Good afternoon. Thanks for joining us on day three of the 23rd Annual Needham Healthcare conference. My name's David Saxon. I'm an analyst on the MedTech Research Team here at Needham & Company. With me today, we have the ZimVie team with CEO Vafa Jamali and CFO Rich Heppenstall. So this afternoon's session, it's going to be a fireside chat. If anyone in the audience would like to ask questions, you can submit them electronically through the Needham Conference portal, or you can feel free to email them to me at dsaxon@needhamco.com, and I'll do my best to work them in. So with that, thanks so much, Vafa and Rich, for joining this afternoon. I guess maybe we'll start briefly on the spine deal and then jump into questions on the dental business. So maybe just briefly talk about the spine sale, summarize the deal, and then maybe talk about what kind of balance sheet moves you did or have done over the last week and a half since it closed. Great. Thanks for having us, David, and the team from Needham. Appreciate it. We're happy to be here. So when we first spun out in March of 2022, our first set of questions were always, "Why do you have so much debt? And why do you have a spine and dental business? Where's the synergy there?" So it was something that was pretty much not our controllable factor that we had to address fairly regularly. But we did know that that was something that we had to address in one way and pick a path and then find a way to leadership with these businesses. So the spine deal, obviously, was directly in line with that, where we felt like a dental company with a strong portfolio would be a really, really good place to be. With it, we would go ahead and pay down a considerable amount of our debt, leaving us with a really good position. Rich, maybe a little detail on what we did with the proceeds would be useful to the group here. Yeah. Yeah. Thanks, Vafa. And thanks for having us, David. Yeah, when we announced the deal, and I think it's important to baseline, we said that we were going to end up with net debt of less than $200 million one year post the closure of the sale. At our press release that we announced at the closure of the spine deal on April 1st, we basically said that we were going to be repaying immediately $275 million of debt, which we did do on April 1st with the proceeds of the spine sale. In addition to that, we also estimated our cash balance. As of April 2nd, we estimated that to be about $66 million. So when you take into consideration both of those two numbers, we actually yielded a net debt number at the beginning of April of $168 million, which is $32 million lower than what we said one year post close. And the way we did that is we had conveyed a few more people with the spine deal and just did a better job of taking out kind of costs earlier on in the process. And so we're really pleased with our net debt position and delivering an additional $32 million from debt holders to equity holders. And so when you consider where our net debt position is and you consider our 15% EBITDA+ margin commitment on $455 million+ revenue one year post close, that's going to get us to just under 2.5x levered is how the math works. I think from a capital allocation perspective, one of the things that we did is we prepaid with the proceeds of the debt all of our required principal payments under our term loan until February of 2027 when the facility matures. We don't have any more required principal payments to make. We just have to make the interest payments if we don't want to. We've got a $175 million revolver that remains undrawn. We're in a really good place from a balance sheet perspective, have a lot of financial flexibility as we move forward. Okay. Got it. I'll have some follow-ups later in the fireside about margins and capital allocation. But I did just want to follow up on something you said, Rich. It sounded like you, I guess, moved more headcount than expected with this spine sale. So does that just change the cadence to 15%+, or does that kind of raise that bar to maybe 16? Yeah. No, I think at this point, I think it keeps it. I think where we also got savings from was we anticipated that we were going to be spending more money to right-size the organization, right, in kind of the Q1 timeframe. And we didn't spend nearly as much as we thought we would have. We managed through attrition, right? There was some larger conveyance. And so I think it was more kind of a cash benefit is kind of the way that I think about it and on how we were able to repay more debt than we said. Okay. Got it. All right. Well, yeah, we'll circle back later on. But I wanted to talk about the dental business while now it's the only business. So maybe just talk about your positioning in the dental market and how you think you can take share and grow above the mark now that you're a pure-play dental business. So in the last couple of years, we've spent a lot of time on our portfolio. So we feel pretty good about the portfolio. We like the new implants that we've launched. The customer receptivity's been fantastic. It's been a premium-priced dental implant that, again, has been sticky. And we've really wrapped that around a digital portfolio, which has been very intuitive, which is allowing more adoption. We still think that the fundamental benefit of the dental market is it's only about 25% adopted in terms of tooth replacement. And then within that category, only about 20% are adopting surgical guides, for example. And we see that being a huge, huge leap towards more and more usage of dental implants from a practitioner's point of view. So we think that it's an enabler of a much faster adoption cycle. So we'll continue to pour gas on that part of the portfolio in terms of getting digital adoption, training within our facilities, and then creating the implants that have durability, sustainability right at the beginning. There's a lot of things that we're doing that I think is helping us. And meanwhile, just filling out little bits of gaps where the product portfolio maybe has a gap, we've been able to fill it. Again, like I said, the portfolio's been really, really good. And with these pieces that go around it, we think that we can continue to do better than the market. Okay. Got it. So I mean, it sounds like you don't really think you need any other product category outside of implants, biomaterials, software, or digital. I think there's enough opportunity there still where we could innovate around some big procedures that could use some more innovation, like full-arch procedures that are costly, they're timely, they require a lot of skill, and us using our capabilities to really modernize those and make them much more intuitive to the practitioner. What we've really focused on is the workplace and the workflow of the practitioner. And that, we think, has a direct benefit to the patient, to the practice, to outcomes, etc., etc. So I think that outside of just really small portfolio additions, we don't expect ZimVie to go into adjacencies that won't be immediately accretive to us. I don't think we need to do that. I don't think we can leverage our sales force that way, ideally. I do think that we'll be more of a singles and doubles in terms of how we kind of grow the portfolio. Okay. Got it. All right. So from just a share perspective, I mean, I guess looking specifically at the premium category, you're probably a low double-digit player. If we include value, maybe you're a mid-single-digit player. I mean, is that how you think about it or directionally in the right ballpark? Yeah. Because we're selective on what countries we're in, we actually do quite well in the countries we select to be in. So the top five that we select, we do really, really well. As you apply that globally, you start to lose some share. For example, we basically left China after VBP. So that would be a big market that we would not be participating in. But I do think that we're happy with where we are. It gives us enough insights into those markets. We can do well. We can invest in those markets. And we can bring all of our technology into them. So I think that's the right way to look at it. But we do only look at ourselves for the premium part of the portfolio. Okay. Got it. All right. So I mean, I guess just on premium implants, I mean, they tend to be higher priced, obviously. So do you get any pushback on pricing? And then in the average year, what is typical pricing pressure for you guys? Yeah. Pricing is top of mind for everybody. We have not had a tremendous amount of price pressure. One way that's indicated is we've got pretty good growth in DSO markets. DSOs have been a great grower for us. Typically, those do come with a price concession at exchange for volume. We're happy to make that trade. On regular day-to-day, we don't see that to be a huge amount of pressure. Okay. All right. So looking specifically at the first quarter, for patient volume growth, I guess, what's assumed in the first-quarter guidance? You're guiding $115-$118. And then is there any difference from a geographic perspective? Is the U.S. supposed to be or expected to be weaker or stronger than OUS? Yeah. So the U.S. has been the market that's had the greatest headwinds. And I think that'll continue for Q1. So that's the market that's had the toughest go. In the U.S., we've increased our number of customers, like I just said. But our biggest users, the highest specialists, have dropped slightly. So if they were doing 10, they're doing nine. And it's not as a result of them changing brands or going down market or anything like that. It's just consumer volume has just kind of come down a little bit. So our reps are bullish. Our users are bullish. But the market just is a little bit more sluggish. India is doing well. So it's growing. Asia-Pac is doing well, I said, with the exception of China for us. I think it's stabilized. But we don't have a big presence there anymore. But I do think that that's kind of what we're seeing. We're seeing a very flat to slightly down market globally. Okay. And so I guess, I mean, it sounds like that's what was assumed in guidance. Is that what's kind of playing out, or I mean, to the extent you can share at this point? That's what we assumed in guidance. Yeah. Okay. Okay. So no comment on what you're saying. All right. So I think the level of complexity of procedures has been weaker as well. So I mean, is that a dynamic that should revert back to more normal levels, or how long can we really go without working through some of those more complex cases? So the actual material cost on these very complex cases is, as a percent, quite a bit lower than the actual cost to the patient, right? So there's a couple of things in there. And if you are, for example, maximizing your credit card or the interest rates you're getting on your financing of your full arch is high, I do think that that's where some customers are going to face some resistance in terms of choice. Ultimately, it should come back because it's a major case. What we've decided to do there is put a lot of energy on what I was saying earlier, which is, can we modernize with technology some of the workflow that's going to reduce a lot of the costs associated with it? So in a couple of examples, and we're ready for launch. We're not quite there yet, but I'll just tease it. In a couple of cases, we could take three hours of a lab technician time and convert it into 12 minutes of a computer time. That's pretty material. It's a very substantial change with, obviously, very, very consistent outcomes. Those are things that we're going to focus on more. So if there's a cost concession somewhere, it could be on the workflow necessarily versus the implant is $50 less or $100 or whatever the delta might be. We think that's actually where we're going to drive the most efficiency. And we think we can do it in a way that's going to be very, very positive for both the practitioner and, obviously, the patient. So that's kind of what we're focused on. But I do think that to really go to your question, I do think that market needs to come back for volumes to really come back. Okay. So just on what you're working on. So I mean, it sounds like a kind of CAD software. Is that? Yeah. Yeah. Okay. And is that going to be in 2024, do you think, or? It will be in 2024. Okay. Got it. All right. All right. So maybe looking internationally, in Japan, you're launching the next-gen TSX. So maybe talk about the cadence of that rollout this year and how should we think about the price premium tailwind that you could see? Both the TSX and the T3 Pro have, obviously, replaced the predecessor. We've done really, really well in terms of the speed to actual replacement. As you know, it's a try-it, not prove-it sort of market. The practitioner wants to try it. They try it. They go, "Man, this really works." They're using the same tools as they used before. It's just giving them a better outcome, much quicker understanding of that this thing is stable and it's going well. We're confident that everywhere we've launched that, we will have up to 30% of that share right away of the conversion. It comes with a premium. That premium has been great for us. It's allowed us to stay really at the top of the premium category with obvious benefits to the practitioner. So Japan should be no different than any of them. Japan's typically a little more conservative in terms of how quickly they go away from what their tried and true is. But we think there's enough there. And with the launch of RealGUIDE and a lot of other things that we're doing, implant courses, webinars that we're doing, we think we can put it into a compelling package that someone's going to see definite value in there. Okay. Got it. You see 30% uptick around the time of the launch. I guess, what's that conversion like 12 months post-launch? Is it above 50%, or is it? Yeah. So in many markets, it's above 50%. Just the path was that way until, and we sort of manage that too because we want to make sure we go through the inventory that we have until we get to the new stuff. But it's a no-brainer for us because it comes as a premium at the same cost. And it has definite benefits to the patient and to the practitioner. So it's wildly advantageous to us to do that because it allows us, again, to differentiate the implant from what was there before or possibly what they might be using from another competitor. Yeah. Okay. Looking at Germany, I mean, Dentsply has called out that country as being weak. Do you have a meaningful exposure there? Maybe it's the only time that I could be happy that we don't have a really big exposure in Germany because that's obviously a great market. We do a considerable amount of biomaterial sales there. But our implants would not be one of our top five. Okay. All right. And then sorry, switching back to the U.S. So I mean, a big competitor is facing challenges in their North American implants business. Have you seen any opportunities to capitalize on there and gain some share or even hiring reps or anything like that? So probably all of the above. A good thing about having new products and new portfolio and having a definitive value proposition around how the digital platform works with the implant is that you do get momentum, and you do get interest from customers. The problem is it doesn't show up on paper because the market's kind of slowed down a bit. But based on what we look at, we see the obvious number one player kind of slowing its growth down. And then we see our customer base going up. So we do think that we are the recipient of share from probably the number two, number three player in the implant market in a soft market. So I think once this thing returns, I think we'll be sitting on more customers than we had a year ago, undoubtedly. Yeah. Okay. And then any color on how we should think about the size of the sales force in the U.S., at least, and any plans on any significant hiring rounds? So I'm not a full believer in adding reps, and it will come. I think we got to be really, really specific on where we are strong and where we aren't. So there's a couple of areas where I think I would like to put a lot of focus on. It might not be more reps. It might be different where we would want to put more focus on. I'd say overall, you could probably look at us having around 400 reps globally. And that's kind of, and they're all direct. So that's an advantage to us. I mean, obviously, we had Spine and Dental, and Spine was all indirect. And this is all direct. So we do think that this gives us a lot of benefits, both financially and just ability to motivate and move. Okay. All right. And then, bigger picture, before we go into biomaterials. I mean, I've heard, I guess, Medicare Advantage rates are going lower than what some people were expecting. And I guess that could result in some cuts to dental benefits for 2025. I mean, in your view, is that a risk, or do you not think that's material for the dental market? I think interest rates and inflation are a bigger probably drag on my dental market than anything like that. I do think we have a disproportionate out-of-pocket customer that is probably more looking at that. Okay. All right. So moving to biomaterials. Well, I guess, first, taking a step back, so just remind us, I think implants is like 60%, biomaterials is 20%, and digital is 20%. Is that the approximate mix still? Right. Okay. All right. So biomaterials, obviously, very complementary with implants. I mean, by my math, you have a 10% share in biomaterials versus the, call it, mid-single digits globally, at least, in implants. So what specifically allows ZimVie to be so strong in that biomaterials market? So it's an extremely sticky segment. So our Puros brand is very well known and highly used. I think it's number two, actually, in terms of share. So the users that use it will stick to it and actually insist on it. So that's part of it. It is a premium product. And then recently, we launched a couple of value offerings, which would give us a little more competitiveness in a tender environment without having to discount the implant. So I think that's been a nice growth driver for us. So I think that those are probably the reasons why we've done there. Again, the brand is well recognized. It's a shorter sale than an implant sale, too, which is also nice to have as well in the portfolio. Okay. So I mean, should investors think about implant share being driven by biomaterial share? You should look at it as the fact that we've got a right to entry into that account with biomaterials, should allow us to propose digital offerings, implant offerings that otherwise we wouldn't have access to. That's how we have to use it. I would like to see us convert more of those opportunities that we have. Again, the sell cycle on the implant's quite a bit longer than on the biomaterial. We've just got to give it time. We've definitely got focus on it. Okay. Got it. And then you just mentioned some value launches. So I guess, what's the risk that you see kind of cannibalization from premium, the Puros brand, and anything you can do to kind of prevent that? Yeah. We separate them. Like I had said, the Puros customer is very, very loyal. So we use the other brands in tender situations where a customer is not insisting. And so it becomes actually quite natural. We don't create a conflict for ourselves. Okay. Got it. All right. And then, I mean, implants are obviously fairly profitable. How do biomaterial margins compare to implant margins? They're lower because we have an exclusive manufacturing arrangement with somebody. But they're lower, so they get a manufacturer's margin out of it. So they're 50%. Okay. Got it. All right. So let's maybe move to the digital part. So like you said, 20% of the mix. So there's iTero. There's software. I guess, what else is in that bucket? There's some patient-specific work that we do in there. Implant Concierge is there. So there's a few things that we do that really facilitate for easier adoption of implants. And you could take it à la carte, or you could outsource all of it. And we could provide you all the materials you need for an implant. Okay. All right. So okay. Got it. Maybe we'll talk about iTero for a minute. So Align, they're launching Lumina. That's in the market currently with orthodontists. So I mean, it sounds like ZimVie will get access to that later this year. So is the timing just based off of the cadence of their launch, or is there anything that they need in order to roll it out to implantologists and GPs? We believe that they are waiting for an indication for restorative dentistry for that product. So in the interim, we'll help facilitate a purchase of the iTero. And then we'll give them a very favorable exchange for the new one once that's out. We think that's going to be about Q4. But it's not a huge part of our business. Align does really well in their segment. But for us, it's more to facilitate the digital conversation. So it's a distribution pass-through business. Yeah. Okay. I got a fair bit of questions a while back about it, so I wanted to ask it here. But one more on iTero. I mean, so is that program working, or are you seeing docs kind of hold off until Q4 when you potentially have it? We have enough incentives that nobody should hold off. I would tell you that capital has not been huge for the last six months. So I don't think it's blockbusters in terms of capital sales, which I would include iTero as one of those. So I think it's got a bit holding but not doing crazy amounts. Okay. All right. And then just looking at margins, I mean, I'd imagine the iTero margin is low just given your agreement, but software probably higher. So how's digital margins generally compared to corporate? So digital margins, if you take the iTero distribution agreement out, are very similar to implants, which is very good. We like the subscription, the per-click kind of nature of that business. It's very modern. It's very modern thinking. It's growing. It's very easy for a customer to adopt. We don't ask them to buy any capital at all. We do everything on a cloud. I know cloud is a buzzword, but here's where it actually works, is that the lab, the dentist, the referring person, everyone can use the exact same screen. Then when they pass the information, it goes over with the exact same fidelity as they intended it to. It makes for very intuitive work, and the labs love it. We really like that per-click software subscription package that we upgrade it. They don't have to do anything with it. They just pay us per click. Okay. All right. Let's talk about DSOs. You mentioned that a little bit earlier, but that segment is obviously an opportunity for the broader market. Talk about how ZimVie is positioned for the DSO channel. I really like the DSO channel because it's a business. There are some implications once you get bigger in a DSO. They manage their cash much better. So you won't see large upfront sales. But that usually works itself out after a quarter or so. But what we like about the DSO market is well, it's obviously growing, but there's a mutual desire to do more high-value procedures. So one of the places where we really, really coordinate well is where we train their staff at our facilities to do implant dentistry. And we find that they're capable of doing the training and then going back and then doing the case because they're feeling that level of confidence. And the DSOs talk. And when they realize that we have that kind of output rate, they're very favorable to us in terms of reference and recommendation. Feeling pretty good about that market. I know there's a price concession, but like I said, it makes up for it with volume and actually new user growth, which we're definitely seeing. Okay. And so are you focusing on DSOs that do or specialists in implants, or are they more general and? For sure, that's the biggest part of our group. But there's another emerging group that's starting to get some volume, which is the dentist group. Yeah. Okay. And have you ever broken out how big DSOs are for you? They're 10%, probably. Okay. All right. Okay. Maybe in the last 10 minutes or so, we'll talk about the margins and financials. So Rich, so in the first quarter, you've been down margin guidance 8%-10%. So I just want to make sure I'm clear. Is that fully burdened, or was there anything you took out in the first quarter? Yeah. Largely speaking, David, it's fully burdened. We did take out some costs toward the beginning of the year, but we've been focused on getting the transaction finalized. So like I said, Q1's largely fully burdened. Okay. Got it. All right. Then just circling back to how we started, just on the cadence. So I mean, I'm getting cadence to 15%, I should say. So I'm getting somewhere around $25 million-$30 million of stranded costs. So maybe just kind of review the cadence to get from, call it, 9% at the midpoint to 15% next year. Yeah. So the way that we think about it is there are a couple of major inflection points of cost takeout within the organization. The first one of which is when the transaction finalizes, and that represents the removal of all the conveyed employees to NewCo, all of the direct costs that were associated with Spine, like legal expenses, and then some headcount actions like I've already mentioned, right? And so there were some headcount actions that we had at the beginning of the year. And then we had another action at the beginning of April after the Spine closed, right? And then we enter into a period after that's closed where we're supporting and also getting reimbursement for transition service agreements with H.I.G. And that period's about 9-12 months long. Then when those TSAs fall off in that 9-12-month period, there's a second inflection point where the funding goes away, and we need to remove that stranded cost to right-size the organization. From a timing and a cadence perspective, that's how you should think about it. We'll be providing more color on our progress and provide some more color to the fiscal year 2024 during our Q1 earnings call. Okay. Got it. So we'll get some improvement in April, I think, on the fourth-quarter call that was around 200 basis points. I don't know if that's changed. And then when the TSAs roll off, that'll get us to 15%+ next April, if I got that all right. Yeah. I think that's directionally how we should think about it. One of the things that and you spent some time with Vafa and I enough now to know that we're going to be looking to accelerate that transition as quickly as possible, but we'll provide more color here when we announce Q1. Yeah. Okay. Got it. All right. So one year post-close, you've put out $455 million in revenue, 15% margin, EBITDA, I should say. So you don't really need any revenue growth to get that margin. So I guess, how much upside would some modest revenue growth be to the P&L and margins if you're willing to share? Yeah. No, no, no. No, of course. We've been pretty transparent that our dental business is largely a direct salesforce, right? And so as a result, your selling is much less variable than it is with a 1099 salesforce. And so as a result, generally speaking, we drop $0.5 on incremental sales to the bottom line. So you're correct that our assumptions don't assume that we need any incremental revenue growth to achieve the EBITDA margins that we laid out one year post-sale, as we discussed. But when you see top-line revenue growth, right, one of the great things about the dental business is that you get pretty considerable operating leverage on that incremental sales. Okay. All right. So yeah, there could be some fair bit of upside. So obviously, we'll start with the 15%. But I wanted to ask kind of a benchmarking question. So consensus is modeling EBITDA margins for your closest peers, two larger peers, around 20% or low 20%. So you guys don't have some of the dilutive stuff like Capital, Clear Aligners, which are dilutive to them. So structurally, I mean, is there anything limiting you from getting to at or above, call it, low 20%? Yeah. Yeah. The short answer to that question is no. The longer answer, David, is that Vafa and I have been remarkably consistent to our approach in optimizing the business regardless of market dynamics, right? And so our success over the longer term to achieve that 20%+ EBITDA margin that some of the competitors enjoy is just an issue of time and focus. And to be completely frank with you, Vafa's and mine's time have been consumed since been, frankly, on kind of managing Spine and, of course, getting the transaction done, which I think is really transformational for ZimVie. And now our focus is going to be on dental. But there shouldn't be any impediment to doing that. Okay. All right. You're also targeting 80%+ free cash flow conversion. So I mean, is that a one-year post-close, or is that longer term? How should we think about the timing there? Yeah. So the dental business is much less capital-intensive than Spine, right? You don't have heavy instrument sets and inventory like you do in the Spine business. And so the free cash flow conversion of dental businesses is consistently 80%+ on EBITDA, right? And so similarly to how we are in the past, we'll be closely managing our corporate spending and infrastructure costs too, and frankly, also the optimization of working capital because we think there's an opportunity there too to maximize cash generation as we move forward. Okay. All right. Maybe one last one on margins, and then we'll talk on capital allocation. So I think in the past, you've talked about the opportunity to add automation in manufacturing. So how near-term of an opportunity is that? And how should we think about that potential benefit over time, at least, to the gross margins? Yeah. So I think there's a couple of different a couple of different things there within manufacturing. With dental, we've got two major manufacturing facilities in our network that are both owned facilities for us. One is in Palm Beach Gardens, which is where the business is headquartered, and the other one is in Valencia, Spain. Now, in Valencia, Spain, there's a cost arbitrage, actually, and Valencia is a much less expensive place to manufacture than Palm Beach Gardens. So there's opportunities to move things around our network to be able to move, say, higher volume, lower customization type of products to a Valencia, Spain, and really kind of maximize throughput there and then kind of do more of your specialized stuff in Palm Beach Gardens. So that's the first area where there's opportunity, and we've already started that transition for some of our larger volume products. The other area is around kind of process optimization in manufacturing. And so we've talked pretty openly about this since been that Zimmer Biomet didn't invest a whole lot in manufacturing automation in the dental business, particularly around quality inspection, some of the other areas. And so we think through the use of technology and also through the use of kind of process optimization that there's opportunity to take cost out in the system from a manufacturing perspective. To your earlier question around getting to 20%+, other than operating leverage on increased sales and optimizing cost structure, gross margin improvement is one of them. Okay. Got it. All right. And then, yeah, just on capital allocation, maybe we'll close out there. So at 15%, I think you said you'd be around 2.5x net levered. So how would you think about capital allocation there, I guess, in 2025? Yeah. So I jumped again on you a little bit earlier on this one, right? But we're in a really good place from a financial flexibility standpoint and balance sheet perspective. And so our capital priorities, our capital allocation priorities are to number one fund the business, right, and make sure that that's adequately funded to do what we need to do. And we have enough capital availability to do that without a problem. I think our next step would be we will look at opportunities, but we're a meritocracy. And frankly, if we don't have any higher ROI opportunities, then the second priority will be to continue to reduce debt with excess cash flow as we maximize profitability and manage working capital. But if there's something that comes up that is more accretive for us, then we've got the financial flexibility to deploy that capital as we need to. Okay. Great. All right. Well, we're pretty much at time, so maybe we'll wrap there. But Vafa and Rich, thanks so much for joining us this afternoon, and thanks for everyone who tuned in. Thanks very much. Yeah. Thank you. Thank you.