Q1 2022 Envista Holdings Corp Earnings Call
Yeah.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I'd like to ask a question during that time Press Star then the number one on your keypad.
I would like to withdraw your question. Please press the pound key on your telephone keypad.
I will now turn the call over to Mr. Steven Keller.
Residents of Investor Relations of Investor Holdings, Mr. Keller you May begin your conference call.
Good afternoon, and thanks for joining us on the call with us today.
Both the 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 reconciliation and other information required by SEC regulation G relating to any non-GAAP financial measures provided during the call are all available on the investors section of our website www dot assisted vodacom.
The audio portion of this call will be archived on the investors section of our website later today under the heading events and presentations that will remain archived until our next quarterly call.
As announced on January three 2022, we have closed the divestiture of the carload treatment units and instrument business for the first quarter of 2022 and the full year of 2021. The results of this business are reflected as discontinued operations in our financial statements as required by generally accepted accounting principles.
All references in these remarks and accompanying presentation to earnings revenues and other company specific financial metrics relate only to continuing operation.
Business et cetera 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 year performance.
Unless otherwise noted references in these remarks to company specific financial metrics relate to the first quarter of 2022, and the references to period to period increases or decreases in financial metrics are year over year.
We may also describe certain products and devices that have applications submitted and pending 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 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 might differ materially from any forward looking statements that we have.
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. Thank.
Thank you Steven and welcome everyone to <unk> Q1, 2022, earning calls.
Despite a challenging macro environment with localized COVID-19 lockdowns.
Numerous supply chain disruptions meaningfully inflation and a challenging geopolitical environment.
Please to report that enrich their was able to deliver a strong first quarter.
By mid single digit core growth and better than expected adjusted EBITDA margins.
Our performance in the quarter is a testament to the team's passion dedication and focus on execution.
I am proud of our team's efforts and believe that we are strategically differentiate it.
And have a proven track record of execution.
By partnering with professional should improve patients lives, we are well positioned to continue to outperform the market.
Before I turn it to Howard to discuss our first quarter results in more detail I want to provide more color on our progress towards our long term priorities of accelerating growth.
Spanned in our operating margins and transforming our portfolio.
And Mr <unk>.
We see significant opportunity to improve patients quality of life.
By digitizing personalizing democratizing for a cure.
Our March 31.
We hosted our inaugural Investor Summit, where we brought together the legacy Oracle for a novel Biocryst Symposium with a brand new technology track to demonstrate.
Clinical workflow capabilities that improve the productivity and predictability of clinical procedures.
With over 700 attendees, both in person and virtually.
This event allowed us to articulate our vision for the future of dentistry, while highlighting the combined strength and scale of de risk the portfolio.
Okay provided high impact training, and orthodontics, and Pantology and digital workflows.
Introduced clinicians to the latest advancements in dental care that we transform dentistry over the coming decade.
At the summit, we also hosted our first Investor day, as a public company, where we outline our long term plans for accelerating growth the high single digits, while continuing to drive margin expansion.
We shared our vision and how we will create value for patients customers employees and shareholders and further demonstrated how in this study is to strategically differentiate it and.
And has it.
Proven track record of execution.
Our Q1 performance was another step in delivering on our long term commitments.
In Q1, we saw continued strength in our orthodontic business with solid mid single digit core growth in brackets and wires and over 100% core growth must spark clear aligner versus Q1 2021.
Our focus on providing orthodontic professionals with a portfolio of treatment options differentiates us and supports our long term goal.
Growth objectives.
We're ramping up investments in our spark and are also focused on driving innovation in our core brackets and wires business.
Sales of statement aftermath continued to accelerate and.
And ultra non us appreciate that faster and more precise finishing it offers during treatment.
Our implant based tooth replacement solution grew high single digits. Despite the temporary lockdown measures.
In Asia, China cities are significantly impacted the last week of the quarter.
Our growth was driven by continued strength in our core premium implant business in Europe , and North America, as well as accelerating growth in the degenerative and push settings.
In the first quarter of 2020 to retrain, our first cohort of and one ambassadors in North America.
We're excited about the long term prospects of and ones by our latest biologic fee keven treatment protocols, which we believe will shorten time to T for patients, while improving the surgery cost and hearing experience.
In our equipment in our consumer segment, we saw accelerated performance in our historical business and continued strength in imaging and diagnostics.
In March we obtained FDA clearance.
Intelligence Mandibular Nerf tracing feature in our Gtx studio clinic platform.
We continued to invest in Etfs to add assisted intelligence or AI functionality that helps reduce the time clinicians as span on time consuming tasks while simultaneously.
Helping prevent complications and enabling increased focus on patient.
Our development partnership with Pacific Dental services Pds announced in Q1 2022 was created to harness the power of AI is support of clinical image analysis across the dental market.
Independently and reached on Pds have been investing in industry, leading work on AI support of clinical imaging together, we will deploy in this dose Gtx studio clinic software platform throughout all PBS supported practices to bring.
Benefits of AI supported image sorting and interpretations to PDL support of clinicians.
And with some Pds aim to harness the power of data and machine learning.
Transform the ease with which dentists use clinical imagery to diagnose plan and enhance patient care.
In addition to driving growth and investing into our strategic initiatives.
Main intensely focused on expanding.
Our margins.
The Q1 2022, we achieved an adjusted EBITDA margin of 19, 7%.
This represents 120 basis point up sequential margin improvement versus Q4 2021.
And this is a business system CBS and his focus on continuous improvement drives our execution.
It helps us to offset and Cowen measure the impacts of inflation and supply chain challenges, while supporting our ability to invest for growth.
In the quarter, we used the eds in our daily management tools to mitigate many of the significant supply chain disruptions.
Delay or reduce the impact of inflation and.
And deploy appropriate pricing actions.
While we are proud of the work we have done today. It is important to note that inflation supply chain issues and geopolitical challenges are persistent and we expect to face continued headwinds in Q2 and second half of the year.
We are focused on transforming our portfolio to higher growth and higher margin businesses within dental.
On April 20 <unk>.
Closed the acquisition of the carrier screen Dentals intra oral scanner iOS business.
This acquisition is an important step in our journey of digitizing personalizing and democratizing dental care.
IOS discounts are a critical first step to many high value specialty dental procedures, including implants, surgical guides prosthetics and clear aligner treatments.
The newly branded line of Texas, iOS scanners is an attractive entry point into this segment.
This business comes with a proven suite of our scanning solutions that includes both a proficient hardware platform and powerful software capabilities.
It is a substantial global business with significant growth upside over the long run.
We're confident that we can accelerate growth by increasing customer reach and expanding in underpenetrated geographies and customer segments.
As we have discussed before this business comes with a strong R&D team.
And a promising development pipeline.
That will further accelerate dental digitization for years to come.
Now that we have welcomed the new IRS transistor.
We will focus on driving growth and accelerating performance.
We will be making significant investments to further integrate this business into invista, while leveraging EPS to improve its operational capabilities and set it up for long term double digit growth.
While we are excited about the strategic moves that we have made today, we continue to see opportunities to further improve our portfolio.
We are committed to pursuing an aggressive but disciplined approach to capital deployment.
We have a strong balance sheet and have both the financial capability and organizational bandwidth to make additional acquisitions.
We continue to utilize our EPS through an M&A approach to manage.
Steve Leigh cultivating new opportunities.
I will now turn the call of our to Howard to go through our first quarter financials and provide more details on our segment performance.
Thanks Amir.
Before we begin I would like to remind you that our first quarter results are compared against prior year based on continuing operations, reflecting the sale of our cargo treatment unit and instruments business.
First quarter sales across all our businesses increased three 1% to $631 $4 million reported sales were negatively impacted two 3% due to foreign currency exchange rate.
Our core sales growth was five 4% compared to the first quarter of 2021.
Our year over year growth reflects solid performance across most of our portfolio, which was partially offset by temporary weakness in our infection prevention business as well as the Covid related lockdowns that occurred in Shanghai during the last week of the quarter.
The catalyst for growth in Q1 was our specialty product and technology segment, which was up more than 11% versus Q1 2021.
On a consolidated basis Western Europe grew 17, 6%, while North America increased two 4% dragged down by greater exposure to infection prevention.
Overall emerging market outside of China continue to expand from pandemic loans growing 15, 6%.
China was down 14, 3% versus prior year, driven by the zero Covid policy that led to localized lockdown in Shanghai and other regions across China.
Our primary warehouse in China has been affected by the Lockdown in Shanghai and this has impacted our ability to ship product locally.
We have been able to continue to serve our clinicians and patients outside of Shanghai by leveraging our distribution partners across China to provide product and.
<unk> maintained share in terms of sellout.
Our first quarter adjusted gross margins from continuing operations was 59, 2%, increasing by 20 basis points compared to the prior year due to higher volume favorable geographic mix and productivity initiatives across our portfolio.
The adjusted Q1, 2022, EBITDA margin was 19.
19, 7%, which is approximately 185 basis points lower than Q1 of 2021.
As previously discussed in Q1 2022, we continue to invest in our long term innovation, while increasing spend on travel and in person customer facing activities, including our first investor summit in the last week of the quarter.
Our adjusted EBITDA was also negatively impacted by approximately $2 million to $3 million and stranded costs related to the sale of the combo treatment unit and instruments business.
We began addressing the estimated greater than $10 million of annualized stranded costs in Q1.
Our first quarter adjusted EPS was <unk> 47 from continuing operation compared to 49 in the comparable period of the prior year.
And our specialty product and technology segment, our core revenue increased by 11, 2% compared to the first quarter of 2021, driven by strong growth in implant and continued strong growth from spark.
In the first quarter, our orthodontic business grew 18, 7% with our core bracket and wire business growing mid single digits and spark continuing to accelerate.
We remain very confident in our spot business and believe that we have tremendous opportunity to drive long term growth. Therefore, we continue to accelerate investment to capitalize on this important opportunity.
Our implant based tooth replacement business grew high single digit in Q1 of 2022 versus Q1 of 2021, driven by strong growth in developed markets and most emerging markets, partially offset by the impact of the localized lockdown in China.
In addition to strong growth in core implant prosthetics and regenerative business continued to accelerate.
Our specialty products and technology segment adjusted operating profit finished at 22, 2% in the first quarter.
This is down 420 basis points from Q1 of 2021, primarily due to the significant increase in investments to drive long term growth as well as the increase in customer facing activities, we participated in the quarter.
Sequentially, we drove 10 basis points of margin improvement versus Q4 of 2021 from this segment.
Our first quarter equipment, and consumable segment core sales from continuing operation decreased by three 3% compared to Q1 of 2021 store.
Strong demand and solid execution in our curve restorative business drove results higher in this segment.
Our growth of greater than 10% compared to the first quarter of 2021.
Our imaging business also performed well in Q1, delivering mid single digit core growth versus 2021.
This was led by strong performance in our developed markets.
As expected sales of our infection prevention solutions, continuing to decline and Pete pandemic demand. Despite the lower Q1 sales inventory sellout trends reported by our distribution partners indicate that we're gaining market share in our core dental market we.
We further believe that sell in and sell out are more balanced and that this business should return to growth in the second half of 2022.
Long term, we continue to expect this business to grow mid single digits.
Put that in consumables adjusted operating profit margin was 27% from continuing operations in the first quarter of 2022 versus 21, 4% in Q1 of 2021.
Solid margin improvement in imaging and restorative solutions was offset by the slowdown in infection prevention.
Further we experienced some inflation related to the chemical commodities that impacted our infection prevention business.
The segment was also burdened with approximately $2 million to $3 million of stranded costs in the quarter related to the sale of the public treatment and instruments business.
With the sale of the combo treatment and instrument business and the addition of the newly acquired iOS business. We are confident that our equipment consumables business will grow faster and be more profitable as we move forward.
In the first quarter, we consumed $16 3 million of free cash flow and ended the quarter with more than $1 billion in cash, enabling us to close the care stream dental ILS acquisition with cash on hand.
Historically Q1 is our weakest quarter for free cash generation, owing to the seasonality of supplier payments and impact of annual incentive plan.
Our working capital increased sequentially as we continued to proactively manage our suppliers to ensure supply stability, while mitigating inflation.
Our overall balance sheet is very strong and we have ample liquidity even after closing the acquisition of the iOS business on April 20 <unk>.
Have the flexibility to pursue additional inorganic growth opportunities when the right assets become available.
Now I'll turn the call over time here to discuss our outlook for the balance of the year and provide closing comments.
Thanks Hal.
We remain mindful of the challenges in the macro environment, driven by low price Covid lockdowns geopolitical risks and deflation and continued supply chain disruptions.
We're also encouraged by the strong start to 2022 and more optimistic about the long term off look for the dental market and our evolving business.
As it relates to our iOS acquisition for 2022, we would expect in the newly branded Texas iOS business delivered sales of between $35 million to $45 million over the balance of the year.
We expect sales to accelerate significantly throughout the year with Q2 being relatively lower based on owning this business for two months in the quarter as well as on short term pressure related to the China Lockdowns impacting operations in Shanghai.
It is important to note that we are planning to invest over $10 million.
And one time costs to support both the integration of this business into Invista and to position <unk> for rapid growth in 2023 and beyond.
About half of this investment will come in Q2.
For the rest of our business there is no change to our previous guidance of core growth between 6% to 8% for 2022.
We remain committed to achieving an adjusted EBITDA margin of over 20% for the full year.
We are monitoring the ongoing lockdowns in China, and while we don't believe these challenges.
We will have a material impact impact on the full year outlook that could impact the quarterly results.
Current view is that the core growth in Q2 will be in mid single digit and we will accelerate growth in the second half of the year.
We expect Q2, adjusted EBITDA margins to be in the high teens as we make the onetime investments indexes iOS integration further navigate through inflation and the impact of the spot buys in our equipment and consumable businesses as we are steady our supply chain.
Moving forward our priorities remain the same.
We will accelerate growth.
<unk>, our operating margins and continue to further transform our portfolio through our active and disciplined capital deployment.
Our intention is to be the leader in orthodontics provide.
Providing a differentiated in any great suite of treatment options, including brackets and wires and clear liners.
Our comprehensive offering empowers for Sudan is to provide the best individualized treatment plan for each patient.
This is further accelerate our growth in implant base.
To replace matched by leveraging our diagnostics and digital capabilities to provide complete solutions across the implant workflow, including regenerative and prosthetic solutions.
We will continue to grow on broadband access.
Highly profitable and differentiated consumables business.
Finally, we will leverage our strength in imaging and diagnostics to build digitally integrated workflows from diagnostics the treatment planning to execution for our clinical partners.
We will continue to draw upon our EPS heritage to both improve our execution and drive margin expansion.
Finally, we see continue to see significant opportunities to invest organically and inorganically and we have the financial flexibility and management focus to further accelerate our growth trajectory, we are disciplined capital deployment and inorganic investments.
As we continue in our journey to digitize.
Personalize.
Democratized into care.
We're excited.
About the future of dentistry.
We're strategically differentiated and have a proven track record of execution.
We continue to see significant opportunity to act.
Accelerating our growth improve our margins.
And create long term value for patients.
Customers.
Our employees and our shareholders.
Thanks, Amir that concludes our formal comments.
Operator, we are now ready for questions.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
Again that is star one to ask a question.
And our first question will come from Jeff Johnson with Baird.
Thank you good afternoon, guys Amir I got two questions if I could real quickly just on pricing.
I know another price increase went in may 1st just wondering one how broad is that across product lines.
Two is it fair to think about that price increase kind of helping offset obviously some of the China pressures right now and maybe a little bit of macro uncertainty elsewhere across the globe. Just conceptually is that how to think about that.
Hey, Jeff This is Howard maybe I'll take that one on pricing.
We are actively managing price I think even in late 2021 and into the first quarter here. This year, we took selective price increases.
Reduced discounts and instituted freight surcharges as appropriate.
While we're not instituting across the board price increases each opco is closely monitoring inflation market dynamics.
Taking the necessary price actions as appropriate.
Certainly I'll provide a tailwind here for growth and it will help counter measure some of the inflationary impacts that we're seeing as well.
From a macro environment, but we have seen in here.
Sure.
China, we believe that the situation is going to work itself out.
Throughout Q2.
This significant market with tremendous amount of opportunities we are committed to it and we'll walk through some of the interim challenges until we are able to provide the support and capabilities that are needed in that country.
We have been able to manage our way through Russia issues.
We're committed to helping our partners the professionals to provide better quality of life to patients and we have been able to get actually products into Russia and continue to be bullish about our ability to manage some of the challenges that we see in this environment.
Is there <unk>.
<unk> come in play ability to really focus on daily management.
Improved operational capabilities the segmentation the commercial approach that we have and we think that we are the past several quarters have proven that we have the ability to manage through some of those in the short term, obviously youre facing some challenges, but our commitment in delivering too.
The guidance that we have provided earlier remains in within Mccann.
Some of the challenges that is coming our way.
Thank you Amir that's helpful. And then just a quick follow up on spark.
<unk> doubling year over year more than doubling a good number I think we're all trying to figure out and titrate between some pressures your largest competitor in clear aligner felt this quarter versus you guys more than doubling that FERC revenue, but if I look at that and we try to have a detailed model on spark it looks like to me maybe sequentially from <unk> to <unk>.
Spark revenue was still down a little bit which would be normal for seasonality and totally get that.
But just want to confirm that because that would kind of show I think that you and others in the space or kind of just seeing normal seasonal patterns right now and kind of similar trends to a certain extent.
Just in Q1, we saw a strong sequential growth 17, 3%.
One versus to Q4 of <unk>.
So we had a strong sequential growth we saw increase in the number of active doctors, we saw more utilization of our active doctors growth is widespread across various geographies Western Europe is showing notable strength and we continue to add.
As far as the different geographies through a registration process Youre seeing doctor adoption continue in various yards North America, Europe , China and expansion into the Dsos as well.
This double digit growth in a number of doctors that they are using is spark as well those are some of the things that we have seen here and continue to be committed to what we said before this is about <unk>. The size of this business over the next three years.
Well I will sharpen my pencil in that model. Thanks Amir.
Of course.
Thank you.
Our next question will come from Elizabeth Anderson with Evercore ISI.
Iowa, Florida.
I have a question about the China number.
One it seems like from my recollection in China is about 10% of your total revenue or maybe about half of your emerging market revenue. So does that imply that China was that these results came through with trying to be down about 15% year over year does that seem about roughly the right ballpark.
Yes, so if I get back to the emerging markets, but outside.
Outside of China emerging market in Q1 was up almost 15%.
So look at our overall emerging market business is about 23, 24%.
And China is about 10% of that we have seen a strong growth on other geographies.
Then in exactly as Howard said that was about 14% to 15% down in Q1, the rest of the business did extremely well.
And we think that commitment that we have made to emerging markets continues to deliver for us in the log on as China opens up we have orders in our half as warehouses opened it up in Shanghai, We think that we can catch up and compensate for some of the challenges that we had due to lockdown.
Got it that's Super helpful. And then I also just wanted to make sure I understand all the different macro drivers I'll start here you say that you think the Russia revenue should sort of come back in Q2 and not be a headwind as we think about the go forward revenue.
Specifically in Q1, we did better than our original plan in Russia and Ukraine.
I've said that this business is about $100 million and obviously the conflict is going to continue in here. Our expectation is for the rest of the year, we're going to see a flat maybe a little bit modestly lower than what we saw last year, but it could go back only four weeks ago four to six weeks ago, we haven't.
Better off look of what is taking place in the underground and as I mentioned earlier, we are now in a position that we can actually get some products into Russia that help us.
<unk> to provide up to the patients and the doctors and provide the quality of care that we have become accustomed to.
Russia and customers.
Got it that's super helpful. Thank you very much.
Okay.
Thank you.
Our next question will come from Erin Wright with Morgan Stanley .
Okay. Thanks.
Can you speak to what the initial focus is in terms of the integration of care stream tiara, you've mentioned, obviously some of the near term investment on that side, but what is sometimes that the near term opportunities to capture greater market share with that offering and then also maybe some of the longer term opportunities that was required but it is an.
Incremental investment in the cloud.
Of course.
I'd like to break it down into three key areas. So what that integration looks like but before I do that this is about a billion dollars over $1 billion market is growing double digit we bought a business that it is really R&D and from a technology perspective, as well established as the EBITDA.
Margin of over 30% and overall iOS as a whole is less than 15% penetrated boardwalk show now coming back to the integration.
Three areas number one is around our go to market and commercial activities.
Over 3000 people in our commercial organization over 60% of our business is direct you have access to a large areas of underpenetrated geographies. The care soon was not able to reach a great relationship with the Dsos that gives us an opportunity to really wrap.
<unk> reached the axis of this business in various geographies in various segments bundle it with our direct product go through Dsos and work with the partners that we have around the world. So that's the first area and we are really displaced already to leverage what they have done in the past and app towards going forward.
The second part of it is around.
Operations were known for our lead.
Our approach in improving on time delivery quality margin and I think we can add a lot of.
Substantial amount of effort in here as soon as we have access to that manufacturing site, we can improve the quality delivery marching our reliability at this product and we have a long term plan for us and we have a really good insight into the during the due diligence at what we can do to improve it continuously.
Create a product that is really outstanding and one of the economy. In this segment last but not least which are on innovation.
This team come to the very good exception on R&D team to have a robust hardware had a really good applications <unk> applications.
And.
They have some capabilities that is really positioned for dsos and our lineups.
We picked up any graded into our <unk>.
<unk> integrated into our clear aligner business in our implant placement capabilities now we have a full blown solution.
Digital workflow capabilities that we can put that as a first step of many high value dental procedures implant prosthetics clear alignment.
So go to market operational improvement and R&D and having the long tail of the product that we can put out there in in order to really advance this over time.
We think this business in the long run.
Require some investment on our path is a carwash is has basic investment in Iot and other operational piece that we need to do but as we have communicated in the past we think it's going to add about 50 basis points of growth in over 40 basis points of margin to our core portfolio.
As we wrap it up over time.
Okay. That's really helpful. There and just one other smaller items.
Supply chain challenges just across a quite bit it seems like you have better visibility there at this point and I guess that goes into your broader question on the reaffirmed guidance do you think you have enough buffers in there just given.
The variables from a macro supply chain geopolitical perspective at this point.
Do you have that eventually there will be there is that the right way to think about it. Thanks.
Yes, Aaron this is Howard I think that.
We're cautious about it.
Consistently the supply chain, we know that things are dynamic in the marketplace.
We have deployed our ebs tools, one of the things that we've done and we've talked about with increasing our inventory supply to ensure that we still have a.
Consistent lead time.
The reality is there is some challenges around petroleum based type of product as well as chip. So we're monitoring that very carefully but the team has done an exceptional job to date and ensuring that we haven't.
We've been able to meet customer demand and so that's what we continue to anticipate as we move forward.
Okay. Thank you.
Thank you. Our next question will come from Nathan Rich with Goldman Sachs.
Hey, good afternoon. Thanks for the question.
Amir.
I wanted to start maybe high level.
Obviously acknowledged some of the macro pressures facing the consumer but it sounds like you expect demand for them dental procedures to remain pretty strong I guess could.
Could you maybe just help us think about or talk about what played out in kind of March and April and some of these macro headwinds became more acute and.
Why are you kind of feel like the business is going to be pretty resilient kind of in light of some of the uncertainty out there.
Yes.
Thanks, Dave.
We think basic fundamental shift in the long term view of the dental industry.
We don't think this is.
We have seen that during the earlier stages of the 2020, we saw the resilience of industry how quickly came back.
There is a fundamental change in how people invest and use <unk> to improve the quality of life in the long run. We believe that this industry is tremendous amounts owed one rate, but now going back what we saw in December and January spin.
Specifically in North America, and Europe , the volume of patients dropped significantly and it was purely because of on the crop.
And we saw cancellations, we saw some postponement and some places up to about 30% of EBIT Denso for question I'll say had some challenges coming to work in January I'm, sorry in December and January the Southern February we saw a ramp taking place and continue the other app continued through February .
During March.
April has been a interesting months.
Easter He had some holiday season here and then purely what we have seen in the China impact outside of that.
We see a continuation of what we saw in February and March so as long as we kind of work through that process and we are able to see.
See our way sometimes in May maybe early June that the China opens up we think that the market is Brazilian market is going to come back. That's why we feel comfortable with the guidance that we have provided everything we can manage through some of the choppiness in the short term in order to be able to.
Execute going forward.
Got a part of this debt.
Maybe worth mentioning here.
It's our ability to execute.
We have become.
But a lot better in put in energy around a specific set of priorities and continue to build robust capabilities example, spark ramp that we have done in the past nine months and one training that we are now able to do on a cohort reached.
Week after week after week, we have been able to do those things and that would give us that.
Confidence that we will be able to.
To expand our business for years to come here.
That's helpful. And then maybe just a quick follow up on China.
One of the other focus is in the market right now is just the volume based procurement.
The government is putting in place on the implant side could you maybe just update us on your expectations around that.
Maybe remind us how big your implant business is in China as well as the timing for when we might see an impact on that front. Thank you.
Of course, we have mentioned that we have.
But we're trying to $250 million business in China about 10% of our businesses in China, a big part of our businesses implant that business has been growing significantly.
The volume based procurement or dental implant is something that is going to become realities in selected provinces in 2022, and probably national rollout in 2023.
It is important to notice that the Chinese dental market is a self pay market.
Volume based procurement does not directly impact in the private sector.
Unlikely that it's going to have.
In the long run much of an impact as we have shifted our business into more a private sector and on the premium side on the self pay.
We think that all focus on the.
That segment that the rising middle class growing disposable income, we won't be able to manage through this it would have an impact but that impact is not that substantial we think that we would be able to compensate for us and he is not going to impact our long term growth expectation in China.
Thanks very much.
Of course.
Thank you our.
Our next question will come from Michael Cherny with Bank of America.
Hey, good afternoon. Thanks for all the details if I could jump back to North America, I know you called out the infection prevention business as part of the headwind for the quarter can you give us a sense on what North America grew.
Actually prevention or what the hedge.
Headwind entailed, especially given some of the choppiness that we've seen from some companies specifically within the U S North American markets.
Yes.
Outside of infection prevention, we have seen continuous growth in Wi Fi of our business, we mentioned that our implant business as had six quarter of a positive in every quarter has been better than the previous quarter. So our premium implant continued to perform really well high single digits.
On a spot business and encore business continues to perform a bracket and wire business in the mid single digit double digit on the spark side imaging mid single digit continues to grow and our consumable outside the infection prevention at an incredible Q1 high single digit growth in that.
The area for all of that together, we think it is in a low single digit growth.
North America, we mentioned is 2% to 3% as a whole, but a big part of that the impact is this course correction on infection prevention.
Yes, maybe just maybe just to jump in here, Michael I think our Q1.
That was the one low life as it relates to North America, If you think about our core growth.
We are indicated.
Our instrument business.
I'm sorry.
<unk> business was up high single digits.
Our encore business North America, combining both wire and bracket as well as our lineup was up well into the double digits.
And our Nobel overall, our implant business our premium implant business was also up both.
So really a lot to be very favorable about just that infection prevention then again.
A lot of it has to do with the comp we anticipate by the second half that we get back to growth there and long term even in that business, we anticipate that being mid single digits.
Understood and helpful and if I could just circle back on the CBP question relative to China. As you think about your exposure between the public versus private hospitals at what point in time, where you feel like you have visibility around a wherever <unk> will impact your public hospital business and then B I know Ty.
Some of the other markets. It seems like there's been some pricing spillover from public to private.
How are those conversations going with your significant private hospital market contract about how they think about pricing.
In a world of EVP could impact the public hospital pricing.
Yeah.
And then in touch with them. Despite all the challenges have not traveling we are.
Ongoing discussions with some of our partners and they are over 70%, 75% of our business is in the private segment and that has continued to increase almost every quarter.
Yes. Your assumption is absolutely correct is going to have an impact on that.
The public hospitals and would have an impact. So this is ware.
Innovation training education, and the commercial execution that we have comes in place.
Okay.
This is not necessarily related to China, but overall, let's say you wanted to do a full arch treatment in most of these places even in China are full or there's about $20000. The cost of implant in those areas. When you get the credibility that support the reliability is fairly small compared to what.
Yes.
Consumable side and given the self pay nature of these.
You have the support capabilities the training and education.
Innovation that people are looking for they're able to manage through these to get yourself in a much better position and that's what we have been able to do in various geographies and I don't think China is going to be any different than other geographies.
The value segment of the implant exist everywhere that has been a phenomenon that has been around for quite some time in parallel to that we've continued to grow our premium Nobel business, while we are getting prices.
Got it and thank you for all that color.
Of course.
Thank you.
Our last question will come from Jason Bednar with Piper Sandler.
Hey, good afternoon. Thanks for taking the questions here really just building on a couple of things.
Earlier in the call.
Maybe on care stream to start.
Howard or near when do we see some of the fruits from the pipeline that you've referenced a few times or I guess, maybe asked another way how do you see the new product cycle in the placement cycle, playing out now that the Iowa assets under your ownership.
Yes happy to answer that Jason So the current portfolio has.
Group of product at three different product already a point solution a kind of a value side 3600 3700 has been in the market and then the newly released of the 3800 is just really.
Outstanding product with wireless capabilities and that was just for launch so you've got a continuum of a product that it is already in the market and Unfortunately, it's 3800, we didn't get as much of our momentum because of the call it as well as the lockdown in China, We think the core portfolio.
Offers a range of options that we can put out there and start getting momentum on it any creation of these product into the Dcs into the bundled solution that we do is going to be a significant opportunity for us not only on the iOS side as a point solution, but also in <unk>.
Our position in orthodontics as well as in clear aligner, a clear alignment as well as on the implant space, but we have done a tremendous amount of due diligence in this company and the innovation part of it.
They have a long term.
And opportunities for improvement and add to the product categories of what we see today. What we have today is sufficient for us to make an impact on growth and <unk> seen the momentum here keep in mind that this marketing less than 15% penetrated the.
The product that they have is one of the top five.
And they have less than 10% market share and that gives us an opportunity to really ramp that up very quickly very fast.
That's very helpful and then.
Maybe coming back to <unk> question earlier, and just looking at trends here in March to April .
I'm thinking bigger picture here.
Understanding.
Panel, maybe not exposed to some of the issues that are going on in other parts of health care, but are you seeing capacity constraints or staffing dynamic second dynamics, creating capacity constraints. When you look across our specialist or general benefits that are out there whether that's been a bottleneck to getting back to normal or is that not really been an issue.
Again across all the markets that you play in.
Yeah, I think maybe maybe addressing our own kind of the discussion around our own labor concerns I mean, we have seen some tight.
Localized challenges with regards to adding some labor.
But I think that we've been able to manage that through our UBS and improve productivity as well and certainly.
Long term, we know that the best team wins until we focused on recruiting and retaining.
The best of both.
As part of our circle culture, we continue to engage closely with our employees and want to make sure that.
We are and we remain.
The preferred employer of choice wherever we operate but.
But we do see some labor shortage in the dental offices.
Here's where we really can make a difference.
EPS at <unk> to take a look at opportunity for productivity opportunity for predictability pieces of software and integration work will really make a difference.
To be able to take waste out of the system. So we're looking at the market not in the city as a provider of a specific product, but enabling the dental offices to be a lot more capacity to get acceptance rates to go up to treat more patients. That's the charterer desktop posted to be affected and we are beginning to see.
Good momentum in result is the outcome of it but your assumption about the labor shortage and solve the challenges are absolutely true and continues to be an issue and not only in between March and that played out and I think he is going to be with us for quite some time Bachelor innovation productivity.
The capabilities of software really can make a difference.
We've done a very good job of managing through it so congrats on that thanks guys.
Thank you.
Alright. Thank you. Thank you have a question from Jon block with Stifel.
Okay, Thanks, guys and sorry about the technical issues, Howard or near just sort of ask a direct question. Because this is what I am getting some inquiries on Russia in and around 4% in 2021 Rev. I believe was in the 6% to 8% core revenue growth guidance in.
Talk to us about that assumption in other words. This is the assumption that washes only modestly down this year I think you might have alluded to something like that earlier, and then sort of did or same playbook for China, China is 10% of revenue again, approximately it was down I think however, you said, 14% in the quarter, but you also seem to say hey look is a little bit timing on China right quarter to.
What can we go out and work hands. So maybe just if you guys can give a little bit more color embedded in the 6% to a what are the assumptions on Russia 22, even at a high level and same sort of question specific to China, and then I promise I'll ask a shorter follow up yes.
Yes, no problem.
So with regards to the China component I think Amir addressed this a little bit as well.
Clearly, we're a bit more positive on Russia than we were six weeks ago during our analyst.
Meetings are largely because we were able to address some of the supply.
Constraints in getting product into.
Russia for the year and contemplated in our guidance, we think that the Russia overall business with Ukraine.
Combined will be somewhat flat to marginally down is what we anticipate and then as it relates to China Youre right. We did see a decrease of <unk>.
Mid teens, I think almost 16% down in China in the quarter.
We do anticipate that we'll still see some growth in China. This year.
Based on past experience I think if you remember in 2020 with the beginning of the Covid situation I think we had a business in China go down by in excess of 35% in that respect the quarter and by the end of the year I think we were essentially flat and so.
Leaning on that experience and the expectation that that demand does come back we do have some modest growth in there for China.
Yes.
Okay, Great very helpful. Maybe I'll, just stick with you and stick to the P&L. So yes, the gross margins really impressive flat to actually up slightly year over year, considering bringing et cetera. So maybe just talk to us about how you get to the EBITDA margin over 20% in other words is it a hold the line on GM and then get some opex leverage and then just maybe.
Aw clarity question on the same topic is the greater than 20% EBITDA margin includes the care sorry, the Duchess iOS investments near term. Thanks.
Sure No problem, John So yeah, I think that we anticipate gross margins I think we had 59, 2% a 20 basis point improvement.
Anticipating those to be fairly stable throughout the year for us to get to that 20%.
EBITDA number for the full year.
You see some additional improvements on the expense side.
Obviously, we're going to see some additional growth in sales in the second half of the year, we anticipate that our growth accelerate overall as well as our margins improving overall, so that's how we get there and then as it relates to the iOS and.
Investment that is included as it relates to the expense side the investment in that 20% into that number.
And thanks for taking the question.
Yes.
Alright, thank you.
Yes. Thank you very much for everyone. I think that we are in time. So appreciate it appreciate all the time and look forward to following up with each of you. After the call. Thank you.
Thank you.
Thank you ladies and gentlemen, this does conclude today's teleconference. We appreciate your participation you may disconnect at any time.
Okay.
Yeah.
Right.
Yeah.
Uh huh.
[noise].
Okay.
Yeah.
Yeah.
Yeah.
Oh.
Okay.
Uh huh.
Yeah.