Q3 2021 Envista Holdings Corp Earnings Call

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Uh-huh. Please stand by your program is about to begin if you need audio assistance. During today's conference. Please press star is zero.

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My name is Catherine and I will be your conference call facilitator. This afternoon at this time I would like to welcome everyone to invest a holdings corporations third quarter 2021 earnings results Conference call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, so it'll be a question and answer session. If you would like to ask a question during that time press star. The number one on your 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 Mister Stephen Keller, Vice President of Investor Relations of Investor Holdings. Mister Keller you May begin your conference call.

Hello, and thanks for joining us on the call with US there are a myriad of president and Chief Executive Officer, and Howard you are Chief Financial Officer.

To point out that our earnings release, the slide presentation supplemented today's call and the reconciliations and other information required by F. C. C regulation G relating to any non-GAAP financial measures provide during the call are all available on the investor sections of our website www Dot <unk> 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.

It will remain archived until our next quarterly call.

As announced on September 7th 2021, we reached an agreement to sell our combo treatment units and instruments business for the current quarter. The results of this business are reflected discontinued operations in our financial statements as required by generally accepted accounting principles.

Additionally, the financial statements included in our third quarter 10-Q.

And to be included in our 10-K for the fiscal 2021 will reflect the combo treatment units and instruments business is discontinued operations as required by all.

All references in these remarks in a company presentation to earnings revenues and other companies specific financial metrics really only to the continuing operation of an vista business, except for cash flow measures.

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 your performance.

Unless otherwise noted all references in these remarks and supplemental materials. The company specific financial metrics relates to the third quarter of 2021, and all references to period to period increases or decreases and financial metrics or year over year.

We may also describes certain products and devices that have applications submitted and pending certain regulatory approvals or 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 anticipate 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 may differ material materially from <unk>.

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.

Steven welcome everyone to admit says third quarter of 2021 earnings call.

I want to begin by tank and our employees would delivering other outstanding quarter.

Every day, our employees partner, the dental profession artist to improve lives and expand access to oral care.

The dedication and passion of our employees is what will drive our long term success.

The third quarter are continuing operations.

Delivered quarter revenue growth of 10.2% compared to the third quarter of 2020.

We grew significantly above prepandemic levels and continue to benefit from.

From the repositioning of our portfolio.

Improved commercial execution, and our long term investments and innovation.

R Q tree adjusted EBITDA margin was 19.6%.

Taking a longer view a year to date adjusted EBITDA margin is 20%.

Reflecting the underlying profitability of our business.

Before I turn it over to our to discuss our third quarter results in more detail I want to provide more color on our progress toward a long term priorities of accelerating growth.

Expanding our operating margin and transforming our portfolio.

Since September 2019, IPO, where our focus on accelerating growth through organic investment and innovation and commercial execution.

It continued to make meaningful progress across our businesses.

With a uniquely differentiated portfolio are orthodontic business continues to deliver a strong results.

We're the only company who offers clinicians a full range of course to nanak treatment options, enabling them to provide better more personalised treatment plants to more patients.

Ah clear a line of business continues to grow rapidly the sales expanded over 130% versus the third quarter of 2020.

We are expanding our geographic footprint, increasing our active user base and further penetrating dsos.

Then Vista business system provides the tools and processes to delivered distracted growth, while ensuring an unparalleled customer experience.

So far in 2021.

We have reduced the time from initial scan to case shipment by 40% and continue to improve our customer onboarding experience.

Since launching spark in 2018, we're on track to start the total of 100000, new cases by end of the year and further.

Well on our way to achieving $100 million run rate in early 2000 22022.

Our premium implant business continues to accelerate delivering double digit core growth versus the third quarter 2020.

Innovative tie all trough and seal surfaces continued to perform well and are driving our growth with 30% of our implants sold globally now featuring our new best in class surfaces.

A commercial execution is further driving share gain in global premium implants segment.

Focus on supporting our customers in Q3, providing over 300 training and education opportunities, reaching over 7000 clinicians globally.

Our imaging business performed exceptionally well in the quarter delivering core growth of over 20%.

Dental professionals remain confident in the outlook for their practices and remain focus on investing for the long term.

Imaging offerings combined with our Gtx's studio clinic software solution provides our customers with a seamless imaging workflow and integrated digital experience.

This September we were honored to win Celebrants Best Class Award for our CTX solution.

This is an example of how we are transforming the dental industry into the next phase of technology, expanding access for patients and delivering the seamless.

Productive workflow for clinicians.

Then Vista business system, and our focus on continuous improvement is a foundation that delivered both are short and long term profitability.

A team Leverages, our EPS toolkit to reduce the structural cost consolidate our footprint improved productivity and drive operational improvements.

Across our businesses gross margins improved 230 basis points in the third quarter versus Q3 2020.

This is despite us some of the inflationary headwinds we have seen is shipping costs as well as in petroleum based supplies and chemicals to.

To date, a daily management and focus on execution allowed us to mitigate many of the significant supply chain disruption that award is increasingly experiencing.

Since the start off the pandemic, we have taken aggressive actions to transform our business.

We took over 100 million dollar and the structural costs by de layering our organization and consolidating our operating profit are operating footprint.

Being divested significantly in our long term growth by utilizing our EPS tools.

Across our portfolio to drive commercial execution, and what continues to build sustainable competitive advantage through innovation.

We they announced sale of our call will treatment unit an instrument businesses. We also made material progress toward a long term goal of free orienting our portfolio to higher growth and higher margin segments.

The divestiture shifts our portfolio from a 50 50 split between our two segments to a 60 40.

Mix in favor of the faster growth on higher margin specialty products and technologies segment.

As a business we are now more focus on high value on higher margin consumables imaging digital workflow solutions with over 60% of our business now so directly to clinicians.

By exiting to treat menu that instrument business, we expect to increase our core growth trajectory by 50 to 100 basis points, while expanding our long term operating margins by 30 to 50 basis points.

We plan to use the net proceeds from the sale to accelerate our portfolio transformation, Toronto aggressive, but disciplined approach to capital deployment.

We utilize our ebs driven standard M&A Ah market work to manage a robust pipeline of inorganic partnership and investment opportunities.

Activity cultivated new opportunities.

I will now turn the call over to Howard to go through our third quarter financials. The segment performance in more detail.

Thanks, Amir before we begin I would like to remind you that our third quarter results are based on continuing operations, reflecting the pending sale of our combo treatment unit an instrument business.

Accordingly, the quarterly results of the combo treatment unit, an instrument business are now reported as discontinued operations give.

Given this complexity before diving into the results of our continuing operations I would like to take a moment to level set and just confirm that our businesses are performing very well results for both continuing operations and is continuing operations exceeded our expectations in the quarter.

We are ahead of our guidance and based on our performance we have the confidence to raise our full year guidance, while continuing to invest for the long term.

Now moving to the results in the quarter.

Third quarter sales increased 11% to 607 $3 million reported sales were positively impacted 1.1% due to foreign currency exchange rates and negatively impacted <unk>, 3% related to other discontinued products.

Our core sales growth was 10.2% compared to the third quarter of 2020.

As a mere discussed.

Amir discussed our year over year growth reflects solid demand across the dental market and consistent execution across our portfolio.

Geographically North America, and Western Europe's core sales growth was eight 2% and 91% respectively as business conditions continue to improve compared to the third quarter of 2020.

Are emerging markets, including China grew over 15% in the quarter in China, We continue to see solid growth and both are strategically important implant business as well as our orthodontic solutions.

Outside of China, or other emerging markets are clearly rebounding from pandemic lows, we expect to see that continued strengthening of demand as these markets in these markets as vaccinations continue to roll out any economies continued to reopen.

Overall, we remain optimistic about demand for the balance of 2021.

Barring any major pandemic related disruptions to either patient volume or the overall supply chain. We believe that volumes will remain above prepandemic levels for the balance of 2021 and into 2022.

Our third quarter gross margins from continuing operations was 58, 7%, increasing by 230 basis points compared to the prior year due to higher volume favorable product mix and productivity initiatives across our portfolio.

He adjusted EBITDA margin of 19.6%, which was 80 basis points lower than Q3 of 2020.

As expected in Q3, we continue to invest in our long term innovation, while increasing spending on travel in in person customer facing activities.

With the continued easing a pandemic related lockdowns.

Are adjusted EBITDA was negatively impacted by approximately $3 million and stranded costs related to the expected sale of the combo treatment unit an instrument business.

We expect to begin addressing are approximately $10 million a annualized stranded costs in queue for.

Our third quarter adjusted EPS was 45 from continuing operations compared to 40.

From the prior year.

Our specialty products and technology segment core revenue increased by 13.3% compared to the third quarter of 2020, driven by strong growth in premium implants and continued growth from spark.

Compared to the third quarter of 2019, our specialty products and technology segment core growth was 11.7%.

Are improving business execution in premium implant led to double digit core growth versus 2020, we saw solid growth across most geographies and believe we are gaining share in the premium segment.

Our specialty products and technologies segment adjusted operating profit margin at 13.

At 23, 3% was 180 basis points higher than our third quarter of 2020 results.

Or improve profitability was primarily driven by solid growth favourable product mix and structural cost savings offset by increased spending on travel and customer facing activity as well as long term investments and innovation.

Our third quarter equipment, and consumables segment core sales from continuing operations increased 6% compared to 2020.

Strong demand and solid execution in our imaging business drove the result in this segment with core growth of over 20% compared to the third quarter of 2020.

As expected sales of our infection prevention solutions declined from peak pandemic demand. Despite the lower Q3 sales inventory sell out trends reported by our distributors indicate that we're gaining market share and our core dental and market and medical markets.

Additionally, <unk> 2.0 has been well received in the market and should help us capture additional sure.

Overall, we continue to see enhanced safety protocols driving higher demand long term and expect this business to grow mid single digits in the future.

Equipment and consumables adjusted operating profit margin was 28% from continuing operations in the third quarter of 2021 versus 28% in 2020.

Solid margin improvement and imaging and restorative solutions was offset by the slowdown an infection prevention.

Further we experienced some inflation related chemical commodities to.

To chemical commodities that impacted on infection prevention business.

As a mere noted with depending sale a combo treatment unit, an instrument business, our equipment and consumables business will be faster growth and higher margin business over the long term.

For the third quarter, we generated free cash flow of $82 $3 million and ended the quarter with over $600 million in cash excluding the expected proceeds from the combo treatment unit, an internet business sale or.

Our balance sheet is very strong and we have ample liquidity to pursue inorganic growth opportunities as they become available.

Looking forward to full year 2021.

We are raising our guidance and are now expecting to deliver revenue from continuing operations between two 475 and $2.5 billion.

We further expect to deliver adjusted EBITDA between 480 and $495 million.

This includes the negative impact of approximately $10 million, a full year stranded costs associated with the sale of combo treatment unit instrument business.

As mentioned, we expect to begin addressing these costs in queue for and work to reduce the impact as we move through 2022.

While it is too early to provide guidance for 2022, we remain committed to our long term target of delivering mid single digit growth, increasing our operating margins by 50 to 75 basis points annually, while funding our long term growth initiatives I'll.

I'll turn the call over to Amir for some closing comments.

Thanks Howard.

We are really pleased with our third quarter results and remain optimistic about the future of the dental industry.

Since our IPO, we are focused on accelerating our organic growth improving our operating margins and transforming our business.

The move decisively to reshape our portfolio by exiting and divest in lower growth lower margin businesses.

There we were less differentiated we.

We invested in innovation across our portfolio increased including the Spock.

Hi, all trough, Damon Altima and caviar <unk> 2.0.

And improved our commercial execution finally is significantly improve our operating margins by reducing a structural costs and improving productivity.

As a result, we transform our portfolio from broad mix of equipment consumable and specialty products to a focused dental company, providing highly differentiated consumables and a specialty dental products underpinned by strong digital workflow.

Solutions.

We're now focused on the fastest growing most attractive segments of the dental industry and continued to work with our clinical partners to streamline their operations and improve patient care.

We are actively partnering the dentist service organizations as they improve access store Kerr.

We have a position as a partner of choice for these fast growing customer segment.

Moving forward.

God is to be a leader in orthodontics, providing a differentiated in any greater street of treatment options, including bracket on wires and clear aligners.

Even further accelerate our growth and implant by leveraging our premium implant franchise to provide full solutions across the implant workflow, including regenerative and prosthetic offerings.

We will continue to grow and broaden access to a highly profitable in a differentiated consumables business.

Finally will leverage our strength and imaging and diagnostics to build digitally any graded workflows frump agnostics to treatment planning to execution for our clinical partners.

This is significant opportunities to invest organically and inorganically and we have the financial flexibility and management focus to further accelerate our growth trajectory we're portfolio transformation.

The progress we made this quarter is a direct reflection of our continuous improvement culture and a commitment to our customers in the dental industry.

A purpose partners dental professionals and improve patients' lives by personalizing, digitizing and democratizing dental care.

We look forward to our continued growth journey in 2021 and beyond.

Thanks, Amir that concludes our formal comment we are now ready for questions.

As a reminder, if you would like to ask a question. Please press the star and number one on your telephone keypad you may withdraw your question at any time by pressing the pound key once again to ask a question. Please press star and number one on your telephone keypad, we will take our first question from Elizabeth Anderson with Africa. Please go ahead.

Hi, guys. Congrats on the next quarter. Thanks for the question.

Despite that much tougher comps.

<unk> very nice crescendos specialty and equipment and consumables can you.

Detail about what you were seeing.

Maybe some patient volume perspective, and some of the subsegment, notably maybe like or salad implants on the special design.

Yes, Thank you Elizabeth.

Broadly speaking patient volume is improve and is above prepandemic levels in a developed markets in China.

If you look at our business.

Almost 90% of our businesses invest in Europe, North America, and China, while they remained pockets of weakness based on low closed outbreaks and shutdowns overall things are trending positively.

Emerging markets outside China out of stock to see an uptick from pandemic loads.

Remain very.

Very optimistic but are mindful that there remain some risk.

About new areas as well as slow vaccination rollout in certain areas.

Answering your question about what we see.

Premium implant as well as clear Aligners.

Also a segment of so Underpenetrated and we think there is significant Ron right.

What we saw in third quarter has continued double digit sequential growth for spar drew.

Driven by active doctors usage as soon as new K sufficient growth, but continue to show a demonstrate as far.

People see the value of it they undescended differentiation between what we offer versus competitors.

And they are really.

Acknowledged that level of support as well as a technical capabilities that we are offering in this space.

Implant business continues our premium implant business continue to make progress as we mentioned that double digit growth in Q3 MBA are optimistic about the work that we have done in the past couple of years to see that trend to continue worldwide.

That's super helpful and sorry, I thought you said double digit to clientele growth and spark is that did I hear you correctly.

Yes, yes.

Okay, perfect and then as far as <unk> I know there is I would say seven per 10 takes away taking.

The numbers out the kava numbers out is that the results can you talk about what your core underlying assumptions are for the four Q revenue guidance in terms of visits any other types of saying it today and bad anything about at one or anything like that that you would call out.

Yeah, I'd say Elizabeth this is Howard thanks for the question I think that we feel quite good about where we're at performance wise year to date and I think that we anticipate things to continue here in the fourth quarter as it relates to.

Prepandemic demand and the like as it relates to customers and dental office visits.

There are a couple of I would say uncertainties as it relates to Q4 I think given some of the disruptions from Covid, we're seeing slightly different seasonal patterns, particularly in our imaging business and so we had in Q3 are imaging business grew nearly 25% and while we think that will have some strong growth here in <unk>.

Quarter that over performance is likely to moderate a little bit there and so that's one thing to keep in mind.

I also think that as it relates to the number of days.

We have a bunch of clinicians that have.

Had really good years, and I think they're looking forward to taking some time off and so we are hearing from the field as well that there is some pent up vacation demand and so we need to just be thoughtful about that and then as it relates to maybe the margin side.

We expect continued ramp up for us on the customer facing commercial activities.

And we are mindful of little bit is Amir has talked about two around the inflation and some of those things that might come into play I mean, whether it's transitory or or longer term certainly we're seeing a little bit of impact of that as well and so that speak to some of the margins immune to to pay for Q4.

Thank you.

Sure.

The next question comes from Jeff Johnson with Bird. Please go ahead.

Good afternoon, guys, Hey, how are Ya Howard was helping on the guy on the guidance unless I'm missing that somewhere I don't see kind of a crosswalk from what your guidance would have been excluding the divestiture. Prior to this update Tonight. It would just be helpful. I think the level fed us all you say, you're raising the guidance, but if we could just kind of see what your guidance would've been last quarter without the divested.

Alex in there.

Yeah, maybe the easiest way Jeff to think about this as we provide a guidance historically that we would say our top line revenue, we anticipated somewhere between 2.8 and $2.9 billion that was all up so if we think about continuing operations and the discontinuing operation I would say the way to think about it now.

In light of our Q3 performance, we would be taking up that entire number up to the very high end of that guide and so instead of the 2829, we'd be closer to the two nine so because of the overage in a better performance that we see both in continuing ops as well as the discontinuing apps coming in a bit stronger as it relates to the <unk>.

Bottom line or the adjusted EBITDA guidance, we have historically provided.

Hi teams is what we said in in light of the performance that we've had year to date and particularly in the third quarter, we would take that up to the very high teams and so that may be helpful. As it relates to being able to see apples and apples comparison from what we have historically provided yeah. Now that's exactly what I was looking for thank you and then a mirror I am trying to piece together.

Kind of comments you've made over the last couple a few quarters on the implant business, especially the premium implant business and with the double digit growth in premium this quarter. It seems to me as if that noble Biochar business has kind of strengthened each quarter on a year over year basis, even on a two year basis. However, we want to kind of normalized for the noise of Covid last quarter last year.

And I guess, even into this year, but just talk about your noble Biochar premium business. If you would kind of what you've been seeing those trend kind of over the last few quarters have they been strengthening each and every quarter that'd be helpful. Thank you yes.

Yes. Thank you. Thank you.

And third quarter premium implant grew double digit versus 2020, Q3, 2000 2000, 12.1% was the number the exact number.

And we grew high single digits when you compare it to 2019, so compared to 2019 Q3, we grew eight 4%. So if you look at it.

Almost every quarter, we have seen an uptick on premium implant.

Performing a lot better than what we did prepandemic and recovery that we have seen post pandemic is continued and you pick us up bags. So what have we done differently in here and why do we feel comfortable moving forward.

Primarily it has been because of the strong commercial execution as you recall, we talked about some changes that they made in Europe. We do that a 29 2018 and beginning of 2019 is saw seen that transition to take place. We did the same thing in the U S.

And in the past three quarters, we continue to see every quarter better performance in North America than what we had before.

And just to add to that October we have seen that trend to continue we are pretty optimistic with the corner in the existing portfolio and some of the new innovation that we have put on plays the new surfaces are doing extremely well.

With the upcoming and one we're seeing that commercial execution Foster innovation will really put this business and high single digit then over time get us with double digit growth, which is where we aim to do in the coming quarters in coming years. So commercial execution is a foundation of what you have seen.

And yeah and that trend to continue and customers are beginning to respond to it and see the customer experience that they expected from Noel coming back and we're really pleased with what team has been able to do.

Thank you.

Sure.

The next question comes from John Black with Stifel. Your line is open.

Hey, guys good evening.

I know you didn't give official 22 guidance, but I think you should talk about 50 to 75 bps of of all of them expansion and I guess, it's just sort of just a clarity question is that inclusive. The 50 to 75 bps cause that inclusive of the 10 million and stranded costs that I think you called out you'll try to start working throw in for a few but I'm guessing there's going to be a stub into.

22, so does it reflect that and maybe just his attack on from overall acquisitions and divestitures just broadly speaking do you guys feel the portfolio is where you want it to be in terms of pruning.

Discussed your desire to flex M&A, but.

Other product lines are you guys feel are non core to the entity that might still be out there. Thanks. So they'll ask a follow up sure no problem Hey, John Thanks for the questions. Yeah, I mean, I think as it relates to expectations on 2022, I mean, we're not providing formal guidance but.

I think we do feel comfortable with that $50 to 75 basis point improvement overall.

We have a team that has done well in terms of being able to to reduce structural costs and so as part of the stranded costs, we're going to start attacking those here in the fourth quarter and we think that will see that the progress throughout 2022.

And that does get us up to 20.

20% adjusted EBITDA margin in 2022, and so we feel good about that let me go ahead and hand it over them here for the second pizza. So that 50 to 75 basis font is assuming that we're going to deal with that $10 million stranded costs and this is on top of that as far as what the portfolio.

Look like John as you know last year, we exited about 5% of our portfolio basically recognize that it wasn't differentiate it wasn't meeting the expectations had no impact on the margins. So we did that.

With the exit of the cable treatment as an instrument.

Now have created a portfolio that it is focus on three segment.

An orthodontic Sickman as you well know that business is growing very rapidly combination of brass.

Brackett on wire as well as clear line of 30 to give us a competitive advantage put us in a position that we are clearly differentiated we feel very good about our portfolio, our execution or operational capabilities.

And we think that we have plenty of runway and perform a devil vicious continue to be a major player number one on the really high and establishes on a professional segment of the.

Posted onyx are implant business has come together quite nicely. We have made significant investment there, we're adding to the portfolio organically inorganically on prosthetic as well as on the digital as well as on regenerative reaching that segment of the business isn't a very good place and continue to all three.

Our traditional consumable has a really high margin and differentiate it.

By broadening access to that segment I seem to have an opportunity to set that up and continued to take sure and we have been taking sure. We have very good view of what is taking place on the sell out and values Geography's, who have been taking sure on a restorative an endo business and we have set a cabbie wives to come on it.

Situation and a much better position as we go forward and we are really proud of what the imaging team has done in the past several quarter improving quality improving access.

Really put in put in differentiating ourself overtime. So you look at the portfolio.

Well position on these segments and we think it's differentiate all.

See we're going to continue to look at our business mix, we're going to continue to optimize our portfolio in order to be differentiated. Our goal is now that we have reached mid single digit growth in about 20% EBITDA you want to further improve our growth trajectory to mid single digits plus and high.

Single digit overtime, but what we have today plus some of the opportunity firepower that'd be having a hand I think that God is very achievable as we walk through 2022 and continue to make progress.

Fair enough and maybe just a tighter follow up.

It just seems to be some debate among some of the dental companies that have already reported on the current trends and I think you guys talked above prepandemic and most of the areas that persistent to October and hate to be a little bit myopic, there, but just when we think about that dental market September and to October and we think about a global player like herself broadly.

Speaking did that trend line and the strength that you seem to be calling out was that did that can do continue throughout the month of October thanks, guys.

Yes, absolutely we haven't seen anything that causes us to be concerned about the trend October now that these behind us at continuation of what we saw in Q3 at momentum is fairly confident about what the guidance that how it provided we think that we can execute and deliver as we go for.

Four.

We talked about VSO partners continuously.

They are not.

Seen anything that gives them an indication that there is a change in the horizon.

Perfect. Thanks for your time.

Of course.

The next question comes from Tycho Peterson with J P. Morgan Your line is open.

Hi, guys. This is Casey on Chicago.

Just wandering around you called it out in the prepared remarks supply chain headwinds from the equipment business can you quantify any kind of headwinds baked into the margin guidance.

And.

Anything you are seeing on that side.

Yes, Okay see I think that.

Year to date, we've seen very modest impact associated with it I mean, as we talked about it's around.

Petroleum based products and chemicals, and so and some chips as well and so the team has done an incredible job to date being able to countermeasure those types of risks.

That said, we realize that as we go into queue for that.

There continues to be.

More shortages and more concerns about this broadly and so we have put in a little bit of a buffer in that as well and to be clear I mean, we've made some investments as it relates to our inventory balances to have.

Enough buffer stock so that we can meet customer demand and not extend lead times in the like to our customers and so we've been doing what we can to ensure that we mitigate those risks the reality as as we go into the queue for.

Like everyone else in the world, where certainly experiencing some of these pressures until we contemplated that a little bit here and the guide as well.

Gotcha and then just following up on the premium and plant question from earlier.

Couple of your competitors have launched products in this space recently, just wanted to get your take on.

Updated thoughts around the competitive environment, especially.

As you prepare to launch and one in the U S kind of.

Yeah.

Any kind of an kara-kalpak sir.

Happy have to answer that.

We have done tremendous amount of work that could look at.

If you look at the strong growth that we're seeing on premium implant.

So a larger Gaza asset before.

Question was purely purely because of commercial execution.

But also we have launched some incredible product specifically on the surfaces. We were lagging to some degree and we have been able to close that gap very quickly and those products are very well received.

Responding very well, 30% of the implant now they have this new surfaces.

Really good about the portfolio as it stands today.

And one has continued to make progress in Europe, we are working with the FDA going through the approval process. We are expecting to hear by end of the year.

Response in here and we think the Enron along with surface innovation, along with commercial execution that is going to set us up to be in higher than market growth in 2022 dash, what we expect to get into 2022.

When you look at the market, but the trend with our intention is to perform better than the market and we're seeing that trend to continue as we mentioned in October and we're hoping that the team.

As in a place to be able to.

Embrace the new product categories and continued to execute commercial.

Applications that were put in place.

First of all I'll go ahead, and say that the next question from Michael Cherney with Bank of America. Your line is open.

Good afternoon, I wanted to go back to an earlier question and just make sure I heard everything correctly and get all the booking pieces regarding the implied <unk> guidance I get some of the comments that you may have Howard about the imaging cough and some other pieces that being said I am so surprised towards the midpoint of your pipe guidance, but.

Roughly flat with your new.

<unk> two Q number I don't recall.

Any normal year that being the case so when he thinks through that have you risk weight that pressure in the dynamics that has those numbers basically at parity again at the midpoint.

Guidance.

That's what Michael.

We feel good about where we're at the year to date performance I think that effectively we've just taken us up to the very very high end of our guidance as a collective <unk>.

Including both the continuing and is continuing to ops.

Bear in mind that we do put in a little bit of of consideration here for we have a few three fewer days in the quarter here as well and so that's something to be mindful up.

And then as I indicated earlier I mean.

We know that there is going to be a significant amount of likely pent-up vacation demand here in the end of the year, particularly in Europe. I mean, we're hearing that from our from our commercial teams and so we factor that in a little bit here as well.

But and also keep in mind that we did have growth in Q4 of last year as well. So there is some comps there.

Sequentially, we are growing our top line, it's an increase from Q3 and so collectively we feel good about it.

Got it and then turning back to spark an nice sequential performance again as you're thinking about the next three years of growth or however, long medium term you want to think about what are the biggest opportunities in terms of continuing to further penetrate the market takes shares it more about product quality mobile orthoptic relationship.

More about marketing spend how should we think now that you are getting towards that critical mass of $100 million run right. How do you think about the next ability to take the next leap beyond where you've already captured.

Happy to answer that so let's go back say Hey, we launched is a 2018 now Australia and New Zealand and we bought it in the U S. We are well on our way to do a 100000 cases by end of this year.

But if we break it down to pieces as how did we get to the space step one was basically on call customers visa daymond customers that they have great relationship it and they were using clear aligners and they're looking for alternatives with the same company same level of service.

Relationship that they have in the past. So we started in not a space and we started in North America outside Australia, and New Zealand.

We have expanded that sphere.

A lot larger a lot bigger and wider selected the product was due to three factors product quality and price performance. So when they put a side by side of the spark versus what is irrelevant in the market. They felt really good about.

Making that switch or a starting using it second was about customer service and.

Relationship and support that we have provided we have given them the same level of service and support that they have experience for decades.

Two on call and Damon systems last but not least is about the trajectory that trend of what we are doing a lot of new innovation that we're putting in place and is Fox and what they are seeing what they're telling us anticipated that wanted it and now I am seeing that's coming out.

This after case after case, you are putting more and more product innovation capabilities DOAR system different material better software. So that's a starting point what have we done. Since then we have got to different geographies in Europe picking up very quickly very fast we've got to Dsos now dsos or become.

In a major factor on growth for us.

Next we are registering the product and getting a poorly every geography that we are in keeping mines, 70% of our current bracket on why business is outside the United States gives us an opportunity to really extend that next after that there are some general practitioners that they are really become in.

Okay.

Really confident on providing or to donnish support and these are the one that we are teaching coaching helping them to bring to the to this new domain and giving them alternatives.

The spark can provide at best level of support <unk> combination of all of that.

Why we feel really comfortable meeting that $100 million goal that we have put our.

For ourselves, we think that beginning of next year early stages, we're going to hit that Mark on a run rate and this trend is going to just continue there is no ceiling for us they haven't put any deadline or goals said, we have to get to that point you have the capacity now we have the team the marketing to spend is there.

Product growth by Vista, we think that we can be a really.

Cheap player in this space and it differentiate a solution provider in the auto as a whole and continue to be a factor in the growth of this stuff for years to come.

Thank you.

Of course.

I will take the next question from John Cranker. Please Pileum Blair. Your line is open.

Hi, Thanks, very much and may or may be just a follow on on Michael's question.

Global rollout for US part that sounds interesting is that is that a 22 project or is that something we should think about over the next three or four years.

At.

Already a solid job.

Where in China, and Australia, and New Zealand as you know we are in Europe, and the registration is taking place.

<unk> bye step from geography to geography, and a lot of that has to do with the low call requirements. Some places the registration takes a lot faster than others, but we are layering that in and we think in 2022, we're going to see the off come off so this expansion and as we step into 2023, where Hulk.

That we can provide that support and that level of capability to everywhere that we are currently present with our own business.

So we started that beginning of 2021 and we are role in it as we go for.

Sounds good thank you.

A quick follow up question now on the implant business and what are you at the point, where you've got sort of unfettered access to the clinicians and Europe to do the demonstrations in the teaching that you want or is that still being constrained to some degree by the pandemic.

Okay. So it's still a little bit of constrained.

But a lot better than what we what we saw in like Q1 and Q2 of this year. So the baby are going about it.

John is very similar to what we do to spark begin a cohort of five to 10, we bring them in.

We have a training a couple of days of training will let them place and and one implant and we stay with them for the first 345 to make sure that not only them, but the staff is in a really good place and they can use it will wrap them up then we signed the next cohort.

Following this process.

Similar to what we did this spark I think sauce in this format of faith.

Phase approach and then that.

Kind of expands rapidly since the thing that we have seen in spar.

We don't have to do that as much as we did a year ago, because those key think about it as a hub and spoke those people that they are really capable the best in class now they're teaching the network. We have an event in Europe recently that.

Hundreds of people show up and majority of teaching and training took place.

Some of the daemon some spark key opinion leader expert in that area, what we expect with and want to happen is after we go through this phase approach hopefully after we get the approval a similar process would take place we would do the first group second group through this phase approach and then would depend on.

Individuals that they have really credibility to have the follower ship that they are going to be at.

They're going to expand that very quickly through the network through the referral and dash hope, we're going to see that momentum to take place over time.

We are really locked in to the best in cash orthodontist in U S and Europe. The same format works for us on the premium implants and dependent on this partnership that really helps expand and want for years to come.

Sounds good thank you.

We'll take our next question from Nathan Rich with Goldman Sachs to your line is open.

Hi, good afternoon, thanks for the questions.

It sounds like the company has a pretty broad lines with respect to.

Looking at opportunities for M&A.

It would be great to get your perspective on just how you're maybe thinking about kind of bolstering sort of the kind of key pillar, then specialty like implants, and orthodontics versus maybe building out product categories are geographies, where you may not have as large of a presence today, but see an opportunity to get bigger.

Yes, Thank you Nathan.

One of the things that we brought with us as part of.

Danaher capabilities was cadence of cultivation market work. It is not a one time one shot this is where EPS coming place Howard myself and the team we have a monthly review off our entire funnel.

This is almost my year seven in dental.

Been doing that in an ongoing basis every month. So we have a really large funnel I'll call tuition working with companies try to make sure that we understand the market that capabilities, but also the cultural match between what we want to do versus the target that we are after but now taking a step back we are.

Looking at investing in a specialty consumable and integrated more cruel what that means is we want to invest wherever there is opportunity to improve the work flow that improves acceptance rate so to think about.

The associated say than other geography somehow they have 25 to 30% to 35% acceptance. So they do four times three times more diagnostics and actually did perform procedures anything that we can do in here to improve confidence to visualize it to make sure.

That they do a better job on diagnostics to help him to the digital imaging diagnostic capabilities that that acceptance rate to go up there is better patient care is better productivity and they can see the monetization aspect of it so what does that coming from an imaging.

On software that we can do and then continued to invest places that we are under index.

Do you implant regenerative are the two areas that we can see significant opportunity for us to make investment as well as exactly what 19 said on geography. Some geography's, it's a lot easier for us to partner to acquire in order to bolster our presence in those geographies that on going about it organically.

We are pretty bullish about we'll be having a funnel and we think we kind of start executing this very rapidly throughout the rest of 2021, and a 2022 and for years to become we want this to be an important pillar of our growth as we go forward, we don't want it to be a one time one shot if we want to have organic.

Business that is growing myths single digit plus high single digit and we want to acquisition to be another element at increased performance on growth as well as our margie on top of what we are committed.

Thanks for that and maybe two quick follow up for Howard.

Could you maybe talk about just the magnitude of inflation that you're seeing in commodities and freight costs as your reference and do you feel that you are able to pass those cost increases through.

And then would you be able to give us the cable revenue in <unk> last year, I think that can maybe help especially given the equipment tends to be a more seasonal business that can maybe help give a clearer picture of the.

The fourth quarter guidance.

Yeah. So let me go ahead and answer that first one here for you. Yes, we are seeing some inflationary pressures I would say that the most significant is around shipping costs.

And so the point is to are we able to pass along some of those things we have actually instituted surcharges for freight and so that's something that we've done and for the first time. This year, we've really had some pretty significant pricing that we've been able to pass through.

Think in the quarter, we've had in excess of $4 million a pricing that we have been able to capture that represents I think about 65 basis points and for the year.

Presents pricing represents about 35%.

37 basis points as well and so we're pleased about being able to pass some of those things along as it relates to your combo questions specific to Q4.

Business I think was about 110 million dollar business thereabouts.

$110 million in queue for last year.

That's right Okay, great. Thank you very much.

I will go now to Jason Bednarek with Piper Sandler Your line is open.

Hi, This is crane, Jason Thanks for taking my questions.

The first one.

One prevalent.

On the you asked for and one can can you touch on your plans to ramp and scale hearing how are you thinking about sales rat sang balancing their time, that's hogle find and Weinberg is back in the 19.

19.

Okay.

Yes, happy happy to add to that so we have been invested significantly.

And when we talk about investment that we made in 2020, even a southern in 2019, 2000, 22021 debates tremendous monarch capital capabilities manufacturing operation capabilities. Most of that investment went to the spark and N. One in order to make sure that we have the capacity to be able.

To wrap this up pretty quickly. So we don't have any operational issues at all now coming back to what a sales rep.

The customer base that he's going to use and one is exactly the same customer base that users current Nobel premium products. So that's a starting point and the raps.

For example, what we have seen in Europe.

Is now they're offering customers both options and those that they see and what they are transforming transitioning their business is step by step and the reason for doing that ease of use.

A lot easier to implement put it in place is it differentiated protocol at his driving adoption the training that we put in place and the prosthetic option that we are offering give and one a competitive advantage. So the same wraps shame compensation model, but.

Those stores that they are using the able to place more impact.

Because of these ease of use as the Ofcom if imma rap and I can sell more of them are more incentive to be able to do and want to make that transition. So there is no change in their time and will not looking for any by the us to sell this product we have a technical training and capability experts that.

They are helping pioneering this adoption so they go through the training program is David the sales slap this stay with the customers in order to get them up to speed and get them going very quickly and we using that's the comment I made about the face approach. After we get the first five to 10 at sign up either Tan will go through that process.

SS and neck continued to move on forward and then depend on expert to teach it to other people over time.

Great. Thank you and then just turning to spark can you speak to the case next year seeing between adults and teens are you starting to see it you are a little bit more towards teen and Mark takeout that younger age group or any in fact.

Provide yet.

So the traditional payment systems I answer that.

Amazon has been really really.

Really pissed off toward young adult and fees and a lot more complicated cases this far today is.

A good portion of it is with adults.

But our traditional customers are orthodontist that I've been using our uncle to begin with now they're beginning to offer both clear aligners as well as crackdown wire and they're using it now they have option to use one versus the other or a combination of dark but today, if you take take a percentage of the.

Clear Aligners sparked that there are so a good part of it is coming from one doubts come into those offices and getting as far as as a solution.

Thank you.

Alright. Thank you very much I think we're at time, we really appreciate everyone's questions. We're obviously here to answer anything any questions as they come up pass through the rest of the week. So please reach out but thank you very much for your time see next quarter.

Yes does conclude today's program. Thank you for your participation you may disconnect at any time.

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