Q4 2020 Envista Holdings Corp Earnings Call

Okay.

My name is Erica and I will be your conference facilitator.

At this time I would like to welcome everyone.

We're still holding corporation's fourth quarter 2020 earnings results Conference call.

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

Sure Mark.

The answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

You would like to withdraw your question press the pound key on your telephone keypad.

I'll turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford You May begin your conference.

Thanks, Erica Hello, everyone and thanks for joining us on the call with US today are a mere andi, our president and Chief Executive Officer, and Howard Yu, 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 provided during the call are all available on the investors section of our website Www Dot Invista co dotcom.

Tom.

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.

As for metrics relate to the fourth 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.

Yeah.

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, including 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 to Amir. Thanks.

Thanks, John and welcome everyone to earn business for.

For 2020 earnings call.

Before we before discussing our results I wanted to start by reflecting on.

What has truly been any historic year.

While this has been a challenge in 12 months is in many ways. We have successfully navigated through by keeping our customers at the center of all that we do.

This is one of them business five core values.

And was evident in our frontline manufacturing and distribution teams.

Laughs wants to leave and first wants to return to keep production running in the middle of the pandemic.

Customer Centricity was alive and well.

Among our commercial teams, who helped more than 4000 training and education sessions.

For over 400000 dental professionals.

We are proud of our role.

And the broader Oscar communicated there.

We provide critical disinfectant products to help fight the spread of COVID-19 in dental and medical offices and critical care setting.

One on 80 countries.

In 2020, we shipped more than 30 million units of wipes in liquids.

Assist in this effort.

And then Mr committed to partnering with dental professionals.

To create greater access to quality oral health care globally.

We make products and services that improve the productivity and predictability of our customers' practices.

And help in creating better patient outcomes.

For our customers.

We're committed to support you in your efforts.

To improve for our hub.

Our employees.

Thank you again for your tremendous sacrifice and camaraderie in 2020.

Turning back to our results.

On standard finished for the year delivering three 4% core revenue growth.

And $8 five per cent increase in free cash flow.

On a 23% increase in adjusted EBITDA.

This was made possible by the progress we have made on our journey to accelerate growth.

Expanding profitability and build a better than Vista.

Let me take you through some of the important details.

We continued to expand our strategic growth areas with the infection prevention business.

Contributing more than 200 basis points to revenue growth and the combination of debt and one implant system and the spark clear liners contributing more than 100 basis for revenue growth in the fourth quarter.

Infection prevention business has been a significant contributor throughout the year and grew more than 40% in the fourth quarter.

As we move on to pandemic. It for this business remain a high growth area with many of the increased disinfecting procedures, becoming a standard part of the health care protocols.

You have increased capacity in 2020.

Could you provide us flexibility to expand the geographic footprint outside the U S.

Currently more than 80% of on infection prevention revenues and drive in the U S.

Additionally, we are adding more resources to build a greater presence in the medical market segment, which is more than six times larger than the dental market and we have less than 10% market share.

Last quarter.

Launched a new surface disinfectant product for this market kabi wipes to design to keel over 40 pathogens with a two minute chill time any net simple one step process.

Reception has been phenomenal.

And our sales team has secured several long term multiyear contracts.

With integrated delivery networks.

More than $5 million.

For me.

Our orthodontic business had another outstanding quarter growing at mid teens straight debt.

Bracket and wire grown approximately 10%.

Innovation is another one of our five core values and is an important part of the growth strategy for <unk>.

For a spa. This was marked by the launch of our release.

Update featuring Trojan XO and more Richard material is doctors more control.

Finishing details of the case.

Released 10 also added clinical and diagnostic capabilities unique to spar. It puts stereo by turbos that help with more complex opened by cases.

It also includes integration of <unk> images, and inter Aurora scans align for more comprehensive treatment planning by doctors.

These new features provide orthodontists greater start to finish control.

Ultimately would help create better aesthetic outcomes for patients.

The addition of several new manufacturing lines in 2020.

We now have three times more manufacturing capacity.

Comparison to when we entered the year.

Today, there are moving on a thousand orthodontists.

Or actively prescribing the spark.

Innovation is also an important part of our strategy to expand our share in infants.

In the fourth quarter, we launched our new surfaces tie ultra in steel in the U S.

These new surfaces fly to implant abutment to optimize soft tissue adhesion and bone integration, resulting in more aesthetically pleasing treatment outcomes and better long term clinical results.

We have sold more than 250000 implants on apartments with these surfaces in 2020 and anticipate this should be a significant boost to our product portfolio in the U S. As we move into 2021.

These surfaces are also featured on our <unk>.

<unk> implant system and new innovative product that is designed to be easier for clinicians to use.

And one three protocol operates at a much slower speed and with fewer steps, which should result in less damage to bone and soft tissues, reducing total treatment time, while creating a more comfortable expense for the patient.

We introduced and want to over 1000 clinicians in Europe with more than 300, adopting the product of <unk> 40 per cent of them, placing repeat orders.

We anticipate more clinicians we choose to adopt and want as the pandemic eases and we accelerate in person trainings.

With clear momentum on both spoken on one we anticipate more than 200 basis point of revenue contribution from these products in 2021.

The progress on this growth priorities has been made possible by Dippold actions, we took to permanently change the cost structure of <unk>, while reducing more than 100 million annualized spend.

Here's where we see continuous improvement a key attribute of EPS, helping to drive adjusted EBITDA margin above 20% for the second consecutive quarter.

These business transformation initiatives allowed us to deploy substantial resources into orthodontics, we increased head count more than 40% in 2020 to help support the rapid growth of both the traditional bracket and wire spark clear aligner businesses.

In 'twenty 'twenty, one you're planning to invest more than $30 million.

To help fill the spot manufacturing capabilities and expand commercial initiatives in both implants and orthodontics.

The recovery of dental market in conjunction with our focus to enhance performance and simplify our business has put us in the best financial position, we've been in since becoming a public company.

We generated more than $240 million free cash flow during 2020, which helped.

Our cash position to nearly $900 million.

Consequently, we have repaid $472 million of our bank.

Bank debt at February accelerating compliance with the duration on terms of agreement two quarters ahead of plan.

We now have the financial flexibility to use on a capital to further reposition and vista into a more consumable and any greater workflow oriented portfolio.

But the business exits this year more than 85% of our revenue is within the strategic areas today.

I will now turn it over to Howard to go through our financials in more details.

Thanks Samir.

Fourth quarter sales increased one 6% to $732 million.

Sales were positively impacted 1% from acquisitions, and one 9% from currency and unfavorably impacted three 8% due to discontinued products.

Core sales increased approximately three 4% a sequential improvement from the sales declines experienced in the first three quarters of 2020.

Globally, most dentists' offices remained open with stable patient volumes relative to the third quarter. Despite some government imposed lockdowns and an increase in prevalence of COVID-19.

Our consumables business led the way with mid single digit growth driven by pent up demand new procedure volumes and strong performance in our infection prevention business.

Geographically sales in developed markets grew at a mid single digit rate North America increased low single digits with robust demand for our infection prevention and orthodontic products Western Europe grew at a mid single digit rate in Japan grew at a double digit rate led by our traditional consumer.

<unk> and equipment businesses. This was partially due to government policies designed to incentivize the purchase of capital and disinfecting equipment.

In emerging markets, China grew more than 20% with all product categories experiencing healthy performance, our specialty business had a strong second half of 2020 and finished the year in positive territory.

The success throughout the year has been due to our investment in key private accounts, which recovered more quickly than the public sector.

<unk> sector revenues increased more than 25% in 2020.

In the public sector, we have focused on increasing formulary access.

For our premium implants, and new orthodontic products spark and DQ, two which will help us grow as more patients returned to public care settings.

Outside of China, other emerging markets remained weak and declined more than 10% as the COVID-19 outbreak suppressed demand.

Our adjusted gross margin of 54, 4% increased 40 basis points due to favorable product mix and productivity initiatives, which were partially offset by inefficiency from capacity building for N one and spark.

Adjusted operating profit margin was 19, 3% an increase of 360 basis points, largely driven by our structural cost reduction actions, which led to savings of more than $25 million in the quarter.

These savings were primarily driven by a reduction in personnel spending and 10% reduction in our global footprint.

<unk> ability substantially increased with adjusted EBITDA growing by 23% to $151 million.

Our 2024th quarter adjusted diluted EPS of <unk> 56 cents is an increase of approximately 24% compared to the same period in the prior year on a pro forma basis to include incremental interest expense of approximately $14 million.

For the full year, we generated more than $241 million of free cash flow, including more than $185 million in the fourth quarter, an increase of eight 5% from the comparable period in 2019.

Importantly, our free cash flow to adjusted net income ratio for 2020 was approximately 150% a testament to our strong quality of earnings.

As Amir mentioned, we were able to accelerate compliance and reinstatement of the original terms of our credit agreement, which will substantially lower our interest expense beginning in February.

Now turning to our two business segments.

Our specialty products and technologies segment sales were up four 4% while core revenue increased two 2% our orthodontic business grew at mid teens rate with significant contribution from both brackets and wires and clear liners rack.

Brackets and wires grew approximately 10% with new volume remaining strong and backlog reduction driving the acceleration and sequential performance.

New patient volumes continued to be aided by consumed by consumers using more of their discretionary income on aesthetic procedures and taking advantage of more flexible work and school schedules.

Our Damon system has been a key differentiator in our performance in the second half of the year with more than 20% growth in the fourth quarter alone.

Doctors have remained loyal to the Damon system, because it creates lower forces of teeth.

On T in comparison to other conventional brackets, making it more efficient and more comfortable for patients while creating beautiful outcomes.

Spark was also a significant contributor to growth in the quarter with total case shipments in the second half of 2020, increasing more than 250% in comparison to the first half of the year.

Our implant business declined at a low single digit rate with growth in China and developed markets offset by weakness in emerging markets outside of China, where conditions have remained challenging.

The business improved sequentially.

Due in large part to our focus in areas like Dsos and China.

Nobel <unk> revenue from North America, DSO customers increased at a mid single digit rate for the second consecutive quarter.

This performance is being driven by our clinical education programs were more than 500 affiliated doctors were trained in queue for expanding the number of clinicians able to operating plant treatments.

In China, our leading education program has also been a differentiator for our business here, we hosted a variety of dental clinic management courses and the first women's leadership summit for them, enabling female dental practitioners and leaders to learn from each other and to help promote diversity and inclusion in the workplace.

This quarter also brought notable global recognition of our Nobel <unk> implant business, which received the award from dental towns Annual County customer Choice Awards for their best implant system Crown and bridge the.

The Townie awards recognize the most reliable and reputable products in the dental industry as voted by peers.

Specialty products and technologies adjusted operating profit margin increased 60 basis points to 29% due primarily to cost savings from our structural program, which were partially offset by increased investment in clear liners and implants.

As Amir mentioned, we expect to increase our investment in capacity and commercial activities in 2021 to further accelerate adoption of N one and spark.

Our equipment consumables segment sales decreased <unk>, 7%, while core sales increased four 3% discontinued products adversely impacted sales by six 7%.

Traditional consumables grew at a low double digit rate with infection prevention, leading the way with growth of more than 40%.

The infection prevention team truly embraced EPS in 2020 tirelessly working to improve the efficiency of the manufacturing process and increased throughput and better meet customer needs. These actions have helped to increase our daily production of disinfecting products by more than 20% in comparison to the.

Third quarter.

Demand has remained robust with our backlog position still above $25 million on.

Our restorative and endodontics businesses declined slightly a sequential improvement from the third quarter performance.

Our equipment business was flat with significant improvement in all product categories relative to the prior quarter.

Smaller equipment performed better than large capital equipment, driven by higher demand of our electric can pieces due to new hygienic standards in certain geographies.

In our imaging business. Our team has done a terrific job of embodying our core value of customer centricity with new satisfaction programs that stand behind the quality of our products. This includes an unconditional first year warranty and a 60 day no hassle return policy, where customers can try on many of our products risk free.

<unk>.

We are also furthering the competitiveness of our three D product portfolio, providing radiology reports through our partnership with beam readers. In addition to the investor clinical training offerings.

Beam readers is a team of oral surgeons and radiologists that tailor reports to help clinicians create better treatment plans for their patients.

Equipment and consumables adjusted operating profit margin increased 710 basis points to 23, 8% impacted both by a favorable product mix and a tremendous job by the team executing on our cost reduction programs, which drove more than 450 basis points of improvement.

We anticipate better operating margins to continue into 'twenty and 'twenty, one driven by strong growth on our infection prevention business the exit of lower margin products in our equipment business and sustainment of our cost reduction measures.

I'll now turn it back to Amir who will walk you through some details of the current operating environment.

Thanks Howard.

We are very pleased with our progress in 2020 and believe we are entering 'twenty 'twenty, one and a position of strength.

For the second consecutive quarter, our strategic priorities contributed more than 300 basis points to our top line growth.

Additionally, our China business returned to double digit growth for the first time since the outbreak of the pandemic.

We delivered adjusted EBITDA margin above 20% for the second.

Consecutive quarter due in large part to our execution on our $100 million permanent cost reduction and margin enhancement programs.

These savings will help us accelerate future performance as we partially redeploy cash into required investment to accelerate on our specialty segment growth.

After the exit of lower growth and margin areas of the business. Our portfolio today is much better positioned with our 85% of our revenue focus in consumables and clinical work for products.

We expect to expand upon our strong foundation inorganically as our balance sheet in the best is in the best possible.

<unk> it has ever been.

Looking forward, we are cautiously optimistic in the near term outlook of the dental market.

We entered January the healthy backlog and solid recovery trends continue for us.

<unk>.

For the months consistent with the second half of 2020.

For the first quarter, we believe our or to Donnie business will maintain this strong performance driven by new case starts and that the implant placement rates will remain stable relative to the fourth quarter.

And equipment and consumables, we anticipate a strong performance in infection prevention to drive double digit growth in consumer board, while equipment is expected to remain below pre COVID-19 levels as certain incentives moderate.

Geographically, we have seen a stable conditions continue from the fourth quarter.

In North America, and Western Europe, which makes up over 70% of our revenue did dental market wireless steady remains below pre pandemic levels for the infection prevention and higher complexity procedures, continuing to make up for reduced volume.

About 10% of our revenues in China, where we have benefited from strong economic activity, but have also seen some disruption in northern China in January due to government imposed restrictions.

In emerging markets outside of China, We anticipate Beecher performance in the first quarter as there has yet to be a significant rebound in dental activity.

Our expectation moving forward is the dentist offices remain open and that we begin to see improving momentum through the first half as vaccination distribution progresses.

We also believe that majority of immediately addressable pent up demand is now behind us and that higher case complexity.

To help offset this staple, but reduce patient volume in the near term.

Turning to margin.

We anticipate first quarter operating margins will be lower sequentially as we invest in our strategic growth priorities and historically have higher operating expenses as a percentage of revenue.

We are optimistic about the long term growth prospects of the dental industry.

The pandemic has caused a significant decline in preventative visits, which we believe could lead to more oral health care issues being identify when patients fully returned to their dentists.

And our specialty the implant and orthodontic market remain underpenetrated with the growing need for training and education.

And I made a solution like a spark and one and then any greeted digital work flow will enable more clinicians to be more productive and predictable and performing these difficult procedures.

It is also a growing need to enhance disinfection procedures to prevent transmitter both diseases across the health care space worldwide with our products at the front time Frontlines every day.

Our 2021 financial priorities remain consistent.

Accelerating growth.

Improving our profitability and building a better and Vista.

We will work to achieve our goals by investing in our specialty infection prevention on China.

Maintaining cost discipline.

Repositioning our portfolio for accelerated growth and thoughtful capital deployment.

We are also committed to building on and Vista into a leading destination for talent.

Increasing our diversity, while leveraging E b S to continuously improve in all that we do.

We're on organization committed to the dental industry.

And our purpose of making oral care readily available to more people improving productivity and predictability of treatment options.

All tumor tree improving confidence in quality of life for patients.

We are proud of the progress we have made in 2020 and excited about the opportunity to further advance these goals as we move into 'twenty 'twenty, one and beyond.

Thanks Amir.

That concludes our formal comments Erica we're now ready for questions.

Yes.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

Sandra will begin the Q&A roster.

Your first question is from Jeff Johnson with Baird.

Thank you good morning, or good afternoon, guys. Congratulations on a really solid close to the year.

Amir I wanted to start with your revenue outlook. The geographic details on the product line detail very helpful.

You exited the year above <unk> 19 levels on a core basis, if I roll up your comments it sounds like maybe in line in 2021 with 2019 revenues or slightly below is that how we should still be thinking about your full year 2021 revenues I know, you're not guiding but maybe all in a little bit below 2019 led.

<unk>.

Thank you Jeff.

We see.

We are really pleased with where we ended in Q4.

We have done as you can imagine a lot of work and reposition this portfolio and put ourselves in a better place. Our consumable is mid single digit equipment is flat.

Growth priorities are adding over 300 basis point up with topline performance.

We had double digit order growth and over 40% infection prevention growth.

Geographically really position ourselves in a different situation.

And we expect better execution as we go forward, but another hand, some of the government incentive.

As well as to all flow coupled we see in pandemic remain uncertain.

China, obviously is doing extremely well.

Specific in our specialty developed markets.

Is ashwin.

Surprise to us and we are seeing those expectation exceeding above the board.

Currency played a role in Q4.

Not that big but it was about a $10 million.

Putting all of that together, what we see in Q1, a continuation of what we saw in second half.

Except this change in equipment and consumable specific on equipment because of the incentives that were given in Germany and Japan.

But looking ahead, it's really difficult for us at this point to provide guidance in 'twenty 'twenty. One what we can tell you is we have repositioned this portfolio in a very good place exactly where we wanted it to be and we are excited about the opportunities as co.

With dynamics changes overtime and it puts us in a better place as we enter the second half of this year.

Alright Thats helpful. Thank you and then maybe as a follow up just Howard on the margins.

It's two quarters now the second half of the year anyway, you were just at 20% operating margin on a non-GAAP companywide basis.

<unk> is sitting at 15% operating margin or even a bit below that for all of 2021, if I think about your $30 million on incremental investments on the specialty side, that's only a point or so.

Hi.

I would assume you feel fine with where the street's at a 15% it would feel like to me there should be some upside there just how should we think about the full year understanding you're not guiding but at least can you kind of toggle between that 15% Street number in the 20% that you exited the second half of 2020. Thank you.

Sure Jeff. Thanks for the question certainly we're pleased with where we ended the year and really the second half.

As Amir indicated there is still some.

Fluidity to the situation with we're talking about the pandemic certain geographies, we talked a little bit about northern China as well, but as it relates to margins, we do feel as though we will be better than the 2019 levels certainly and maybe.

Given there is so much out there one of the ways to think about it is if we use 2019 as a jump off point and adjust those the EBITDA number for for corporate costs that puts us roughly in the $400 million range and as you indicated Jeff you know with some of the cost savings as well as the investment that.

That Amir referenced and we have some inflationary considerations as well so I think that that does put us in that mid <unk>.

Mid teens, the higher part of the mid teens is what we're looking at overall as we're thinking about the EBITDA, but again without putting out formal guidance I think that that's the rough range of where we're thinking.

Thank you guys.

Sure.

Your next question is from Jon block with Stifel.

Hey, guys good afternoon.

And I'm actually going to pick up on where Jeff left off I'm, sorry, I just think it's important for clarification I'll take a different approach.

The two H EBITDA was I believe $280 million, obviously run rating well over 500 million, but look there's one time stuff in there how would you call that out.

How do we think about what was one time and also on the $30 million investment in 2021.

And one in spark is that all expense just to be clear on some of those investments specific to capex. So maybe we can just put a finer point to some of those questions. Thanks.

Yes, maybe knocking off the first part or the second part of that question that $30 million is going to be running through the P&L. So it's primarily on the opex as well as the.

Factoring expense.

And so fully that that helps a little bit there John.

You know I think that we do have a little bit more visibility around Q1 and earlier in the year than then I would say the latter part of the year overall, and so maybe maybe to talk a little bit relative to the 2020 numbers for Q1.

You indicated if we take that as a jump off point, we talked about the cost savings and completing that effort.

That's a gross savings of about $25 million on a quarterly basis and then you know we think that will have a very healthy fall through in.

In Q1 on volume, let's say in excess of 40% and so that helps us kind of get through what we're looking at a very near term and then more broader term I think.

We had answered that relative to what Jeff was asking as well in his perceptions and what we think on the EBITDA side.

Okay got it fair enough and ill pass it for the second one wires and brackets number was just phenomenal again I think you guys called out 10% growth just for any you know here. We are all focused on sparking clear liners, but a good amount of dollar growth has really been in that wires and brackets core franchise. So maybe if you can just spend some time.

Do you think market is growing how are you growing what seems like well well above market is it is it from a geographic standpoint is it due to one of the players exiting the market and do you think maybe high single digit growth can be maintained going forward specific to wires and brackets. Thanks, yeah. Thank you John.

So it started to start this process you know our wire on bracket business has been growing mid single digits. Prior to pandemic. If you look at that segment that $2 billion segment was growing at that low single digit to flat and we were continuing on that mid single digit growth before the pandemic.

Our team has done a really incredible job in taking share in many places in China, Russia best in Europe.

The second half and you look at the second half growth of high single digit growth and double digit growth in <unk>.

Q4, we started really performed very well in the U S. So figure out where is this coming from this performance is a combination of a pent up demand that we saw a little bit.

What I called a zoom effect people being having a little bit more time have the little bit more money to spend and here at our bracket on wire business is really differentiate it is differentiated because it has significant number of new innovation coming into this space on the diamond bracket area.

It is differentiated because of a lot of training and education that we continued to do a 70% of this business is outside U S really exposed to what is happening in China and Russia in other geographies that combination.

Really puts us in outstanding position to continue this momentum as we go for.

We are committed to this business. We think there is a large part of this segment.

Meet this requirement by by going after the bracket on one and we're going to continue to invest in it and make sure that people understand the value that we provide.

Thanks, guys I appreciate the color.

Thank you.

Your next question is from Steve EPS Shah with Wolfe Research.

Hi.

Good afternoon, and thanks for the time here.

Third themes that have come up on the call.

Love to get a little quantification on if we can.

One just because they don't trust my own math, Howard could you talk a little bit about the implications.

The decline in interest rate that you flagged in February.

What's the impact on interest expense for the balance of the year and is there any delta between that and what we would think of in terms of cash flow and then the second thing I was hoping to get some quantification on is the programs that you referenced that were impactful in the second half of 2020 in Germany, and Japan any specifics on.

On what those did in terms of growth $1 a day Super Super helpful. Thank you.

Sure so as it relates to.

The interest.

Steve This is related to the the payback of.

Of our $752 million of debt and so we think that the interest will be stepping down I think it's about $12 million for Q1, and then will be about $8 million for each quarter subsequent to that.

This will be effective here in February and so hopefully that provides you some.

You know some thoughts as it relates to that on a cash basis.

As far as the steep.

What is the program that they were put in place in specific against latter part of last year. We saw a serious program in Japan in a specific region, Germany, Iran. We a T reduction on capital equipment as well as amortization debt. They put different kind of a program in place on both of those really helped inverse.

<unk> in this space on the equipment side and also we saw better demand for smaller equipment, a lot of hand pieces, specifically electrical electrical hand pieces, which is more hygienic works a lot better.

And it's also improvement in our imaging and imaging pieces, where a lot of things that we talked a little bit about our commitment to customers 60 day no risk.

Guarantee we are really encouraged by work that we have done in repositioning the portfolio. Our team has done a really great job execute in becoming a lot more customer centric in its space and as I mentioned some of those program that we saw in the latter half of last year.

Okay. Thank.

Thank you very much for the color just one follow up.

It's different.

Different places here in the Q&A and in your prepared remarks about.

Pent up demand and you've talked about working through some of that but in some.

As you've also talked about there being remaining pent up demand, maybe higher acuity and.

So I think it's different in different categories right.

Right try I know its hard I know, it's hard but could you try to incent the size it and give us a sense do you think any sort of demand backlog right is it a net tailwind or a net headwind for 'twenty, one or does it just kind of wash out and then I'll get back in queue. Thank you very much.

Yes happy to do it I mean, we have been looking at this continuously Steve. So let me just start with equipment on consumable or inventory from January one of 2020 to end of the year is down by 40%. So thats just important factor to think about that.

Net inventories were down so there is no extra inventory sitting out there. So while we talk about when we talk about pent up demand that plays a really important role when import inventories are leveled off the selling and sell off kind of a match each other.

And then that element of it is around that that infection prevention backlog.

We have done.

As we mentioned we have added capacity we have.

Infection prevention in Q4 with growing over 40%.

And that momentum hasn't stopped walking into Q1 with the same set of setup.

We have over $30 million of a backlog in here our ortho business.

We saw a little bit of a pent up demand in Q3 by by the time, we got to Q4, we think that it really has worked its way out and it is not as much of an issue as you go forward. So you put it together.

Our base business, we don't think pent up demand is as much if on the issue of walking into 2021 now let's go to standard dentist visit to go for a hygiene normally a lot of new cases get identified when you go through your standard hygiene now checkup debt.

<unk> offers opportunity for additional specialty businesses as we see a little bit of for nor mouthpiece hopefully second half of this year. So hopefully that gives you a little bit of a feel for what we saw in second half what we have seen the first half on what we expect to see in second half of 2021.

Excellent thanks have a great day.

Your next question is from Erin Wright with credit Suisse.

Okay, a follow up on the infection prevention and then Joe can you describe or speak to how we should be thinking about the durability and quarterly progression on infection prevention contribution here.

For today's Kenneth.

Thank you for more recurring in nature, and you mentioned from multiyear contracts as well how should we think about that in.

The contribution from 2021 and beyond as well as the.

The margin profile for that thank you.

Yes happy to do it higher.

So this business in 2020.

It was $220 million.

So we have talked about adding $100 million to it at the very beginning so we made a significant step forward in 'twenty 'twenty.

Significant amount of capacity in Q4, as I mentioned to Steve grew 40% that momentum is continuing we got over $30 million backlog. So now let me break it down for you from two different dimension.

50% of this business is dental.

And we have over 40% share in that segment.

And as you can imagine at the beginning of the year there was not a whole lot of demand, but that demand has ramped up.

And a lot of that business over 80% of <unk> stake.

The other 50% is medical and the medical space. The market is six times larger than the desktop and we have less than 10% share.

When I take a step back and say is it sustainable.

Disinfection.

In fact in procedures is becoming a standard globally everybody is using it even after the pandemic is going to be a standard procedure.

80% of business has been in the U S. We all have significant runway outside U S. N V building capacity outside the U S commercial capacity capabilities.

Medical market gives us an opportunity to be a much bigger player because of the product capabilities that would be app.

We have also added resources on the commercial side.

So this business is going to be a double digit growth for us at least in 2021 until we get to a more of a level setting in here.

Bob Fleet.

Fleet average margin so more of a consumable margin.

And I think they've had is going to be an important part of our overall portfolio as we go for it what.

What I talked about those three different dimension gives us opportunity for runway in the long run.

I think Aaron maybe just this is Howard just to clarify here a little bit we would think that the expectation on the first half would probably be a bit higher given that in the second half we're going to have some of these comps as we roll into the third quarter of this year as well.

Okay, Great. That's helpful and how should we think about the ramp up and won an increase overall given that there's more of that day.

Sales process do you anticipate that will really ramp on things normalizing.

And how what's your response to day traction so far I think you said, 40% of the Europe docs are doing repeat business.

That would be better on a normalized environment.

How is that relative to your kind of initial expectations there.

Yeah. So.

So as you can imagine.

This is <unk>.

Surgical procedure that you really want to have a group of people in our surgical room show on teach him that how it's done and that has been a little bit of a challenge in here.

Given the environment that we're in upon saying that we have trained over a thousand doctors introducing 10 different countries and we continue to do that 300.

<unk> 1000 more than 300 day have placed orders.

40% of them to have placed repeat orders.

It is going better than what we have expected given what is taking place the realities that he's on the crop.

Yeah.

How this is going to ramp up a lot of it has to do with the training on X first need to become really comfortable and then they're going to teach other people how to use it what we are hearing from our experts is this is an incredible change in what has taken place in this industry I want to take us back.

Back to over 20 years ago.

Immediate loading protocols really changed in industry that Nobel introduced it.

And one is a paradigm shift in implant procedure.

It will become a standard is going to be a new way of doing things. We are excited about it.

Hopefully as the pandemic.

Moving forward as we get it in the U S. This is going to be an important part of our growth and getting implant to continue to execute as we go forward.

Okay, great. Thank you.

Your next question is from Brandon Couillard with Jefferies.

Thanks, Good afternoon.

Howard I think the fourth quarter had three less selling days could you quantify the impact to core growth in the quarter and if you look at the core consumables business ski stripped down kind of what core consumables growth would've looked like adjusting for selling days and kind of backing out the infection prevention a contribution.

Yes, so Brandon sure I mean, I think that in light of the.

The ebb and flows of the pandemic and things of that nature, we did see.

The number of day did not play as big of an impact as it relates to the equipment sales, which stays strong we think that the incentives that the government had put in place probably outweigh some of the days within their respective month or quarter.

And so we certainly saw that overall I think from a consumable standpoint, we felt really good about the growth there as Amir indicated on the specialty side.

Both the orthodontic business growing at the double digit rate.

As well as the improved performance.

In the implant business and some of the.

The growth that we saw in larger customers like Dsos.

And in China, coming back really strong as well.

Thanks, and then maybe one for me are back on and one just give us an update in terms of the timing of a broader commercial rollout for that product in Europe.

As well as update.

As far as the U S introduction goes thanks.

Happy to do it Brian in Europe country by country, we are adding it at the.

The moment, we have an opportunity show up in any office any any places and we have been doing a lot of remote training of our Zurich office in broadcast in it but we really got to be on site to be able to do that so wherever we have on opportunity a city by city geography by geography, we're doing that in Europe across Europe.

In the U S youre going through the approval process for 500 10-K, we worked on with the FDA. We are filing all of that information on a lot of that has to do with kind of the feedback we get and what kind of question. We get we are counting on second.

Second half later half of this year to debt become an important part of our growth vectors in the U S. At the same time, a lot of new product that we have put in place both in Europe and on surface is making a difference there are in the U S and theyre going to be continuing.

Interest introduction of various product categories, and Batman prosthetic that theyre going to be a part of a broader rollout. So we think this is going to be an important factor for a second half of 'twenty 'twenty, one and a 2020 to get us to mid single digit growth high single digit growth over time, our implant business.

<unk>.

Great. Thank you.

Your next question is from Elizabeth Anderson with Evercore.

Yes.

Hey, guys. Thanks, so much for that question can you just remind us if there's any selling day impact on the first quarter at all.

Yes, Elizabeth I think it's fairly de Minimis.

Maybe a day and so certainly don't don't don't factor that in as it relates to our expectations here on <unk>.

Q1.

Okay perfect. That's helpful. And then as we think about as sort of volumes are continuing to re ramp.

Dentist offices can you talk about how you sort of see that drop through and if there's any if you know the incremental drought there and is there any particular categories that that might have a more pronounced impact on versus others.

Sure.

We think that the patient volume is going to continue to ramp up hopefully second half of next year as we had talked about within our specialty businesses.

We are much better.

Our margin profile.

And as we talked about the combination of infection prevention and one as far dose combination that should give us about a 300 basis point out with growth throughout the year.

That mix shift that we have done it is a bit over 85% of our business now being more consumable piece that really would have.

Direct impact into our margin as we go forward combination on what we did with cost saving changing the portfolio change in the mix you had said you're going to see us having better performance on growth mid single digit overtime.

Better margin and then put the portfolio in a better place as as we come out of pandemic.

Thanks, that's helpful.

Your next question is from Nathan Rich with Goldman Sachs.

Hi, good afternoon, thanks for the questions.

EMEA I appreciate all the details that you've given on the call so far.

I'm just trying to kind of summarize your comments on <unk> on the outlook I guess does it kind of fair to say that kind of putting everything together, you've seen pretty consistent end market demand. So far in the first quarter kind of relative to what your experience is it was in <unk> and then obviously you're kind of worth watching some of the variability.

Around China, you called out is all of the equipment incentive programs I.

I guess just for kind of wanted to at a high level is that kind of a fair way to pull together, how youre thinking about the first quarter.

Yeah Nathan.

Absolutely right exactly we're not seen so far we haven't seen anything that tells US there is a radical shift we think that Q1 is going to be very similar to second half second half was overall was kind of flat up slightly patient volume is still pre COVID-19 levels, but the mix was more pop.

Positive specialty you saw a little bit of moderation in basically in China, and that's the one that would be a watch in equipment and consumable. We think as you know it was high single digit double digit but to think that it is a little bit differently and here is the equipment on those incentive debt vitol talked about rethink.

After we get to a more of a.

You may now.

Longer term getting our surgeon and we can get on it we can't see ourselves to be in the mid single digit grow.

Territory around that area as we go forward by Q1, given these changes in China and equipment, we have.

Not expecting any radical changes versus what we have seen and so far.

That continuation of the performance been consistent.

Got it okay.

And then I wanted to ask a follow up on on spark Amir could you maybe talk about how sparse performed outside the U S. In.

In the markets that you're in relative to maybe what you've seen in the U S. And then are you planning.

To expand on any additional countries in 2021.

Yeah, absolutely we have it in China on now Nathan.

It was approved both clinically from a manufacturing perspective, so China is ramping up and in Europe. We are signing up more on more debt. This almost on a weekly basis.

So geography by geography toward Europe, and then we have a really nice rollout plan over as the capacity expands we are going through a country by country and we had said before that we want to be in a position to make this in about $100 million business over the next couple of.

Years, and we are on our way.

We have capacity now I mentioned three X capacity, we had in 2019, and we're going to double that capacity again in 'twenty 'twenty, one as Howard said the day investment that we're making and those investment is a combination of a front end case approval process manufacturing as well as a regional expansion.

And off putting feet on the street training program. So so far what we are hearing from our customers are very positive and we continue to wrap this up over time.

And that is all the time that we have for questions management closing remarks.

Yeah. Thanks, Erika, we'll speak to everyone soon have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Sure.