Q2 2021 Envista Holdings Corp Earnings Call
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Good day, everyone. My name is Ryan and I'll be your conference facilitator. This afternoon.
At this time I would like to welcome everyone to English So Holdings Corporation second quarter 2021 earnings results conference call.
All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number 1 on your telephone keypad. If you would like to withdraw your question. Please press the pound key on your telephone keypad I will now.
Turn the call over to Mr. John Moten, Mr. Hutton you may begin your conference.
Hello, and thank you for joining us on our call with US today, our EMEA AG di our President and Chief Executive Officer, and Howard Yu, Our Chief Financial Officer, I want 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 available on the investors section of our website at Invesco Dotcom and the portion the audio portion of this call will be archived on the Investor Relations section of our website later today under the heading events and presentations and will remain archived until our next.
Orderly 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 second quarter of 2021 and all references to period to period increases or decreases and financial metrics year over year.
We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals are available only in certain markets.
During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.
These forward looking statements are subject to a number of risks and uncertainties, 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. They are made and we do not assume any obligation to update any forward state looking statements, except as required by law with that I'll turn the call over to Amir.
Thanks, John and welcome everyone to and this second quarter 2021earnings call.
I want to begin by thanking our employees for an outstanding quarter.
The dedication and passion, our employees show for our customers and inspires confidence and drives continued innovation.
In all our products and services.
After a strong start in the first quarter.
It delivered another record quarter by driven.
Driven by continued recovery in the dental market and.
Solid execution across our portfolio.
For the second quarter core revenue growth was 102% compared to the Covid impacted second quarter of 'twenty 'twenty 1.
More importantly, our second quarter 2021 core growth core revenue growth was above pre pandemic levels, increasing 5.6% compared to the same period.
In 2019.
Okay.
The focus on on our 3 long term strategic priorities.
Accelerating organic growth.
Expanding our operating margins and building a stronger portfolio continues to have an impact and drive both our short term and long term performance.
Before I turn it over to Howard to provide more detail on our second quarter financial results and our segment performance.
I wanted to take this opportunity to discuss our progress in these areas.
Our focus on day in Vista business system and continuous improvement on.
Helping us to drive long term sustainable performance.
On a spot business continues to accelerate as we focus on supporting our orthodontic customers.
This quarter, we enhanced the onboarding of new customers and.
Improved service and turnaround times.
On a spot capacity increased by over 30% this year and we continued to invest for future growth.
The adoption of its products spark continues to expand with sequential revenue growth over 40% compared to the first quarter of 'twenty 'twenty 1.
Our core bracket and wire business performed exceptionally well outgrowing the market.
The on core team is focused on driving a strong commercial execution, while leveraging new innovations, including the Damon all tumor system.
Cash starts continued to be above double digits for our bracket on water customers.
A differentiator and and our strategic approach of providing an orthodontic portfolio that offers both clear liners and bracken on wires resonates with our core orthodontic customers, ensuring they can provide the best option for debt patients' needs.
Our premium implant business has achieved 4 consecutive quarters of improved performance with over 90% core sales growth and the second quarter over the prior period and mid single digit core sales growth for the second quarter from the second quarter of 2019.
We continue to see improved performance.
As we focus on commercial execution.
And drive wide adoption and Nobel buyer cares tie ultra and seal surface products.
Progress on the and 1 rollout continues to gain momentum and the market with adoption and Europe up 38% versus last quarter.
Furthermore, we continue to ramp up our investment for our future launch of and 1 in North America.
We see solid demand for our infection prevention solutions and.
And enhance disinfectant disinfection protocols remain in place and will be the new normal.
We're excited about the opportunities for our new kabi biopsy to point old product.
It features a 2 minute universal contact time shows efficacy against a broad range of pathogens, including the COVID-19 virus and increases our opportunity to penetrate the medical market further while enhancing our dental position.
Our China business.
Other strong quarter, delivering double digit growth, primarily driven by demand for our premium implant and bracket and wire product clients.
Our China team was honored to receive China Health care T plus most valuable employer award this year.
This prestigious award recognizes our commitment to be the employer of choice in China.
Our ebs mindset.
Grounded and continuous improvement was critical to our profitability and the second quarter.
And our adjusted EBITDA margin for the second quarter was 19%, but up more than 1800 basis point.
Compared to the to the prior year and over 350 basis points from the second quarter of 2019.
Additionally, we continue to target 50 to 75 basis points of annual improvement.
As our profitability improves we are investing in a spark and 1 bracket and wire products and any graded work flow solutions to drive long term growth and profitability.
Our focus on innovating and growing and the most attractive segments of the dental market is key to the continued transformation of our portfolio.
By investing you know on a specialty consumable businesses as well as our digital work for our solutions, we are transforming and vista to be a faster growing more profitable and differentiated company.
In addition to our growth initiatives, we see opportunities to accelerate our transformation through inorganic growth and are taken and active but disciplined approach to long term capital deployment.
We remain interested in investing in attractive segments, such as Autonomics liners implant.
Regenerative materials, and digital workflow solutions, including software and AI.
We are building sustainable growth oriented company designed to last the test of time, driven by innovation and focus on our customers and their employees feel valued and encouraged to grow.
We were happy to launch and with stars inaugural environmental Social and governance report this past quarter.
This report shares our blueprint for corporate sustainability, which aligns with our strategic business initiatives.
Operational excellence is a foundational element of our approach to sustainability and a key driver for our success.
Our sustainability of force are enhanced by our EPS mindset, and we are dedicated to improve in each area for our business.
And and Vista, we embrace diversity and inclusion to drive our business success.
We believe that innovation is accelerated when we have diverse thoughts and ideas and brought to the table.
To support these initiatives, we launched employee resource groups and created employee development programs to enhance the visibility and capabilities of our talent.
As a result of our diversity and inclusion efforts I'm proud to share that we have achieved and 99% gender pay quality equity in the U S.
This is a significant milestone and our journey and the.
Embodiment of our Cisco value of respect.
Finally in our ESG reported we shared our vision to promote increased access to quality dental care.
This quarter, we were proud to announce and this small project and new nonprofit oral health Foundation currently and the process of applying for section 501 C..3 status.
We created this initiative to improve the smiles and ora half of disadvantaged communities by supporting increased access to oral care and oral health education.
The project and we collaborate with dental professionals and and Mr employee volunteers to donate products treatment and oral health education to communities and need around award.
I will now turn it over to Howard to go through our financials and our segment performance in more detail.
Thanks, Amir second quarter sales increased 100 and for 4% to $740 million.
Sales were positively impacted by 4% due to foreign exchange rates and negatively impacted 1.9% from discontinued products.
Core sales growth was 102.3.
Per cent compared to second quarter, 'twenty, and 'twenty and up 5.6% over the same period and 2019.
As Amir discussed our year over year growth reflects a strong recovery and demand across the dental market and solid execution across our portfolio.
Geographically North America, and Western Europe sales grew more than 100% as business conditions rebounded from the pandemic lows in Q2 of 2020.
While patient volumes have improved to pre pandemic levels in our major market. We continue to see inconsistent rollouts of vaccines and spikes and COVID-19, various infections and several geographic areas, including Western Europe and parts of the United States.
Overall, we are mindful of the pandemic related risks, but remain optimistic for continued recovery throughout the balance of 2021.
And emerging markets, China grew by double digits with strength from our specialty products and technologies segment.
We continue to see durable growth and our premium implant business in China and are pleased with the progress we are making and orthodontics.
However, the return to pre pandemic demand levels in the public sector is slower due to fiscal budget restrictions and the pace of vaccine rollouts.
Outside of China, other emerging markets rebounded from pandemic lows, but we remain cautious due to low vaccination rates and the continued spread of COVID-19 variance.
Our second quarter gross margin of 56% increased by 1400 basis points from the pandemic low point due to higher volume favorable product mix and productivity initiatives.
Our adjusted EBITDA margin was 19%, primarily driven by a better product mix structural cost savings and temporarily reduced spending.
<unk> ability increased significantly compared to the prior year with and adjusted EBITDA of $144 million.
Our second quarter adjusted diluted EPS was <unk> 53 cents compared to a 10 cent loss in the prior year.
Turning now to our 2 business segments.
Our specialty products and technologies core revenue increased 104, 8% driven by strong growth and premium implants are core bracket and wire business and rapid growth from spark.
Compared to Q2 of 2019, our specialty products and technologies segment core growth was up 8.6%.
Growth and our premium implant business accelerated as our focus on improving commercial execution is delivering results and North America, Europe and China.
And Q2, we grew more than 93% from the pandemic low of 2020 and had 4% growth over 2019.
Specialty products and technologies adjusted operating profit margin.
At 24, 6% was significantly higher than our Q2, 2020 results.
Our strong growth favorable product mix and structural cost savings drove increased profitability.
Through the balance of 2020, 1 and we expect to ramp up our investments and spark and 1 and premium implants to accelerate adoption and drive long term growth.
Our equipment and consumable segment core growth sales increased 99.9% year over year.
Discontinued products adversely impacted sales by 4% and we had a 3.6% favorable currency impact.
Our traditional consumables business saw continued improvement from developed markets and a rebound and emerging markets.
The demand for and infection prevention solutions remains solid and delivering 15.9% growth year over year, and we expect continued growth for the full year 2020.1.
As previously discussed we expect our year over year growth rates and infection prevention will start to slow from the significant increase in demand that we saw at the start of the pandemic.
However, we expect enhanced safety protocols will remain and that will drive mid single digit growth for the business over the long term.
Our equipment business continued to perform well and the second quarter delivering over 90% growth compared to the prior year and 3.4% growth compared to 2019.
The recovery and the dental market combined with increased optimism from clinicians targeted government support and lower interest rates enabled us to unlock significant demand.
We expect continued growth in 2020, 1 as we drive share gains and optimize the business for higher growth and profitability.
Equipment and consumables adjusted operating profit margin was 18, 9% and the second quarter of 2020, 1 versus a loss in 2020.
We expect our margins to remain at current levels as we sustain our structural cost improvements, while realizing the benefit of and improved mix driven by the 2020 exit of lower margin equipment business.
For the second quarter, we generated free cash flows of $101 million delivering $104 million more than Q2 of 2020.
We ended the quarter with $554 million and cash and have continued to improve our leverage ratio, providing us more flexibility to pursue inorganic growth opportunities as they become available.
I'll now turn it over to Amir for some final thoughts.
Thanks Howard.
We are pleased with our performance and the second quarter and.
And remain optimistic about the future of the dental industry and a recovery from the pandemic.
Well on vaccination rates are increasing every day, we are mindful of that risk.
Related to Covid, 19, and variance and continue to monitor reopening of economies and acknowledged that vaccination rollouts worldwide of different stages.
However, we believe that patient demand and sustain at pre pandemic levels due to the industry's enhanced sanitation measures.
We have continued to focus on on our 3 strategic priorities of accelerating organic growth expanding operating margins and optimizing our business portfolio.
We are building, a better and Vista for our customers our employees and our shareholders.
A culture based on our Cisco values of customer Centricity.
Innovation respect continuous improvement and leadership makes us more competitive and enables us to shape the future of the dental industry.
We're designing products and solutions that allow our customer to be more productive and create more predictable outcomes for their patients.
We will accomplish this through personalization.
Digitization and.
And Democratic nation of dose dental solutions.
Our role in the future of Dentistry is help our customers move their practice focus from pain management.
For preventative care and ultimately to predictive care through a digitally enabled workflow oriented practice.
Digitally integrated.
Diagnostic treatment planning and more efficient execution will allow more axis to oral care for more patients Ron the war.
We expect to deliver core sales growth and mid 20 range and expect adjusted EBITDA margins to be in the high teens for 'twenty 'twenty 1.
We are well positioned to meet the evolving needs of the dental industry for the future.
We have a complete portfolio of brands designed to meet our customers' needs, a winning culture and a team grounded and ebs and continuous improvement.
And with a focus to drive our portfolio to higher growth and profitability.
We are proud of our progress in the quarter and look forward to our continued growth journey in 2020, 1 and beyond.
Okay.
Yeah.
Operator, we're now ready for questions.
And as a reminder, if he would like to ask a question today. Please press the star and 1 on your Touchtone phone.
And he would like to remove yourself from the question queue at any time, you may do so by pressing the pound key.
And again that will be star and 1.
And we will pause a moment to allow any questions to queue.
We will take our first question from Nathan Rich Goldman Sachs. Please go ahead. Your line is open.
Thanks, so much.
Amir Howard and good afternoon, and thanks for the questions.
Howard maybe starting with the guidance.
And you know if I think about the back half of the year guidance seems to imply a pretty wide range for margins. I think you guys. Just did about 20% and the first half of the year I think there's still you know around $30 million of investment that's going to be made and the back half and some of the temporary cost savings need to be back but could you maybe just help us think of.
And the cadence of margins that you're expecting over the balance of the year.
Sure sure Nate Thanks for the question Yeah, I mean, as a reminder, I mean, we had talked about high teens EBITDA as a guidance and we think that's a good baseline to evaluate you know our improved profitability.
That implies a more than 25% EBITDA growth and somewhere in that 300 to 400 basis points of margin expansion from our 2019, starting point so on and this is all while we continue to fund our growth initiatives.
And and consistent with what we've discussed previously we expect higher operating expenses and the second half.
As we invest and our growth initiatives and Youre right, Nate that contemplates about $30 million largely on the specialty and technology side of our business that's fueling spark.
And 1 premium implants as well and we also think that there's going to be a return of some of the operating expenses that were held down during the pandemic largely around customer facing this would include travel as well as some other marketing, which we postponed during the pandemic and so overall, we think that that mid or the high teens EBIT.
<unk> puts us in a good place and consistent with what we what we anticipate here.
Okay great.
And then on.
I apologize if I missed it earlier on the call, but did you give what spark and and 1 contributed to revenue growth and the quarter and Amir I think you had mentioned the adoption of and 1 accelerating and Europe could you maybe just go and do a little bit more detail on where you're seeing the uptake and kind of what you see as the opportunity for that product.
Thanks Nate.
The.
And 1 Ram continues but as we have talked about before this is a totally new procedures that requires.
Hands on face to face training and implementation.
<unk> different process, so not only the doctor itself, but they need to change their work flow completely.
What we have seen does that they've been trained they're coming up to speed very quickly. If you recall when we did the spa Grampa will follow a similar procedure small number of people. We started we train them, we got them up to speed gone on to a point that they can't repeat the step and repeat and then we add other cohort.
And expand it going forward, we have seen a repeat orders coming from existing customers and we continue to educate and train more dense. He says we go for.
We think this is going to be and important part of our growth trajectory and 'twenty 'twenty 2 and after that.
Current commercial execution should get us to that mid single digit growth that we have been after on the premium and plan and new innovation.
Hopefully will get us to high single digit growth overtime.
Great and Howard did you have the contribution for the quarter for those 2 products.
I think its in a 300 basis points 203 hundred basis point range Nate.
Okay. Thank you very much.
You're welcome.
And our next question will come from John Kreger at William Blair. Please go ahead. Your line is open.
Hi, Thanks, very much on me I think I heard you say that the premium and planned growth was accelerating and the quarter, which sounds great could you maybe just take a step back and give us your sense about the the implant and market what kind of growth is happening there and are you still seeing in the market on migration from premium day.
Or is that stabilized and I guess, what im getting out and are you do you feel like you're growing with the market at this point above are still giving up a little bit of share. Thanks, yeah. Thanks John.
But really inquiries for what we're seeing sequentially year over year and also versus 2019 as you recall, we have made significant I want to changes and our go to market strategy geography by geography, we are pretty confident that we are performing better than market in China and India.
Europe.
Our performance in North America has accelerated and every quarter.
And to demonstrate and see that and there is a whole lot of proxies out there that indicates the performance of the premium players and we have seen debt every quarter. Our performance has improved moving for due to commercial execution investment that we have done in various places that customer into.
And that's the model that we have put in place as well as the innovations that we have introduced in various geographies. So now to the question of transition of value to premium we're not seeing that we're not seeing a radical shift off take and the values at premium to value.
We think the value market continues to offer for the premium we have seen that and various geographies, but the premium business. We have been watching that very carefully for many years and we have not seen a radical change as originally maybe at ex been expected many many years.
So now after the last part of your question, we have work to do in here, we think on the premium side.
We are keeping track, but on the value side, which is a much smaller portion of for portfolio. We still have work to do we exited some geographies we have scaled down in our core U S market, we are gaining momentum, but we have some additional opportunities through a disciplined commercial execution.
And essentially potentially inorganic activities to get our overall implant business to perform at the minimum within the market and overtime performed above market and the coming quarter and years.
Very helpful. Thanks, and maybe just 1 quick follow up I think you said wires and brackets is growing double digits way above what we think the market is growing.
Can you just dig into that a little bit more is that more of a developed or developing market.
Driver behind it.
Yes happy to do it John So, let's just take a step back and take a look at our overall orthodontic business.
In Q2 compared to 2019 that business grew 30%.
So the combination of bracket and wire as well as the clear aligner.
Our bracket and wire is differentiated and then the combination of our solution that we have puts us in a really good position with focus on the same customers, we're going to market with the sales team and they are dealing with the company has been focused on that segment of the market for decades now I'll, Let me answer the bracket and wire quest.
That market has been going and mid single digit for many many years I'm sorry, low single digit for many many years and we have proven and Sean debt. Our business continued to take share we used to perform pre pandemic mid single digit and the last several quarters that business has been growing double digits.
And.
The driver behind that focus is 3 areas the driver behind that performance 1 is innovation.
Continued to innovate in this space.
The all too much system that we introduce at the bank at the end of Q4.
And the past 6 months has taken significant momentum as people see the finished touches and the capabilities that we offer they continue to use that system.
<unk> training as well as the net work that we have people follow.
Coach and mentors and they fall on what is the best practices in this market.
For the honest, who are well known and the industry. They demonstrate better finished better performance and they teach it to others not only your I states, but across the board and we are fortunate to have a network of capable orthodontists that they're really committed to patients and taking care of the patient.
And the best possible solution.
And last but not least the diversified business that we have 70% of our business is outside the United States.
In the past quarter, our developed market performed a lot better than emerging market.
But the fact that we have a diversified business and different geography. It really helps us continue to see momentum and that business now as clear on liner on top of it.
And we've got a differentiated product and capabilities in here and mix sustainable growth the reality for us to come for years and a double digit format.
Excellent thanks for all the detail.
Of course.
And our next question will come from Jeff Johnson from Baird. Please go ahead. Your line is open.
Thank you good afternoon, guys, maybe a clarifying question on guidance and then and equipment question. So Howard you guys have done and $288 million and adjusted EBITDA and now through the first half and if I go back at least in 2018, and 19 and and I know, it's a short window, but typically that's about first half is about 45% of EBITDA.
Rose up at 288, I get well over 600, I know, you're talking about 40 million or $30 million and incremental investments plus travel and and other marketing costs coming back, but can you really spend that all the way down to the 500 million on EBITDA and thank you were talking about last quarter or is there a little flex on that 500 million that you were talking about last quarter at this point. Thanks.
Yes, sure Jeff I think that we continue to outperform and and we saw that here and the second quarter as well and so we anticipate that our EBITDA margins will be and the high teens.
And you did call out properly that we have some pretty substantial growth investments that we're contemplating here and the second half to ensure that we have sustainable growth long term.
You know we are going to increase a lot more of the customer facing activities, whether it be the training and education sessions that debt amir's talked about as well as you know.
More of the marketing activities broadly and then we do see a little bit of seasonality, certainly and the third quarter something to bear in mind as Europe and parts of and you know U S. Also go on holidays, and so we'll see a little bit of softer revenues and associated EBITDA and in the third quarter, and then ill step back up here and the fourth.
Quarter, where we do typically have robust sales and and 1 of the highest quarter of EBITDA margin and so we feel good about our positioning again reminder, here. Jeff is that you know we are looking to go ahead and drive that EBITDA 300, plus basis points from where we were in 2019 and and and so we feel good about the progress we're making and.
And as Amir indicated.
We're not going to put any ceiling on this thing we will continue to drive <unk>.
Efficiencies and greater profitability as well as we look to 50 to 75 basis points on a year over basis consistently.
Yeah understood. Thank you and and maybe a mirror of a bigger picture question for you on the equipment side, we've heard from Nix checks or we've had some mix checks over the last quarter or so on on supply constraints shine today, obviously on their call was saying and that's mainly basic equipment. We had picked up from a couple of distributor reps, we talk to maybe some shortfalls and inventory and a couple of cable.
Imaging lines and I don't know, if thats chip shortage or maybe its not even a shortage at all so anything you could address there and can Dennis who might be loyal to cable switch out from 1 cable imaging unit. If they wanted to another if there are those.
Supply constraints. So anything we should think about maybe over the next couple of quarters would be helpful. Thank you.
Yes, Thanks, Jeff.
Simple answer we haven't seen.
The shortages that people have referred to our supply chain is fairly solid our delivery continues to be exactly as what we promise and in fact, we have made significant progress again use of E. B S specific Iran lean going to our solid modification and taken waste solid assist them our procurement team.
Senate just outstanding job diversifying our supply chain.
We haven't seen it we haven't seen it we are committed on delivering on customer want those products and we continue to work with our distributors to make sure that.
They have proper inventory in the channel inventories and you mentioned that Jeff are in the best possible positions and we have seen and we have talked about it for a long period of time and in the past several quarters the sell in and sellout matches, we have real good visibility of what's going on and inventory and we have been able to match.
Managed through that and get our surfing a far better place going forward. So that's from a distribution as well as a supply chain perspective.
Our equipment has performed far better honestly and we had expected only 12 months ago. We thought that this is going to be a challenge and business, but that has not been the case as Howard described by each segment, we have seen good growth and here and we are optimistic that we can maintain debt as we go through second half.
That's great to hear thank you.
And of course.
Okay.
And again, if he would like to ask a question today. Please press the star and 1 on your Touchtone phone.
As a reminder, you may remove yourself from the queue high price.
And the pound key.
Our next question will come from Jon Block from Stifel. Please go ahead. Your line is open.
Great. Thanks, Good afternoon guys.
The first 1 maybe just on and more and I don't know if I heard specifically, but as of late 2021 timeline for U S approval.
Still intact and then when you guys talked about a hands on environment and needed to ramp with this product I'm, just curious and it is occurring.
Selling environment allow for that and the U S and in other words, if the product work to come and get approved and this is an environment that would allow you enabling you to ramp considering that hands on component that you guys alluded to and then I've just got a follow up.
Yeah of course, thank you Jack.
So we're in the midst of discussion with the FDA going through that process and.
And second question as it comes our way this is a completely different.
Procedure and on protocol as I mentioned.
We have gotten a lot of our proof on various products and the past 6 months or so.
And since we are going through a completely different set of product categories expectation is that this is going to take longer and we have assumed debt and the 'twenty 'twenty..1 beginning of 2022 of this product would be available to us going forward.
We remain optimistic that we may get that sooner, but now the answer to the question of training when we talked about training and we have done that now enough in Europe that we have a good track record.
And we have a small group of people about 30 of them that they reported development process and ease individual they are really familiar with the product. They can teach it they can coach it and all we need is a group of 10 and some places 5 people they come to their training.
And we work through the Abbvie and somebody places it and the coach and mentor.
And the overseas it and teach them and make sure that they are going about the protocol correctly and then we stay informed our team as well as that small group of.
People, who have been part of that process continued to teach them going for it.
Very similar process with again.
And remind you of for Spark you started with group of 5 and then we extend debt at some point the cohort became up to about 30 people. So.
So as soon as we get that approval. We are now geared up to be able to do that we have people signed up.
And how it talks about the investment we have chip building capacity and investment not only on the Capex side, but also on commercial activities training opportunities for us to be able to do this in a very rapid format and.
And get the 510 people up to speed and continue to add debt every week and other 5 or 10 people. We think that approach with the volume of those or surgeon placement would be sufficient enough to expand our position in the market very quickly as we have said all along and we're not.
Not really counting on and wanted to have an impact in 2021in North America, we think that our approach will put us in a very good position.
To get to mid single digit performance and eventually to high single digit performance on our premium implant overtime.
Okay, Great that's great color, Thanks, Amir and maybe shifting how are maybe more for you on the capital deployment side.
Obviously, the balance sheet and a very different place for you guys and 12 months ago. So.
Just help us with what the environment or the ask is like out there and our checks keep on identifying the scanner and.
For the most desired product among debt just you had huge <unk> sales and <unk> showing this morning called out the Standalone scanner.
And you are pleased with the current structure that you have with partnerships or more broadly speaking.
And this has been an area that can be bulked up on some M&A activity. Thanks, guys.
Yes, John maybe I'll start with regards to kind of our balance sheet and the strength of our balance sheet and and and then turn it over to him here to talk a little bit about targeting and the like potential M&A activity Youre right. We clearly are our and a really strong position here, our net debt down below 900 million our leverage ratio.
2 times and certainly even with regards to some of the financing changes that we've done and position us well with the equipped revolver as well and so that being said, we'll be prudent about the process as it relates to making sure that we make acquisitions that makes sense for us and you.
We will continue to look at things like the attractiveness of the market segment strategic fit and then making sure that the valuation hurdles that we have are met as well as it relates to any other M&A activity and what that means for us as you know.
Really a path to get to cash on cash returns and the double digits and the near term and.
And beyond that and the longer term and so we remain focused there as well.
I'd like to answer it by Edison and 3.
Specific categories first few years ago, we took a step back and say we have to protect our core business.
Imaging equipment instrument consumables implant.
On core ortho business net.
2.5% to $3 billion worth of businesses that need it to make sure that that core business performs.
Competitive make sure that we are able to compete on a product by product category. So we put as we had said almost $500 million over a 3 year time period to make sure that the product categories are up to speed.
When we went through that process, who recognize if the core is not a good place it would not be prudent for us to start looking at adjacent markets and categories that were not in.
As soon as we got that.
And a good place and you have seen the outcome and result of that we saw and look at how do we get to market as quickly as possible. That's the second prong approach that we took and signed a series of agreements with couple of suppliers and we start offering those in various geographies. We have it today you can do with.
And relationship with 3 shape as well as with met it and we are offering is 2 pronged approach and various places to make sure that these were not handicap dealing in.
And segment that we are competing on implant and ortho products. Those products are available we on any grade and them with D T X and making sure that our sales force and ability to offer in every geography.
Our third approaches we are going to have our own product a product that we controlled roadmap and eventually as part of our portfolio and then looking at all alternatives early investment partnership collaboration as well as essentially other approaches inorganic approaches to get that.
And our portfolio because as you mentioned is an important part of the diagnostics workflow and we want to make sure to give our customers differentiated product and solutions.
Thanks, guys for the color.
Thank you John Thanks, John.
Our next question will come from Elizabeth Anderson Evercore. Please go ahead. Your line is open.
Hi, guys. Thanks, so much for good question.
Thinking about the growth.
And then control on the back half price.
Alrighty and players that you guys also have a slightly different operating in that category and it's slightly different client mix. So if you could talk about.
What you see and what do you think about it in terms of the <unk>.
Half of the year that would be helpful.
Of course, thank you Elizabeth So first would be good to talk about what we offer versus I'm sure you're hearing a lot from other people in a different segment of this market.
Wanted to just focus on consumable business, we have a progression on met pick company offering product specific even on infection prevention to professional so the dental industry to the medical industry to the point of care, we have never been and the consumables segment and Thats you see a lot of Volatilities and data set.
Man for good reason.
We have talked about 3 things and mix of our product categories differentiate it for.
First part of this was we have over 50% market share in dental and there is significant opportunity for us to expand that because 80% of that business in North America. So we have a serious of initiatives and Europe other geographies to get our standard product expanded so.
No.
Opening a new front expanded and different geographies medical we have less than 10% market share and a market that is a lot bigger than dental kabi wide 2 gives us an opportunity to really participate in that segment demonstrates the efficacy of our product build the go to market strategy that day.
Differentiate it and provide professional and med tech solution and.
And this is an area that we have plenty of runway and last but not least it's about innovation. We continue to innovate in this space get products through our approval process geography by geography or state by state. So we expect the growth to continue.
However, we had said that before Howard mentioned it as well that eventually this is going to slow down to a more of and mid single digit approach overtime. We have had a really good first half our capacity is in place demand is coming back, but we are optimistic we are optimistic debt as you recall.
And about $170 million business and this segment in 2019, and we said that we want to add $100 million over the next couple of years, replacing the products that they were not growing that didn't have the right marching on and we are on track to be able to do that over the next year or 2.
That's super helpful and then.
Can you talk to us a little bit more about what your COVID-19 assumptions are.
Returning volumes or however, you think about that and is it.
Situation is fluctuating, but it would just be helpful in terms of framing the guidance.
Yes sure Elizabeth This is Howard so, yes, I think.
Our expectations going into the second half as debt.
And we're obviously monitoring.
All of these new variance with regards to the Delta and the impact that it's having and we get updates regularly from all of our geographies to let us know exactly how things are working their way out that said you know.
And we're still generally optimistic about the environment, we think that volumes in terms of patient volumes have improved to pre pandemic levels and particularly on the developed markets and in China, and why we see pockets and emerging markets probably coming on line a bit slower we have seen some pick up and <unk>.
Rebound from the pandemic lows of Q2, and so we anticipate that trajectory to continue to improve here and the second half and.
And that is some of the reason why we do provide a broader range and even in terms of our revenue between the 2.8 and the $2.9 billion for the full year.
Thanks, that's helpful.
And I will turn the call back over to the speakers.
Thanks, Sameer and thank you for joining us on the call today. This concludes our formal comments and.
And we look forward to speaking to you soon.
This concludes today's program. Thank you for your participation and you may disconnect at any time.
That's where you wanted to kind of correct.
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Okay.
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