ZimVie, the dental solutions company spun out of Zimmer Biomet, recently released its first-quarter earnings as a pure-play dental player. The initial response? A slight revenue dip and a slow climb towards its promised 15% EBITDA margin. But hidden within those top-line figures is a story that should have investors intrigued: the rapid growth of ZimVie's digital dentistry business.

While Wall Street focuses on a soft implant market and the company's path to profitability, a silent revolution is brewing in ZimVie's labs and training centers. Their guided surgery solutions, a cornerstone of their digital workflow, are experiencing nearly 50% growth. This growth is not only far outpacing the rest of the company, but it's also happening without requiring customers to make upfront capital investments. Dentists are adopting these solutions as they go, drawn in by the promise of increased precision, reduced chair time, and improved patient satisfaction.

But the most significant factor? This digital wave is only just beginning. Current estimates suggest that a mere 20% of dental implant cases are performed using a complete digital workflow. That leaves a vast 80% untapped market ripe for ZimVie's expansion. The potential is immense as they educate more providers on the advantages of their software and guided surgery sets, leading to a snowball effect of adoption.

Here's where the numbers become truly compelling. Practices that embrace ZimVie's digital workflow solutions tend to perform significantly more implant cases than those that don't. This means that every dentist converted to the digital approach not only generates recurring software revenue but also fuels an increase in implant sales—their highest-margin product. It's a powerful, synergistic growth engine that could propel ZimVie into the top tier of the dental market.

Let's consider some hypothetical figures. If ZimVie's digital dentistry business sustains its current 50% growth rate for the next three years, it could contribute over $100 million in annual revenue by 2027, a substantial portion of their projected $455 million in annualized sales. Now, factor in the implant pull-through effect. Assuming a conservative estimate that dentists using the digital workflow perform 20% more implants, that translates to an additional $18 million in implant revenue per year.

The best part? This growth story doesn't hinge on a miraculous rebound in the implant market. Even if the overall market remains sluggish, ZimVie can still thrive by converting more dentists to their digital platform. They're essentially creating their own mini-boom within a stagnant market, capturing share from competitors and positioning themselves for explosive growth when the market eventually recovers.

Now, let's address those lingering concerns about margins and stranded costs from the Spine business. ZimVie is carrying corporate overhead designed for two divisions, resulting in a bloated cost structure. However, they're actively tackling this issue by aggressively reducing corporate expenses and streamlining manufacturing operations. They've already implemented concrete plans and are confident in achieving their 15% EBITDA target.

ZimVie's Projected Revenue Growth

This chart illustrates the potential revenue growth of ZimVie's digital dentistry business and its impact on implant sales, assuming a 50% annual growth rate for the digital business and a 20% implant pull-through effect.

Key Takeaways from ZimVie's Q1 2024 Earnings Call

ZimVie's dedication to operational efficiency, combined with their digital growth engine, makes them a company to watch. While other dental players grapple with a challenging market, ZimVie is quietly building a strong position in its business, one digital implant at a time. They're not just riding the digital wave; they're actively shaping it, and that's a story that should pique the interest of investors.

"Fun Fact: ZimVie's dental implants have helped people worldwide regain their smiles, from restoring the bite of a competitive eater to enabling a musician to play their instrument again. Their products are truly impacting lives."

"Hypothesis: If ZimVie's digital dentistry business continues its current growth trajectory, it could become the primary driver of profitability and market share dominance, potentially making them an attractive acquisition target for larger dental companies."