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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
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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)
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Delaware |
87-2007795 |
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4555 Riverside Drive Palm Beach Gardens, FL |
33410 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (800) 342-5454
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 |
Common Stock, par value $0.01 per share |
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ZIMV |
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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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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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 July 26, 2024 was 27,571,804.
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 and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators, such as more stringent requirements for regulatory clearance of products; competition; the impact of healthcare reform measures; reductions in reimbursement levels by third-party payors; cost containment efforts sponsored by government agencies, legislative bodies, the private sector and healthcare group purchasing organizations, including the volume-based procurement process in China; control of costs and expenses; dependence on a limited number of suppliers for key raw materials and outsourced activities; the ability to obtain and maintain adequate intellectual property protection; breaches or failures of our information technology systems or products, including by cyberattack, unauthorized access or theft; the ability to retain the independent agents and distributors who market our products; our ability to attract, retain and develop the highly skilled employees we need to support our business; the effect of mergers and acquisitions on our relationships with customers, suppliers and lenders and on our operating results and businesses generally; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including European Union rules on state aid, or examinations by tax authorities; product liability, intellectual property and commercial litigation losses; changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic and international economic conditions, including inflation and interest rate and currency exchange rate fluctuations; the effects of global pandemics and other adverse public health developments on the global economy, our business and operations and the business and operations of our suppliers and customers, including the deferral of elective procedures and our ability to collect accounts receivable; and the impact of the ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected countries.
See also Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 and Part II, Item 1A, "Risk Factors" of this Quarterly Report 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.
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net Sales |
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Third party, net |
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$ |
116,811 |
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$ |
118,649 |
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$ |
235,006 |
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$ |
238,819 |
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Related party, net |
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— |
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— |
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— |
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236 |
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Total Net Sales |
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116,811 |
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118,649 |
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235,006 |
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239,055 |
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Cost of products sold, excluding intangible asset amortization |
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(43,517 |
) |
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(44,465 |
) |
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(87,775 |
) |
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(87,340 |
) |
Related party cost of products sold, excluding intangible asset amortization |
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— |
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— |
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— |
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(231 |
) |
Intangible asset amortization |
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(5,999 |
) |
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(6,806 |
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(12,022 |
) |
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(13,600 |
) |
Research and development |
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(6,579 |
) |
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(6,458 |
) |
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(13,359 |
) |
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(13,688 |
) |
Selling, general and administrative |
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(62,384 |
) |
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(62,573 |
) |
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(122,714 |
) |
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(129,547 |
) |
Restructuring and other cost reduction initiatives |
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(398 |
) |
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(1,365 |
) |
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(2,977 |
) |
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(2,538 |
) |
Acquisition, integration, divestiture and related |
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(4,621 |
) |
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(1,370 |
) |
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(5,657 |
) |
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(2,711 |
) |
Operating Expenses |
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(123,498 |
) |
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(123,037 |
) |
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(244,504 |
) |
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(249,655 |
) |
Operating Loss |
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(6,687 |
) |
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(4,388 |
) |
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(9,498 |
) |
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(10,599 |
) |
Other income (expense), net |
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3,010 |
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(170 |
) |
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2,701 |
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(201 |
) |
Interest income |
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1,965 |
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735 |
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2,472 |
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1,360 |
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Interest expense |
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(5,066 |
) |
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(5,934 |
) |
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(9,940 |
) |
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(11,633 |
) |
Loss from continuing operations before income taxes |
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(6,778 |
) |
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(9,757 |
) |
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(14,265 |
) |
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(21,073 |
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(Provision) benefit for income taxes from continuing operations |
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(2,775 |
) |
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3,847 |
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(6,849 |
) |
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(1,230 |
) |
Net Loss from Continuing Operations of ZimVie Inc. |
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(9,553 |
) |
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(5,910 |
) |
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(21,114 |
) |
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(22,303 |
) |
Earnings (loss) from discontinued operations, net of tax |
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5,539 |
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(17,463 |
) |
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9,339 |
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(31,038 |
) |
Net Loss of ZimVie Inc. |
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$ |
(4,014 |
) |
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$ |
(23,373 |
) |
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$ |
(11,775 |
) |
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$ |
(53,341 |
) |
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Basic (Loss) Earnings Per Common Share: |
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Continuing operations |
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$ |
(0.35 |
) |
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$ |
(0.22 |
) |
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$ |
(0.77 |
) |
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$ |
(0.85 |
) |
Discontinued operations |
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0.20 |
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(0.67 |
) |
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0.34 |
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(1.17 |
) |
Net Loss |
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$ |
(0.15 |
) |
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$ |
(0.89 |
) |
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$ |
(0.43 |
) |
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$ |
(2.02 |
) |
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Diluted (Loss) Earnings Per Common Share: |
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Continuing operations |
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$ |
(0.35 |
) |
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$ |
(0.22 |
) |
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$ |
(0.77 |
) |
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$ |
(0.85 |
) |
Discontinued operations |
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0.20 |
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|
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(0.67 |
) |
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0.34 |
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(1.17 |
) |
Net Loss |
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$ |
(0.15 |
) |
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$ |
(0.89 |
) |
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$ |
(0.43 |
) |
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$ |
(2.02 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Net Loss of ZimVie Inc. |
|
$ |
(4,014 |
) |
|
$ |
(23,373 |
) |
|
$ |
(11,775 |
) |
|
$ |
(53,341 |
) |
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustments, net of tax |
|
|
4,340 |
|
|
|
580 |
|
|
|
(11,099 |
) |
|
|
11,097 |
|
Total Other Comprehensive Income (Loss) |
|
|
4,340 |
|
|
|
580 |
|
|
|
(11,099 |
) |
|
|
11,097 |
|
Comprehensive Income (Loss) |
|
$ |
326 |
|
|
$ |
(22,793 |
) |
|
$ |
(22,874 |
) |
|
$ |
(42,244 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
78,601 |
|
|
$ |
71,511 |
|
Accounts receivable, net of allowance for credit losses of $2,394 and $3,222, respectively |
|
|
70,526 |
|
|
|
65,168 |
|
Inventories |
|
|
71,831 |
|
|
|
79,600 |
|
Prepaid expenses and other current assets |
|
|
19,504 |
|
|
|
23,825 |
|
Current assets of discontinued operations |
|
|
33,391 |
|
|
|
242,773 |
|
Total Current Assets |
|
|
273,853 |
|
|
|
482,877 |
|
Property, plant and equipment, net of accumulated depreciation of $129,165 and $126,624, respectively |
|
|
50,394 |
|
|
|
54,167 |
|
Goodwill |
|
|
259,769 |
|
|
|
262,111 |
|
Intangible assets, net |
|
|
103,038 |
|
|
|
114,354 |
|
Note receivable |
|
|
60,270 |
|
|
|
— |
|
Other assets |
|
|
29,862 |
|
|
|
26,747 |
|
Noncurrent assets of discontinued operations |
|
|
12,600 |
|
|
|
265,089 |
|
Total Assets |
|
$ |
789,786 |
|
|
$ |
1,205,345 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
27,160 |
|
|
$ |
27,785 |
|
Income taxes payable |
|
|
2,498 |
|
|
|
2,863 |
|
Other current liabilities |
|
|
61,685 |
|
|
|
67,108 |
|
Current liabilities of discontinued operations |
|
|
49,781 |
|
|
|
75,858 |
|
Total Current Liabilities |
|
|
141,124 |
|
|
|
173,614 |
|
Deferred income taxes |
|
|
57 |
|
|
|
265 |
|
Lease liability |
|
|
9,835 |
|
|
|
9,080 |
|
Other long-term liabilities |
|
|
9,171 |
|
|
|
9,055 |
|
Non-current portion of debt |
|
|
235,110 |
|
|
|
508,797 |
|
Noncurrent liabilities of discontinued operations |
|
|
390 |
|
|
|
95,041 |
|
Total Liabilities |
|
|
395,687 |
|
|
|
795,852 |
|
Commitments and Contingencies (Note 12) |
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
Common stock, $0.01 par value, 150,000 shares authorized Shares, issued and outstanding, of 27,571 and 27,076, respectively |
|
|
276 |
|
|
|
271 |
|
Preferred stock, $0.01 par value, 15,000 shares authorized, 0 shares issued and outstanding |
|
|
— |
|
|
|
— |
|
Additional paid in capital |
|
|
930,471 |
|
|
|
922,996 |
|
Accumulated deficit |
|
|
(452,589 |
) |
|
|
(440,814 |
) |
Accumulated other comprehensive loss |
|
|
(84,059 |
) |
|
|
(72,960 |
) |
Total Stockholders' Equity |
|
|
394,099 |
|
|
|
409,493 |
|
Total Liabilities and Stockholders' Equity |
|
$ |
789,786 |
|
|
$ |
1,205,345 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Total |
|
|
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
Balance March 31, 2024 |
|
$ |
273 |
|
|
$ |
925,030 |
|
|
$ |
(448,575 |
) |
|
$ |
(88,399 |
) |
|
$ |
388,329 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(4,014 |
) |
|
|
— |
|
|
|
(4,014 |
) |
Stock plan activity |
|
|
3 |
|
|
|
(235 |
) |
|
|
— |
|
|
|
— |
|
|
|
(232 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
5,676 |
|
|
|
— |
|
|
|
— |
|
|
|
5,676 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,340 |
|
|
|
4,340 |
|
Balance June 30, 2024 |
|
$ |
276 |
|
|
$ |
930,471 |
|
|
$ |
(452,589 |
) |
|
$ |
(84,059 |
) |
|
$ |
394,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2023 |
|
$ |
264 |
|
|
$ |
901,476 |
|
|
$ |
(77,500 |
) |
|
$ |
(80,637 |
) |
|
$ |
743,603 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(23,373 |
) |
|
|
— |
|
|
|
(23,373 |
) |
Stock plan activity |
|
|
1 |
|
|
|
1,216 |
|
|
|
— |
|
|
|
— |
|
|
|
1,217 |
|
Share-based compensation expense |
|
|
— |
|
|
|
5,815 |
|
|
|
— |
|
|
|
— |
|
|
|
5,815 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
580 |
|
|
|
580 |
|
Balance June 30, 2023 |
|
$ |
265 |
|
|
$ |
908,507 |
|
|
$ |
(100,873 |
) |
|
$ |
(80,057 |
) |
|
$ |
727,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Total |
|
|
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
Balance December 31, 2023 |
|
$ |
271 |
|
|
$ |
922,996 |
|
|
$ |
(440,814 |
) |
|
$ |
(72,960 |
) |
|
$ |
409,493 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(11,775 |
) |
|
|
— |
|
|
|
(11,775 |
) |
Stock plan activity |
|
|
5 |
|
|
|
(1,675 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,670 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
9,150 |
|
|
|
— |
|
|
|
— |
|
|
|
9,150 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,099 |
) |
|
|
(11,099 |
) |
Balance June 30, 2024 |
|
$ |
276 |
|
|
$ |
930,471 |
|
|
$ |
(452,589 |
) |
|
$ |
(84,059 |
) |
|
$ |
394,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2022 |
|
$ |
262 |
|
|
$ |
897,028 |
|
|
$ |
(47,532 |
) |
|
$ |
(91,154 |
) |
|
$ |
758,604 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(53,341 |
) |
|
|
— |
|
|
|
(53,341 |
) |
Stock plan activity |
|
|
3 |
|
|
|
823 |
|
|
|
— |
|
|
|
— |
|
|
|
826 |
|
Share-based compensation expense |
|
|
— |
|
|
|
10,656 |
|
|
|
— |
|
|
|
— |
|
|
|
10,656 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,097 |
|
|
|
11,097 |
|
Balance June 30, 2023 |
|
$ |
265 |
|
|
$ |
908,507 |
|
|
$ |
(100,873 |
) |
|
$ |
(80,057 |
) |
|
$ |
727,842 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZIMVIE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows used in operating activities: |
|
|
|
|
|
|
Net loss of ZimVie Inc. |
|
$ |
(11,775 |
) |
|
$ |
(53,341 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
16,917 |
|
|
|
64,588 |
|
Share-based compensation |
|
|
9,150 |
|
|
|
10,656 |
|
Deferred income tax provision |
|
|
(3,458 |
) |
|
|
(7,935 |
) |
Loss on disposal of fixed assets |
|
|
430 |
|
|
|
1,129 |
|
Other non-cash items |
|
|
2,370 |
|
|
|
1,380 |
|
Gain on sale of spine disposal group (Note 2) |
|
|
(22,427 |
) |
|
|
— |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
Income taxes |
|
|
5,706 |
|
|
|
(16,023 |
) |
Accounts receivable |
|
|
(8,648 |
) |
|
|
1,271 |
|
Related party receivable |
|
|
— |
|
|
|
8,483 |
|
Inventories |
|
|
10,580 |
|
|
|
8,401 |
|
Prepaid expenses and other current assets |
|
|
(927 |
) |
|
|
(2,097 |
) |
Accounts payable and accrued liabilities |
|
|
(6,206 |
) |
|
|
(4,825 |
) |
Related party payable |
|
|
— |
|
|
|
(13,177 |
) |
Other assets and liabilities |
|
|
(187 |
) |
|
|
(5,450 |
) |
Net cash used in operating activities |
|
|
(8,475 |
) |
|
|
(6,940 |
) |
Cash flows provided by (used in) investing activities: |
|
|
|
|
|
|
Additions to instruments |
|
|
(1,316 |
) |
|
|
(1,951 |
) |
Additions to other property, plant and equipment |
|
|
(2,093 |
) |
|
|
(3,154 |
) |
Proceeds from sale of spine disposal group, net of cash disposed |
|
|
291,123 |
|
|
|
— |
|
Other investing activities |
|
|
(2,015 |
) |
|
|
(1,994 |
) |
Net cash provided by (used in) investing activities |
|
|
285,699 |
|
|
|
(7,099 |
) |
Cash flows used in financing activities: |
|
|
|
|
|
|
Proceeds from debt |
|
|
— |
|
|
|
4,760 |
|
Payments on debt |
|
|
(275,000 |
) |
|
|
(15,279 |
) |
Payments related to tax withholding for share-based compensation |
|
|
(1,670 |
) |
|
|
(419 |
) |
Proceeds from stock plan activity |
|
|
— |
|
|
|
1,167 |
|
Net cash used in financing activities |
|
|
(276,670 |
) |
|
|
(9,771 |
) |
Effect of exchange rates on cash and cash equivalents |
|
|
(5,627 |
) |
|
|
421 |
|
Decrease in cash and cash equivalents |
|
|
(5,073 |
) |
|
|
(23,389 |
) |
Cash and cash equivalents, beginning of year |
|
|
87,768 |
|
|
|
89,601 |
|
Cash and cash equivalents, end of period |
|
$ |
82,695 |
|
|
$ |
66,212 |
|
Presentation includes cash of both continuing and discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
3,340 |
|
|
$ |
18,755 |
|
Interest paid |
|
|
14,143 |
|
|
|
17,452 |
|
Promissory note receivable issued in connection with the sale of spine disposal group |
|
|
60,000 |
|
|
|
— |
|
Interest received in-kind |
|
|
1,500 |
|
|
|
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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") entered into a Separation and Distribution Agreement (the "Separation Agreement"), pursuant to which Zimmer Biomet agreed to spin off its spine and dental businesses into ZimVie. The distribution resulted in ZimVie becoming a standalone, publicly traded company. Following the distribution, Zimmer Biomet initially retained 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. 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.
On December 15, 2023, we entered into a definitive agreement to sell our spine segment to an affiliate of H.I.G. Capital (the "Buyer") 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 accrues interest at a rate of 10% per annum, compounded semi-annually, and interest is 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, but including cash disposed of $26.1 million. See Notes 2 and 7 for additional discussion.
Nature of Business
ZimVie is a leading medical technology company dedicated to enhancing the quality of life for dental patients worldwide. We develop, manufacture and market a comprehensive portfolio of products and solutions designed to support dental tooth replacement and restoration procedures. 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. Prior to the closing of the sale of our spine segment, our operations were principally managed on a products basis and included two operating segments, 1) the dental products segment, and 2) the spine products segment.
Since the sale of our spine segment, our core services include designing, manufacturing and distributing dental implant systems. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing a more natural restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation. Our key products include the T3® Implant, Tapered Screw-Vent Implant System, Trabecular Metal Dental Implant, BellaTek Encode Impression System and Puros Allograft Particulate.
Prior to the sale of our spine segment, the core services of our spine segment included 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 provided devices that promote bone healing. Other differentiated products in our spine portfolio included Mobi-C® Cervical Disc, a motion-preserving alternative to fusion for patients with cervical disc disease, and The Tether, a novel non-fusion device for treatment of pediatric scoliosis.
Basis of Presentation
The accompanying condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, the condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of shareholders' equity for the three and six months ended June 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, of ZimVie are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for the fair statement of such condensed consolidated financial statements have been made. The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report. During the three months ended March 31, 2024, we recorded out of period adjustments that increased the Loss from continuing operations before income taxes and reduced Earnings from discontinued operations, net of tax, by $1.8 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 or six months ended June 30, 2024, nor were they material to previously issued interim and annual consolidated financial statements.
Restricted Cash - As of both June 30, 2024 and December 31, 2023, we had $1.5 million in restricted cash. The restriction as of June 30, 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.
Sale of Spine Segment
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 had a major effect on operations and financial results. The assets and liabilities associated with this segment are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheets. The disclosures presented in the notes to the condensed consolidated financial statements are presented on a continuing operations basis, unless otherwise noted.
Accounting Pronouncements Recently Issued
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. This ASU amends the interim and annual disclosure requirements related to a variety of subtopics in the Accounting Standards Codification, including those focusing on accounting changes, earnings per share, debt and repurchase agreements. The guidance will be applied prospectively. The effective date for each amendment will be the date when the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. We are currently evaluating the effect of this ASU, but we do not expect it will have a material impact on our condensed consolidated financial statements or disclosures.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The key amendments require disclosure of significant segment expenses on an annual and interim basis that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, including other segment items by reportable segment and a description of their composition, and to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Topic 280, Segment Reporting, in interim periods as well. This ASU includes certain clarifications for measuring a segment's profit or loss in assessment by the CODM, disclosure of title and position of the CODM and an explanation of how the CODM uses the reported measures in assessing segment performance and deciding how to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect the adoption of this ASU to affect our financial position or our results of operations, but expect it will result in additional disclosures.
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments included in the ASU related to rate reconciliation, income taxes paid disclosures and other disclosures requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2024. We are currently in the process of evaluating the effect of this ASU.
In March 2024, the SEC adopted final rules requiring public entities to provide certain climate-related information in their registration statements and annual reports. As part of the disclosures, entities will be required to quantify certain effects of severe weather events and other natural conditions in a note to their consolidated financial statements. While the SEC voluntarily stayed the rules due to pending judicial review, the rules in their current form would be effective for accelerated filers for annual periods beginning after December 15, 2025. We are currently in the process of evaluating the effect of these final rules.
Other recently issued ASUs, excluding ASUs discussed above, were assessed and determined to be not applicable, or are not expected to have a material impact on our condensed consolidated financial statements or disclosures.
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, but including cash disposed of $26.1 million. We recognized a gain on the sale of $11.3 million, which is included in Earnings (loss) from discontinued operations and primarily related to transaction costs incurred related to the sale. The transfer of spine business activities in certain jurisdictions ("Delayed Transfer Locations") is deferred until the Buyer has met various legal and regulatory requirements in those jurisdictions. Until such transfer, we continue to control and operate these Delayed Transfer Locations and therefore we continue to consolidate the assets and liabilities and results of operations within discontinued operations in the condensed consolidated balance sheet and statement of operations. Details of the assets and liabilities and results of operations not transferred to the Buyer as of June 30, 2024 are included below. Net profit or loss of the Delayed Transfer Locations are transferred to the Buyer on a monthly basis. The net profit or loss to be transferred to the Buyer is included in Other expense, net within discontinued operations. We currently expect the Delayed Transfer Locations to be transferred within one year of the closing date of the sale. We expect to recognize adjustments to the gain on sale of the spine disposal group as the spine business in each deferred jurisdiction is transferred to the Buyer.
In conjunction with the sale of our spine segment, 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 is 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):
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net Sales |
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Third party, net |
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$ |
14,575 |
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$ |
106,247 |
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$ |
108,399 |
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$ |
211,165 |
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Related party, net |
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— |
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— |
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— |
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103 |
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Total Net Sales |
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14,575 |
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106,247 |
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108,399 |
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211,268 |
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Cost of products sold, excluding intangible asset amortization |
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(6,053 |
) |
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(30,035 |
) |
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(34,494 |
) |
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(57,877 |
) |
Related party cost of products sold, excluding intangible asset amortization |
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— |
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— |
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— |
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(97 |
) |
Intangible asset amortization |
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— |
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(13,857 |
) |
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— |
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(27,572 |
) |
Research and development |
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(437 |
) |
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(6,773 |
) |
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(7,012 |
) |
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(14,916 |
) |
Selling, general and administrative |
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(8,097 |
) |
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(65,907 |
) |
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(62,219 |
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(126,902 |
) |
Restructuring and other cost reduction initiatives |
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(43 |
) |
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(7,080 |
) |
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(1,894 |
) |
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(10,882 |
) |
Acquisition, integration, divestiture and related |
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(5,397 |
) |
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(26 |
) |
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(11,770 |
) |
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(368 |
) |
Other expense, net |
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(301 |
) |
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768 |
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(644 |
) |
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(107 |
) |
Interest expense, net (1) |
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(988 |
) |
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(3,806 |
) |
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(6,282 |
) |
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(7,698 |
) |
Loss from discontinued operations before income taxes |
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(6,741 |
) |
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(20,469 |
) |
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(15,916 |
) |
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(35,151 |
) |
Adjustment of spine disposal group to fair value (2) |
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— |
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— |
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11,143 |
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— |
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Gain on sale of spine disposal group |
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11,284 |
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— |
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11,284 |
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— |
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Benefit for income taxes from discontinued operations |
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996 |
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3,006 |
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2,828 |
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4,113 |
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Earnings (loss) from discontinued operations, net of tax |
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$ |
5,539 |
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$ |
(17,463 |
) |
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$ |
9,339 |
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$ |
(31,038 |
) |
(1)A portion of the interest on our Term Loan (as defined and described in Note 8) has been allocated to discontinued operations consistent with the amount of proceeds used to repay a portion of the amounts outstanding under our Term Loan in accordance with our Credit Agreement (as defined and described in Note 8).
(2)We performed an impairment analysis of the spine segment in December 2023 on a held-for-sale basis. The fair value of consideration to be received upon closure of the transaction was less than the carrying value of the spine segment's net assets, resulting in a write-down of $289.5 million. We updated our analysis as of March 31, 2024, immediately prior to the sale, which resulted in a reduction of the December 2023 write-down of $11.1 million.
Details of assets and liabilities of discontinued operations are as follows (in thousands):
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As of |
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June 30, 2024 |
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December 31, 2023 |
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Cash and cash equivalents |
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$ |
4,094 |
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$ |
16,257 |
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Accounts receivable, less allowance for credit losses |
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15,026 |
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83,871 |
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Inventories |
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14,139 |
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130,430 |
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Prepaid expenses and other current assets |
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132 |
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12,215 |
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Total Current Assets of Discontinued Operations |
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33,391 |
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242,773 |
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Property, plant and equipment, net |
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11,280 |
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62,692 |
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Intangible assets, net |
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— |
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477,110 |
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Other assets |
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1,320 |
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14,743 |
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Total Noncurrent Assets of Discontinued Operations |
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12,600 |
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554,545 |
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Accounts payable |
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1,128 |
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24,186 |
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Income taxes payable |
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