ZIMVIE INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following information should be read in conjunction with the interim
condensed consolidated financial statements and related notes, included
elsewhere in this Form 10-Q. Certain percentages presented in this discussion
and analysis are calculated from the underlying whole-dollar amounts and
therefore may not recalculate from the rounded numbers used for disclosure
purposes. The following discussion may contain forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to these differences include those factors
discussed in this Form 10-Q and in our Annual Report, particularly in
"Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors."

OVERVIEW


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, pursuant to which Zimmer Biomet agreed to spin off its spine and
dental businesses into ZimVie, a new, publicly traded company. ZimVie is now a
standalone publicly traded company and, on March 1, 2022, regular-way trading of
our common stock commenced on the Nasdaq Stock Market under the symbol "ZIMV."
The distribution was completed pursuant to the Separation and Distribution
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.

ZimVie is a leading medical technology company dedicated to enhancing the
quality of life for spine and dental patients worldwide. We develop, manufacture
and market a comprehensive portfolio of products and solutions designed to treat
a wide range of spine pathologies and support dental tooth replacement and
restoration procedures. Our broad portfolio addresses all areas of spine with
market leadership in cervical disc replacement ("CDR") and vertebral body
tethering to treat pediatric scoliosis, and we are well-positioned in the
growing global dental implant and biomaterials market with market leadership in
oral reconstruction. Our operations are principally managed on a products basis
and include two operating segments, 1) the spine products segment, and 2) the
dental products segment.

In the spine products market, our core services include designing, manufacturing
and distributing a full suite of spinal surgery solutions to treat patients with
back or neck pain caused by degenerative conditions, deformities, tumors or
traumatic injury of the spine. We also provide devices that promote bone
healing.

In the dental products market, our core services include designing,
manufacturing and distributing a comprehensive portfolio of dental implant
solutions, biomaterials and digital dentistry solutions. Dental reconstructive
implants are for individuals who are totally without teeth or are missing one or
more teeth, dental prosthetic products are aimed at providing aesthetic and
functional restoration to resemble the original teeth, and dental regenerative
products are for soft tissue and bone rehabilitation.

We have a broad geographic revenue base, with meaningful exposure to both established and emerging markets. We have six manufacturing site locations, and a global presence in approximately 25 countries.

Impact of the COVID-19 Global Pandemic


Our results have been impacted by the COVID-19 global pandemic. The vast
majority of our net sales are derived from products used in elective surgical
procedures. As COVID-19 rapidly started to spread throughout the world in early
2020, our net sales decreased as countries took precautions to prevent the
spread of the virus with lockdowns and stay-at-home measures and as hospitals
deferred elective surgical procedures. Although we began to see some recovery of
elective surgical procedures as various lockdowns and stay-at-home measures were
lifted during 2021, resurgences and highly-transmissible variants resulted in
further deferrals of elective surgical procedures in the second half of 2021 and
in the first quarter of 2022.

Our business is seasonal in nature to some extent, as many of our products are
used in elective procedures, which typically decline during the summer months
and can increase at the end of the year once annual deductibles have been met on
health insurance plans in the U.S. However, typical seasonal patterns have been,
and could continue to be, different as a result of COVID-19.

With the deferral of elective surgical procedures, we have taken prudent
measures in an effort to maintain an adequate financial profile to have access
to capital to fund the business during these unprecedented times. In continued
response to the COVID-19 pandemic, we have taken a cautious approach to
discretionary spending such as travel, meetings and other project spend that can
be delayed with limited long-term detriment to the business. However, to date we
have not experienced significant disruptions in our supply chain, or in our
ability to meet our customer demands.


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RESULTS OF OPERATIONS

Three Months Ended March 31, 2022 and 2021

Net Sales by Product Category

The following table presents net sales by product category and the components of the percentage changes (dollars in thousands):

                                  Three Months Ended March 31,                                                            Foreign
                                    2022                 2021           % Inc (Dec)        Volume/Mix        Price       Exchange
Spine                          $      114,113$      132,588             (13.9 )%          (13.3 )%        0.6 %        (1.2 )%
Dental                                120,569              113,352               6.4               7.2           2.0          (2.8 )
Third Party Sales                     234,682              245,940              (4.6 )            (3.8 )         1.2          (2.0 )
Related Party                             919                1,791             (48.7 )             N/A           N/A           N/A
Total                          $      235,601$      247,731              (4.9 )             N/A           N/A           N/A



Demand (Volume/Mix) Trends

The spine product category revenue was impacted by markets exited in connection
with the distribution, products that were discontinued in late 2021 due to a
brand rationalization initiative, increased competition on certain products,
distributor bulk orders in the first quarter of 2021 that did not recur and the
surge in COVID cases in early 2022 related to the Omicron variant. In the dental
product category, there was increased demand in the three months ended March 31,
2022 for all product types, with the strongest growth in implants and digital
products. Within the dental product category, positive volume/mix trends reflect
higher demand for tooth replacement procedures combined with the growing market
segment of digital dentistry and biomaterials.

Pricing Trends


The spine product category continued to experience governmental healthcare cost
containment efforts and similar efforts at local hospitals and health systems.
The dental product category experienced price improvement in certain geographic
regions, especially North America.

Foreign Currency Exchange Rates


In countries where we have a subsidiary, we sell to customers in their local
currencies. Accordingly, our net sales as reported in United States ("U.S.")
Dollars are affected by changes in foreign currency exchange rates. We are
primarily exposed to foreign currency exchange rate risk with respect to net
sales denominated in Euros, Japanese Yen, Chinese Renminbi, Canadian Dollars and
New Taiwan Dollars.

Expenses as a Percent of Net Sales

                                                          Three Months Ended March 31,
                                                                                   2022 vs.
                                                                                     2021
                                                  2022              2021           Inc (Dec)
Cost of products sold, excluding intangible
asset
  amortization                                        36.1 %           32.3 %             3.8 %
Related party cost of products sold,
excluding intangible
  asset amortization                                   0.3              0.5              (0.2 )
Intangible asset amortization                          8.9              8.8               0.1
Research and development                               7.5              5.4               2.1
Selling, general and administrative                   56.9             52.1               4.8
Restructuring                                          0.3              0.2               0.1
Acquisition, integration, divestiture and
related                                                3.8              0.5               3.3
Operating (Loss) Income                              (13.8 )            0.1             (13.9 )


Cost of Products Sold and Intangible Asset Amortization


The increase in cost of products sold as a percentage of sales in the three
months ended March 31, 2022 compared to the three months ended March 31, 2021
was due to an incremental $1.7 million in share-based compensation expense due
to converted Zimmer Biomet

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awards (for more information, see Note 3 to our condensed consolidated financial
statements) and an increase of $1.6 million in excess and obsolete inventory
charges, resulting from the sales declines in the spine product category.

Intangible asset amortization as a percentage of net sales increased slightly in the three months ended March 31, 2022 as compared to the three months ended
March 31, 2021 due to amortization expense not decreasing ratably with the decline in our net sales.

Operating Expenses


Research and development ("R&D") expenses as a percentage of net sales and in
terms of dollars increased in the three months ended March 31, 2022 as compared
to the three months ended March 31, 2021, primarily as a result of an
incremental $1.9 million in share-based compensation expense due to converted
Zimmer Biomet awards (for more information, see Note 3 to our condensed
consolidated financial statements).

SG&A expenses increased in dollars and as a percentage of sales in the three
months ended March 31, 2022 as compared to the three months ended March 31, 2021
primarily as a result of an incremental $8.1 million in share-based compensation
expense due to converted Zimmer Biomet awards (for more information, see Note 3
to our condensed consolidated financial statements). Additionally, increases in
travel and conferences expenses were partially offset by decreases in variable
selling and distribution expenses resulting from decreased sales.

Restructuring expense is related to Zimmer Biomet's Restructuring Plans
instituted in the fourth quarters of 2019 and 2021 with an overall objective of
reducing costs to allow investment in higher priority growth opportunities. We
recognized expenses of $0.7 million and $0.5 million in the three months ended
March 31, 2022 and 2021, respectively, primarily related to employee termination
benefits, contract terminations and retention period compensation and benefits.
For more information regarding these expenses, see Note 2 to our condensed
consolidated financial statements.

Acquisition, integration, divestiture and related expenses increased in the
three months ended March 31, 2022 as compared to the three months ended March
31, 2021 due to the increased costs related to the March 1, 2022 distribution
and costs incurred in connection with building out capabilities necessary to
becoming a standalone, public company.

Other Income (Expense), net, Interest Expense, net, and Income Taxes

Our non-operating other income (expense), net, primarily relates to the remeasurement of monetary assets and liabilities that are denominated in a currency other than the subsidiary’s functional currency. Therefore, the income or expense varies based upon the volatility of foreign currency exchange rates.


Our interest expense, net, in the three months ended March 31, 2022 was related
to our new Credit Agreement (for more information, see Note 9 to our condensed
consolidated financial statements). Interest expense, net, in the three months
ended March 31, 2021 was related to debt due to parent and was insignificant.

Our effective tax rate ("ETR") on loss before income taxes was 22.4% and 324.7%
for the three months ended March 31, 2022 and 2021, respectively. In the three
months ended March 31, 2022, the additional income tax benefit compared to the
21% statutory rate was driven by the impact of losses recorded prior to the
distribution that were calculated on a "carve-out" basis, which applied the
accounting guidance as if we filed income tax returns on a standalone, separate
return basis and are not reflective of the tax results we expect to generate in
the future. The benefit was further driven by state tax benefits, partially
offset by foreign rate differentials and other permanent items. In the three
months ended March 31, 2021, the income tax benefit was largely driven by the
close to break-even income. In periods where our operating income approximates
or is equal to break-even, the effective tax rates for quarter-to-date and
full-year periods may not be meaningful due to discrete period items.

During the three months ended March 31, 2022, income tax balances were adjusted
to reflect the income tax positions after distribution, including those related
to tax loss and credit carryforwards, other deferred tax assets and liabilities
and valuation allowances. These separation-related adjustments resulted in a
$3.9 million increase to the net deferred tax liability, primarily due to
inventory and intangible assets transferred in the separation, tax rate changes
and changes to the permanent reinvestment assertion in the post-separation
environment. The increase in the net deferred tax liability was offset by a
corresponding decrease in NPI.

Our ETR in future periods could also potentially be impacted by: changes in our
mix of pre-tax earnings; changes in tax rates, tax laws or their interpretation;
the outcome of various federal, state and foreign audits; and the expiration of
certain statutes of limitations. Currently, we cannot reasonably estimate the
impact of these items on our financial results.

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Segment Operating Profit

                                                                                                                      Operating Profit as a
                                             Net Sales                           Operating Profit                    Percentage of Net Sales
                                   Three Months Ended March 31,            Three Months Ended March 31,           Three Months Ended March 31,
   (dollars in thousands)            2022                 2021               2022                 2021               2022                2021
Spine                           $      114,113$      132,588$        5,099$       16,337                4.5 %             12.3 %
Dental                                 120,569              113,352             25,659               23,274               21.3               20.5



In the three months ended March 31, 2022, our spine segment's net sales declined
compared to the three months ended March 31, 2021 due to markets exited in
connection with the distribution, products that were discontinued in late 2021
due to a brand rationalization initiative, increased competition on certain
products, distributor bulk orders in the first quarter of 2021 that did not
recur and the surge in COVID cases in early 2022 related to the Omicron variant.
In the three months ended March 31, 2022, our dental segment's net sales
increased compared to the three months ended March 31, 2021 due to increased
sales in all product types, with the highest growth experienced in implants and
digital products. In our spine segment, operating profit decreased, driven by a
decline in sales and increased pricing pressure on our cost of products sold, as
well as an increase in E&O charges. In our dental segment, operating profit
increased in the three months ended March 31, 2022 primarily due to increased
sales and product mix.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2022 and December 31, 2021we had $104.3 million and $100.4 millionrespectively, in cash and cash equivalents.

Sources of Liquidity


Cash flows used in operating activities were $9.9 million in the three months
ended March 31, 2022 compared to cash flows provided by operating activities of
$20.0 in the three months ended March 31, 2021 due to the decline in
profitability and other assets and liabilities, which includes the impact of
increased prepaid insurance for policies that became effective after the
distribution. Cash flows from operating assets and liabilities decreased in the
three months ended March 31, 2022 compared to the three months ended March 31,
2021 primarily due to increased accounts receivable and other assets and
liabilities, partially offset by increased accounts payable and accrued
liabilities, increased income taxes and decreased inventory.

Cash flows used in investing activities were $8.1 million in the three months
ended March 31, 2022 compared to $14.2 million in the three months ended March
31, 2021. Additions to instruments and property, plant and equipment reflected
ongoing investments in our product portfolio and optimization of our
manufacturing and logistics network.

Cash flows provided by financing activities were $22.2 million in the three
months ended March 31, 2022 compared to cash flows used in financing activities
of $7.3 million in the three months ended March 31, 2021. In the 2022 period,
borrowings under our term loan (as discussed in Note 9) were used primarily for
a dividend to Zimmer Biomet at the time of the distribution.

Post-Distribution Liquidity and Capital Resources


Subsequent to the distribution, we no longer participate in the centralized
treasury management of Zimmer Biomet. Our ability to fund our operations and
capital needs depends upon our ability to generate ongoing cash from operations
and to access the capital markets. Our principal uses of cash in the future will
be primarily to fund our operations, working capital needs, capital
expenditures, repayment of borrowings and strategic business development
transactions.

On February 28, 2022 we borrowed $595.0 million of available term loan
borrowings and on March 1, 2022, we repaid $34.0 million of the term loan
borrowing. We transferred $540.6 million of the proceeds from such borrowing to
Zimmer Biomet. We will make interest payments on the term loan borrowings
quarterly, and we will commence quarterly principal payments in mid-2022. For
additional information regarding our current debt arrangements, including the
term loan amortization schedule, see Note 13 to our combined financial
statements included in our Annual Report. In addition, for information regarding
our other material estimated future cash requirements under our contractual
obligations and certain other commitments, see "Material Cash Requirements" in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations in our Annual Report. There have been no material changes to such
information except as set forth herein. We believe that future cash from
operations will provide us the opportunity to enter into financing arrangements
and access capital markets to provide adequate resources to fund our future cash
flow needs, but we cannot assure you that we will be able to enter into such
arrangements or transactions on satisfactory terms or at all.

CRITICAL ACCOUNTING ESTIMATES


Our financial results are affected by the selection and application of
accounting policies and methods and require us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Critical accounting estimates

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are those that involve a significant level of estimation uncertainty and have
had or are reasonably likely to have a material impact on our financial
condition and results of operations. There were no changes in the three-month
period ended March 31, 2022 to the application of our critical accounting
estimates as described in our Annual Report.

ACCOUNTING DEVELOPMENTS


See Note 1 to our condensed consolidated financial statements for information on
how recent accounting pronouncements have affected or may affect our financial
position, results of operations or cash flows.

© Edgar Online, source Glimpses

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