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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
(Mark One)
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|
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31,
2023
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number:
001-41242
ZIMVIE INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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87-2007795
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( State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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10225 Westmoor Drive
Westminster,
CO
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80021
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(303)
443-7500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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ZIMV
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The Nasdaq Stock Market LLC
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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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☐
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Emerging growth company
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☐
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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 April 28, 2023 was
26,380,737.
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: the effects of the COVID-19 global pandemic 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;
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 (“FDA”) 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 (“EU”) 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; 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, 2022 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 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
ii
PART I—FINANCIAL
INFORMATION
Item
1. Financial Statements.
ZIMVIE INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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For the Three Months Ended March 31,
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2023
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2022
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Net Sales
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Third party, net
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$
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225,088
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$
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234,682
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Related party, net
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339
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919
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Total Net Sales
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225,427
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235,601
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Cost of products sold, excluding intangible asset
amortization
|
|
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(70,717
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)
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|
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(85,010
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)
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Related party cost of products sold, excluding intangible asset
amortization
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|
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(328
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)
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|
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(797
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)
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Intangible asset amortization
|
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(20,509
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)
|
|
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(20,905
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)
|
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Research and development
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(15,373
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)
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|
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(17,653
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)
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Selling, general and administrative
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(127,968
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)
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(134,112
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)
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Restructuring and other cost reduction initiatives
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(4,975
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)
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(742
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)
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Acquisition, integration, divestiture and related
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(1,683
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)
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(9,005
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)
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Operating Expenses
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(241,553
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)
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|
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(268,224
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)
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Operating Loss
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(16,126
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)
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(32,623
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)
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Other (expense) income, net
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(906
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)
|
|
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255
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|
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Interest expense, net
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(8,966
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)
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|
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(711
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)
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Loss Before Income Taxes
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(25,998
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)
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(33,079
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)
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Income tax (expense) benefit
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(3,970
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)
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7,423
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Net Loss
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$
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(29,968
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)
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$
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(25,656
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)
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Net Loss Per Common Share - Basic
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$
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(1.14
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)
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$
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(0.98
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)
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Net Loss Per Common Share - Diluted
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(1.14
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)
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(0.98
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)
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS
OF
COMPREHENSIVE INCOME (LOSS)
(in thousands)
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For the Three Months Ended March 31,
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2023
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2022
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Net Loss
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$
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(29,968
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)
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$
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(25,656
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)
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Other Comprehensive Income (Loss):
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Foreign currency cumulative translation adjustments, net of
tax
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10,517
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(14,666
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)
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Total Other Comprehensive Income (Loss)
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10,517
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(14,666
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)
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Comprehensive Loss
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$
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(19,451
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)
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$
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(40,322
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)
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
ZIMVIE INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands, except per share data)
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March 31, 2023
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December 31, 2022
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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66,414
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$
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89,601
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Accounts receivable, net of allowance for credit losses of
$14,496 and
$15,026,
respectively
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174,996
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|
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168,961
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Related party receivable
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|
|
—
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8,483
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Inventories
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231,076
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233,854
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Prepaid expenses and other current assets
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31,686
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|
|
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36,964
|
|
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Total Current Assets
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504,172
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|
|
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537,863
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Property, plant and equipment, net of accumulated depreciation of
$393,883 and
$392,888,
respectively
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139,291
|
|
|
|
148,439
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Goodwill
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261,143
|
|
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259,999
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Intangible assets, net
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644,021
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|
|
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654,965
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Other assets
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39,432
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|
|
|
40,790
|
|
|
Total Assets
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$
|
1,588,059
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|
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$
|
1,642,056
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|
LIABILITIES AND EQUITY
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|
|
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|
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Current Liabilities:
|
|
|
|
|
|
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Accounts payable
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|
$
|
52,587
|
|
|
$
|
43,998
|
|
|
Related party payable
|
|
|
—
|
|
|
|
13,176
|
|
|
Income taxes payable
|
|
|
17,345
|
|
|
|
14,356
|
|
|
Other current liabilities
|
|
|
126,596
|
|
|
|
145,779
|
|
|
Total Current Liabilities
|
|
|
196,528
|
|
|
|
217,309
|
|
|
Deferred income taxes
|
|
|
95,768
|
|
|
|
98,062
|
|
|
Lease liability
|
|
|
20,655
|
|
|
|
22,287
|
|
|
Other long-term liabilities
|
|
|
9,515
|
|
|
|
13,561
|
|
|
Non-current portion of debt
|
|
|
521,990
|
|
|
|
532,233
|
|
|
Total Liabilities
|
|
|
844,456
|
|
|
|
883,452
|
|
|
Commitments and Contingencies (Note
11)
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value,
150,000 shares
authorized
Shares, issued and outstanding, of
26,381 and
26,222,
respectively
|
|
|
264
|
|
|
|
262
|
|
|
Preferred stock, $0.01 par
value,
15,000 shares
authorized,
0 shares
issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Additional paid in capital
|
|
|
901,476
|
|
|
|
897,028
|
|
|
Accumulated deficit
|
|
|
(77,500
|
)
|
|
|
(47,532
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(80,637
|
)
|
|
|
(91,154
|
)
|
|
Total Stockholders' Equity
|
|
|
743,603
|
|
|
|
758,604
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
1,588,059
|
|
|
$
|
1,642,056
|
|
The accompanying notes are an integral part of these
condensed consolidated
financial statements.
4
ZIMVIE INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,968
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,968
|
)
|
|
Stock activity under stock plans
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Net Parent
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Company
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Investment
|
|
|
Loss
|
|
|
Equity
|
|
|
Balance December 31, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,494,157
|
|
|
$
|
(42,780
|
)
|
|
$
|
1,451,377
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,307
|
)
|
|
|
(16,349
|
)
|
|
|
—
|
|
|
|
(25,656
|
)
|
|
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
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(32
|
)
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
12,430
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,430
|
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,666
|
)
|
|
|
(14,666
|
)
|
|
Balance March 31, 2022
|
|
$
|
261
|
|
|
$
|
878,948
|
|
|
$
|
(9,307
|
)
|
|
$
|
—
|
|
|
$
|
(57,446
|
)
|
|
$
|
812,456
|
|
The accompanying notes are an integral part of these
condensed consolidated
financial statements.
5
ZIMVIE INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(29,968
|
)
|
|
$
|
(25,656
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
32,631
|
|
|
|
32,554
|
|
|
Share-based compensation
|
|
|
4,841
|
|
|
|
13,472
|
|
|
Deferred income tax provision
|
|
|
(4,208
|
)
|
|
|
(17,901
|
)
|
|
Other non-cash items
|
|
|
1,556
|
|
|
|
122
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
Income taxes
|
|
|
7,047
|
|
|
|
11,258
|
|
|
Accounts receivable
|
|
|
(4,958
|
)
|
|
|
(10,117
|
)
|
|
Related party receivable
|
|
|
8,483
|
|
|
|
(24,214
|
)
|
|
Inventories
|
|
|
5,431
|
|
|
|
8,726
|
|
|
Prepaid expenses and other current assets
|
|
|
1,311
|
|
|
|
(15,423
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
(11,572
|
)
|
|
|
(8,639
|
)
|
|
Related party payable
|
|
|
(13,176
|
)
|
|
|
26,368
|
|
|
Other assets and liabilities
|
|
|
(4,614
|
)
|
|
|
(449
|
)
|
|
Net cash used in operating activities
|
|
|
(7,196
|
)
|
|
|
(9,899
|
)
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
Additions to instruments
|
|
|
(1,951
|
)
|
|
|
(4,040
|
)
|
|
Additions to other property, plant and equipment
|
|
|
(1,887
|
)
|
|
|
(2,047
|
)
|
|
Other investing activities
|
|
|
(1,994
|
)
|
|
|
(2,000
|
)
|
|
Net cash used in investing activities
|
|
|
(5,832
|
)
|
|
|
(8,087
|
)
|
|
Cash flows (used in) provided by financing activities:
|
|
|
|
|
|
|
|
Net transactions with Zimmer Biomet
|
|
|
—
|
|
|
|
6,920
|
|
|
Dividend paid to Zimmer Biomet
|
|
|
—
|
|
|
|
(540,567
|
)
|
|
Proceeds from term loans
|
|
|
—
|
|
|
|
595,000
|
|
|
Payments on term loans
|
|
|
(10,519
|
)
|
|
|
(34,000
|
)
|
|
Debt issuance costs
|
|
|
—
|
|
|
|
(5,170
|
)
|
|
Payments related to tax withholding for share-based
compensation
|
|
|
(417
|
)
|
|
|
(157
|
)
|
|
Proceeds from stock option activity
|
|
|
—
|
|
|
|
125
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(10,936
|
)
|
|
|
22,151
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
777
|
|
|
|
(305
|
)
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(23,187
|
)
|
|
|
3,860
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
89,601
|
|
|
|
100,399
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
66,414
|
|
|
$
|
104,259
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
1,664
|
|
|
$
|
494
|
|
|
Interest paid
|
|
|
8,121
|
|
|
|
355
|
|
The accompanying notes are an integral part of these
condensed consolidated
financial statements.
6
ZIMVIE INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
1. Background, Nature of Business and Basis of
Presentation
Background
On March 1, 2022, ZimVie Inc. ("ZimVie," "we," "us" and "our") and
Zimmer Biomet Holdings, Inc. ("Zimmer Biomet" or "Parent") entered
into a Separation and Distribution Agreement
(the "Separation Agreement"),
pursuant to which Zimmer Biomet agreed to spin off its dental and
spine businesses into ZimVie, a new, 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 to 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 to 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. 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.
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
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 dental implant solutions. 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, 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 to March 1, 2022, we existed and functioned as part of the
consolidated business of Zimmer Biomet. The accompanying condensed
consolidated financial statements are prepared on a standalone
basis and, for periods prior to March 1, 2022, were prepared on a
carveout basis from Zimmer Biomet’s consolidated financial
statements and accounting records, and, accordingly, may not be
indicative of 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 complete 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 statements
should be read in conjunction with the audited financial statements
and notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2022 ("Annual Report").
The results of operations 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 impacted 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 each of March 31, 2023 and December 31, 2022, we had
$1.5
million in restricted cash.
The restriction 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
(see Note 13 for further information).
Accounting Pronouncements Recently Issued
There are no recently issued accounting pronouncements that we have
not yet adopted that are expected to have a material effect on our
financial position, results of operations or cash flows.
2.
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
|
|
|
1,144
|
|
|
|
—
|
|
|
|
1,144
|
|
|
Balance at March 31, 2023
|
|
|
|
|
|
|
|
|
|
|
Goodwill, Gross
|
|
|
403,143
|
|
|
|
1,089,400
|
|
|
|
1,492,543
|
|
|
Accumulated impairment losses
|
|
|
(142,000
|
)
|
|
|
(1,089,400
|
)
|
|
|
(1,231,400
|
)
|
|
Goodwill, Net
|
|
$
|
261,143
|
|
|
$
|
—
|
|
|
$
|
261,143
|
|
The components of identifiable intangible assets were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
Trademarks
and Trade
Names
|
|
|
Customer Relationships
|
|
|
Other
|
|
|
Total
|
|
|
As of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
844,730
|
|
|
$
|
137,785
|
|
|
$
|
364,917
|
|
|
$
|
53,955
|
|
|
$
|
1,401,387
|
|
|
Accumulated amortization
|
|
|
(444,603
|
)
|
|
|
(63,012
|
)
|
|
|
(188,913
|
)
|
|
|
(49,894
|
)
|
|
|
(746,422
|
)
|
|
Total identifiable intangible assets
|
|
$
|
400,127
|
|
|
$
|
74,773
|
|
|
$
|
176,004
|
|
|
$
|
4,061
|
|
|
$
|
654,965
|
|
|
As of March 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
852,719
|
|
|
$
|
139,265
|
|
|
$
|
368,084
|
|
|
$
|
54,034
|
|
|
$
|
1,414,102
|
|
|
Accumulated amortization
|
|
|
(458,833
|
)
|
|
|
(65,738
|
)
|
|
|
(196,547
|
)
|
|
|
(48,963
|
)
|
|
|
(770,081
|
)
|
|
Total identifiable intangible assets
|
|
$
|
393,886
|
|
|
$
|
73,527
|
|
|
$
|
171,537
|
|
|
$
|
5,071
|
|
|
$
|
644,021
|
|
8
Estimated annual amortization expense for the years ending December
31, 2023 through 2027 based on exchange rates in effect at December
31, 2022 is as follows (in millions):
|
|
|
|
|
|
For the Years Ending December 31,
|
|
|
|
|
2023 (remaining)
|
|
$
|
55.4
|
|
|
2024
|
|
|
72.4
|
|
|
2025
|
|
|
70.6
|
|
|
2026
|
|
|
68.9
|
|
|
2027
|
|
|
63.6
|
|
|
Thereafter
|
|
|
313.1
|
|
|
Total
|
|
$
|
644.0
|
|
3. 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.
ZimVie Awards
Effective March 1, 2022, ZimVie established the
ZimVie Inc. 2022 Stock Incentive Plan (the "2022
Plan"). A total of
3.0
million shares of common stock are authorized for future grants and
awards under the 2022 Plan. Shares issued pursuant to converted
Zimmer Biomet share-based awards do not count against this limit.
At March 31, 2023,
1.7
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. 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.
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 as expense related to corporate or shared
employees allocated to us on a proportional cost allocation method,
primarily based on revenue.
Share-based compensation expense was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Share-based compensation expense recognized in:
|
|
|
|
|
|
|
|
Cost of products sold, excluding intangible asset
amortization
|
|
$
|
265
|
|
|
$
|
1,797
|
|
|
Research and development
|
|
|
422
|
|
|
|
2,078
|
|
|
Selling, general and administrative
|
|
|
4,154
|
|
|
|
9,597
|
|
|
|
|
|
4,841
|
|
|
|
13,472
|
|
|
Tax benefit related to awards
|
|
|
(1,209
|
)
|
|
|
(3,148
|
|