Q1 2021 Envista Holdings Corp Earnings Call
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Okay.
The name is Erica and I will be your conference facilitator of this afternoon. At this time I would like to welcome everyone to Investor Holdings Corporation's first quarter 2021 earnings results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be the question did the answers.
And if you would like to ask the question of during that time and simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key on your telephone keypad I will now turn the call over to Mr. Steven Keller Mr. Kelly you May begin your conference.
Thank you Erica.
Hello, and thanks for joining us on the call with US today, we have our Amira hug day, our president and Chief Executive Officer, and Howard Yu, Our Chief Financial Officer I'd.
And 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.
The all available on the investors section of our website Www Dot and Vista co 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. The supplemental materials describe additional factors that impacted year over year performance.
Unless otherwise noted all references and these remarks and supplemental materials to company specific financial metrics relate to the first quarter of 2021, 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 security 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 material 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 over the call two of them here.
Thanks, Steven and welcome everyone to investors first quarter 2021 earnings call.
2021 is off to a good start and as we achieved our core growth of nearly 30%, while delivering our third consecutive quarter with adjusted EBITDA margins of over 20%.
Our broad based performance is the result up a robust recovery and the dental industry, coupled with the strong execution across our portfolio.
Over the course of pandemic the dental industry has proven to be impressive the resilient.
We have seen demand for dental services and our developed.
Markets near pre pandemic levels.
With the all flow from dental offices, showing sequential improvement.
Having adjusted to the new operating model, including a stronger focus.
And infection prevention protocols.
Dentists are now more confident and the long term prospects of their business.
While uncertainty remains and we cannot rule on short term disruptions from localized Lockdowns, we are encouraged with the pace of recovery.
Before I turn it over to Howard to provide more detail on our first quarter financial results and our segment performance on.
And wanted to take this opportunity to discuss our progress towards our three strategic priorities of accelerating organic growth.
Expanding our operating margins and building a stronger portfolio.
Customer Centricity is critical to our long term growth.
And the first quarter, we held over 450 virtual and in person training and education sessions, reaching over 23000 customers.
Further in February the health the annual Oracle Forum, where we hosted over 1200 doctors, helping them stay on the cutting edge of orthodontic technologies clinical.
Clinical excellence and practice performance.
Our core bracket and wire business continued talk performed the market as we leverage our strong denim and franchise and continue to innovate.
The new Damon all tomorrow system of completely re imagined bracket and wire system designed for faster and more precise finishing was launch in February the of control rollout and North America and is experiencing a strong uptake.
The spark a clear aligner performance accelerate debt with over 50% sequential growth is sales relative to Q4, and an increase of over 30% and active doctors from the end of 'twenty 'twenty.
Infection prevention was another highlight.
And the first quarter as increased disinfection protocols remain in place globally.
Our infection business on <unk>.
Fiction prevention business grew over 20% versus Q1, 'twenty 'twenty and increased 70% versus the same quarter 2019.
Leveraging our and this the business system lean processes.
We were able to ramp up production and increased capacity by more than 70% over the past year.
This allows us to continue serving the needs of the global dental market.
Sort of expanding it to much larger medical market.
We expect to see double digit growth for this business in 2021.
And premium implants and and.
Nobel <unk> business has seen improved commercial execution through the rigorous application of our EPS growth tools and a heightened focus on customers.
We saw strong year over year of growth of more than 30% versus Q1, 2020 and mid single digit growth versus Q1, 2019 with sequential improvements in our developed markets.
And 2021 Nobel biker celebrates 40 years of serving customer and helping treat more patients better.
We trace the roots of novel Bio care back directly to per in Guar brand of Mark's groundbreaking discovery of Austria and integration.
Today, we continue to lead the industry and innovation and are excited about our and one implant system and tie altra and seal surfaces.
And the first quarter, the number of dental clinicians, who adopted the and one implant system and Europe grew 30% over Q4, 2020.
While the intermittent lockdowns in Europe hinder in person training and adoption rates. We expected, we expect the rollout of and want to accelerate as vaccinations increase and are able to do more in person training.
Furthermore, we are ramping up our investment for and accelerated launch and North America. The truth is built on our recent success of our Thai Altra and seal surfaces.
These innovation this innovative surfaces are achieving rapid adoption and growth among clinicians with 20% of all the Nobel implants in the U S now, including these best in class surfaces.
Our continuous improvement mindset and process improvement tools have been instrumental in helping us right size, the business and improve our financial structure and achieve a stronger result in the first quarter.
We continue to see the benefits from the structural transformation initiatives executed in 2020 and achieved our third consecutive quarter of adjusted EBITDA margins above 20%.
Over the remainder of 2021 we plan incrementally reinvest more than 30 million dollar to drive the long term growth of art and.
Innovative solutions, including the spark and one and our medical grade infection prevention solutions.
We will also further invest to support our commercial and initiatives and both implants and orthodontics.
We are committed to build a stronger differentiate it and more.
Our growth oriented and Vista.
By exiting low margin and low growth businesses, and really focusing our efforts and higher growth higher margin segment of the dental industry.
And where we are competitive the advantage we are transforming our portfolio.
With over 80% of our revenue now coming from consumables and the.
Work flow oriented solutions, we are aligning our portfolio with the industry's growth opportunities.
Our balance sheet is and the best shape it has ever been.
And we see opportunity to accelerate our progress through discipline and targeted inorganic growth.
In addition to executing against our long term priorities.
We are also working hard to build the better and Vista for all of our stakeholders.
With a focus on our core value of respect of diversity and inclusion council launch and the Miss those first employee resource groups women.
The women and France, as well as multi culture on France dedicated to represented the presenting different ethnicities and lifestyles.
These of resource groups and the intended to create collaborate collaborative environments to support our teams and our communities.
During the first quarters. These groups led black history, and women's history month virtual events, bringing together of employees customers and dental the students to further educate and celebrate each other.
As we build and more diverse and inclusive culture across and Vista, we're confident that vimeo and continue.
Continue to recruit develop and retain the best team.
I will now turn it over to Howard to go through our financials and the segment performance in more detail.
Thanks, Amir first quarter sales increased 29, 6% to $709 million.
Sales were positively impact, 3% by currency exchange rates and negatively impacted three 1% due to discontinued products. Our core growth was 29, 7%.
As Amir discussed our strong year over year sales growth reflects a robust rebound in demand across the global dental market, coupled with solid execution across our portfolio.
Geographically sales in North America, and Western Europe grew more than 30%, reflecting a strong recovery from the start of the pandemic Lockdowns and Q1 of 2020.
While patient volumes are generally improving relative to Q4 and nearing pre pandemic levels. We have seen the impact of inconsistent rollout of vaccines and localized spikes and COVID-19 infections, and several geographic areas, including Canada and parts of Western Europe.
We remain optimistic for our continued recovery throughout the balance of 2021.
And emerging markets, China grew more than 50% and Q1 with solid demand across the portfolio.
We continue to see strong growth and our premium implant business and China and pleased with the progress we are making and orthodontics.
Q1 patient volumes have recovered to over 90% of pre COVID-19 levels at private clinics.
Return to pre pandemic levels of public hospitals is a little slower given their focus on vaccine rollout.
Outside of China other emerging markets remained relatively weak as COVID-19 outbreak continues to suppress demand and we expect these regions to continue to be challenged until the outbreaks are contained.
Our gross margins of 56% increased 510 basis points due to higher volume favorable product mix and productivity initiatives and.
Adjusted operating profit margin was 19, 4% of 1007 hundred 60 basis point improvement largely largely driven by higher gross margins structural cost savings and temporarily reduced spending.
Profitability increased significantly with the adjusted EBITDA of $178 million or one sorry $148 million, our first quarter.
Quarter adjusted diluted EPS of <unk> 54 represents a 51 cent increase year over year.
For the first quarter, we generated positive free cash flow of $8 million delivering $80 million more than Q1 of 2020.
We ended the quarter with $441 million and cash and have continued to improve our leverage ratio, providing us more flexibility to pursue inorganic growth opportunities as they become available.
Now turning to our two business segments.
Our specialty products and technologies segment sales were up 34, 4%, while core revenue increased 31% driven by above market growth in our core wire and brackets business and rapid growth from spark.
Growth and our premium implant business accelerated as our focus on improving commercial execution is delivering results and North America, Europe and China.
And Q1, we grew more than 30% over 2020 and delivered mid single digit growth over 2019.
And just as a mere discussed earlier, we are seeing the benefit of innovation to help drive growth.
Specialty products and technologies adjusted operating profit margin at 27% was significantly higher than our Q1 2020 results and showed sequential improvement over Q4 of 2020.
Our strong growth favorable mix and significant structural cost savings drove increased profitability.
Through the balance of 2021, we expect to ramp up our investments and spark and one and premium implants to drive long term growth and accelerate adoption.
Our equipment and consumable segment sales increased 24, 8%, while core sales increased 28, 5% discontinued products adversely impacted sales by six 3% and we had of two 6% favorable currency exchange impact.
Our traditional consumables business benefit from the market rebound in developed markets, coupled with improved partnership with our distributors.
As we focus more on supporting sell out to our end users, we expect to see less fluctuations and our quarterly sales to our dealer partners.
As a mere talked about previously demand for our infection prevention solutions remain elevated and delivered over 20% growth year over year.
As expected our growth rates and infection prevention will start to slow as we anniversary of the significant increase in demand that we saw at the start of the pandemic.
Our equipment business showed significant strength and the first quarter delivering over 20% growth the recovery and the dental market coupled with the increased optimism from clinicians targeted government support and lower interest rates combined to unlock the significant amount of demand.
We believe there is room for continued growth in 2020, one and beyond as we continue to drive share gains.
It is important to note however that part of our equipment business has been impacted by the global shortage of micro chips, we are working with our suppliers to secure supply, but expect some headwinds for the second quarter and potential challenges throughout 2021.
The equipment and consumables adjusted operating profit margin was 19, 5% and the first quarter of 2021 versus a modest loss in the first quarter of 2020.
We expect our margins to remain robust as we sustain our structural cost improvements while realizing the benefits of improved mix driven by the 2020 exit of our lower margin equipment business and the increased focus on infection prevention.
I'll now turn it over to Amir for some final thoughts. Thank you Howard.
We are encouraged by the strong start to 2021 and all.
And are optimistic by the <unk>.
Three of our businesses and our progress.
However, we are mindful, then and consistent and vaccine rollouts around the globe, New COVID-19 variance and localized Lockdowns will continue to impact the recovery and the near term.
Against this backdrop, we expect to deliver core growth and the low to mid 20 range and expected adjusted EBITDA margins to be and the high teens in 2021.
We believe the transformation initiatives, we undertook over the past four quarters, we will continue to contribute to improved margin.
And core growth.
During the balance of the year, we are committed to developing sustainable competitive advantage by increasing our investment in our growth priorities of implants clear liners infection prevention and digital workflows.
As vaccinations continue to rollout and the economies continue to open further.
And I anticipate the spending travel and customer facing activities will increase.
And in this we are well positioned to lead and transform this industry.
We have category leading brands.
The full portfolio of solutions to meet customers' needs of committed and energized team and unparalleled commercial reach are.
And our culture circle around customer Centricity innovation respect continuous improvement and leadership has been tested during the pandemic and proves that we tend not only survive, but thrive to build the stronger and more differentiated and and Mr. <unk>.
The result.
We are proud of our progress and look forward to our continued growth journey in 2020, one and beyond.
Thanks Amir.
That concludes our formal comments Erica we're now ready for questions.
And 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 please.
Please standby, while we compile the Q&A roster.
Your first question is from Elizabeth Anderson with Evercore.
Hi, guys Hi.
Hi, how are you. Thanks.
Thanks, so much and congrats on the quarter.
Nice to see this come back this way.
And I guess the first question you said the core growth and a load of mid 20% range for the full year I was wondering if you had any additional commentary that you could provide in terms of the pacing of that growth obviously, there's the.
On the comp.
And the second quarter the beer.
On that just anything to keep in mind as we're on we're going ahead with these numbers.
Yes, Thank you Elizabeth.
As you mentioned, we talked about the core growth of low to mid twenties, and we're really encouraged with what we saw in Q1.
And you are seeing improved trends as well.
Our guidance, what we anticipate is a continuous improvement as we go forward, how where and we want to be balanced and here I don't want to recognize that we are still in the middle of pandemic.
Be lucky to think about more of a year over year and full year, given the historic and Lumpiness of our distribution business.
The caution due to pandemic related risk.
<unk> seen the rollout accelerates local outbreaks of contained we could do better.
And also like us to think about.
2019.
Our assessment at this point is that full year 2021 would be to grow mid single digits versus 2019 full year.
And as you recall during the pre IPO and IPO, we always saw talks about building a company that it is at the mid single digit growth.
Our EBITDA margin also and the high teen area. We are really proud of progress that we have made.
To improve the profitability of our business and streamlined our businesses will reduce the structure of costs we have exited.
Low profitability low growth businesses, and we are investing we are investing significantly in long term strategic priorities.
And we are beginning to see the outcome of it the.
The commercial execution has been an important part of this we have seen the recent margin improvement as reduces spending but as we get to more of a standard level, we expect to see more of a travel of more customer facing activities.
We feel good about where we are and we think as economies.
Stabilize we have the opportunity to do better over time, maybe Elizabeth just to jump in here as it relates to the profitability and EBITDA Amira and I, we do look at things from a full year perspective, but to give you a sense here. If you look at 2019 and the EBITDA that we had I think our adjusted EBITDA.
The was around $420 million, if you factor in the full public company costs that gets you to adjusted EBITDA, just shy of that $400 million, what our guidance essentially provide score is the 300 to 400 basis point improvement on that number and as well if you look at the absolute.
Dollar amount it really is the 25% growth from 2019 to full year 2021, So hopefully that provides a little more context.
Yes, no thats very helpful. And then and just in terms of the $30 million that you guys are reinvesting I mean, I think you said it was just the poor.
And some of the growth opportunity is and and.
Specialty and infection control and should we think about it and that is most of the following on the SG&A line or is there any sort of split into gross profit sorry.
Sorry, the Cogs as well.
Yes, Elizabeth there there will be a component of that I mean, we're in the ramp up mode.
For spark as well as for N. One and so some of that $30 million of over $30 million and aggregate will come the manufacturing capacity, but I would anticipate that a good portion of that would also come via opex.
Okay perfect. Thank you very much.
Yes.
Your next question is from Jeff Johnson with Baird.
Hey, Jeff Hey, guys how are you.
So two things one Howard if you can just help me with the math here when I take your EBITDA guidance and your core growth guidance I think I'm shaken out a little north of $2 from an EPS perspective.
But I've got your interest expense coming down quite a bit here over the next few quarters.
And some of those waivers come off I think from last year. So.
EPS wise on my kind of in the ballpark of how should we be thinking about EPS for this year.
I think Jeff we've been talking about the context of adjusted EBITDA is kind of our profit and we continue to think along those lines and so that's where we're where our guide is as well I will say that on the interest expense or cash interest for Q1 was about 13, and a $5 million and given some of the paydown on the debt.
Debt, we would anticipate a.
Per quarter and interest of about $9 million for the duration here and so hopefully that will inform you of a little bit more as to as to that calculation.
Alright fair enough and then.
Amir just hoping you could give us maybe an update on timing of and one potential approval and the U S.
And we've seen now a couple of press releases it seems like Youre getting a little closer to Heartland here, you've got the European DSO news from the last week or two just what are you doing to really kind of position yourself, better and better and that DSO channel and and what are the dsos seen out of Investor, That's making you a more attractive partner. Thanks.
Yes of course, thanks, Jeff.
And we're seeing really good solid progress on the role of <unk> and one in Europe I will answer the question on America mix.
And just give you some context around it we now have over 450 active customers that they are actively placement and one in Europe, that's over 30% increase compared to Q4, we got the repeat customers coming in and buying more of the product going forward.
And the feedback has been really very positive and specifically the dose that they are.
Kind of pioneers in this space, we are adding significant number of apartment prosthetics option in order to be able to build the broader rollout.
In spite of all of that we haven't had some challenges of specifically this is a completely different and new protocols you have to do at the in person people has the have to see at the half to be mentor the app.
To watch it.
So we have had some challenges in debt.
We are hoping that as soon as the resumption of in person training takes place, we're going to see accelerated growth and here we.
Going to the FDA approval process.
As we have said before we expect that to be later part of the <unk> 2021 and how we've talked about investment we are ramping up investment both from a capacity manufacturing and as well as the commercial activity. So we can't really put that in place as quickly as we can.
Talking a little bit about the dsos.
Jeff as you know we started this process back in 2018.
The bill the DSO of specific team.
Dedicated team.
And it is focused on meeting the requirement of this segment, we think that they played a really important draw and democratizing.
Dentistry brewing and dental care to masses, and we really want to make sure that they get what they need in order for them to be able to accomplish the objectives.
Go to.
Two of them with a complete set of solutions and <unk>.
Scale matters in here.
We signed long term contracts with them training and education is the really important factor and here because they are trying to expand into the specialties, they're trying to monetize investment they try to retain and expand their capabilities and reach and get aligned with them true train.
Any true support to be the locally to just continue to support and build these capabilities over time.
Feel good about what we have done and here over 10% of our business now comes from Dsos, and we expect them to continually expand and different geographies, obviously, North America and list in Europe, and we have seen that taken momentum and different places and the direction that we've taken in the past several years has been.
And to pay off and it's going to continue to pay off in the long run.
Thank you.
Your next question is from and Nathan Rich with Goldman Sachs.
Hi, good afternoon.
And if I could maybe start with the follow up on the top line guidance, maybe as we think about the second quarter.
Would you expect to see sort of the normal seasonality of Stubhub. The you typically see and the business.
In the second quarter, and then Howard I think you had said you had mentioned.
The loss fluctuations in quarterly sales through dealer partners could you, maybe just elaborate on that and.
And is there anything to keep in mind from like a timing standpoint, the that either impacted the first quarter will impact the the second quarter.
As we think about revenue.
Yes sure Nate so thanks for the question I do think probably both of those questions are surrounded around the same topic and what we've been working on I'd.
And I'd say over the last 12 months or so consistently has been working on the amount of inventory in the distributor channel and so we've talked to you folks about how we're trying to marry up more closely sell out with sell in and so that is a change and so when you talk about the phasing here between Q1.
And Q2, we do typically have a larger bolus of sales in Q2 from our distributor partners, but we're working through to smoothed that out and we're seeing the results of that here in the quarter and so maybe to provide a little bit around Q2, we would anticipate our revenue in Q2 to be relatively at the <unk>.
Same rate is where we're seeing revenue in Q1, and so that does contemplate.
You know more of the smoothing effect that we've seen.
And that we've worked through and are seeing in our sales numbers here great.
Great. Thank you that's helpful. And then if I could ask a follow up on the infection control business I think of Amir you had said the you expect double digit growth for the year I think the output sales around $250 million for the year of plus or minus is that fair and can you maybe talk about where you see the growth opportunities for this business.
And I'd also be curious just to get your thoughts on how unit volumes and pricing could trend for this business as things get back to normal and we hopefully go back to us on for a month of normal life.
Yes, yes of course.
The call come back, we always use 19 and as a starting point and we said at that point and we had about 170 out of the $75 million of business in.
In 2020, we had $220 million business. So we got to about a 220 last year.
We grew 20% in Q1.
And at this fund as we stand today, we have over $20 million backlog and orders continue to come in at.
And that momentum is continuing through Q2 and as I mentioned, we expect that double digit and you're you know you're already and ballpark that double digit over the $220 million. That's what we expect to see happening in 2021, So now coming back to what we see and hear and why are we confident that this.
Try and that's going to continue and obviously the comps are going to be different there are three factors Nate that really gives us the confidence that what we have done and he had the investment that we have made and the differentiation that we have is going to pay off and the longer.
The 50% of that business is and have them talk today, and we have over 40% share but majority of that is in the United States.
We are now getting to different geographies, we have expanded presence in Europe in China, So international expansion.
While this infect and procedures is becoming norm and.
And even after the pandemic people have gotten used debt methodology. They know how to use it they know ought to be in a safe environment.
Extension outside the United States is a really important part of this equation.
50% of our businesses and medical and we have less and 10% share and.
And the past nine months, we have been able to really expand our medical presence. We have now on medical sales force in the United States. We are building one in Europe and these are with the long term contracts very specific segment or expansion and the medical is a law and other category that gives us <unk>.
Conference that this business has legs under it kind of stand on its own.
And then a lot of really new products.
In the past 18 to 24 months of our team has done outstanding job ramping up capacity building innovative product and then register and now the state by state geography by geography, the new <unk> wife too.
And incredible product that we are getting significant amount of good positive reaction to it so innovation dental outside the U S. Medical all three of them gives us confidence to see this business.
The legit and 2021 mid single digit positive growth going forward and we would adjust for the new reality is the new normal if you wash as Howard said inventories very closely with the incoming outgoing to make sure that there are we're not getting ahead of ourself of managing this business as coach the.
As possible.
Thanks for the questions.
Sure.
Your next question is from Jon block with Stifel.
Great Thanks, Scott and good.
Afternoon, and maybe I'll start with spark and if you can just talk to.
And what Youre seeing among the current adopters, maybe sparks used for teen cases versus out of adult and the broadening out and then and sort of tacking on to that we've seen this clear aligner market move.
And call it faster growth lower acuity cases via direct to consumer or maybe more of like and express lab case.
EMEA of you can share with us investing thoughts on this part of the market and how to play a bigger role there and then I've just got a follow up.
Okay. So, let's just start with the spark piece and let me let me try to answer that and then we'll get to the bracket and wire piece.
On.
Spark.
Now have 1300 customers.
And what were 1300 of customers that they are active sparks use of what we define and active as the spark user is somebody who does for cases and the past for weeks.
So when we look at how many new customers. We have had that number has gone up by over 30% quarter to quarter and.
And he's just continue and we just as we have described we.
And we sign up specific number of doctors, we train them get them gone establish them and then we signed the next group.
Towards that they're using it are giving us tremendous amount of feedback about the quality of the product that it is.
Now, we have repeat and what they're telling us the best and the market, giving them choices really easy to use.
And the transparency of it is incredibly it's easy for the patient and.
And now quarter.
Quarter over quarter, yeah about over 50% growth.
Q1 versus Q4.
And that volume expansion and sign up of the new customers, you're just going to continue on and we're really optimistic about this we have gone about very systematic expansion of both product categories and innovation ramp up.
The commercial execution and now and in the Europe, and we are beginning to see the outcome of it. So that's that's the spark part one of them to make sure I answer that question.
And our bracket and wire business is growing double digit and it.
That continued the Q4 is growing double digit and Q1 and if I compare it against 2019.
And as high mid single digit growth.
And when we Askmen and we really look at it to see what is happening and.
In spite of exactly what you said.
All of the mused about clear Aligner, and you have an incredible franchisor and Damon.
Innovation and here is really make a huge difference.
We've continuously putting new products out there to all of <unk> as I mentioned has been in North America, and getting momentum people like what theyre seeing the giving them more and more control over it.
So innovation plays a role training and education is really an important part of this bracket on wire piece geographical exposure, 70% of our revenue comes outside the United States.
And now given orthodontics of choice.
And of a choice between bracket and wire and the spark.
We're letting them decide what is the best answer what we are hearing from our customers.
And we're not switching from one two and other they're using both of them to get the best of calm and Theyre seeing that we are being responsive we have made significant investment and manufacturing. The turnaround time has come down and we are adding more and more support capabilities and the field.
We are differentiated.
As other exit various segment of this business there is opportunity for us the continued to expand we expect this segment to continue.
Double digit growth for us and the ongoing basis.
Perfect. That's very helpful. And then how we're just for you you mentioned the the high teens EBITDA margins for 2021.
And after back to back to back 20% plus you are putting dollars back to work for the pipeline how do we think about those investments in other words on the elevated investments that largely conclude at the end of 'twenty, one or do we think about a longer tail to support those franchises into 'twenty two and beyond thanks guys.
Sure sure. Thanks for the question John Yes, so of the lets call it over $30 million that we're anticipating and investments for the duration of the year of lot of that continues because were seeing the traction of Mir described the attraction that we're seeing in spark and so we're essentially doubling down on those investments largely around manufacturing capacity and <unk>.
Creasing that as well, we talked about and one and ensuring that we're going to have a successful rollout of that product. Both continued progress in Europe as well as in North America more and we're ready to go there as well. So those are two examples we talked about infection prevention and expanding those markets internationally and into a different market a subset of the mark.
And medical and so those are all areas that we're going to continue to invest and then certainly digital workflows and so we would anticipate that greater $30 million going for the rest of this year and then we will assess and and determine how much we need to invest further going but the one thing that we want to make sure is that you know certainly as of mirrors described.
We want a sustainable mid single digit mid single digit plus business and so we're not looking to go backwards here at all.
Fair enough thanks, guys Yep.
Yep.
Your next question is from Erin Wright with credit Suisse.
Great. Thanks, and just following up on that I heard you say mid single digit Clos and and as we think about the mix of your business shifting whether it's increasing greater exposure to and.
On implants, ortho and infection control products do you think you have line of sight or visibility into potentially longer term growth at the hiring of above the current longer term targets of mid single digit growth or what gets you higher than that in the normal lifestyle.
Net.
Thank you Laura and so.
Just kind of take a look at these two market the specific as you mentioned the specialty businesses.
The penetration.
I mean, we loved what we are hearing around the clear aligner because what it does it has a halo effect is bringing a lot of the new customers into the market.
And that would offer tremendous opportunity for expansion of the penetration and we look at the number of cases that the the started in the auto in 2019 2020, and how many people are kind of really take advantage of that treatment that penetration is so low and.
And there is so much opportunity and here for anybody who interface for anybody who is taking care of the customers and making clinicians to be more productive.
And more predictable.
We feel good about the investment that we have made with good good about all core heritage being emetic professional company.
Adding to that and continue to expand that over time.
So we think there are plenty of opportunity for us the continued to expand our business in the auto segment through innovation true.
True customer support two geographies.
The same is also true.
And the implant side.
As.
You all know we have had some challenges are on commercial execution and various places it hasnt been because of the market.
The market is similar to the authorized under penetrated there is plenty of opportunity and year to expand Dsos are excited about it a lot of people off site developed markets. They want to be able to do that you got to be able to give them tools and capabilities true innovation to make it.
Easier so they can treat more patients.
That's fair and one comes in place, that's where the innovation plays an important role.
And on top of that training and education.
And last but not least digitization digitization of this industry.
Democratizes and gives opportunity to treat a lot for patient faster more predictable.
Good above where we are on our premium side and we have a room to grow on our value side.
We see mid to high single digit growth and on ongoing basis for our specialty business is the reality and we are going to continue to do everything possible to make sure that rate accelerate overtime.
And our equipment and consumable as we've talked before we have exited low growth low margin business and now we are really positioned ourself.
85 per cent of the portfolio to be consumable.
T to make an investment with many differentiator.
For a lot of operational capabilities that we needed use of EPS.
And can share that we have visibility on the inventory make sure of the on time delivery qualities there and.
The combination of these two is going to give us debt original plan that we had built and the business that is growing faster as higher margin is differentiated.
And it's better cash flow now we have other lever in our hands to be able to put that to work to get better at come overtime.
Okay. Thanks, and then on.
On the topic, I guess capital deployment priorities and in the near term and guess what potential deals and make sense for you. The bolt ons are new technology on the near Adjacencies that make margin.
Obviously, we are not going to comment on the specific fields and here but.
If you look at it.
There are three of four areas that I think this industry as a whole has significant opportunities.
On the digital work for we talk about it why is it so important because it allows pay.
Patients to get better treatment allows doctors to become a lot more effective.
And that is true sulfur.
AI as well as capabilities that connect various pieces of the treatment together from diagnostic.
The planning to execution.
We have and incredible portfolio, but there is opportunity for us to be more.
And looking outside looking at the future and try to add and debt.
The under index and the value implant and there is opportunity for us to invest and values geographies value implant is the low coal play we need to make sure that we have local brands local presence in different geographies and there are other opportunities for us at the Chan explore as we go for.
For the.
On the balance sheet debt, we have today is to track the core debt. We have bill now we have another tool in our hand that we can use to build a better company overtime, yes, clearly just to add to that in terms of firepower I mean, just of the cash that we generated over the last three years of Ben you know and excess of $900 million and so.
<unk>.
And where our debt is now were back to net debt below $1 billion as well and we'll be at two times by the end of this year as it relates to debt debt ratios and so we feel really good about that I think that all being said you know we're not looking to do a deal just to do a deal.
We're going to go ahead and make sure that we're looking at the most attractive areas and the market is the mere said and the segments. There and then assessing the strategic fit for us and that's critical as well and then we kind of move into the valuation perspective, and and ensuring that we get you know double digit cash on cash returns in the foreseeable future of the near future.
And and expecting greater returns long term as well.
Okay, great. Thank you.
Sure.
Your next question is from of Brandon Couillard with Jefferies.
Thanks, and good afternoon.
Hey, Brian.
Amir just a two part question on infection prevention.
And since you could quantify the impact to organic growth and the first quarter from growth from that segment and then how much of infection prevention.
Actually PPE in terms.
And the mix thanks.
Okay, Hi, Brian So we.
We have whites the.
And that we use and liquid basically as of the two product categories, and we use for disinfection and variety of former shaped and different sizes, but that's those are the two categories that we have on on infection prevention and we don't have other categories that Atlas is the broader PPE and.
Set of needs in there.
And.
And if I'm not mistaken how debt.
The 100 basis point of the growth.
Right.
And about 100 basis point of the growth brand and the Q1 was dedicated to infection prevention, and spark and and one and other 100 basis point of of growth and.
And in Q1, so we have invested where we have put energy.
We are beginning to see the outcome of it about 20% of for <unk>.
Infection prevention of alone in Q1 had a 20% growth year over year.
And as we mentioned that was and when you compare that to 2019 and Q1 that was almost 70%.
And debt.
Debt.
Kind of of momentum is something that we are counting on to maintain as we go forward.
Great and then it's been awhile for affiliate we talked about.
Your efforts around.
And for developing your own Cadcam scanner is that still a priority as you think about sort of your broader strategy to sort of build this digital workflow ecosystem.
Thanks.
Yes, it is but we.
And maybe very clear we have fallen any of the various standard process of what we wanted to do.
We wanted to build the stronger <unk>.
And we wanted to accelerate the growth of <unk> the margin on and make sure that we are in good position those of the things that we wanted to do and a broad sense and glad to look back sacrifices of our team have made partnership that we have developed has gotten us exactly the <unk>.
They said, we want to be and I'll have a full portfolio and the diagnostic side and we have a really good relationship with three shape ex 500 is the rest of the portfolio is building and we are going to continue to look at opportunities internally and externally to do this workflow and integration are on in.
Our auto as well as connection with the lap of long term, we want to be a bill to do.
The product internally or total collaboration.
Our intention is to address the needs of the market.
And if we can't do that and accelerate its former true partnership.
You have seen that the partnership that we of build with Adak, we're going to continue to do debt going forward.
Super Thank you.
And that does and our line.
On a time for question and I will turn the call back over to management for closing remarks.
Alright. Thank you everyone for your time and really appreciate you joining the call and I guess, we'll talk to you again in the couple of months of your next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now.
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