Q2 2023 Envista Holdings Corp Earnings Call
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Hello, My name is Chelsea and I won't be your conference call facilitator. This afternoon.
At this time I would like to welcome everyone to invest a holdings Corp, second quarter 2000 twenty-three earnings results Conference call.
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I will now turn the call over to Mister Stephen Keller, Vice President of Investor Relations I've been just the holdings Mister Keller you May begin your conference call.
Good afternoon.
With us today, a new president and Chief Executive Officer, and how old you are chief Financial Officer.
I want to point out that our earnings release, the slide presentation supplements days call and the reconciliations and other information required the F. C. C regulation G related to any non-GAAP financial measures provide during the call are all available on the Investor section of our website Www Dot <unk> dot com.
The audio portion of this call will be archived on the Investor section of my website later today under the heading you best and presentations.
He made archived until our next quarterly call.
During the presentation, we will describe some of the more significant factors that impacted you over your performance.
Mental materials describe additional factors that impact our year over your performance.
Unless otherwise noted references in these remarks company specific financial metrics he likes the second quarter of 2023.
Ah references superior period, the increases or decreases and financial metrics are you over here.
During the call we may describe certain products and devices that have applications submitted in pending on the regulatory approvals are available only in certain markets.
We also make forward looking statements within the meaning of the federal securities laws, including statements regarding if that's okay. The elements 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 R. S. D C filings.
Actually it's else might differ materially from any forward looking statements that we make today.
Forward looking statements speak only has as of the date that they are made but we do not assume any obligation to update any forward looking statements, except as required by law would that I'd like to turn over the policy to Amir.
Thank you Steven welcome to in this second quota 20 twenty-three earnings call.
I appreciate you taking the time to join us today.
As anticipated a performance in the second quarter accelerated as we continue to focus on partnering with dental professionals.
Digitize personalized scent democratize oral care.
This quarter read deliberate core revenue growth of 2.1%.
And achieved an adjusted EBITDA margin of 19.1%.
Sequentially adjusted EBITDA margin increase 90 basis points versus two 120th twenty-three.
We expect a performance to continue to accelerate in the second half of 2023.
Yeah, a position to meet a full year guidance of low single digit growth and adjusted EBITDA margin of 20% or greater.
Before I turn it over to Howard to discuss our second quarter results in more detail.
I want to take this opportunity to provide further perspective and the current operating environment and then offer an update on our progress towards our strategic priorities.
Globally, the dental Marcus remains dynamic.
Patient demand remains resilient.
Macro uncertainties, including geopolitical risks continues to weigh heavily in the mind of both patients and clinicians, creating an uneven operating environment.
In the second quarter, we saw some notable but not as widespread weakness in higher and dental procedures.
Cruden adult orthodontic cases in full arched restorations.
Weakness, mostly came in the form of patience postponing treatments versus canceling the procedures.
Offsetting this weakness you saw a strength.
And the demand for restorative dental care and have further scene.
<unk> commitment from clinician to make selective investments in their practices.
Clinicians are working to digitize their practices and as a result, we saw a strong growth.
Texas, Iowa business in the second quarter.
As we look to second quarter second half of the year, we expect them to demand to remain resilient and outperformance to strengthen.
Ask the focus on execution.
Longtime we continued to walk to accelerate a cold growth expand our margins and transform our portfolio.
Then with the business system E B Es underpins our execution rigor have you use it everyday to continuously improve our operational capabilities.
In order to deliver better serve our customers and our shareholders.
Two recent examples of E. B S. Inaction include the successful development and launch of a new product.
In our or sculpting business and an annual President's case, and focus on improving customer satisfaction and a streamlining our internal operations in our orthodontic business.
Well there was a few less familiar with our four portfolio of.
Or scoff tickets, a leading provider of loops for all delta professionals, including or surgeons, what's an honest dentists and dental hygienist.
Recognizing the need to drive innovation and growth there was Scott take leadership team use the E. B S voice a customer to to design. The next generation of hoops, the Audi H elevate target at a dental hygienist market.
A predominantly female market that has tried to surely be under sir.
The <unk> is it Titanic on frame designed to eliminate discomfort <unk>.
Prioritize any style with custom designs that are likely and affordable.
It's a high quality fascist centric option.
This is recent debut we have seen rapid adoption contribute into our high single digit growth in this business.
This is a great demonstration of how you two guys and Ebs can accelerate our product development plans.
19 growth and improving customer satisfaction.
Turning into our phone call to <unk> business in the second quarter. The leadership team ran the President's <unk>.
Aimed at <unk> R E B S journey, while driving continuous improvement throughout the organization.
During the concentrated <unk>.
The orthodontics team ran 11 individual <unk> involving over 100 employees. Each chitosan was focused on a different process that was a standardized simplify unimproved.
Our team successfully identified and implemented concrete improvements that'd be produced over $5 million in annual cost savings, while enhancing our customer's experience.
The vast positively impact of food or sardonic business.
Including the spot and he's out of their step in a journey of consistency consistently improving margins.
Focus on focusing on our progress in Q2.
Are uniquely positioned orthodontic business.
Continues to perform well driven by sustained performers in a sparkly airliners.
Once again spot was able to drive significant year over year growth.
And also growing double digits sequentially.
We continue to leverage E. B S to drive this spot growth formula and we are consistently adding new doctors increase in case volumes at existing doctors and groin a revenue per case.
Spock Israel position to contribute to this long term growth.
While our traditional back in our water business was negatively impacted by U S. Sanctions on Russia, we continue to make progress without Damon Ultima system worldwide.
This innovative bracken of wire solution provides orthodontists more control for faster more precise finish it.
In the U S more than 30% of ourselves of pain and products now can see stuff Damon Ultima.
In Europe penetration continues to accelerate.
Our solutions for implant base choose replacements declined low single digits in the quarter with solid growth across most geography's impacted by declines in Russia.
Pockets of weakness in North America.
In China regroup missing a digit offsetting the impact of value based pricing.
Troy increased volumes.
Bound by an accelerated demand for in class as well as meaningful gain and sure.
B B P. S narrowed the price difference between a Nobel bike and other competitors in the local market and this has encouraged many clinicians to trade up to our leading implant solutions.
As expected.
It just it EBITDA margin improved sequentially or the first quarter of 2023, increasing 90 basis points to 19.1%.
Is six fashion occurred despite a temporary reduction in high margin sales to Russia.
Impact of China, we'd be price reductions and our continued investments and our long term growth initiatives.
<unk> G B S to manage marches to a systematic focus on price optimization cost controls Ah structure cost reductions at the emphasizing of non a strategic and less profitable businesses and geographies.
<unk> margin to expand in the second half of 2023.
Remain on track to deliver full year guidance, while making meaningful investments in longterm growth.
We remained focused on building a stronger differentiated and growth oriented portfolio.
Having owned it for more than one year <unk> business is now included in our core gross and he's continued contribute to improvements.
In both growth and marching within our equipment I've consumable business.
I O S market remains underpenetrated and that's S. I O S is well positioned to capitalize on growth in this area.
July we've reached the one year anniversary off the off the <unk> materials acquisition.
Moving forward <unk> will be reported as cold growth within the specialty products and technologies segment.
This business continues to perform well and will be accurate <unk> to our growth 820, 23 and beyond.
Combine both at quiet businesses.
I expect it to contribute 75 basis point or greater of core sales growth foreign visitor in 2023.
Why do we are excited about this strategic moves that we have made today, we see additional opportunities to further improve our portfolio.
We are committed to pursuing discipline and a strategic approach to capital deployment.
We utilize R E B S streaming M&A approach to manage a robust pipeline of inorganic partnerships and investments and continue <unk> new opportunities.
I will now turn the call over to Howard to go through our second quarter financials and provide more details on our segment performance.
Thanks Amir.
In the second quarter, we delivered sales of $662.4 million.
This represents an increase of 2.6% over the second quarter of 2022 on a reported basis.
Acquisitions contributed 1.7% of growth.
Foreign currency exchange rates negatively impacted sales by 1.2%.
Poor sales for the quarter grew 2.1%.
Our growth reflects continuing growth in our specialty products and technologies segment as well as a return to growth and our equipment and consumables segment.
From a geographic perspective, Europe through high single digits, while North America declined low single digits emerging markets Mmm mid single digits with strong growth in most markets being weighed down by the decline in Russia.
China grew in the quarter with a strong rebound in volume offsetting the BB P related price declines.
For 2023, we expect China to show modest growth netted a GBP pricing impact.
Our second quarter adjusted gross margin was 57, 9%, which is down 80 basis points from prior year the.
The declining gross margins was primarily attributable to an unfavorable product mix GB.
GBP driven price declines and continued investment in our long term growth.
Our adjusted EBITDA margin was 19.1%, which represents a 60 basis point decline versus Q2 of 2022, and the 90 basis points sequential improvement from Q1 of 2023.
Our adjusted diluted EPS in the quarter was 43 cents compared to 48 in the comparable period of the prior year.
The reduction in the E. P. S for the quarter was primarily driven by an increase in interest expense from higher interest rates.
Core revenue in our specialty products and technologies segment grew 1.7% in the second quarter or combine orthodontic business grew high single digits with spark continuing to expand rapidly.
Our traditional bracketing wires business declined high single digit negatively impacted by the Russian sanctions.
As we have discussed we expected this impact in the quarter and we anticipate being able to resume shifting of these products to Russia again in the third quarter.
Alright implant base tooth replacement business declined low single digits in the quarter, we saw solid growth across most geography's offset by pockets of weakness in North America.
China grew mid single digits with strong volumes offsetting the impact of BBT pricing.
Adjusted operating profit in this segment was 18.7% in the second quarter. This is down both year over year and sequentially as we continue to invest in our longterm growth and are managing the impact of GBP driven price declines.
Turning to our equipment and consumables segment car sales in the second quarter increased 2.9% compared to Q2 of 2022.
The return to growth and E&C segment is driven by a continued strong partnership with our key distribution customers as well as R. E. B S focused execution, which helps drive strong sell out and it's sure. We are driving performance all the way to the clinic.
Our equipment business grew low single digits, driven by strong growth in I O S, which is now part of poor growth and by the improving performance of our traditional imaging business.
It is important to note that we continue to de-emphasize non strategic geographies and solutions in order to concentrate our efforts and markets, where we can build a sustainable competitive advantage.
This will allow us to accelerate both growth and margins over the long term.
On the consumable side, we delivered mid single digit grows driven by strong performance and are restored as an endodontics businesses and modest growth in our infection prevention business.
Globally, we believe that the distributors sell out of our consumable solutions continues to outpace the market.
Channel inventories remain healthy and we expect this business to continue to perform well throughout 2023.
In the second quarter.
Justin operating profit and the equipment and consumables segment was 25.7%.
This represents 400 basis points, a margin improvement versus prior year.
Margin performance and the equipment and consumables segment is truly a demonstration of the power of Ebs.
We are relentlessly focused on driving productivity optimizing our operating structure and managing price to protect and deliver improving margins.
And the second quarter, we generated $61 million of free cash flow and ended the quarter with over $650 million in cash.
We continue to make progress on our free cat on our cat cash flow management and remained committed to our mid term goal of delivering annual free cash flow in excess of net income.
We have a strong balance sheet that provides us the flexibility to pursue additional inorganic growth opportunities when the right assets become available at attractive valuations.
Now I will turn the call over time your discuss our outlook for the balance of the year and provide closing comments.
Thanks out.
Looking forward would remain confident in our long term strategy as well as our ability to deliver are all closed for the full year 2023.
<unk> sales to grow low single digits and to achieve adjusted EBITDA margin of 20% or greater for the full year.
While we are confident in our artwork for 2023 it is important to note.
That'd be do anticipate some continued quarterly volatility.
The second half of last year was volatile.
Relatively strong third quarter, followed by much reach your fourth quarter.
Given last year's performance.
We expect resolve tech celery throughout the remainder of 2023 and for the fourth quarter to be our our strongest quota for both growth in March.
Before we conclude the call I would like to acknowledge the leadership change that'd be announced last week.
As the original <unk>, how 'bout has had a tremendous impact on our business and help position us for long term growth.
Yeah, it's been an important advisor to me and to hold and which city and we've been missing.
After he leaves in late September out.
Thank you for your leadership your partnership and many contributions to <unk>.
Thank you a mirror I truly appreciate it the opportunity to work with you and the entire and Mister <unk>.
I am proud of what we accomplished as a new public company and.
And I'm confident that investor will continue to deliver on its vision of digitizing personalizing and democratizing dental care.
Just as well positioned to continue to accelerate growth expand margins and further transform the portfolio.
I want to reiterate there are priorities remain the same.
To accelerate growth.
<unk> are operating margins in further improve and transform our portfolio active and discipline capital deployment.
R E B S focus and continuous improvement culture will be of help us manage through short term volatility while progressing towards a long term targets.
We only institutionalizing E B S within our culture and our operations.
Ensuring that <unk> across and Vista is retrained and exceptionally knowledgeable in our tools and best practices.
Yesterday, we have health 10, one week E. B S back to basics trainings designed to reimburse each leader in our business system.
This initiative hasn't only been impactful to our business performance, but also engaging in a neighboring of our leaders to execute a continuous improvement approach.
We intend to continue on further enhanced training as we move forward.
Whereabouts position to be a leader Bush or <unk>, and then any plan to space implant base two replacements.
Comprehensive clinical offerings, including our imaging diagnostic solutions will improve the productivity of dental professionals, while empowering them to plan and deliver personalised and predictable treatment for each patient.
Preferences to partner with dental professionals to improve patients lives by digitizing personalizing and democratizing dental care.
The focus on delivering longterm value.
For patients are.
Our customers.
Our employees and our shareholders.
Thanks Samir.
That concludes the formal comments, we are now ready for questions.
At this time that you would like to ask a question. Please press star one on your Touchtone phone.
You may remove yourself from the queue at any time by pressing star Q.
Once again ma'am.
One to ask a question.
And our first question will come from Elizabeth Anderson with Evercore ISI.
<unk> no problem.
Hi, guys. Thanks, so much for the question Uhm Howard sorry to see you go congratulations on your new opportunity.
I think maybe I sort of Alaska question as as you should have gone through your last call. How do we think about like the current demand environment I know, we've talked about some of the ups and downs over the first half of the year and into the second quarter, but just been kind of parse apart you know as we started to be in the third quarter with maybe broadly speaking by like.
Europe , and North America that would be helpful to hear my color there. Thank you.
What we hear from doctors group practices, DSO, Ceriman, Polish and the longterm artwork for dental demand, but I'm mindful of the macroeconomic risks.
What we're seeing is a continued to <unk> in general restorative care.
See some isolated weakness in higher and dental procedures, such as postponement of treatment versus cancelling it.
<unk>, some adult type of support and Autocide.
Have you ever seen some caution from clinician Alton and managing inventory a lot more strict <unk>.
<unk> before a specific an implant <unk>.
On a segment by segment implant based <unk> replacement is resilient the math.
Have you seen some notable but not widespread weakness in high end <unk>.
<unk> resilient, except Russia that his wallet all and we have some challenges there are.
<unk> you mentioned you haven't improved significantly but also demand remains week due to macro concern in high interest rate, but Ah comps are becoming a lot easier to manage as we go through the second half.
I O S. B C. A continuous strike demand both from doctors as well as group practices M. P. S shows because they intend to digitize and expand their capabilities and a consumable well we are seen as the man is a stable and resilient and I look at the geography by geography Euro.
Demand is resilient, but as you can imagine you know this is summer vacation in his stomach rolling vacation through north to southern part of Europe .
North America.
I haven't seen any significant change we see the map continued to be resilient as I mentioned it fought pockets of weakness in high end procedures.
China I was in China, a four week last week is what we saw demand is expected has improved significantly compared to the kovac impacted comparable.
And we expect to see further increase in second half, but there are some key issues customers sentiment as well as some focus on the spending such as travel versus dental care.
Russia continues to be volatile continuing the conflict in there doesn't really allow you to have a.
Direct forecasts on what you can expect quarter to quarter.
Arrest us toward emerging market demand has been <unk> and we have performed extremely well.
So we put it all back together I think the forecast that'd be put together.
Communicated low single digit considered all these variables in here and even some of the acquisition as well as Ebs. They feel positive about what we can deliver in second half and for the whole year.
Got it that's super helpful and maybe just started similarly for people who are looking at the that's all your margin guidance, Okay, Hey, we're two quarters and yes.
Definitely I'm printing sequentially and took a very nice that's at Q Q, how do you think about that versus the ramp into the last two quarters of the ear any particular like profitability drivers just steps out in the third quarter versus fourthquarter or any other sort of details you can provide first I had to think about that.
We we expect and be upset that before I submit that second have is going to be stronger and as we go through the year, we're gonna see better performance.
And if I break it down to <unk>, where is the growth coming from grocery is gonna come to a large degree a specialty products and technologies spark continues to add new doctors existing doctor, they're putting more of new cases, where go into different geographies.
Prices are improving gross margin is improving.
Acquisition, becoming part of a cold growth combination of Iowa, plus osteogenic, we expect those to improve and impact of core gross by over 75 basis points.
And then we would have a much easier accomplish specific that and equipment considering what we have to deal with last year, and Russia and China. So core growth are driven by these factors that we talked about on top of it.
Being very targeted and how or go to market. It operates and even a side of volume.
<unk> mix is improving.
Specific specialty park.
Profitability of as far the gross margin is improving every quarter and the impact of E. B S. D V E. B, a Stephen productivity is very <unk> and obvious as you have seen in our equipment consumable business and to you too we expect to continue to drive that as we go forward in second half and as we mention.
And before we had been very targeted geography's businesses that they're not really.
Competitively advantaged my groin, if they're not profitable and we have moved away from them very systematically quarter after quarter and that really and now is beginning to pay off I may have more work to do in here, but we feel confident about what we have ahead of us in the second half.
Got it thanks, so much.
Thank you.
Our next question will come from Michael Cherney, which bank of America. Your line is open.
Good afternoon. Thank you for taking the question. So I wanted to having a little bit more to the commentary made around the back half of the year, if I could Howard in terms of the cadence and the year of your cops you tend to have some level of three three to four Q wrap but it sounds like it should.
Be expecting something fairly steeper than normal I know you're not <unk>.
Commenting specifically, giving quarterly guidance, but in terms of those moving pieces, how should we think about.
Aside from cops some of the biggest differences between the expected three two and four too gross.
Yeah. So so Michael I think that we do see and have anticipated this throughout and I think even when we provided guidance, where you can talk to contact the first half being a bit slower.
Slower sluggish both in terms of growth as well as around the margin profile certainly as the mirrors described as.
As we see that improved growth in the volume come through that's clearly going to have some pull effect in a positive manner on the margin and so that's one thing and you know we've emphasized as part of Ebs productivity.
Look no further than spark I think that every quarter sequentially. We continue to see improvements in that margin profile and we will see a significant step up here in the second half as well you know China's recovering that's going to.
Certainly improve those margins, we talked about China, and if that business grows even with the BBT impact we feel confident that we're gonna see that profitability show up we talked about the I O S. Ram and so is that business, which is you know as we acquired.
Faster growing but also improve margins and so we will see that all through is that growth continues to happen and then you know just basic around E. B S and the productivity improvements that we looked at to do we've taken some actions even in the second quarter, which will yield some results here in the second half and so we feel confident that that's going to help drive some of that clearly queue for us.
To be the most significant largely because it's the largest revenue quarter for us and so you're gonna see margins step up significantly between 2324 [noise].
[noise] and just one other maybe housekeeping question or anything else, but you had a pretty nice sequential step-down still cheaper his last few quarters and corporate expenses that part of those targeted restructuring, but you've done is that something we should consider to be sustainable relative to the overall profit metrics.
Yeah, I think when when you look at things around productivity gains restructuring I mean, we wanna be mindful about customer facing folks that are in the manufacturing plants and and to impact those things the least and so clearly we're gonna go ahead and take actions, where we can not impacting our cut.
Summer Centricity and focus there and so we will see continued impact on the appropriate as as you've seen already.
Alright, thanks, so much.
Sure.
Thank you.
Our next question comes from Jeff Johnson with your.
<unk>.
Hey, guys good evening. Thanks.
Thanks for taking my questions and Howard Best of luck in the new role I'll Miss the the good dinners and the detailed conversations with that so good luck on that.
Yeah, and maybe a mirror I could I ask you a question on Europe and a question on implant. So Europe you know as you were checking through your answers to Elizabeth you said, maybe some vacations and all that I mean, I know, we hear that frequently in Europe , but you don't leading economic indicators not the best right now one of your competitors came out with a report Tonight and recording.
You know stopped for the next back in European performance I sided Germany, specifically from a macro standpoint, obviously, they ever think legacy business in Germany. So maybe it's not any more than that but just you know how comfortable are you with what we're seeing macro Y as in Europe that the European business can stay healthy.
Healthy and and continue to contribute to that improving <unk> profile here on the second half.
Yeah, Thanks, Jeff or 25 per cent of our business comes from Europe , and now for the past I would say eight quarters, we have performed extremely well in Europe and what is driving it I'll I'll talk about macro and a second I'll answer your question, but I wanted to tell you what we have been doing it resolved and.
And these outperformance.
Are clear line of business in Europe is the fastest growing part of our business and he's purely because of segmentation the.
The network effect, the training education and very systematic roelof.
That we have is starting to Spain, and we are extending to France, and Goin' geography by geography and.
And we are expanding that business very rapidly toward Europe .
Implant business and I'd take a you know we talked about this a few years ago said, we have to improve.
Our execution in Europe , we have delayed the organization, we have improved customer experience ever.
Every geography is very target is focus at a customer's appealing relationship going that so are implant business performs extremely well compared to the other geographies worldwide I looked at a consumable business has been growing high single digit.
Every coded for the past eight quarters. So I wanted to talk about a mackerel, but this figure out what the macro <unk> performance.
<unk> exactly the same thing usage, if you're hearing the same thing, but <unk>, what we execute segments will go on after or being very targeted very deliberate and we have improved the customer experience straw euro by consolidating and building a new customer sent.
<unk> can be a building a new factory for the spark delivery. So we can reduce the turnaround time significantly in Europe . All of that has allowed us to be doing extremely well and we are replicating a lotta those success stories in U S as well.
Mackerel important execution always Trump mackerel, and that's what we have done in Europe , that'd be in China, which I have done it in emerging markets for a replicant it in in North America as we go forward.
Alright, that's helpful. Thank you and then the the implant question you know I think you gave enough detail on Europe and China. This quarter, we can kind of back into that North American number probably was down about mid single digits year over year is that close and if it is how does that compare to maybe the one two performance I know you've talked about.
Company specific efforts to kind of re stimulate growth in that business.
When do you expect to get that with positive growth.
[noise] scaling at this point so.
But also some trade down to value happening and that's maybe not going to the implant direct business, but to.
Some of the other valued players in the U S. So you know is that is that kind of throw those things out there just how much of that.
<unk>, what kind of what you're seeing and and how do you think about this business over the next maybe six to 12 months.
Yeah. Those are all really good questions you have as soon as you already have.
Tremendous amount of inside and point exactly what the challenges are and we're not shying away from discussing what the macro issues are versus what the challenges on execution. So the macaroni North America continues to be resilient, you're not seen anything that says radically the implant business has changed on the other hand some of the <unk>.
Hi, and select the procedures like full arch restoration is 25 to $30000 investment and if people can wait a little bit longer they will wait for it they postpone it they're not <unk>, they're postpone it when we talk to the <unk> and the people that you work with.
They are not seen a radical shift in the number of patient that they come into the <unk> off of postpone man what we see on the ground is tighter inventory control and to be very specific you know if you used to buy one month's worth of inventory at door assertion I'll be buying two weeks at this time and so why is that.
<unk>, we have we manage things at the local level at the regional level then it goes to the <unk> even at the ZIP code.
When we point that pockets of challenge there are pockets of North America implant business. It does extremely well because they do the fundamental basics via email we got a great wrath, we've got a great product portfolio. That's dedicated community of surgeons we have.
Pockets of localized execution Challenge for example, and there is no open territory.
Those regions that they have somebody who's standing by jumping the covered this territory they'll see a drug dose that they don't it takes three to six months to fill that territory as an art com.
See it dropping that second dose.
That they have a really good on the ground inventory management daily work phone on management they see performance.
<unk> all of those the dose that they don't we see is significant discrepancy between performers in Europe , we have been able to solve a lot of these problems. We have consistency from one region to the next U S. We've gone to a same process.
Each region is standardizing the D D work <unk> management.
Replacement of those <unk>.
Open territory.
We are confident that this is gonna improved every quarter and as we go forward our intention is to get the growth.
At or above market at this phone we know for a fact that we're not performing in our full potential.
Alright, thank you.
Our next question will come from <unk>, which Geoffrey your line is no problem.
Okay. Thanks, good afternoon.
Be helpful. If you could just pack exactly what you're signing virginians in corner, whatever what's up a download or whenever you're ready for that.
<unk> improvement dysfunction of your Comsymp, how do you think about that segment and when the second half.
Yeah. Thanks for ambit to make sure that was available soft you ask you by the image incorrect imaging business and.
Performance.
Yes, Sir.
Okay, absolutely if you'll recall, we talked about a little bit of a macro issues. So let's figure out who actually buys imaging product. There are three group of people. One you open a new operatory add to your existing setup or you you know if your D. S. So you open.
A new location.
That has a slow down to some degree because of interest rate because of resources to you do replacement replacement of existing products that they are 5677 years old and that also has been impacted to a degree and last but not least you haven't had it you Wanna put a C D.
C T and you want to put the I always see in order to be able to expand to keep the policies that you have an office.
That segment as we talked about the Iowa's growth has been in place, but you put the macros site.
We have done we just started looking at segment Geography's product categories that have competitive advantage the link to our overall strategy and we have really growth potential need along.
The southern 2223 of last year.
<unk> is specific geographies in segments.
And and that really had an impact.
Then with deployed hold setup is standard Sharon.
Roadmap management value proposition go to market customer experience. These have been at work we are beginning to see the off come up all of that into too.
Had our image in business to be transparent.
Declined double digit and to want improved significantly each you too <unk>.
B C edition of Iowa put it in a positive low single digit positive, but even without a iowa's tie additional imaging business improved significantly into to assist you want and we expect that improvement continues throughout the year.
So some it up macro is what it is.
E B S. At work try to do things right managed a portfolio focus resources and investment to a high growth differentiated product categories and continue to improve our go to market as what we're doing that's the outcome that we expect more profitable and get back to growth second half.
And continued at 220 24.
That's all thank you Howard wish you all the best as well just do for you what was the benefit of the one extra selling day in the quarter and then what should we pencil in her free cash flow conversion.
Thanks.
Yeah, So I think banks, Brandon I think with regards to one extra selling day in the quarter. It you know it wasn't as as.
Meaningful because you know we did have more growth on the Ian suicide, which is mostly a distributor type of business.
So I would say that that's not going to be Oh. It didn't have as much of an impact and then as it relates to free cash flow like we continue to improve we talked about the mid term goal of getting free cash flow and access. The net income we feel that you know a second quarter is a good illustration of how we introduce some more discipline as it relates to working capital.
As well as profitability, improving and so we'll see that here certainly in the second half with Q for being the largest contributor.
[noise] Okay. Thank you.
Our next question will come from John Block with.
Your line is open.
Thanks, guys good afternoon.
For the 2023 guidance you know you guys seem to have confidence, but it still has a steep slope or to a can of me are you talking about a dental market.
But it showed some slow down I think he said at a higher end part of the market you've got a billion dollar issue and play a business.
You're not far off from almost a quarter billion dollar run right.
And clear line or so I guess, where I'm going with this is.
What is the guidance assume or in bed you know for the balance of the year are you extrapolate hang out.
Call. It the current trends and you guys can get there or is there an underlying assumption for a markup pick a market pickup with some of those what you're describing is hiring types of cases.
So thank you John .
We have a process in place that they continue to walk through we have done that from.
Indiana since separation and that's a scenario plan. We continue scenario plan what the expectation look can we consider all the different variables into that.
Model.
In that model V anticipated that we V. P is going to be an important factor, but we didn't really assume significant uptick under one we knew Russia is gonna be wallet.
We have a growth model and as far as we know exactly because from the time that we put a training program. We get people in you know what happens 30 day 60 day 90 zapped it.
No the active doctors, how many cases do they put in place implant placement and we have fun or at least 90 days. We can look at a funnel I'd take a look at the conversion ratios what would that look <unk> N. P is a new product introduction as well as a marketing.
<unk>.
When we put all of that together.
Core gross assumption is second half is based on growth and specialty products and technologies to a large degree spark is striving right.
Acquisition is he moving into the cold cruel, we've got over 75 basis point of impact for the full year, but I was came to play only start and end of April .
Four second half and here, we have all <unk> in second half, we have easier comps specifically for equipment.
We have China all of the Covid rap is taking place as I mentioned I was there last week.
We're seeing a good uptake in here. So a combination of all of that plus what we're seeing on improving mix marching profitability gross margin improvement I spot productivity that we are getting what Howard talks about some of the changes we have done a G. N E Q2 that gives us the confidence to see what the sick.
Half is gonna look like.
I shall we have we have this plan shofar explain exactly what we expected we said every quarter and it's gonna be better than the previous quarter.
We have proven that in two to resolve.
We expect that will take off assume itself. The seasonalities between two three and two four we think second half is gonna look a lot better than the first half and confident that we can deliver what the guidance as you have provided.
Okay that was very helpful. I guess, it just sounds like your dad, and bedding and a pick up in the market and me are you reporting so sort of company specific variables and momentum and some of those businesses that give you the confidence on the touring step up and if that's correct uhm maybe yeah.
Okay, great. Thank you, maybe just a pivot a little bit more specific to Russia, Russia revenue headwinds, maybe Howard if you can quantify that and go to the swing in the wires or brackets growth rate of nearly a thousand bebb short of implies it could be 10 million or $10 million and change an maybe if you can give them more.
Specific number and then how would that returns in other words is that all of three Q twenty-three even in your opinion or does it is that someone's staggered between three and four two twenty-three thanks guys.
Yeah sure sure John So so the majority of the impact as it pertains to Russia, because it didn't impact all products with sanctions right. So it's mostly U S foreign products and so that had a disproportionate impact on our bracket wire at a little bit of impact on our implant as well and so I think we had said.
That sales would be impacted in that particular segment by up to $10 million I think in the end. We probably was was a little shy of that as it relates to the impact, but clearly very profitable business for us and what we said is that you know the license is should get cleared and that we should be able to resume shipping all of these products here.
And the third quarter and so we would anticipate that we're not losing those orders.
Whether they get made up here in the third quarter of fourth quarter or whether there's some broader impacts associated with all the things that are going on in Russia. Certainly you know, it's pretty volatile as amir's pointed out, but we feel confident in our position. There you think that will be able to continue to get our business you know.
As a key component of our growth in the emerging markets, particularly has it changed to our specialist products and so we feel confident about what we're going to be able to be there in the second half.
Okay perfect. Thanks for the call or address.
Sure.
Thank you.
Our next question will come from Jason with Piper Sandler Your line is no problem.
Hey, Thanks for taking the questions and I'll work with the same sentiments here Howard or you know congrats on the new role in novel Miss working with you.
I wanted to start with with the questions here, maybe another question on the EBIT margin guidance and the implied improvement hearing the second half and apologies upfront if I missed any of this had been happen between a couple of calls and I'm trying to reconcile maybe the EBITDA margin you've posted here in the second quarter for your two reporting segments in the context of that second half margin ramp that you have.
Out there so that I guess the question is does the margin improvement more come from S. P. N T. You've given the low level. We're out here in the first half in that segment and I hear what you're saying on the improvements <unk> you expect to see from spark or does the margin momentum build even further and E. N C. After what was a really nice quarter I thought here in the second quarter. So really just trying to get a sense of the.
The source of the margin improvement as we think about that steeper ramp and two H.
Yeah. So thank you Jason I I I think that we will see.
Significant improvement in the second half as it relates to margin profile coming from the S. P. A N T. A segment, we talked about the impact associated with Russia sanctions and so as we get through some of those that's gonna bring back much of the bracket and wire business and the implant business associated with Russia.
Clearly those are at higher than fleet average margins right and then as it as it relates to sequential our first half second half comparison, we've talked about the spark profitability profile can change to improve every quarter sequentially and so will clearly see that happen here in the second half as well.
And then you know even with some of the acquisitions they osteogenic business.
That goes and decor brings through volume along with it some improved margins as well, we anticipate and then just overall volumes improving on the specialty side and so while we did have some growth in the second quarter, we anticipate growth in the specialty being a little bit accelerated here in the second half and so that will be the case.
We're clearly pleased with the performance on E&C margin expansion of over 400 base around 400 basis points.
You know, we don't want to commit to saying that that's going to improve further yet we also know that E.
E B S culture that we're going to continue to look to get additional productivity. There and then you'll see some margin improvement as we talked about earlier in the call around the corporate functions too.
Alright, alright, that's really helpful. It definitely sounds like you know probably more working from S. P N T, but maybe for a follow up the E&C price declines here on a year over year basis in the second quarter.
I think it was something down 80 basis points is about a three point sequential step down can you talk about with the source of that step down was with the Delta was equipment and consumables pricey for one <unk>. It was just the bigger quarter to quarter changed and we're accustomed to scene, but also trying to understand maybe how much of this price and move with street.
Dziedzic to drive the better volume growth that we saw you in the second quarter.
Yeah, I mean, you know as as we talked about we allow each of the <unk> to you know look at how they would go ahead and maximize growth profitability and park pricing as part of that equation and so I will say that on the agency side. There was some pricing concessions given on the imaging hardware side you know with.
With concerns around the interest rates and the like we Wanna meet customers, where they need it and so quite honestly, we'll go ahead and be willing to move a little bit on that pricing to go ahead and secure that business and I think that we've done a nice job of doing that and certainly being mindful of the overall margin profile and so we'll continue to focus.
And I'm, making.
Executing on that front as well and you know maybe as a related matter here and we talked about inflation and things like that I know that the topic hasn't come up but we have seen some moderation here in the second quarter in particular around direct materials, and so that affords us a little bit of opportunities to work around pricing to secure those fees.
You'll find the image inside so we feel good about that you know pricing each of the archos or a little bit different with regards to that the big pricing impact as it relates to the specialty is clearly coming from B B P. In China other than that we've seen some nice pricing upticks in businesses like spark.
As well as Brackin wire and as well as our consumables areas within E&C and so again. This is exactly the plan is to let the archos manage to improve growth as well as profitability.
Alright, very helpful and make sure the extra color, there as well and the inflationary pressures there.
[noise]. Thank you.
Our last question will come from Nathan Rich with Goldman Sachs toward line is Oklahoma.
Great. Thanks for taking the question in in Howard, Let me add my congratulations and best wishes as well I guess.
Yeah. Thanks.
As I mentioned I had a really great. We can China meet some of the largest hospitals in Shanghai largest dsos and many customers as well as our own theme.
You know China, we B P is paid out exactly as expected so really brought the prices down in the public sector someone close to almost 50 per cent.
But the warning them has increase you can definitely see the volume has increased and as the off come up that this rap that they expected and we were watching this very carefully is beginning to take place.
15 provinces on the auto side to have increased Friday that have gone through pvp, but they're pausing to see what's the impact on Empire look like before they take the next step so now I'm packing that they were seen as strong patient traffic.
And the two other phenomenon so happening and he won the gap between the premium and value has crow significantly. So if the gap has closed a lotta <unk>, making a decision hey go for the premium Black go by Nobel because the gap is not that much.
Second part that we witness and it is very much at play is that three unit bridge versus the impact the price gap between the two procedure has grown significantly.
<unk>. They are beginning to think a better place impasse and doing that three units bridge given that the price difference is not that much and then yeah shows and some others that beginning to become really comfortable place an impact as the Ofcom you ever seen a significant volume growth watch it very carefully to suit.
What's going on the impact what's going on with the prices and the volume growth is has been better than what we expected and prices are pretty much plane exactly as we had anticipated now putting data side. There are still some challenges underground the housing crisis of slower growth consumers.
Spending all of that it of realities that the China economy as a whole is dealing with it while we were talking to a specific kind of specialty five such as small segment of the market is freezing is gonna continue to be resilient, calling for we expect China to be flat for 2023.
Impact in with a huge impact on a b b P and driven that Q1 was a really difficult quota, but it has improved and we expect to see more improvement in the second half.
Great and and maybe Howard a quick follow up for you.
I appreciate the the color on E B S I think.
You're also kind of looking at certain restructuring actions in China to kind of right sides that business. You know I think also you know you've taken some actions and equipment I I was just curious if you know you can maybe help us think about the magnitude of those and are those savings that we should expect to help the back half of the year when it comes to them.
Martha standpoint.
Yeah, I mean, I I do think that we have we continue to look at all of our operations and make sure that the size of the operations as it relates to the cost structure and the like are commensurate and so certainly in China. We've taken some actions and you know to date, even though some years come back laughs.
[noise] week, you know none of those restructurings have impacted the customer facing components and if anything I think the team is even more focused.
I would say that that's also true on the imaging side as we alluded to that business had not been growing for several quarters now so taking the appropriate actions to right size that business was also the right thing to do so will clearly see that impact throughout the rest of this year as well some of those actions were taken earlier this year.
Great. Thank you.
Sure. Thank.
Thanks to everyone. Appreciate appreciate the time, we look forward to talking to you guys next quarter's thank you very much.
Thank you ladies and gentlemen, this does conclude today's conference call and we appreciate your participation you may disconnect at anytime.
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