | ) | |
Research and development |
|
| 6.4 |
|
|
| 7.0 |
|
|
| (0.6 | ) |
|
| 5.7 |
|
|
| 6.0 |
|
|
| (0.3 | ) | |
Selling, general and administrative |
|
| 56.9 |
|
|
| 55.3 |
|
|
| 1.6 |
|
|
| 51.0 |
|
|
| 55.6 |
|
|
| (4.6 | ) | |
Restructuring and other cost reduction initiatives |
|
| 3.0 |
|
|
| 1.2 |
|
|
| 1.8 |
|
|
| (2.2 | ) |
|
| (1.0 | ) |
|
| (1.2 | ) | |
Acquisition, integration, divestiture and related |
|
| 0.7 |
|
|
| 3.8 |
|
|
| (3.1 | ) |
|
| 0.9 |
|
|
| 1.1 |
|
|
| (0.2 | ) | |
Operating Loss |
|
| (8.4 | ) |
|
| (11.5 | ) |
|
| (3.1 | ) |
|
| (2.3 | ) |
|
| (5.1 | ) |
|
| 2.8 |
|
Cost of Products Sold and Intangible Asset Amortization
The decreaseincrease in cost of products sold in dollars and as a percentage of net sales in the three and six months ended June 30, 2023March 31, 2024 compared to the same prior year periodsperiod was primarily due to a reduction in inventory charges in the spine product category and an expense of $1.7 million in share-based compensation due to converted Zimmer Biomet awards recorded in the prior year six-month period that did not recur (for more information, see Note 3 to our condensed consolidated financial statements), partially offset by higher cost of products sold in the dental product category due to a change in product mix from our growing digital dentistry portfolio.discussed above in "Net Sales - Volume/Mix Trends."
Intangible asset amortization increased slightlydecreased in dollars and as a percentage of net sales in the three and six months ended June 30, 2023March 31, 2024 as compared to the same prior year periods,period, primarily due to the relatively fixed nature of amortization expense period over period.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 decreased in the three and six months ended June 30, 2023March 31, 2024 compared to the same prior year periods,period, primarily due to savings in the spine product category from the announcedour restructuring and other cost reduction initiatives. R&D expenses also decreased as a result of a decrease of $2.0 millioninitiatives, which resulted in share-basedreductions in compensation due to converted Zimmer Biomet awards recorded in the prior year six-month period that did not recur (for more information, see Note 3 to our condensed consolidated financial statements).and professional services fees.
Selling, general and administrative (“SG&A”) expenses increaseddecreased in dollars and as a percentage of net sales in the three and six months ended June 30, 2023March 31, 2024 as compared to the same prior year periods, primarily as a result of lower net sales, increased general and administrative costsperiod, generally due
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to us being a standalone public company for the entire six-month period ended June 30, 2023 compared to the four-month period ended June 30, 2022, and increased marketing and medical education events in the 2023 periods compared to the same prior year periods. These increases were partially offset by indemnification of certain legal costs by Zimmer Biomet in the six months ended June 30, 2023, savings resulting from theour announced restructuring initiatives, stricterand other cost containment measures on discretionary spending, as well as a $9.0 million decreasereduction 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 due to converted Zimmer Biomet awards recorded in the prior year six-month period that did not recur (for more information, see Note 3 to our condensed consolidated financial statements)expense ($1.1 million) and marketing expense ($1.0 million).
Expenses related toresulting from restructuring and other cost reduction initiatives relate to our exit of our spine products business in China, ourvarious restructuring plans initiated in April 2023 and June 2022, and Zimmer Biomet's restructuring plans initiated in the fourth quarters of 2019 and 2021.as discussed above. We recognized expensesexpense of $8.4$2.6 million and $5.1$1.2 million in the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, and $13.4 million and $5.8 millionrespectively. The expenses in the sixthree months ended June 30, 2023 and 2022, respectively. These expensesMarch 31, 2024 primarily related to employee termination benefits consultingand professional services fees and accelerated depreciation.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.statements included in Part I, Item 1 of this Quarterly Report.
Acquisition, integration, divestiture and related expenses decreasedinclude 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 threefair value of contingent consideration for acquisitions closed prior to the separation date and sixtransaction 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 June 30, 2023March 31, 2024 as compared to the same prior year periods,period, due primarily to lessdecreases in separation-related expenses ($1.3 million), partially offset by transaction costs incurred in connection with building out capabilities necessaryrelated to becoming a standalone, public company.the evaluation of strategic options for our portfolio ($1.0 million).
Other (Expense) Income, (Expense), net, Interest Expense, net, and Income Taxes
Our other (expense) income, (expense), 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 and six months ended June 30, 2023 increasedMarch 31, 2024 decreased compared to the same prior year periods,period, primarily due to higher average outstanding debt and increaseda shift in the allocation of interest rates.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.
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Our effective tax rate (“ETR”) on loss before income taxes was 22.7%(55.0)% and 66.9%(45.0)% for the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, and 5.1% and 42.1% for the six months ended June 30, 2023 and 2022, respectively. In the three months ended June 30, 2023, the income tax benefit was higher than the 21% U.S. federal statutory rate due to releases in prior year valuation allowances primarily driven by method changes in accounting for inventories for tax purposes in the U.S. In the six months ended June 30,both March 31, 2024 and 2023, the income tax benefit was lower than the 21% U.S. federal statutory rate due to losses in certain jurisdictions with fullnot benefited as a result of valuation allowances resulting in no tax benefit. In the three and six months ended June 30, 2022, the additionalunfavorable U.S. taxable income tax benefit compared to the statutory rate was driven by the impact of losses recorded prior to the distribution that were calculatedmodifications such as GILTI and shortfalls on a “carve-out” basis, which applied the accounting guidance as if we filed income tax returns on a standalone, separate return basis and are not reflective of the tax results we expect to generate in the future. Additionally, for the three and six months ended June 30, 2023 and 2022, profit in inventory recorded prior to the distribution is non-taxable as the inventory is sold post-separation to third parties, resulting in a significant benefit to the foreign rate differential.
During the six months ended June 30, 2022, income tax balances were adjusted to reflect the income tax positions after distribution, including those related to tax loss and credit carryforwards, other deferred tax assets and liabilities and valuation allowances. These separation-related adjustments resulted in a $3.9 million increase to the net deferred tax liability, primarily due to inventory and intangible assets transferred in the separation, tax rate changes and changes to the permanent reinvestment assertion in the post-separation environment. The increase in the net deferred tax liability was offset by a corresponding decrease in net parent investment.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.
Segment Operating Profit
| Net Sales |
|
| Operating Profit |
|
| Operating Profit as a |
| ||||||||||||||||
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||
(dollars in thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Dental |
| $ | 118,649 |
|
| $ | 118,149 |
|
| $ | 21,090 |
|
| $ | 24,973 |
|
|
| 17.8 | % |
|
| 21.1 | % |
Spine |
|
| 106,247 |
|
|
| 115,218 |
|
|
| 10,386 |
|
|
| 7,262 |
|
|
| 9.8 |
|
|
| 6.3 |
|
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| Net Sales |
|
| Operating Profit |
|
| Operating Profit as a |
| ||||||||||||||||
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||
(dollars in thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Dental |
| $ | 238,819 |
|
| $ | 238,718 |
|
| $ | 44,691 |
|
| $ | 50,632 |
|
|
| 18.7 | % |
|
| 21.2 | % |
Spine |
|
| 211,165 |
|
|
| 229,331 |
|
|
| 17,885 |
|
|
| 12,361 |
|
|
| 8.5 |
|
|
| 5.4 |
|
Sales in our dental segment in the three and six months ended June 30, 2023 increased from the same prior year periods, primarily due to an increase in demand for tooth replacement procedures combined with a growing digital dentistry market. Dental segment net sales in the six months ended June 30, 2023 were partially offset by the negative effect of changes in foreign exchange rates. Sales in our spine segment in the three months ended June 30, 2023 decreased from the same prior year period, primarily due to continued competition, distributor turnover and lower sales as a result of our exit from our spine products activities in China, partially offset by net spine product sales retained by Zimmer Biomet in the same prior year period in certain geographies where our separation and transition activities extended beyond the distribution date that did not recur in 2023 (for more information, see "After Distribution - Interim Operating Agreements" in Note 18 to our consolidated financial statements included in our Annual Report) and the positive impact of changes in foreign exchange rates. Spine segment net sales in the six months ended June 30, 2023 were negatively impacted by increased competition and lower sales due to our exit from our spine products activities in China, partially offset by new spine product sales retained by Zimmer Biomet in the same prior year period in certain geographies where our separation and transition activities extended beyond the distribution date that did not recur in 2023 and the positive impact of changes in foreign exchange rates.
In our dental segment, operating profit decreased for the three and six months ended June 30, 2023 compared to the same prior year periods, primarily due to higher cost of products sold due to a change in mix from our growing digital dentistry portfolio, as well as higher marketing costs related to events and conferences that we did not attend in the 2022 periods. In our spine segment, operating profit increased for the three and six months ended June 30, 2023 compared to the same prior year periods, primarily due to a reduction in inventory charges in the spine product category and lower SG&A and R&D costs from the announced restructuring and other cost reduction initiatives. Both segments benefited from reduced share-based compensation due to converted Zimmer Biomet awards recorded in the prior year period that did not recur (for more information, see Note 3 to our condensed consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
The following discussion represents the combined liquidity and capital resources of continuing and discontinued operations.
As of June 30, 2023March 31, 2024 and December 31, 2022,2023, we had $66.2$68.6 million and $89.6$87.8 million, respectively, in cash and cash equivalents.
Sources of Liquidity
Cash flows used in operating activities were $6.9$11.5 million and $7.2 million in the sixthree months ended June 30,March 31, 2024 and 2023 comparedrespectively. Working capital for the three months ended March 31, 2024 used cash of $5.4 million primarily due to cash flowsused by accounts payable and accrued liabilities and accounts receivable, partially offset by cash provided by operating activities of $30.7 million inincome taxes and inventories. Working capital for the sixthree months ended June 30, 2022. An increase inMarch 31, 2023 used cash used in working capital was primarily attributableof $7.4 million due to an increase in cash used for related party payables, income taxes, accounts payable and accrued liabilities and a decrease in cash provided by inventories, mostlyaccounts receivable, partially offset by an increase in cash provided by related party receivables, income taxes and accounts receivable and a decrease in cash used for prepayments.inventories.
Cash flows used in investing activities were $7.1$4.1 million and $5.8 million in the sixthree months ended June 30,March 31, 2024 and 2023, compared to $14.2 million in the six months ended June 30, 2022.respectively. The decreasereduction in cash used in investing activities was primarily related to the decreasereduction in capital expenditures for instruments and other property, plant and equipment due to efforts to optimize our product portfolio and manufacturing and logistics network.equipment.
Cash flows used in financing activities were $9.8$1.4 million inand $10.9 million for the sixthree months ended June 30,March 31, 2024 and 2023, compared to cash flows provided by financing activities of $18.7 million in the six months ended June 30, 2022.respectively. In the currentprior year period, we prepaidmade optional prepayments on the debt repaymentsTerm Loan of $10.5 million, which represented the aggregate amount of the mandatory scheduled forprincipal payments due in the first halfsix months of 2024 (as discussed in Note 7 to our condensed consolidated financial statements). In the 2022 period, new borrowings under our Term Loan (as discussed in Note 7 to our condensed consolidated financial statements) were used primarily for a dividend paid to Zimmer Biomet at the time of the distribution.2024.
Liquidity and Capital Resources
For additional information regarding our current debt arrangements, including the term loan amortization schedule, see Note 109 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
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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 six-month periodthree months ended June 30, 2023March 31, 2024 to the application of our critical accounting estimates as described in our Annual Report.
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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.
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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, Chinese Renminbi, Israeli Shekel, New Zealand Dollar, Japanese Yen, British Pounds, Australian Dollars and Canadian Dollar and Swedish Krona.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, (expense), 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 growing due to the Credit Agreement.borrowings under our credit agreement. As of June 30, 2023,March 31, 2024, we had $525.9$511.9 million of floating rate debt potentially 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, increasedecrease our annual pre-tax lossearnings by $5.3$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.
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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 specificcountry-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.
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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 June 30, 2023March 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 June 30, 2023March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 1112 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.
YouCareful consideration should carefully considerbe 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. In addition, the COVID-19 pandemic could exacerbate or trigger other risks discussed in our Annual Report, any of which could materially affect our business, financial condition and results of operations.
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Item 5. Other InformationInformation.
During the three months ended June 30, 2023,March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules).
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Item 6. Exhibits.
Exhibit Index
Exhibit Number | Description | |
2.1^ | ||
2.2*^ | ||
3.1 |
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3.2 |
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10.1 |
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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 |
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104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
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^ 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.
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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: | By: | /s/ Richard Heppenstall | |
Richard Heppenstall | |||
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | |||
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