Q3 2020 Envista Holdings Corp Earnings Call

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question and answer session.

I'd like to ask a question during that time simply press Star then the number one key on your telephone keypad. If you would like to withdraw your question. Please press the pound key.

I would now like to turn the call over to Mr., John Bedford, Vice President of Investor Relations Mr. Bennett you may begin your conference.

Thanks Sandra.

Hello, everyone and thanks for joining us on the call with.

With us today are Amir <unk>, our president and Chief Executive Officer, and Howard you, our Chief Financial Officer.

I'd like to point out that our earnings release, the slide presentation, supplementing today's call and the reconciliations and other information required by SEC regulation G.

Relating to any non-GAAP financial measures, providing during the call are all available on the investors section of our website www dot invista cone dot com.

The audio portion of this call will be archived on the investors section of our website later today under the heading events and presentations.

And will remain archived until our next quarterly call.

During the presentation, we will describe some of the more significant factors that impacted year over year performance supplemental materials describe additional factors that impacted year over year performance.

Unless otherwise noted all references in these remarks and supplemental materials to company specific financial metrics relate to the third quarter of 2020.

And all references to period to period increases or decreases in financial metrics are year over year.

We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals or are available only in certain markets.

During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

These forward looking statements are subject to a number of risks and uncertainties.

And those set forth in our SEC filings and actual results might differ materially from any forward looking statements that we make today.

These forward looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward looking statements, except as required by law.

With that I'd like to turn the call over time here.

Thanks, John welcome everyone to envision us third quarter 2020 earnings call.

We're pleased with our third quarter results.

The dental markets recovery to date, and our progress on its strategic initiatives, leading to a meaningful improvement in our.

Revenue adjusted EBITDA, and a free cash flow.

The September Mark our first anniversary as a public company.

Over the past year, we have made tremendous progress to improve the long term prospects of and Vista.

In our effort to create a more focus and competitively advantage company.

Launch several transformative products.

That took an effort to permanently improve our cost structure and exited non strategic businesses.

To date the combination of these efforts is a strong business model it more than 85% of our revenues driven from consumable small equipment.

One of our most important accomplishment is it refinement a copy of our company culture.

Which is why the customer centricity diversity, and inclusion innovation and continuous improvement.

I want to recognize our manufacturing and distribution employees one.

Well the embody many of these attributes.

The last several months is.

It was the last to leave and first back to work.

To help ensure our customers have the products that they need to provide dental care to their patients.

I also want to thank our employees customers and partners.

Their sacrifices dedication and support.

Your passion to improve the quality of life of patients is what makes this industry great.

Together, we are furthering our objective to improve access to dental care across the globe.

Let me now provide you with an update on our priorities to accelerate growth.

Improved margin and reshape our portfolio.

You said it improved and this those underlying growth rate in revenue from infection prevention, the spark clear Aligners and end one implant system contributing more than 300 basis points to end this day in the quarter.

Additionally, orthodontic business grew at low double digit rate showing the strength of both our brackets and wires and clear aligner businesses.

Our infection prevention team in Romulus is a great example of how did reach suffered Bbs the continuous improvement mindset is impacting our business.

The team held several cases and process improvement events to enhance the sustained operational efficiency of the manufacturing and distribution process.

These efforts.

Send a as revenue outside North America.

Leading position in China that geography, which has sustained double digit growth over the past several years and has gone through the first nine months of 2020.

Our most recent orthodontic innovation is a spark aligner clear a line of system, which has gained popularity among our customers and their patients due to ease of use of a software.

It clear more stain resistant and comfortable align a design.

And the third quarter. The Devils are aligned on manufacturing capacity, why reducing customer lead time by more than 40%.

Commercially the number of active doctors using the spot is growing by more than 50%, helping to drive and increase our daily case submissions from the beginning of July to September.

This puts spark on track to contribute over 100 basis points of growth to and Vista in the fourth quarter.

Training and education are also important differentiators and a 2020, we have partnered with key expert to train thousands of orthodontist across the globe.

Finally in less than 15 million orthodontic cases globally per year in an adversarial market up more than 500 million people, who need and can afford orthodontic treatment. This is substantial long term growth one way for the industry.

Turning to our margin improvement program, we manage expenses and executed well against $100 million permanent cost reduction program, which is a testament to the discipline approached and Vista business system brings to planning and deployment.

R E. B S office has left this initiative since March.

Driving focus by creating a detailed project roadmap and holding weekly progress meetings involved with senior management.

<unk> key obstacles to ensure that the deliberate on our commitments.

We continue to make progress on our permanent cost savings initiatives, realizing more than $15 million savings during the quarter.

A total we reduce our operating expenses by more than 35 million dollar to a combination of these efforts.

Temporary savings measures and other discretionary spending reductions.

Execution of these margins initiatives help to drive adjusted EBITDA margins above 20% for the third quarter.

As we move for we will continue to strike a balance of margin expansion, while accelerating investment and some of our best growth opportunities.

You also made progress in building a better stronger more any grated workflow oriented portfolio.

We believe the ability to any great. The industry's largest installed base of imaging solutions without gtx workforce software and innovative treatments solutions with help our customers become more productive.

While providing their patients with better predictable outcomes.

We took our last orders for Brazilian and Pelton I Craned treatment unit businesses in the second quarter and anticipate complete and most Romanian obligations by end of the year.

Going forward, we intend to maintain an active view towards portfolio management and I'm in the process of exiting certain lower growth lower margin product categories, and geography's, it's collectively amount to less than 2% of 2019 revenues.

Finally, the strong cash flow performance in the quarter has place our balance sheet in the best shape since our IPO with net debt now are approximately 1 billion dollar.

This will position as well to photo are inorganic capital deployment of strategy as we move into a more normalised environment.

Let me now turn it to Howard to go through the financials in more detail.

Thanks Amir.

Third quarter sales declined 2.9% to $645 million sake.

Sales were unfavourably impacted two 6% due to discontinued products and were positively impacted 0.1% from acquisitions and 0.8% from currency.

<unk> sales decreased approximately 1.2% a significant improvement and growth from the first half of 2020 as global dental market demand has recovered faster than anticipated.

The improving performance, what's led by our consumables businesses, which increase at a low single digit rate.

Geographically sales in the developed markets were up low single digits as patients have returned for treatment with most offices now open for non emergency care.

In addition to improving patient volume R. U S results were particularly strong due to the robust demand in our infection prevention products.

In Western Europe, we experienced year over year growth and most major countries, except for the UK, where we have yet to see a broad base resumption of elective dental procedures.

And emerging markets, China returned to high single digit growth due to strong performance in our specialty businesses are specialty business did particularly well in private sector, where actions we have taken to increase our market share helped to drive double digit growth increase in revenue.

Outside of China, other emerging markets declined at a double digit rate as the COVID-19 outbreak suppressed demand.

Are adjusted gross margins are 50, 445% declined 120 basis points due in part to foreign currency and product mix as we build capacity for new products and our specialty business.

Just did operating profit margin was 18.7% an increase of 340 basis points, largely driven by our cost reduction initiatives.

We have secured more than 80% of our permanent cost reduction program goal of $100 million and remain on track to be completed by the end of the fourth quarter.

Our cost actions have led to year over year decrease in personnel and direct spending by more than 15% in the quarter.

Profitability substantially increase with adjusted EBITDA growing by 18.6% to $132 million.

Or 2023rd quarter adjusted EPS, a 48 cents is an increase of approximately 40% in comparison to the 2019 third quarter results adjusted to include incremental corporate cost and interest expense of approximately $29 million from being a standalone public company.

<unk>.

The stronger operational performance and expense management help to return the business to cash generation in the third quarter with free cash flow of $135 million, an increase of more than 70% from the prior year.

The team did an outstanding job with collections, reducing inventory built up before the pandemic and managing terms with suppliers, which also help to lead better performance in the quarter.

We fully repaid are revolving credit facility and ended the quarter with more than $700 million of cash, leaving our balance sheet and a very strong position exiting the quarter.

Turning now to our two business segments.

Our specialty products and technologies segment sales were down 3%, while core revenue declined 1.3%.

Our orthodontic business grew at a low double digit rate with substantial contribution from both bracket and wires and clear liners.

Notably bracketing wires increase at a high single digit rate with mid teens growth in developed markets as orthodontists have seen a significant increase in volumes across their practices.

While this is due in part to pent up demand from office closures. During the first half. There's also a considerable amount of new case start activity occurring and our business exited the quarter with the healthy backlog.

Patients are taking advantage of more flexible work and school schedules and in many cases more discretionary income due to canceled leisure activities. This.

This is particularly true within the teen segment, which makes up a large share of our orthodontic business.

In China, we held the Armco forum in the third quarter, which was the first major event since the onset of the pandemic.

During the two day session. The team delivered a comprehensive education program to more than a thousand healthcare providers and feature three new products Sparkly airliners are aesthetic bracket system cemetery, and our flagship Damian D Q2 bracket system.

The immediate engagement that the event generated illustrates the opportunity that exists in the China market.

Our implant business declined at a mid single digit rate, primarily due to weakness in emerging markets outside of China, where conditions have remained challenging.

And no Bell we are encouraged by the early progress on commercial execution and new product initiatives.

In North America, No bells revenue from our DSO customers increase at a mid single digit rate as our strategic partnerships continue to expand.

In Western Europe, a combination of our successful product launches and proving salesforce execution help to drive growth that Nobel while setting us up for better long term performance.

Examples of new product launches, which contributed to this performance or Thai ultra and zeal, which were launched in Europe in the second quarter of 2019.

These new implant and Buffin surfaces promote earlier osseointegration soft tissue attachment and better aesthetics. Despite the pandemic, we ship more than 100000 implants with this technology in 2020.

Specialty products and technologies adjusted operating profit margin increased by 40 basis points to 22.1% due primarily to cost savings from our structural program, which were partially offset by increased investment and clear liners.

Our equipment and consumables segment sales decreased five 2%, while core sales decreased 0.6% discontinued products adversely impacted sales by four 7% and we anticipate this continued products will have an adverse impact of approximately 6.5% of segment sales in the fourth quarter of 2020.

Traditional consumables increase at a high single digit rate led by an infection prevention business, which grew more than 30%. We anticipate the strong performance an infection prevention to continue as our backlog position remains at near record levels are more than $30 million entering the fourth quarter.

And a restorative and endodontics businesses, we experienced a modest decline primarily due to lower procedure volume, which is gradually improve through the quarter.

Also contributing to the improvement and restored it volume was the introduction of are simply shade composites.

Simply shade features just three shades that blend well with an entire range of tooth colors in comparison to traditional composites, which require more than 16.

This allows dentist to more easily matched two shades, which improves efficiency, while reducing inventory requirements.

Launched in North America in September this product helped drive an increase in end user demand more than 5% for a composite portfolio for the month.

Our equipment business declined at mid single digit rate with significant sequential improvement in revenue in all product categories.

The equipment business has been more resilient than originally anticipated as dentists willingness to make plan capital investments has been supported by improving patient volume and government support of capital purchases and select geographies.

We are particularly pleased with the strong demand of our imaging workflow solutions, including our three D. C. B C T portable X ray and censor products, which are helping clinicians operate their practices more efficiently salesman.

Sales from these imaging products increased slightly in the quarter.

Equipment and consumables adjusted operating profit margin increased 920 basis points to 26% impacted both by a favorable product mix and a tremendous job by the team executing our cost reduction program, which drove more than 400 basis points of improvement.

With improving growth in our infection prevention business the exit of our treatment centre business in North America in Brazil, and sustained cost reductions, we anticipate that the equipment consumable business will continue to have better operating margins going forward.

I'll now I'll turn it back to them here, who will walk you through some details of our current operating environment. Thanks.

<unk>.

One it has been a challenging year in the dental industry. They feel confident that the progress we have made on our priorities to accelerate growth improved margin and reshape our portfolio have made us a stronger company.

A new products and growth priorities contributed more than 300 basis points to revenue in the third quarter, and our China infection prevention and orthodontic businesses are delivering the strong results.

Our margin improvement programs help reduce operating expenses by more than 35 million dollar, while expanding EBITDA margin above 20%.

We started a shaping our portfolio by exiting Peltonen crane, and our Brazilian treatment unit businesses, leading to an integrated and workflow focused portfolio that has more than 85% of revenue from consumables and a small equipment.

We are encouraged by the recovery in the dental market over the past two quarters, which has continued into October.

We entered the fourth quarter with a healthy order backlog at cross our business and particularly within our equipment business, which had positive ordered growth in the third quarter and a book to be a ratio of 1.1.

For equipment and consumables, our inventory levels at large distributors are similar to those seen in the second quarter and Ah down more than 40% you have today.

Bob data point that Bob data points.

Leave us encourage about the health of our business. It is important to note that our physical calendar has three fewer selling days in the fourth quarter.

In comparison to 2019.

We estimate will lead to an adverse impacts of about 4% of sales on a year over year basis.

Geographically, we have seen a stable conditions to date in comparison to the third quarter across most geography's not.

North America, and Europe, which makes up 70% of our revenue have build up momentum as a result up.

Went up demand being replaced by new patients seeking treatment.

China, representing about 10% of our business has seen the most rebound and we anticipate another quarter of improving growth.

In emerging markets outside China, we have yet to see a significant rebound and dental activity as access to healthcare remains challenge by the current pandemic.

Despite the current rising Covid chase count or on the war dentist offices have largely remained open today do in this new way buckle outbreaks.

This includes the Lockdowns announced yesterday in France and Germany.

While we are reassured about this and the resilience of the dental market would remain cautious giving.

Given rising case counts on Lockdowns reach me, which may lead to more patient volumes in the near town.

As we look past the pandemic the long term prospects of the dental industry are bright.

This is a resilient industry.

That now has more patients or underserved it growing need for more efficient solutions, and many underpenetrated disciplines, including orthodontics and implantology.

We believe it's our purpose to help make dental care readily available to more people improve productivity and predictability of treatment options and ultimately create a better quality of life for patients.

Thanks, Amir that concludes our formal comments, Angela where now ready for questions.

Okay.

Star one on your telephone.

Okay.

Please.

Yeah.

And your first question is from the line.

Okay.

Okay.

Thank you good afternoon guys.

A lot of places I can start, but let me let me just focus on two marks questions.

Afternoon.

First on the air operating margin any equipment Inconsumable that 26% was there anything one time and that I mean, obviously, we see a lot of the drivers there that are helping and that's encouraging let's can we think of upper teens, 20% being a new run right that we can carry forward over the next couple of years in our model.

So thank you Jeff.

B as we have all client before it made significant changes in this business the exit of.

[noise] low margin low growth path really has helped we have really defined the business in the long run if taken significant amount of expenses audit is and what we expect to see is.

In probably above 10% operating profit, 10% to 15% operating profit moving forward, we have seen improvement in this business.

From a margin perspective, and our intention is to maintain that momentum as we go forth as described before we have done a series of temporary as well as the permanent costs action and by far majority of our permanent costs actions have been in this segment.

It has given us an opportunity to invest in the higher growth segment as we talked about an infection prevention and one and a spark and we expect that Trent continue as we go forward.

This portfolio now is in a far better place that we have ever had it before and we expect that momentum to continue.

That's helpful. Thank you and then maybe on the other side of the business on specialty then there's a talk talk out there about clear liners really gathering steam and taking share relative to brackets and wires just post covid world for reasons that I'm sure you understand.

Have you seen that happen.

Is that a good thanks for your business.

Would you take the three eight out of a spark sale verses.

Sale or something like that.

Going forward.

Lastly, next year over the next four to six quarters.

In that business as spark manufacturing ramp.

Is there accretion in the margin.

A spark ramps are there some up higher.

Higher manufacturing cloth initially that you'll have to work your way through until you really get on that manufacturing site. Thank you yes of course.

We see a strong rebound across orthodontic business.

We are seeing demand across their practices, we are not seen a meaningful shift for Damon customers.

With continuously survey and talk to our own customers.

Clear of liners accelerating with over 100% growth in case submission back.

Brackett on water growing and high single digit in the second quarter and the third quarter included double digit growth developed market.

Or or to dynamic business is really differentiated versus others because of the following reasons over 70% of our revenues I'll say U S.

Overexposed to China, which is growing dabbled issues over the last several years.

With continuously doing innovative products in this space not only on a spark in Korea, Lynas, but also and bracket on one day and our training you got a leading program training activities that has this year along the strain over thousands of ortho auto orthodontic.

Annually and this year, we have really accelerated that.

What we have done and here, we have provided choice store to donna's that they can decide what is the best answer at cross bracket on wire as well as a liner.

Last thing I want to highlight in here and I answer to your question about the margin.

This market is less than 5% penetrated.

We see that there is significant opportunity to expand bracket on wire as well as create a lineup.

Now on the margin, we continue to invest and expand capacity for our clear line.

And we think that that combination.

Give us an opportunity to have a portfolio.

That after all of the needs of customers by adding close to about $100 million business.

Into this portfolio over the next few years.

That top line will give us an opportunity to continue to increase margin as we go forward. We have contemplated that it is part of our plan and we will see that ramp up as we continue to move forward.

And your next question.

Elizabeth Anderson with Evercore. Please go ahead.

Hi, guys. Thanks, so much for the question and congrats on a nice corner.

One thing I was thinking about it.

That you mentioned, obviously the the commentary about October still looking good in the book to del on the equipment side that was very helpful. Thank you.

How do you think about.

A return of guidance is that something that you guys are content pleaded either for you know.

Obviously for fiscal of 21.

Yeah. So you know Elizabeth Thanks for the question, Yes, we feel pretty good about what we're seeing and as you indicated consistent with the improvement in Q3, we're also seeing that here in October.

We think that we provided some pretty good color overall as it relates to kind of broad based expectations for us going into the quarter here.

And.

As it relates to next year will clearly go through our budgeting process and also monitor what's going on here in the marketplace.

And we will take that kind of quarter by quarter as it relates to providing formal guidance.

Okay. That's helpful and obviously as you mentioned in your comments Howard your cash position is very much improved.

Quite robot and you meant that you talked about how your you know.

Would be helpful for M&A, but I was wondering how you way kind of the M&A opportunities.

You could talk a little bit maybe about the opportunities internet, how valuations are trending as well as how your way emanated versus.

We paying more data or something like that.

Yeah. So I mean, we feel really good about our cost actions and the overall improving the operating environment you know as a mere indicated that puts us at a position of about net debt around $1 billion and if you think about our operating performance here in the quarter.

Our leverage right gets back to about three times, if you look past queue too and so we're going to be thoughtful overall about what we can do but you know we're in a good place to take advantage of any value, creating opportunities and so we continue to monitor our funnel and will act accordingly.

Okay, and I've got I have valuations changed very much in terms of the types of opportunities that are available.

I mean, we're seeing in some cases them.

<unk> going up a bit and then another is we think that there may be some opportunities with valuations falling off a bit as well it just kind of depends on the respective areas.

Okay perfect. That's helpful. Thank you.

Sure.

Your next question is from the lineups on block with Stifel. Please go ahead.

Hey, Thanks for your time guys. Good afternoon this quarter maybe.

Maybe a mirror or hour just to start you know you're talking about the strong industry momentum.

To October and can you give some more color there maybe quantify it maybe if possible just provide us.

Mister core sales number into October just short of curious on.

Hi, you think the industry are you guys exited September and how that growth been shredded into October would be very helpful.

Hi, John.

The trend has continued.

So if we.

We go back a lot of it and the March April timeframe, you saw a rapid growth throughout Choo Choo and then Q3 that continue then we saw we have seen a level of of civilization and.

As we talked about it a little bit of a backlog as well as what we have seen that book to Bill. We're really encourage you what we've seen in October we are more of.

Continuation of what we saw in September.

And by categories that has we haven't seen any radical shift in any of the product category, we see that continuation while besides September carry to the quarter character October.

As I've mentioned cautiously optimistic in here as we move for mentioned, we got a few less days in queue for but we are watching the situation very carefully country by country procedure by procedures and we're trying to be a cautious to make sure that would be our understanding.

But so far we can't tell Ya as of now.

We are optimistic.

Just the optimistic encourage messages said, we are getting from our sales organization, our partners as well as practitioners, they're all pointing to a more of a stabilization as we go forward John just just to mention here, though you know.

Your comments all consistent with what we've seen through the month, but just as a caution we're not yet through October heroes, you'll have a few more days here in the month as well right.

Got it tear it up and then just the pivot maybe for the pipeline maybe a two part question. There can you just give us a brief update maybe I missed a bit of the regulatory process for and one here in the U S and on Sparc Amir.

Some of US have done our checks on Sporkin's coming back pretty favorable can you just talk to us on your manufacturing capabilities hypothetically if their product where to go from 20 million you sort of alluded to 50 ish next year, but would you say the demand was 80 90 million could you guys actually get there from a.

During standpoint, thanks for your time.

Sure of course.

John Let me just ask the spark person I'll come back to N want we have enough capacity via build enough momentum manufacturing capacity to deal.

Whatever is ahead of us in 2021 with double the capacity to three with continuing traffic capacity. The case sufficient has come through and we are optimistic about what we're seeing in media and.

Said that combination back in a while and clear liner is really <unk>.

We energise this segment as a whole and we have just continued to add to it. So we do not have a capacity challenge.

Furthermore, since mid August we have been able to reduce the turnaround time, but over 40% and we have been able to maintain that so answering the question.

Excited about it team has been doing an incredible job Eugene EPS to improve productivity quality delivery and we think that that trend is going to continue moving forward.

And one obviously is approved in Europe are launched it in eight countries across Europe already obviously, the Covid situation has had some impact how many of them can we do face to face, but we have it in the hands of over 100 customers so far.

Getting great feedback on and we have seen the orders are coming true and we're going to have more of a measure rolled out and we are building additional capabilities around this with.

Abutment and per statics option, which is going to help us to roll this out a lot broader from at and one and FDA approved we're in the process of working with FTA answering questions and we're going through our process.

We don't have any specific timeline a lot of it has to do with how quickly. This process goes through we're considering this to be available.

Available in the United States more in the second half later half of 2021, but we think that combination of activities that we have done Iraq commercial activities new product should put this business in a more of a mid single digit growth as we go forward.

Great very helpful. Thank you guys.

Of course shatter.

And your next question is from a lot of masonry with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for the question just going back to the prior question.

On kind of cadence of grow through their quarter near I guess to see improvement kind of over the course of the quarter and if so does that mean that October is maybe trending a bit better than the down one point to that you did for the third quarter overall and then as we think about the fourth quarter, how would you kind of.

Some sense of the range of outcomes you mentioned there could be some lockdowns that are put in place, but it's probably unlikely that practices will have to close again. So can you help us think about maybe how much variability.

In the fourth quarter, given what what we could see play out.

Yeah. Good let me give you some facts and data and see if that really helps.

B, we saw combination of Ips infection prevention, and one is spot, adding 300 basis funny, a year where growth in Q3.

We see that continuing into a Q4.

We saw a positive ordered grove.

Almost mid single digit and a book to bill in equipment.

1.1, so walking into the queue for with that kind of a setup inventories are down almost 40% on equipment consumer the year over year.

We assist the beginning of the year, we expect the selling to match sell out as we go forward in here.

And as the really move forward, we expect consumable to continue to outperform equipment.

Auto continues to be now all everything that we have seen has been a really positive thing.

Implant outside emerging market, except China has been consistent infection prevention.

Consistent equipment got a good backlog.

On the line factors in here have been pretty positive and unless you are seen as significant lockdown across the organization, which had yet to see across yoga is you have yet to see our hope is that this what we signed queue to is going to continue to reach you for <unk>.

Sydney That'd be have three fewer days in 2019 compared to 2019, which is about 4%.

In in comparison so.

So frame this up we think that that.

Dot com to newish in is gonna help us new product is gonna help us expenses that'd be I've taken off the permanent expenses that'd be have taken us it's gonna help us to allow us to make additional investment, but as you can imagine this is fluid environment and you you're getting the same information on a daily basis, and we were watching that very chair.

40 to see what that will look like on a weekly in a monthly basis as how're talked about it there is a couple of more days in October left but so far.

You are positive about what we have seen.

Think that that's helpful. In a mirror can you remind us how.

Equipment backlog translates to sales and what that process look like and you know if you're seeing I think he said mid single digit growth in the backlog is that a good approximation for what you would expect equipment to do over the next quarter. So is that backlog burn.

So Nathan Yeah, I I think that we have seen a and then it's been a little bit of a surprise as it relates to the equipment side and so we come in to the quarter with some backlog.

I think some of that is driven by some of these incentives at the government's put up as well and as we indicated you know.

Many of the doctors are encouraged by just the volumes returning I would anticipate that you know equipment sales wood tail off here a little bit is Amir indicated we think that the strength of consumables will likely continue here in the quarter and we're obviously monitoring very closely what's going on with elevated.

Case counts and the like associated with Corona and so.

We think that that may have Ah earlier impact as it relates to equipment.

Great. Thank you.

Your next question is from Atlanta.

Peterson P. Morgan. Please go ahead.

Hey, thanks.

Tycho Congrats on this trunk corner Uhm following up on the back.

Backlogged your accent at the corner.

I was just wondering you mentioned that it reflects.

Mad from closure, but also an uptick.

<unk> can you talk about.

Backlogged make how.

Looking for him.

Remember, what the man standpoint.

Of course.

It's really hard to put an exact figure to see how much of this is pent up demand, but it for sure is playing a role in here.

We've seen a strong demand for delayed delayed or toll rest. So implant procedures, we're seeing customers following through on our equipment orders.

But we believe that and customers are telling us. This is largely walked up what we're seeing now is it is stronger demand for new cases.

Restorative endo procedures generating new demand customers taken opportunity to get or to a work done since to have more time discretionary income in many cases.

Yeah, it's going to a dental office is probably one of the safest places that people can go too.

We see good momentum and improve patient mix.

And given that all of that you've seen the infection prevention and becoming part of our standard process of standard chair. This mix that we are seeing less hygiene.

Just to give you a little bit of fulfill the hygiene.

Less than 3% of our business and there are a lot less hygiene cases.

Well, we have seen in the past several quarter more restorative more in plan more so it is.

Put into different mix in place for practitioners, they're getting more procedure done.

Per visit.

Just give me a little bit more feel also this infection prevention. We think that is going to continue in queue for a long desk more than 200 basis point of growth, we talked about the new product category, you talked about China growing high single digit and what would be a C. N is the dsos specialty part in Dsos is also doubled.

Digit growth so you've talked about putting all of that together. This industry is it resilient industry. He has recovered a lot faster and I think the incentives. The fact that dentists are going back to work they are willing to be more flexible with extra hours patients are feeling more comfortable to.

Go back to offices, we are really encouraged with what we have seen in here at least and.

In the short term those all of the indices a point in in a positive direction.

Perhaps helpful. Thank you Uhm and then just one follow up great procedures executed on your priority for Spike Enron infection prevention, driving over 300 basis points of ground.

Three Q, which is the height of your guidance for the whole second half of this year. So it's just wondering how can we think about the new target for you heading into torture and I. Appreciate the color on sort of with you and seeing in October but can you. Please.

Upright trend or how should we do something about it. Thank you.

Yeah. So so yeah and as you know we're not we're not providing any formal guidance here for Q4, but as a mere indicated I mean, we have a very healthy backlog on the infection prevention at near record levels in excess of $30 million coming into the quarter and so overall, we feel as though.

That.

300 basis points of growth that we talked about from these from these products is still pretty consistent with what what we would say at this stage.

And your next question is from the line of John Krieger with William Blair. Please.

Hi, Thanks, very much here could you expand a bit more on your comments and what you're seeing seeing an emerging markets outside of China. I think you said you had not seen a rebound.

What do you think it will take and do we have a chance for sort of a pent up demand rebound there over the next quarter or two and do you think there's anything sort of structural that you guys need to do to improve transfer.

Yes of course.

B alpine the mix of our business, which is about 70% in North America Western Europe, another 10% in China. So when we look at emerging market outside China, we're really not seen as significant rebound, we're seeing a continuation of challenges.

As you are well aware of in India.

Brazil other places so.

A lot of that is really locally driven.

Due to pandemic is market driven.

What we have been trying to do.

Is consistent with other strategic approaches that we've taken put resources capabilities are on growth initiatives I'm trying to position ourselves to be in the best possible position to help the industry.

Help the practitioners to be ready as this market has stopped taking momentum coming back to normal if that's significant number of trainings and we're going to continue to do that we have done some realignment of resources to make sure that'd be ready and but the COVID-19 and really has.

Reduce significantly that demand.

Courtesy also has had some impact in this geography's, Iran. Managing the inventory what we felt really good about the off look of this in the long run we think.

Given what the our exposure is.

I see by some of the geography some of the segment majority of a decline has been because of that but it was anticipated will walk into them will want to make sure that we are using this time period to set ourselves up for a much better performance as we go forward.

So what we're doing directly.

Changing their approach training educating trying to help the industry practitioners and those environment to be prepared to continue to doing the emergency war can be ready for the future as we move forward.

That's helpful. Thanks, and can you remind us where you stand with the rollout of spark beyond in the U S.

Of course, so we have approval in China both.

From a clinical I as far as the manufacturing so that has taken place in Australia. We have started the process in their available in North America, and very thoughtfully in Europe now.

Wrapping that up in Europe, working with similar to process that'd be followed in you us the started with a small group, bringing him up to speed train them make sure that they are in a good place and then add to that as we go forward. So our goal is to continue to follow that process in Europe and.

Then selectively Gloucester emerging market that have the highest potential over time as I mentioned before we have the capacity that we need to sell Semaise prepared the training program is really proven that works and we're going to continue to expand that throughout Q for as well as in 2021 and different GR.

Please.

Great. Thank you.

And your next question is kind of Lamentation Tonight Piper Sandler Please call.

Hi, good afternoon.

Amir or hour and I wanted to start maybe in orthodontics. Just curious maybe if you could unpack that upper single digit bracket and wire growth you've talked about in the quarter.

Just any sense how much of that was was your core business.

Versus you know share gains that may have stemmed from a competitor exiting the market.

A good part of it is Ah.

Ah called business, we think that there are opportunities in there and we are there is overlap between what we offer versus the customers that now they have options. We are offering that to them you walk in with those customers that they're still interested but a large part of that I would say our core customers.

Have seen demand rising continue to rise and we continue.

In order to serve our own customers is probably too early to really any kind of share again because of that transition, while we were watching it very carefully.

Working with customers and in local geography to see what the implication look like.

Okay. That's helpful. Thanks premiere and then maybe for the second question I mean, it certainly sounds like the discretionary higher and part of the dental Mark is performing better right now we're seeing that in your numbers and others hearing about treatment greater treatment acceptance rates for patients, but the way it I'll need to be worried about risk that those slower hide.

Gene visit that you mentioned and slower diagnostic volumes eventually as a follow through effect that weighs on that higher and work overcoming quarters. Thanks. So much.

Of course.

I understand the question, but we really haven't seen any of that too.

To become reality walk with many of our customers dsos individual practitioners universities.

So far we haven't seen anything that says this would change over time and if anything we have seen a little bit of.

Opposite of that that many patients still need care with old and new immersion issues likely mitigated if positive mix toward more of a restorative endo implants overtime.

It's still pretty early in the quarter going forward, we see a situation an appointment will continue to be a Phil.

More of cases that people want to take care of a new patients that they come in managing pain, obviously top off the priority, but also continue with the treatments that they have started.

I mentioned before the hygiene has continues to be in a challenge, but our exposure to that has been really low less than 3% of our revenue.

We think that over time is actually provides opportunity for practitioners to see a lot of cases, there was supposed to happen during that time to come back.

So 40% of the U S stock the revenues comes from hygiene and in a normal times. This is we've talked about pent up demand. This would be a great opportunity to see that picking up and that has implications and equipment and consumables for us over time, even though procedure itself would have.

Emitted impacting our revenue.

Okay and your final question from the lineup Aaron right with credit. Please. Please go ahead.

Great. Thanks.

I see here Uhm, we've been hearing more about digital dentistry contacted Nicole they'd world.

Minus on what you.

Traction Mary in on that front and curious.

Died here.

Scanning strategy.

Okay.

Yeah Yeah.

So.

This is a really important element he dentists or looking for an option to get their practices a lot more efficient.

So what we have been doing on the digital set and I answered the.

And the second a lot of training and education is online and it's really effective you have trained over 250000 customers. This year.

Combination of what we have done with the digital imaging. The T. T X, we have really put up and twin workflow any good it management in place that goes from diagnostic to planning to execution feel really good about it no math is all of a sudden leader in digital treatment same day impasse X.

<unk> <unk> has been a you know a whole lot of software capabilities that we have around our this is a differentiator a specific there on a spark in her on our auto business.

Free.

Our strategy really hasn't changed by the scanner.

We want to own their point of entry every dental treatment and we want to keep people options you have a full portfolio of a three D. Two D. I O as CTX to realize is a strategy. We do have partnership and we have link spilt between X 500 and.

Soon with three shape in order to make sure that the rest of the portfolio work together very nicely and we are offering those attractive solution both through direct with our auto in the process was as rush through our partners. We wanted to have a walk for that <unk>.

Competitive at cross Plainfield, and the long term being in Iowa's manufactured is still a priority for us, but we haven't been able to really solve that problem through partnership and level the playing field in here and make sure that our customers get what they need solve the tech to call and.

And Ah clinical of issues first.

And then on the initial date.

I'm sure I guess, how how are you.

Competitive.

Alabama.

Okay.

Operating as well as.

<unk>.

Are you thinking that will take out and then I'll fail. When do you think more meaningfully contribute to the top line growth.

Yes, so you're all current portfolio is a very competitive portfolios SaaS today, we thing and one is a truly differentiate there is a revolutionary.

Implant process from what we have heard from what we have seen everybody who is using it telling us that I think it's gonna be really revolutionary approach change in the model going forward, but I also want to make sure that we're not building. Our overall strategy just based on one product we have have significant pre.

In this space, we have been improving our operational and commercial execution yep improve our customer experience.

Quality delivery and we're going to continue to do that we are doing significant number of training, helping us doing marketing of these products and or overall portfolio, we're going to continue to add additional above and prosthetic option in order to make sure that we have a broad rohloff as mentioned before are intense.

<unk> and make sure that Nobel implant business is growing myths single digit overtime, all the activities that you're doing it really puts us in a place that after a long time that we haven't had a new product position as well in order to accomplish setup checked it.

Okay. Thank you.

Oh man or further questions at this time I would like to turn the call back to management for closing remarks.

Thanks, Angela appreciate of everyone's time on the call will be around for questions. The remainder of the day.

So you can kind of remember styles concludes today's conference call. Thank you for your participation you may now disconnect.

[noise].