Q3 2023 Envista Holdings Corp Earnings Call
Speaker 1: To all sites on hold, we appreciate your patience and ask that you please continue to stand by. Your program will begin in three minutes.
Two all psyched on hold we appreciate your patience and ask that you. Please continue to stand by.
The program will begin in three minutes.
[music].
[noise] Hello, My name is Chelsea and I will be your conference call facilitator. This afternoon.
Speaker 1: Hello, my name is Chelsea and I will be your conference called facilitator this afternoon.
Speaker 1: At this time, I would like to welcome everyone to the Investor Holdings Corporation's third quarter, 2023 Earnings Results Conference call.
At this time I would like to welcome everyone to the <unk>.
Holdings Corp, third quarter of 2023 earnings results Conference call.
Speaker 1: All lines have been placed on mute to prevent any background noise.
All lives have been placed on mute to prevent any background noise.
Speaker 1: After the speakers remarked, there will be a question and answer session.
After the speaker's remarks, there will be a question and answer session.
Speaker 1: If you would like to ask a question during that time, press star then the number one on your telephone keypad.
If you would like to ask a question during that time Press Star then the number one on your telephone keypad.
Speaker 1: If you would like to withdraw your question, please press star 2.
If you would like to withdraw your question. Please press Star Q.
Speaker 1: I will now turn the call over to Mr. Stephen Keller, Principal Financial Officer of Investor Holdings. Mr. Keller, you may begin your promise.
I will now turn the call over to Mister Stephen Keller Principal financial Officer of Investor Holdings. Mister Keller you May begin your conference.
Speaker 2: Good afternoon and thanks for joining the call. With me today is Amir Aggai, our President and Chief Executive Officer. I want to point out that our earnings release, the slide presentation supplementing today's call, and the reconciliations and other information required by SEC regulation G, related to any non-GAAP financial measures provide during the call, are available on the investor section of our website, www.vistico.com.
Great. Thank you.
Good afternoon, and thanks for joining the call with me today as in Iraq, Die, President and Chief Executive Officer.
I wanted to point out that our earnings release, the slide presentation supplement today's call and the reconciliations and other information required by F. C. C regulation G related to any non-GAAP financial measures provide during the call.
Available on your first your section of our website Www Dot <unk> dot com.
Speaker 2: The audio portion of this call will be archived on the investor section of our website later today under the heading Events and Presentations, and will remain archived until our next quarterly call. During the presentation, we will describe some of the more significant factors that impact year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance.
The audio portion of this call will be archived on the Investor Investor section of our website later today under the heading events and presentations and will remain archived until our next quarterly call.
During the presentation, we will describe some of the more significant factors that impact your over your performance the supplemental materials describe additional factors that impacted you over your performance.
Speaker 2: Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the third quarter of 2020.
Otherwise noted references in these remarks to copy specific financial metrics, we'd like to third quarter of 2023 and references to period the period increases or decreases in financial metrics are you over here.
Speaker 2: and references to period to period increases or decreases in financial metrics are year over year.
Speaker 2: During a call, we may describe certain products and devices that have applications submitted and pending certain regulatory approvals or available only in certain markets.
During the call we may describe certain Fox and devices that have applications submitted in pending certain regulatory approvals are available only in certain markets.
Speaker 2: We also 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 this.
We also make forward looking statements within the meaning of the federal securities laws, including statements regarding censored as 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 in a S C filings.
Speaker 2: These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SDC file.
Speaker 2: Actually results might differ materially from any forward looking statements that we make today. These forward looking statements speak only as of the date that they are made and we do not assume any obligations to update any forward looking statements except where is required by law. With that, I'd like to turn the call over to a mere.
Actually results might differ materially from any forward looking statements that we make today. These forward looking statements speak only as of the date that there may and we do not assume any obligation to update any forward looking statements, except where as required by law with that I'd like to turn the call over to a mirror.
Speaker 3: Thank you Stephen, good afternoon and welcome to Invisus, third quarter, 2023, O'Ring's call. We appreciate you taking the time to join us today.
Thank you Steven good afternoon, and welcome to in <unk> third quarter 2023 O rings call. We appreciate you taking the time to join us today.
Speaker 3: In the third quarter, the delivered positive core growth and adjusted EBITDA margin of 19.6%.
The third quarter.
Positive growth and adjusted EBITDA Martine of 19.6%.
Speaker 3: driven by our performance in our orthodontic business and continue the strength in consumer goals, you were able to mitigate the challenges of an uncertain macro environment while setting up our business for long term success.
Driven by our performance in our orthodontic business and continue the shrimp.
<unk>, we were able to mitigate the challenges puffing on certain macro environment.
Why does setting up our business for long term success.
Speaker 3: As discussed in previous quarters, we are proactively adjusting the focus of our imaging business.
As discussed in previous quarters.
<unk> activity adjusting the focus in all of our imaging business.
Speaker 3: To deemphasize specific product categories and selected geographies, where we have less competitive at math.
Deemphasize that specific product categories selected geographies.
That'd be have less competitive advantage.
Speaker 3: By focusing on resources and our broader and more differentiated diagnostic solution, you will be able to create sustainable competitive advantage and improve our long-term
By focusing our resources and our broader a more differentiated diagnostic solution.
Be able to create sustainable competitive advantage and.
And improve our long term growth and marches.
Speaker 3: While long term our global implant businesses were positioned, a performance in the quarter was below expectation.
Why long town, our global implant business as well positions outperformance in the corner it must be no expectation.
Speaker 3: This was due to both continued macro uncertainties, the specifically impacting higher end full art restorations, as well as under performance in North America.
This was due to both continued macron certainties.
Specifically impacting higher end food arched respirations as well as Underperformers in North America.
Speaker 3: While our results in North America were disappointing, we believe this will be temporary.
Why are resolved in North America are a disappointing we believe this should be temporary.
Speaker 3: We have an incredibly strong brand, a leading product portfolio, a passionate and capable team, and a dedicated community of implant especially.
We have an incredibly strong Brian.
Leading product portfolio of passionate and capable team and it's dedicated community of implying that a specialist.
Speaker 3: Starting in the third quarter, we have made targeted investments to improve our commercial execution in North America.
The starting in the third quarter, we have made targeted investments to improve our commercial execution in North America.
Speaker 3: refresh our approach to marketing, improve our training and education, and further support our clinical community.
Fresh approach to marketing.
Improve our training and education and further support our clinical community.
Speaker 3: We see a clear path through invigorating growth and aim to be growing with the market as we move through 2024.
We see a clear path to invigorate growth and aim to be growing with the market as we move through 2024.
Before I turn it over to a Steven.
Speaker 3: To discuss our third-core results in more detail, I want to take this opportunity to provide further perspective on the current operating environment and then offer an update and our progress toward our strategic priority.
To discuss our third quarter results in more detail.
Want to take this opportunity to provide further perspective on the current operating environment and then offer an update on our progress towards our strategic priorities.
Speaker 3: globally the market remains very dynamic with concerns around the macroeconomic backdrop and geopolitical risks, vein and market sense.
Globally, the market remains very dynamic with concerns arrived the macro economic backdrop and geopolitical risks vein on market sentiment.
Speaker 3: While patient demand remained generally stable in the third quarter, we did see a continuation of a slowdown in higher end dental procedures, including both adult or tononic cases and full-arched implant restoration.
While the patient demand remains January state, but in the third quarter B D. C. A continuation of a slow down in higher and dental procedures, including both adult orthodontic cases, and full arch in Congress durations.
Speaker 3: Private practice doctors and DSOs are monitoring patient traffic.
Private practice doctors M. D. S shows are monitoring patient traffic.
Speaker 3: as well as the overall macro-environment are being offered about near-term investments in both equipment and clinic-level inventory.
What is the overall macro environment are being thoughtful about neostem investments in both equipment and clinic level inventories.
Speaker 3: While this has created a more challenging operating environment in the short term, long term we are confident that patients will continue to prioritize dental care, and that clinicians will proactively invest in areas that help them digitize their practice, making them more productive, and ensuring that they can provide the highest quality personalized care.
While this has created a more challenging operating environment in the short term.
Longer term, we are confident that patients will continue to prioritise dental care clinic.
Conditions, you proactively invest in areas that help them digitize their practice, making them more productive and ensuring that they can provide the highest quality personalised care.
Speaker 3: focusing on our progress in Q3 are uniquely positioned or to donate business continues to perform well, driven by sustained performance in a sparkly aligner.
Focusing on our privacy two three.
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Dominic business continues to perform bell.
A sustained performance sparkly airliners.
Speaker 3: In April of 2022, we announced a long-term target of tripling our Spark business by the end of 2024.
In a period of 2022.
The long term target of tripling our spot business.
That's 2024.
Speaker 3: And please announce that we are on track to reach that milestone in the fourth quarter of this year, over a year ahead of a schedule.
I'm pleased to announce that we are on track to reach that milestone in the fourth quarter of this year.
Oh, what a year ahead of schedule.
Speaker 3: Portidonic specialists continue to see the value of our comprehensive portfolio of solutions and we are working hard to be the partner of choice for orthodontist Wardweight.
What Saddam cause specialist continue to see the value of a comprehensive portfolio of solutions.
Hard to be the partner of choice for Orthodontist worldwide.
Speaker 3: In this business system, EBS drives the Spark Growth formula, and we are consistently adding new doctors, increasing case volume to the existing doctors, and growing a revenue per case.
The business is Sam E. B S drives spark growth formula and we are consistently adding new doctors increase in case falling onto the existing doctors and groin a revenue per case.
Speaker 3: Given our success today and Dora overall trajectory of a spark, we're now focused on delivering our next long term growth milestone.
Even our success today enduro overall trajectory of a spot where now focus on delivering our next longterm growth <unk>.
Speaker 3: By the end of 2026, we intend to double our spa business.
By the end of 2026 10.
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In support of this ambitious growth.
Speaker 3: We continue to make investments to support the growth and long-term profitability of the spark, as well as our broader orthodonic business.
We continue to make investments to support the growth and longterm profitability of a spark.
Our broader orthodontic business.
Speaker 3: Intu3 receive regulatory approval to produce a spark in our facility in the Czech Republic. And that's sheep, our first clinical case, all of this facts.
Q3 receive regulatory approval to produce a spark in our facility in the Czech Republic.
Sheep are first clinical case oddities factory.
Speaker 3: This new factory will improve the customer experience for our European customers, increasing manufacturing flexibility, and help expand margins in the medium term.
This new factor, even improve the customer experience for our European customers, increasing manufacturing flexibility and help expand margins in the medium term.
Speaker 3: In addition to opening a new factory, we are also investing in additional automation as we look to optimize production and further improve our market.
In addition to opening a new factory. We are also investing in additional automation as we look to Optimise production further improve our margins.
Speaker 3: While the Spark margins remain below our fleet average, we continue to make sequential improvements and our focus on balancing long-term growth, maximizing near-term profitability.
Why the spark margins remained below our fleet average, we continued to make sequential improvement and our focus on balancing longterm growth maximising near town profitability.
Speaker 3: As expected in Q3 we delivered the solid sequential improvement to our adjusted EBITDA march.
As expected to three with delivered the solid sequential improvement adjusted EBITDA marches.
Speaker 3: 50 basis points expansion, according to Spada, or long-term investments, the impact of China, VBP price reductions, and the commercial and the performance of our implant brands in North America.
It's 50 basis 0.6 fashion accord, despite all long term investments the impact of China, B B P price reductions and the commercial on the performance of our implant brands in North America.
Speaker 3: The leverage EDS to manage margins through a systematic focus on price optimization, expense controls, and a structure cost reduction.
The level of G. D S to manage Martinez twist systematic focus on price optimization expense controls and a structure cost reductions.
Speaker 3: Our performance in China is a perfect example of EBS in action.
Our performance in China is a perfect example of E b as in action.
Speaker 3: Despite the significant price pressure from the VBP program, we were able to expand our local operating margins for a streamlining our organization.
Despite the significant price pressure from the B B P program, we were able to expand our local operating margins.
Streamlining our organization.
Speaker 3: significantly reducing our expenses and focusing our efforts in areas where we have the most competitive advance
Significantly reduce your not expenses and focusing our efforts in areas, where we have the most competitive advantage.
Speaker 3: This focus on driving growth and margin expansion, despite macro challenges, epitomizes how we use EBS to execute every day.
This focus on driving growth in margin expansion, despite mackerel challenges.
This is how we use E b S to execute every day.
Speaker 3: As we move into Q4 and next year, we will continue to maintain a balanced approach to growth investments and margin improvement.
Actually move in two to four of next year.
Continue to maintain a balanced approach to growth investments in margin improvements.
Speaker 3: As I previously mentioned, we expect to accelerate investments in both sparked any commercial capabilities supporting implants in North America.
As I previously mentioned we expect.
Celebrate investments in both spark.
Commercial capability supporting.
Plans in North America.
Speaker 3: While these investments will put some short-term pressure on our planned margin expansion, they will help position us for faster growth while also setting the foundation for further significant margin expansion.
Why are these investments will put some short term pressure on our plan margin expansion. They will help position us for faster growth. One also sending the foundation for further significant Martin expansion.
Speaker 3: Long term, our priority is building a stronger, more differentiated, and more growth oriented portfolio.
Longterm.
He is building a stronger more differentiated ah more growth oriented portfolio.
Speaker 3: by focusing on providing comprehensive solutions for orthodontics as well as implant specialists we continue to shift our portfolio to the most attractive segments of dentists.
By focusing on providing comprehensive solutions for orthodontists as well as implant a specialist.
Continues to shift a portfolio to the most attractive segments of dental.
Speaker 3: We're also transforming our imaging business to a diagnostic solution business that support clinician as they digitize their office.
There are also transforming our imaging business to a diagnostic solution business, that's support clinician as they digitize their offices.
Speaker 3: with a comprehensive set of imaging and software solutions, a dexist business delivers simplicity, productivity, and diagnostics. Comfort.
With a comprehensive setup imaging software solutions, a texas business deliver simplicity put activity.
<unk> confidence.
Speaker 3: In a third quarter, we launched a range of new products, including the OP3D-LX and Dexas IS-3800-Wire Inter-Aura Scam.
And the third quarter.
A ranch in new products, including the O P. Three D L X.
<unk> <unk> 3800 wired.
Or scanner.
Speaker 3: We also released the DexAcessSolution to integrate AI features into the DexASTAN imaging software suite.
They all should release <unk> assist solution to any great AI features into the <unk> imaging software suite.
Speaker 3: The Texas solution helps practitioners to detect six pathologies in 2D inter-oral X-rays, including carries, calculus, onlost, periodical radio-lucency, root knop, filling deficiencies, and discrepancies at the margin of existing restoration.
Texas is solution helps practitioners to detect six fatalities in two D inter or X rays, including Kerry's calculus phone lost.
Last call Radiolucency with a root canal filling deficiencies and discrepancies at the margin of existing restoration.
Speaker 3: DTX Studio Clinic Software was awarded the Celeron Best of Class Technology Award for the third consecutive year, recognizing the innovation we're bringing to the dental community.
D T X a studio clinic software was awarded the Celeron best of class technology aboard.
Consecutive year, recognizing that innovation will bring into the dental community.
Speaker 3: While we're excited about the strategic move that we have made today, we see additional opportunities to further improve our portfolio, both organically and inorganically.
While we are excited about this strategic move that we have made today, we see additional opportunities to further improve our portfolio both organically and inorganically.
Speaker 3: We utilize an EBS driven M&A approach to manage a robust pipeline of partnerships and investment opportunities, and we are currently cultivating new opportunities.
Utilize an E. B S. Three men M&A approach to manage a robust pipeline of partnerships and investment opportunities.
Currently cultivated new opportunities.
Speaker 3: We're committed to pursuing a discipline and a strategic approach to capital deployment.
We're committed to pursuing it discipline in a strategic approach to capital deployment.
Speaker 3: I will now turn the call over to Steven to go through our third quarter financials and provide more details on our segment performance.
I will now turn the call over to Steven to go through our third quarter financials and provide more details on our segment performance.
Speaker 2: Thanks, Amir. In the third quarter, we delivered sales of $631.3 million on a reported basis. This represents a slight increase over the third quarter of 2022. Adjusting for the impact of currency exchange rates, core sales for the quarter grew 0.8%. This reflects continuing growth in our specialty products and technology segment, offset by a low single-digit decline in our equipment and consumer.
Thanks <unk>.
Third quarter, we delivered sales of $631.3 million on a reported basis. This represents a slight increase over the third quarter of 2022.
Justin for the impact of currency exchange rates core sales for the quarter grew 0.8%. This reflects continuing growth in our specialty products and technologies segment offset by a low single digit decline equipment a considerable second.
Speaker 2: From a geographic perspective, Western Europe grew double digits while North America declined low single digits.
Alright geographic perspective, Western Europe double digits, while North America decline low single digits are emerging markets three low single digits anchored by China, which crew despite.
Speaker 2: Our emerging markets grew low single digits anchored by China, which grew despite a difficult year-over-year comparison, as well as the impact of VBP on implant prices.
You over your comparison as well as the impact of V B P on impact pricing.
Speaker 2: Russia declines in the quarter due to both the difficult year-over-year comparison and a lingering impact of changes to US sanctions and licensing requirements. We remain focused on obtaining the appropriate licenses to fully supply Russia, and we continue to take steps to optimize our supply chain to allow us to completely serve our customers and their patients.
Declines in the quarter due to both the difficult year over your comparison and a lingering impact of changes to U S sanctions and licensing requirements.
Remained focused on painting, the appropriate licences to fully supply, Russia, and we continue to take steps to optimize our supply chain to allow us to compliantly serve our customers and their patients.
Speaker 2: Q-4 weeks back both Russia and China to grow and we expect full yourselves to be modestly down in these two important and dynamic markets.
Two four we expect both Russia, and China to grow and we expect full yourselves to be modestly down and these two important and dynamic markets.
Speaker 2: Our third quarter adjusted gross margin was 57.7%, which is down 150 basis points from prior year. The declining gross margin was primarily attributable to an unsavable product mix, BBP-driven price declines, and continued investment in a long-term growth.
Our third quarter adjusted gross margin was 57.7%, which is down 150 basis points prior year.
Declining gross margin was primarily attributable to an unfavorable product mix DDP driven price declines I continue investment in a longterm growth.
Speaker 2: Our adjusted EBITDA margin was 19.6%, which represents a 60 basis points decline versus Q3 of 222, and a 50 basis points sequential improvement from Q2 of 222.
Alright, Justin EBITDA margin was 19.6%, which represents a 60 basis points decline versus Q3 of 2022.
And it's 50 basis points sequential improvement from Q2 of 2023.
Speaker 2: Our adjusted diluted EPS in the quarter was 43 cents compared to 47 cents in the comparable period of the prior year. The reduction in EPS for the quarter was driven partly by an increase in interest expense from hiring.
Alright, Justin diluted P. P. As in the quarter was 43 cents compared to 47 cents in the comparable period of the prior year.
<unk> E. P. S for the quarter was driven partly by an increase in interest expense from higher interest rate.
Speaker 2: In the quarter, core revenue and our specialty product and technology segment grew by 2.2%. Our orthodontic business accelerated a double-digit growth with Spark continuing to expand rapidly. Our traditional Bracken wire business declined low single digit, with solid growth in China being offset by weaker demand the rest of the world.
In the quarter core revenue in our specialty products and technologies segment grew by 2.2 per cent.
Orthodontic business accelerated the double digit growth was sparked continuing to expand rapidly or traditional bracken wire business declined low single digit with solid growth in China being offset by weaker demand the rest of the world.
Speaker 2: Our implant business declined most single digits in the quarter. As Amir mentioned previously, Adder above market performance and most geographies was offset by weakness in North America in both our premium and value franchise.
Implant business declined low single digits in the quarter as I mentioned previously at or above market performance and most geography's was offset by weakness in North America in both our premium of value franchises.
Speaker 2: Western Europe performed well in the quarter and our China business grew strongly despite the negative pricing impact.
<unk> performed well in the quarter and our China business grew strongly despite the negative pricing and pack some EVP.
Speaker 2: Adjusted operating profit in the segment was 19.7% in the third quarter. This is down 110 basis points, versus Q3 of 2022, but is up 100 basis points at quenchally versus Q2 of 2023. We will continue to invest in this segment.
Just as operating profit in this segment was 19.7% in the third quarter.
This is down 110 basis points. The first Q3 of 2022 does that 100 basis points sequentially versus Q2 of 2023, we will continue to invest in this segment to support our longterm growth.
Speaker 2: Turning to our equipment and consumable segment, core sales in the second quarter declined by 1.6% compared to Q3 of 20.
Turning to our equipment and consumables segment core sales in the second quarter declined by 1.6% compared to Q3 of 2022.
Speaker 2: Our consumers business grew low single digits, led by strong performance in emerging markets.
Consumables business screwed low single digits led by strong performance in emerging markets.
Speaker 2: globally, we're focused on driving sell-out, and we believe that our sell-out performance is consistently at or above the market and most geographies around the world.
Globally.
Here, we are focused on driving sell out and we believe that our sell out performance.
Consistently at or above the market and most geographies around the world.
Speaker 2: In the equipment business, we declined high single digits as higher interest rates and concerns around the macro economic environment reduce global demand for larger imaging equipment. Our performance in developed markets improved and we delivered solid growth in Western Europe in the third quarter.
And the equipment business, we declined high single digits is higher interest rate.
Turns around the macro economic environment reduce global demand for larger imaging equipment or performance in developed markets improved and we delivered solid growth in western Europe in the third quarter.
Speaker 2: Emerging markets saw a large decline in the quarter, reflecting both tougher macro conditions, as well as the refining of our focus.
Emerging markets are large the client at quarter, reflecting both tougher macro conditions as well as the refining of our focus.
Speaker 2: Our intention is to de-emphasize non-stituted geographies and solutions in order to concentrate our efforts in markets where we can build and maintain a sustainable competitive advantage. While this will create a mass headwind of core growth in a short term, long term this will allow us to accelerate both growth and margin.
My intention is it the emphasize nonstrategic geographies and solutions in order to concentrate our efforts in markets, where we can build and maintain a sustainable competitive advantage. While this will create a mass headwind the core grocery short term long term this will allow us to accelerate both both and margins.
Speaker 2: Our iOS business saw strong year-over-year growth in units this quarter as we expand our global reach and partner with our distributors to help clinicians digitize their off.
R. I O S business saw strong year over year growth and units this quarter as we expand our global reach and partner with our distributors health conditions digitize their offices.
Speaker 2: While unit growth was very robust, it's important to note that ASPs in this segment have fallen fast and anticipated, putting short-term pressure on our revenue growth ambitions for this bit.
While unit growth was very robust is important to note that a S. P. As in this segment have fallen faster than anticipated, putting short term pressure on our revenue growth ambitions for this business.
Speaker 2: That said, we believe that prices are beginning to stabilize and remain confident that DeXIS IOS will be a long-term growth driver for this.
Said, we believe that prices are beginning to stabilize every remain confident that <unk> will be a longterm growth driver foreign Vista.
Speaker 2: In the third quarter, adjusted operating profit margin at the equipment and consumable segment was 24.6%. This represents 150 basis points to the client year over year. As lower equipment revenue was only partially offset by EBS through in productivity gains and costs.
In the third quarter adjusted operating profit margin alright equipment. Good simple segment was 24.6%.
That's 150 basis points decline year over year.
Lower equipment revenue was only partially offset by E. B S productivity gains in cost control.
Speaker 2: Preparing to cash flow and the third quarter, we generated greater than $75 million in free cash flow and ended the quarter with over $800 million in cash. The year-over-year improvement in free cash flow was driven by improvements to working capital as well as the furl of federal tax payments until the fourth quarter.
Trying to cash flow and the third quarter regenerated greater than $75 million in free cash flow and ended the quarter with over $800 million in cash the year over year improvement is free cash flow is driven by improvements to working capital as well as a as a <unk> a federal tax payments until the fourth quarter.
To all sites on hold, we appreciate your patience and ask that you please continue to stand by.
Speaker 2: Overall, we remain pleased with our progress in improving our cash flow management and are committed to our longer term goal of delivering annual free cash flow in excess of netting.
Overall, we remained pleased with our progress in improving our cashflow management.
<unk> two are longer term goal of delivery annual free cash flow in excess of net income.
Speaker 2: is important to note that in Q3 we also took important steps to update our capital structure. We shoot $500 million new convertible notes at 1.75% due in 2028.
It's important to note in Q3, we also took important steps to update a capital structure we.
<unk> $500 million, a new convertible notes at 1.75 per cent do in 2028 and.
Speaker 2: And we exchanged around 77% of our prior 2.375 convertible notes due in 2025.
And we exchanged around 77 per cent of our prior to 0.3 75 convertible notes do in 2025.
Chelsea: Your Hello, my name is Chelsea, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to the Envista Holdings Corporation's third quarter, 2023 earnings results conference call. All lines have been placed on mute to prevent any background noise.
Speaker 2: We also refinanced our two term loans and a revolver extending the maturity rates to 2028 at improved.
We also refinance our two terminals and a revolver extending the maturity dates to 2028 AD improve tariffs.
Speaker 2: The goals of these actions was to reduce the current and future dilution related to a convertible debt, manage overall interest expense, and ensure a long-term financial flexibility.
The goals of these actions was to reduce the current and future dilution related to a comfortable that <unk>.
Manager overall interest expense.
Longterm financial flexibility.
Speaker 2: Our strong balance sheet and significant cash flow provides us the flexibility to make appropriate investment as they become available. While we have financial flexibility, our intention is to be very disciplined in our capital.
A strong balance sheet and significant cash flow provides us the flexibility to make appropriate investment as they become available.
You have financial flexibility our intention is to be very disciplined in our capital deployment.
Speaker 2: Turn to our full year outlook. We are revising our guides for 2023 to reflect the increased impact of macro-insurance.
Turning to our full your outlook.
Revising our guides for 2023 to reflect the increase impacted macro uncertainty volatility in the North American distribution channel and the importance of making investments that will drive longterm shareholder returns.
Speaker 2: volatility in the North American distribution channel and the importance of making investments that will drive long-term, shareholder returns.
Speaker 2: We now see foliar core growth being down slightly, and we expect it by just the EBITDA margins to be between 18 to 19% for the foliar.
Now see full your core growth being down slightly and we expect it adjusted EBITDA margins to be between 18% to 19% for the full year.
Speaker 2: Our updated guides reflect the increased macroeconomic risk in our developed markets, continued challenges in Russia, and the additional risk brought on by the new conflict in the Middle East.
Are updated guidance reflects the increased macroeconomic risks risks and I developed markets container challenges in Russia.
<unk> brought on by the new conflict in the Middle East.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time, press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two.
Speaker 2: Regarding the Middle East, it is important to note that Israel represents a local commercial market of around $20 million annually, and that Israel further represents an important production location for our Alpha Biotech implant.
Regarding the middle East It is important to note that Israel represents a local commercial market of around $20 million annually and Israel. Further represents an important production location for alpha biotech and comprehend.
Speaker 2: Well, if we take a step to stabilize our supply chain, we do anticipate some volatility in the region, and this could impact our Q4 performance.
Well, we've taken steps to stabilize that supply chain, we do anticipate some volatility in the region and this could impact our queue for performance.
Stephen Keller: I will now turn the call over to Mr. Stephen Keller, principal financial officer of Envista Holdings. Mr. Keller, you may begin your conference. Great, thank you. Good afternoon, and thanks for joining the call. With me today is Amir Aghdaei, our president and chief executive 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, related to any non-GAAP financial measures provided during the call, are available on the investor section of our website, www.vistico.com.
Speaker 2: Update Dines reflects the impact of accelerating investments in Spark, as well as additional investments in our North American implant.
Updated guidance reflects the impact of accelerating investments and spark as well as an additional assessment center North American implant business.
Speaker 2: We expect these investments to continue into 2024 as implants in North America return to market-level growth within the next.
We expect these investments to continue into 2024 is implants in North America returned to market level growth within the next year.
Speaker 2: While it is too soon to provide guidance for 2024, we are focused on delivering growth and margin expansion.
Well it is too soon to provide guidance for 2024, we are focused on delivering growth and margin expansion next year.
Speaker 2: Now we turn the call back to a mirror to discuss our long-term outweath and provide additional closing comments.
Now I'll turn the call back to a mirror to discuss our longterm outlook and provide additional closing comments.
Thanks Steven.
Stephen Keller: The audio portion of this call will be archived on the investor section of our website later today, under the heading events and presentations. It will remain archived until our next quarterly call. During the presentation, we will describe some of the more significant factors that impact your over your performance, the supplemental materials, describe additional factors that impact your over your performance. Unless otherwise noted, references and these remarks to company-specific financial metrics relate to a third quarter of 20.3, and references to period to period increases or decreases in financial metrics are your over your.
Speaker 3: Moving forward, our priorities remain the same. Accelerate growth, expand operating margins, and continue to transform a portfolio through discipline, capital deployment.
Moving forward priorities remain the same accelerate growth expand operating marches and continued to transform a portfolio truth discipline capital deployment.
Speaker 3: Our intention is to partner with dental professionals to improve lives. And we believe that our diversified and comprehensive portfolio positions us as a partner of choice for clinicians globally.
Our intention is to partner with dental professionals to improve lives.
We believe that art diversified and comprehensive portfolio positions us as the partner of choice for clinicians globally.
Speaker 3: In our Tudonic business, we are focused on building and the strength of both our traditional back and on wire solutions, as well as our spark clear aligner business to offer the Tudonic specialist the most comprehensive and integrated suite of treatment options available.
<unk> business will focus on building and the strength of both our traditional bracken I'm wires solutions as well as far as spark clear a line of business to offer the orthodontic a specialist the most comprehensive in any graded suite of treatment options available.
Stephen Keller: During the call, we may describe certain products and devices that have applications submitted and pending certain regulatory approvals, or available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding already-adventured developments that we believe anticipate or may occur in this. Future, these four looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC violence.
Speaker 3: We will support the Tadonis as they build strong practices that provide personalized care and improve patient's smile.
BB a support <unk> as they build strong practices that provide personal ice care.
True patients smarts.
Speaker 3: In our implant businesses, we are focusing on improving our short-term execution in North America while continuing to deliver the drive innovation, partnership and community.
Implant businesses will focus on improving our short term execution in North America, while continuing to drive innovation.
Stephen Keller: Actually, results might differ material from any forward looking statements that we make today. These four looking statements speak only as of the date that they are made, and we do not assume any obligations to update any forward looking statements, except whereas required by law.
Partnership and community.
Speaker 3: There is a significant opportunity to address the under treatment of tooth loss and ensure that implants are the treatment of choice.
There is a significant opportunity to address the under treatment of two sloth and ensure that implants at the treatment of choice.
Amir Aghdaei: With that, I'd like to turn it all over to Amir. Thank you, Stephen.
Good afternoon and welcome to Invista's third quarter, 2023 earnings call. We appreciate you taking the time to join us today. In the third quarter, the deliver positive call growth and adjusted EBITDA margin of 19.6%. Given by all performance in our orthodonic business and continued strength and consumer goals, you are able to mitigate the challenges of an uncertain macro environment, while it's setting up our business for long-term success. As discussed in previous quarters, we are proactively adjusting the focus in our, of our imaging business to deemphasize specific product categories and selected geographies, where we have less competitive advantage.
Speaker 3: We are well positioned to lead the future of improntalism.
We are well positioned to lead the future implantology.
Speaker 3: In our diagnostics business, we'll continue to streamline our focus while accelerating the digitization of dental offices. Our goal is
Diagnostics business will continue to streamline our focus while accelerating digitization of dental offices.
Oh God is to provide clinicians.
Speaker 3: with diagnostic confidence, simplicity and productivity.
<unk> confidence simplicity and productivity.
Speaker 3: We will drive penetration of Iowa's solutions globally.
We will drive penetration of Iowa solutions globally.
Speaker 3: Further leveraging our strong install base, we will provide differentiated digital workflows that are augmented by assisted intelligence and support clinicians in providing superior care and improved clinical outcomes.
Further leveraging our strong installed base, we will provide differentiated digital workflows.
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Speaker 3: Finally, in our consumables business, we will continue to focus on driving above market growth and sell out by offering a comprehensive portfolio of restorative and adonic and infection prevention solutions.
Finally consumables business.
We will continue to focus on driving at Bob market growth and sell out by offering a comprehensive portfolio of restorative <unk>.
By focusing our resources and our broader and more differentiated diagnostic solution, you will be able to create sustainable competitive advantage and improve our long-term growth and margins. While long-term, our global implant business is well-positioned, our performance in the quarter was below expectation. This was due to both continued macro uncertainties, specifically impacting higher-end, full-art restorations, as well as under-performance in North America. While our results in North America with disappointing, we believe this will be temporary.
<unk>, an infection infection prevention solutions.
Speaker 3: By supporting clinicians with workflows that are designed to deliver simplicity, high aesthetics and great clinical outcomes, we will continue to be the brand of choice for clinicians globally.
By supporting clinicians with for clothes that are designed to deliver simplicity highest <unk> and great clinical outcomes. We will continue to be the brand of choice for clinicians globally.
Speaker 3: of the purpose of the Department of Dental Professionals to improve patients' lives by digitizing, personalizing, and democratizing dental care.
Our purpose is to partner with dental professionals to improve patients lives by digitizing personalizing democratizing dental care.
Speaker 3: We're focused on delivering long-term value for patients, our customers, our employees, and our shareholders.
Your focus on delivering longterm value for patients our customers our employees and our shareholders.
We have an incredibly strong brand, a leading product portfolio, a passionate and capable team, and a dedicated community of implant specialists. To start in the third quarter, we have made targeted investments to improve our commercial execution in North America. Refresh our approach to marketing, improve our training and education, and further support our clinical community. We see a clear path through invigorating growth and aim to be growing with the market as we move through 2024.
Speaker 2: Thanks, Samir. That concludes our formal comments. Operator, we are now ready for questions.
Thanks, Samir that concludes the formal comments operator, we are now ready for questions.
Speaker 1: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star queue.
At this time, if you would like to ask a question. Please press star one on your telephone keypad.
You may remove yourself from the queue at any time by pressing star Q.
Speaker 1: Once again that is star one to ask a question.
Once again that is star one to ask a question.
Speaker 1: And our first question will come from Elizabeth Anderson, whatever core ISI. Your line is open.
And our first question comes from Elizabeth Anderson.
For ISI your line is open.
Speaker 4: Hi guys, thanks so much for the question, this evening. I have two questions. The first is on the current macro environment. We've heard broadly how there's sort of been a step down in the environment. In September , I was wondering if you could comment more on those trends as you're seeing them through October and obviously it's only November first, so November . And then one of the questions I had just was sort of on the, about eight weeks ago, you reiterated the guidance for the full year. So, you know, what cards you just sort of change it within the last eight weeks? This is a function of that sort of step down, a combination of other things. If you could provide a little bit more detail on that, that would be super helpful. Thanks.
Hi, guys. Thanks, so much further questions evening I have two questions. The first one is on the current macroenvironment, yeah, we'd hurt badly.
Before I turn it over to a seventh to discuss our third quarter results in more detail, I want to take this opportunity to provide further perspective on the current operating environment and then offer an update on our progress toward our strategic priorities. Globally, the market remains very dynamic with concerns around the macro-economic backdrop and geopolitical risks vain on market sentiment. While patient demand remained generally stable in the third quarter, we see a continuation of a slowdown in higher and denser procedures, including both adult or non-accuses and full-archs in contrast to race. Private practice doctors and DSOs are monitoring patient traffic, as well as overall macro environment are being taught for about near-term investments in both equipment and clinical level inventories.
Step down in environment and you know in September.
I was wondering if you could comment.
More on those.
Being done through October and.
November 1st So November and then one other question I had just sort of on that you know about eight weeks ago.
The guidance for the full year two you know what cause she just sort of change it within the last eight weeks at a function of that sort of step down a combination of other things that you could provide a little bit more detail.
That that would be super helpful. Thank you.
Speaker 3: of course, thank you Elizabeth. Let's talk about the macro first. Yeah, tremendous amount of insight by talking to a large number of ESO's group practices, doctors around the world. Despite the fact that they remained bullish in the long term, they're mindful of what's going on in current macro economics.
Thank you Elizabeth.
Talk about the mackerel purse, yeah, a tremendous amount of insight.
Talking to a large number of via So's group practices doctors around the world.
Despite the fact that they remain bullish in the long term.
Mindful of what's going on.
In Corinth macroeconomics, what their scene is stability in general.
Speaker 3: What they're seeing is stability in general and unrest.
While this has created a more challenging operating environment in the short term, long-term we are confident that patients will continue to prioritize dental care and that clinicians who proactively invest in areas that help them digitize their practice, making them more productive and ensuring that they can provide the highest quality personalized care, focusing on our progress in Q3, a uniquely positioned orthodonic business continues to perform well, driven a sustained performance in a sparkly lineers. In April of 2022, we announced a long-term target of tripling our spark business by the end of 2024 and pleased to announce that we are on track to reach that milestone in the fourth quarter of this year over a year ahead of schedule, orthodonic specialists continue to see the value of our comprehensive portfolio of solutions and we are working hard to be the partner of choice for orthodonic worldwide.
Restore it to care.
Speaker 3: Most recently in the past, probably eight to twelve weeks, more weakness in higher and dental procedures.
Most recently in the past Bobby eight to 12 weeks.
More weakness in higher and dental procedures.
Speaker 3: Adopt orthodontics cases of decline and the full arch implant restorations which was challenged to begin with He has seen a further step that
Dot orthodontics cases have declined in the full arch in plan restoration is which was challenged to begin with he has seen a further step that.
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Speaker 3: They're very cautious about inventory management in their offices, around implant and back down wires. And one of the key elements of the growth was DSOs expanding the footprint around the know-ers. There have been more cautious recently about borrowing money, investing, and expanding that business, which is directly impacting some of our equipment business in the long run.
Very cautious about inventory management in their offices on implant and back then wires and one of the Chi element of the growth was D.
Yeah, so's expanding the footprint around to know was there have been more cautious recently about borrowing money invested in expanding that business, which is directly impacted.
Equipment business in the long run on.
Speaker 3: And the business side and the implant side, we are seeing stable demand, but as I mentioned, high end is really challenged.
On the business side and.
Implant side, you seen stable demand, but as I mentioned high end is really challenged.
Speaker 3: And we have a really good fill and a number of implant that their place worldwide is specifically in North America. We've seen some challenges. They started in Q2 and continues throughout Q3 and most recently. And Otto, generally resilient for teens, at dark cases has been weak.
And we have a really good feel on a number of implant that their place worldwide as specific in North America, we've seen some challenges the Saudi two two and continues to our tier three and most recently an auto generally resilient fourteens adult cases.
In Vista Business System, EBS, drives the spark growth formula and we are consistently adding new doctors increasing case volume to the existing doctors and growing a revenue per case. Given our success today and overall trajectory of a spark, we are now focused on delivering our next long-term growth milestone. By the end of 2026, we intend to double our spark business. In support of this ambitious growth, we continue to make investments to support the growth and long-term profitability of a spark as well as our broader orthodonic business.
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Speaker 3: and diagnostics, but not seen anything radically different that we have communicated before, major concern around higher interest rates, macro challenges, and I'm consumed of all these stable and resilient.
Diagnostics, what I've seen anything radically different that'd be a communicated before major concern raw higher interest rate macro challenges and <unk>, what is a stable and resilient.
Speaker 3: I can take you through geography by geography, the study with developed market, stable demand for basic procedures, high end high end procedures, lower demand for it. China, we saw a...
It can take you through geography by geography, sorry with developed markets.
They will demand for basic procedures high end high end procedures lower demand for it.
China.
Really wrap it.
Speaker 3: Hentuk demand coming out of COVID and is specifically after the VBP.
Pent up demand coming out of Covid and is specifically after the B B P.
Speaker 3: The key issues that everybody tells us and toward our visits, we were communicated to that the consumer sentiment remains a challenge in China. So the longer visibility is a little bit more difficult in that geography.
The key issues that everybody tells us and towards our visits we were we were communicated to that the consumer sentiment remains a challenge in China.
In Q3, we receive regulatory approval to produce a spark in our facility in the check republic and that sheep are first clinical case already factory. This new factory even improved the customer experience for our European customers, increasing manufacturing flexibility and help expand margins in the medium term. In addition to opening a new factory, we are also investing in additional automation as we look to optimize production and further improve our margins. While the spark margins remain below our fleet average, we continue to make sequential improvements and our focus on balancing long-term growth maximizing near-term profitability.
Visibility.
More difficult in in that geography, Russia.
Speaker 3: Russia demand itself continuing conflict and we are working through some of the challenges that we have run like
Russia demand itself continuing conflict and we are working through some of the challenges that we have a license.
Speaker 3: Imagine market outside Russia and China demand is a staple.
Imagine Marquez outside Russia, and China demand is stable.
Speaker 3: We want to be happy with what we have seen so far and continue that progression. Unfortunately, the recent challenges in Israel have caused additional commercial execution issues and manufacturing issues while in VISPA.
Happy with what we have seen so far and continue that progression. Unfortunately, the recent challenges in Israel is cause additional commercial execution issues in manufacturing <unk> now.
Speaker 3: Now, coming back to your question about what change in last eight weeks.
Now coming back to your question about what change in bass eight weeks.
As expected in Q3, we deliver the solid sequential improvement to adjusted EBITDA margins. This 50 basis points expansion, according to spider or long-term investments, the impact of China, EBITDA price reductions and the commercial and the performance of our implant brands in North America, in Africa. The leverage EBS to manage margins through a systematic focus on price optimization, expense controls, and a structural cost reductions. Our performance in China is a perfect example of EBS in action.
For a specific element.
Speaker 3: One, the macro environment is increasingly
One the macro environment is increasingly.
Speaker 3: wall of top and more concern that we had seen in the past.
Wall, a tall and more concerned that we had seen in the past.
Speaker 3: Geopolitical complexity has become even more challenging than it was 8 weeks ago, 10 weeks...
Geopolitical complexity has become even more challenge than he was.
Eight weeks ago 10 weeks ago.
Speaker 3: Normally after summer, we expect to see a ramp up.
Normally after summer.
Expect to see a ramp up.
Speaker 3: Iran, some of the procedures, specifically in Europe , and some high-end procedure in North America, we are not seeing them.
<unk> some of the procedures specific thing in Europe, and some high end procedure in North America, you're not seeing that and.
Speaker 3: And last but not least, the North America distribution challenges, a putting tremendous amount of uncertainty in our view of what we see in the near term in the rest of the year.
And last but not least the North America.
America distribution challenges it.
Despite the significant price pressure from the VBP program, we were able to expand our local operating margins for a streamlining our organization, significantly reducing our expenses, and focusing our efforts in areas where we have the most competitive advantage. This focus on driving growth and margin expansion despite macro challenges epitomizes power use EBS to execute every day.
Put in a tremendous amount of uncertainty in our.
You of what we see in the near term.
The rest of the year.
Speaker 3: Combining all of that together, we thought it would be prudent for us to consider the challenges and take advantage of the opportunity that we have and make sure that we continue to make investment accelerating the spark. That ramp that we talked about is spark that a year ahead of plan has ramification about mixing.
Combining all of that together, we thought it would be prudent for us to consider the challenges and take advantage of the opportunity that we have and make sure that we continue to make investment accelerating as far.
Ramp that'd be talked about as far at a year at a plan has ramification about mix the spot Martin are below fleet average so the higher that volume more challenging in our March and then investment that we have made a decision to make in North America and plan marketing training education.
Speaker 3: SPARC margin are below fleet average. So the higher that volume, more challenging in our margin. And then investment that we have made a decision to make on North America Implant are marketing, training, education, community development. We thought the timing is right for us to do that in order to build a foundation for growth as we go forward.
As we move into Q4 and next year, we will continue to maintain a balanced approach to growth investments and margin improvements. As I previously mentioned, we expect to accelerate investments in both Spark and a commercial capability supporting implants in North America. While these investments will put some short-term pressure on our planned margin expansion, they will help position us for faster growth while also setting the foundation for further significant margin expansion.
Patient community development without the time is right for us to do that in order to build a foundation for growth as we go forward.
Speaker 3: That combination of those challenges plus the decision that we have made because it is the right time for us to adjust our guidance to build a stronger, more resilient business in the long run.
That combination of those challenges plus a decision that we have made because it is the right time for us just a guidance to build a stronger more resilient business in the long run.
Got it thank you very much.
Long term, our priority is building a stronger, more differentiated, and more growth oriented portfolio. By focusing on providing comprehensive solutions for orthodontists as well as implant specialists, we continue to shift our portfolio to the most attractive segments of dental. We are also transforming our imaging business to a diagnostic solution business that supports clinician as they digitize their offices. With a comprehensive set of imaging and software solutions, a Dexist business delivers simplicity, productivity, and diagnostic confidence.
You're welcome.
Thank you.
Speaker 1: Our next question will come from Jeff Johnson with Baird. Your line is open.
Our next question will come from Jack Johnson.
Your line is open.
Good afternoon can you hear me.
Speaker 5: All right, great. I'm here, you and I have known each other a long time, so I'm gonna ask you two, maybe tough questions, but I think fair questions here. So on the equipment is consumable side, looks like it's gonna be down for the year on a core growth basis. It was down last year, year over year. And even if I go back to the three years pre-COVID, 17, 18, and 19, you were negative in E&C on a core growth basis, my sense is most of those years, that's a couple of few points below market, although hard to tell each of those years.
Yes.
Alright, great near you and I have known each other a long time, so I'm gonna ask you to you don't need a tough questions, but I think fair questions here, so and the equipment Inconsumable side, you know it looks like it's gonna be down for the year out of core growth days since it was down last year year over year and even if I go back into three years pre Covid 17, 18 and 19.
You were negative and E&C on a core growth basis, you don't my senses most of those years. That's a couple a few points below market, although hard to tell each of those years. So I guess my question is you know when the market recovers, whether we get back to 82334 per cent kind of market growth rate and E. N C for the broader market do you think you can be at market.
Speaker 5: So I guess my question is, you know, when the market recovers, whether we get back to a 2, 3, 3, 4 percent kind of market growth rate in E&C for the broader market, do you think you can be at market? Or is there something structurally disadvantaged in your product categories or your positioning that's going to make it tough to even get back to market when market improves eventually?
In a third quarter, we launched a range of new products, including the OP3DLX and Dexist IS-3800 Wired Interoro Scanning. We also released a Dexist Solution to integrate AI features into the Dexist-10 imaging software suite. The Dexist Solution helps practitioners to detect six technologies in 2D inter-oral X-rays, including carries, calculus, own lost, periodical radio lucency, root canal, filling deficiencies, and discrepancies at the margin of existing restoration. DTX Studio Clinic Software was awarded the Celerand Best of Class Technology Award for the third consecutive year, recognizing the innovation we're bringing to the dental community.
Is there something structurally disadvantaged in your product categories or your positioning that's gonna make it tough to you didn't get that to market one market improves eventually.
Speaker 3: I appreciate the question. You get to the heart of it and I'd love to be able to answer that question and tell you.
Well I appreciate the question you get to the heart of it and I'd love to be able to answer that question and tell Ya.
Speaker 3: We went through a radical transformation of our equipment and consumer business. We have been with us since 2015 in the past eight years that I've been around the first two or three years of this journey of building and this size of space today was a lot of transformation. Moving away from product categories, geographies that really within advantage, moving away and setting obviously the car book business, moving from animal health care and many other business.
At <unk>.
We went through a radical transformation of our equipment on consumer business you have been with US since 2015 in the past eight years that I've been rats. The first two or three years of this journey building and besides SaaS today was there a lot of transformation moving away from product categories Geography's really was in.
Advantage moving away and setting obviously, the combo business moving from animal health care and many other businesses. So if I take a look at the last nine months as an example, and then compare it to 20 twenty-two here's what I see is what we see if.
Speaker 3: So if I take a look at last nine months as an example and then compare it to 2022. Here's what I see. Here's what we see.
University. While we're excited about this strategic move that we have made today, we see additional opportunities to further improve our portfolio both organically and inorganically. We utilize an EBS-driven M&A approach to manage our robust pipeline of partnerships and investment opportunities and we are currently cultivating new opportunities. We're committed to pursuing a discipline and a strategic approach to capital deployment.
Speaker 3: If we take the exits of the geographies that we have moved, we have a really good field for what's going on in inventory and consumable and sell out. About, I would say, two-third of our business, of our consumer equipment is in North America.
If I take the exits of the geography, you said, we have <unk>, we have a really good feel for what's going on inventory on consumable and they sell out.
I would say two thirds of our business of a consumer of our equipment is in North America, we have tremendous amount of insight about the Sarah.
Speaker 3: We have a tremendous amount of insight about the cellot. We are at or above cellot in the past nine months. In almost every category.
At or above sell out in the past nine months.
Every category.
Speaker 3: So I appreciate the perspective and looking back, but that's the reality of what we see on the ground. We watch that very carefully, we watch inventory, we watch sellout. You may see a quarter to quarter ups and downs, but in the past, you know, a quarter today, a consumable ad or above sellout and categories are imaging ad or above sellout. But now I wanna turn the discussion forward and tell you what we expect to see.
So I appreciate the prospective and looking back but that's the reality of what we see on the ground. We watch that very carefully watch inventory why sell out you may see a quarter to quarter of ups and downs, but in the past you know a quota today, a consumable ad above sell out categories.
Stephen Keller: I will now turn the call over to Stephen to go through a third quarter financials and provide more details on our segment performance. Thanks, Mayor. In the third quarter, we delivered sales of 631.3 million dollars on a reported basis. This represents a slight increase over the third quarter of 2022. Adjusting for the impact of currency exchange rates, core sales for the quarter through 0.8%. This reflects continuing growth in our specialty products and technology segment, offset by a low single digit decline in our equipment and consumable segments.
Imaging at or above set up but now I want to turn this discussion for and tell you what we expect to see.
Majority of.
Speaker 3: The emphasis in some of the product categories, some geographies, is going to be behind us.
Emphasizing some of the product categories. Some geography's is going to be behind us.
Speaker 3: We're going to manage this business, get it to a more of a stable, differentiated. We're there with the consumable, the infection prevention, the endo, the resto. Last piece of this equation is around image.
<unk> managed this business get it to a more of a state of differentiate it.
Stephen Keller: Now, a geographic perspective, Western Europe through double digits while North America decline low single digits. Our emerging markets through low single digits anchored by China, which grew despite a difficult year over your comparison, as well as the impact of VBP on impact pricing. Russia declined in the quarter due to both a difficult year over your comparison and a lingering impact that changes to US sanctions and licensing requirements. We remain focused on obtaining the appropriate licenses to fully supply Russia and we continue to take steps to optimize our supply chain to allow us to completely serve our customers and their patients.
With a consumable infection prevention with <unk> last piece of this equation is around image.
Speaker 3: We think we're going to be in a really good place starting in 2024. And then innovation is going to play such an important role in here. Just in the past three months, we have put a new category OP3DLX that is going to expand our presence. We have released a new inter-orror scanner. We have now FDA approved AI that we are putting in our large install base of sensors.
We're gonna be in a really good place to start in 2024, and then innovation is gonna play such an important role in here.
Just in the past three months, we have put a new category O P. Three D. L X that he is going to expand our presence. We have released a new into <unk>. We have now F. D. A approved a that'd be a put in a large installed base of sensors combination of.
Stephen Keller: In Q4, we expect both Russia and China to grow and we expect full-year sales to be modestly down in these two important and dynamic markets. Our third quarter adjusted gross margin was 57.7%. Which is down 150 basis points from prior year. The declining gross margin was primarily attributable to an unsavable product mix, VBP driven twice declines, and continue investment in our long-term growth. Our adjusted EBITDA margin was 19.6%, which represents a 60 basis points decline versus Q3 of 22, and a 50 basis points sequential improvement from Q2 of 223.
Speaker 3: combination of go to market activities focus and innovation in continuation of a DBS EBS at work It's going to put this business at or about market as we go forward We're really confident that this is the trajectory. This is the future we see in here and all the work that we have done is put us in a really positive position today Jeff, you know this market very well it changes in terms
Go to market activities focus on innovation continuation of a D. B S. E. B S. At work is gonna put this business at or above market as we go forward.
Really confident that this is a trajectory this as a future receiving here and all the work that we have done is put us in a really positive position today, Jeff you know this market very well it changes in terms slower than you expect what we have done we have done a lot of those changes now.
Speaker 3: slower than you expect. What we have done, we have done a lot of those changes now, you know, in a really good place on relationship without distributors, and we think what we move forward, we're gonna see a different performance. As I mentioned again, app or above.
Really good place a relationship without distributors have you seen what we move forward, we going to see a different format.
I mentioned, the game app or above market proxies.
Stephen Keller: Our adjusted deludes EPS in the quarter was 43 cents compared to 47 cents in the comparable period of the prior year. The reduction in EPS for the quarter was driven partly by an increase of expense from higher interest rates. In the quarter, Q4 revenue in our specialty product and technology segment grew by 2.2%. Our orthodontic business accelerated a double digit growth with spark continuing to expand rapidly. Our traditional bracket wire business, decline low single digit with solid growth and China being offset by weaker demand the rest of the world.
Speaker 5: All right, well that's great to hear. And let me ask the second question then is on your North American implant business. And obviously you have the noble bio care business here. You have the implant direct business. It seems like a bit of a gap, at least in my view, a gap in kind of that premium minus category, maybe the $350 to $400 price point, something like that. And I think as practice profitability has come under pressure here in the past 12, 18 months, it a lot of these offices. That's $150 savings off the premium price point, maybe a start to appeal to some.
Alright, well, that's great to hear and and let me ask the second question. Then is on your North American implant business and you know obviously you have been noble bioterror business here you have the implant direct business you know it seems like a bit of a gap at least in my view a gap in kind of that premium minus category, maybe the 350 to 400 dollar price point.
Something like that and and I think his practice profitability has come under pressure here in the past 12 to 18 months at a lot of these offices.
That's 100 hundred and 50 dollar savings off the premium price point, you know, maybe you're starting to appeal to some.
Stephen Keller: Our in-plan business, decline low single digits in the quarter, as a mere mentioned previously, add a above market performance in most geographies was offset by weakness in North America and both our premium and value franchises. Western Europe performed well in the quarter and our China business grew strongly despite the negative pricing impact, from VVP. Adjusted operating profit in the segment was 19.7% in the third quarter. This is down 110 basis points, first Q3 of 22, but is up 100 basis points to quench the adverse Q2 of 223.
Speaker 5: implant uh... docs out there so my question is you know you're putting more channel support out there you're putting more investments in the north american business training education things like that is that enough do you need to fill that product gap in that premium minus and if you do how do you do it
Docks out there. So my question is.
More channels support out there you're putting more investments in the North American business training education, and things like that is that a <unk> do you need to fill that product gap in that premium minus and if you do how do you do it.
Speaker 3: Yeah, great, great question. Yeah, if you know what what we did, what we have done in the past five, six to nine months, we went back and said, let's take a look at 2016 to 2019. Let's assume that's no. That's what the word before COVID looked like. We look at the number of implant, we look at the pricing, we look at premium versus value. Let me say, okay.
Yeah, Great. Great question, Yes, you know what what we did what we have done in the past five b six to nine months. We went back he says let's take a look at 2016 to 2019, let's assume that's no. That's what the word before Covid look at look at the number of implant we looked at the prices will look at premium versus value, Let me say.
We will continue to invest in this segment to support our long term growth. Turning to our equipment and consumable segment, core sales in the second quarter declined by 1.6% compared to Q3 of 22. Our consumer's business grew low-single digits led by strong performance in emerging markets. Globally, we are focused on driving sell-out, and we believe that our sell-out performance is consistently at or above the market in most geographies around the world.
Speaker 3: Arrange 2020, look at 2021, 22, 23. Try to see what that'll look like. In order for us to be able to look at what the new award order look like in 24 to 20.
Okay.
<unk> 2020 look at 2021, 22, 23 tried to see what that would look like in order for us to be able to look at what the new World Order look back in 24 to 26.
Speaker 3: What we see in here, the pricing and employment, we are purely talking about employment.
What we see in here the pricing and in time, you purely talking to your plan.
Speaker 3: On the premium, so it hasn't dropped as radically as, you know, anticipate value prices have dropped a lot quicker a lot faster.
On the premium so it hasn't dropped as radically as.
Anticipated value prices have dropped a lot quicker a lot faster.
In the equipment business, we declined high-single digits as higher interest rates and concerns around the macro-economic environment reduce global demands of larger imaging equipment. Our performance in developed markets improves, and we delivered solid growth in western Europe in the third quarter. A emerging market saw a large decline in the quarter reflecting both tougher macro-conditions, as well as the refining of our focus. Our attention is to the emphasized non-shooted geographies and solutions in order to constrain our efforts in markets where we can build and maintain sustainable competitive advantage.
Speaker 3: Volume if you look at the volume volume and the value set has increased a lot quicker a lot faster But that shift that people anticipate is going to happen everything going to value. It's not happening But now if you take the volume aside and say I look at the dollar the dollar span which is include prosthetic regenerative all
If you look at the volume volume Undervalue set has increased a lot quicker a lot faster, but that shift that people anticipate is gonna happen everything going too bad it's not happening, but now if you take the volume. Besides so I'll look at the dollar the dollar spent choosing crude prosthetic regenerative.
All of that.
Speaker 3: me on continues to be an important part of this equation.
Premium continues to be an important part of this equation.
Speaker 3: The dollar is spent both on the patient side as well as on practitioner to stay on the premium side and has really hasn't changed that radically. I mentioned one more point and then I answer your question about no bath. If you go back to look at price of a placing one single implant from 2016 to today.
The dollar is spent both on the patient side as well as practitioner stay on the premium site and has really hasn't.
While this will create a mass headwind to core growth in short-term, long-term this will allow us to accelerate both growth and margins. Our iOS business saw strong year-over-year growth in units this quarter, as we expand our global reach and partner with our distributors to help clinicians digitize their offices. While unit growth was very robust, is important to note that ASP and this segment have fallen fast as an anticipated, putting short-term pressure on our revenue growth ambitions for this business.
Hasn't changed radically I I mentioned, one more point and then I answer your question about <unk>. If you call back take a look at price of replacing one single impact from 2016 to today.
Speaker 3: Despite of all the changes in the market and price reduction in that the prices have gone up So people are charging more now that they charge before so This business remains a very healthy business with the high margin now We say why now why did you all the sudden recognize you have this challenge?
Despite all the changes in the market and price reduction of add the prices have gone up.
So people are charging more now that they charged before so this business remains a very healthy business with a high March.
That said, we believe that prices are beginning to stabilize, and remain confident that deficit iOS will be a long-term growth driver for in this step. In the third quarter, a just operating profit margin, our equipment and consumer segment was 24.6%. This represents 150 basis points to the client year-of-year, as lower equipment revenue was only partially offset by EBS during productivity gains and cost controls. During the cash flow, in the third quarter, we generated greater than $75 million in three cash flow, and into the quarter with over $800 million in cash.
Now we say why now why did you all of a sudden recognize you have this challenge.
Speaker 3: After COVID, we kind of that pent up demand causes to misread a lot of what was taking place in play in reality.
After Colbert B kind of that pent up demand caused us to mistreat, a little bit of what was taking place in <unk>.
In reality.
Speaker 3: All the changes that we did and the commercial execution, customer experience, training, education, revue P in China, to pay now.
All the changes that we did on the commercial execution customer experience training education V V P in China paying enough.
Speaker 3: Over 50% of our business outside North America is performing at proxy or above proxies. When we start digging into the North America, who is placing this impact? The specialists, those high-volume GPs, the DSOs, the value proposition, what you need to do for each segment radically different. And we need to change and adjust our approach.
Over 50% of our business outside North America is performing at proxy or a cough proxies.
The year-over-year improvement in three cash flow was driven by improvements to working capital, as well as the furl of federal tax payments until the fourth quarter. Overall, we remain pleased with our progress in improving our cash flow management, and are committed to our longer-term goal of delivering annual free cash flow in excess of net income.
Start digging into the North America.
This place and these impact the specialist.
Hi volume G. P. D. S shows the value proposition, what do you need to do for each segment radically different.
And we need to change and adjust that approach.
It is important to note that in Q3, we also took important steps to update our capital structure. We issued $500 million in new convertible notes at 1.75% due in 2028, and we exchanged around 77% of our prior 2.375 convertible notes due in 2025. We also refinanced our two term loans and a revolver, studying the maturity date to 2028 at improved tariffs. The goals of these actions was to reduce the current the future delusion related to a convertible debt, manage our overall interest expense, and ensure a long-term financial flexibility. Our strong balance sheet and significant cash flow provides us to flexibility to make the appropriate investment as they become available. But, you have financial flexibility, our intention is to be very disciplined in our capital deployment.
Speaker 3: We need to become a lot localized. We need to be on the ground in front of these people. Customer experience becomes a lot more important. Relationship with rap, supporting infrastructure, local training, and specialties, and referral network and lab, building a community of the future.
We need to become a lot localized to be on the ground in front of these people customer experience becomes a lot more important relationship in rap support any infrastructure local training.
Especially in referral network and laugh building a community of the future.
Speaker 3: younger or Surgeon more diverse these are what they're gonna build the future of this business We need to build that community. We need to give these people opportunity to learn and teach and impact the environment
Younger.
Searching more diverse these are what they are going to build a future of this business, we need to build that community we need to give these people opportunity to learn and teach an impact the environment.
Speaker 3: We have been at this for quite some time. So we wanted to make sure that we have a really good understanding of what is taking place under grant before we take serious action.
We have been at this for quite some time she wanted to make sure that we have a really good understanding of what is taking place underground before we take serious actions.
Speaker 3: We have that understanding now. Now let me go back to the portfolio. Nobel is a well known brand.
We have that understanding now now let me go back to the portfolio.
Turn into our full-year outlook. We are revising our guides for 2023 to reflect the increased impact of macro uncertainty, volatility in the North American distribution channel, and the importance of making investments that will drive long-term shareholder returns. We now see full-year core growth being down slightly. And we expect adjusted EBITDA margins to be between 18 to 19 percent for the full-year. Our update guidance reflect the increased macroeconomic risks risk in our development markets, contain challenges in Russia, and the additional risk brought on by the new conflict in the Middle East.
Nobel.
Is it well known brat.
Speaker 3: When we have interviewed the large number of people, part of gap, important, but it's not the most important thing that we gotta do. I'm not moving away from innovation. I'm not suggesting that we shouldn't be doing that. There are some short-term, long-term approach. In short-term customer experience, getting people to learn how to place in-fact, building the communities, have the drastic impact, of the gap and imports...
We interviewed I'd be happy interviewed the large number of people product gap important but is not the most important thing that we gotta do I'm not moving away from innovation I'm, not suggesting that we shouldn't be doing that.
Are some short term long term approach is shorten customer experience getting people to learn how to place in fact building the communities have drastic impact and importance continued to look at the portfolio. While we have been added with N one and some of the surfaces.
Speaker 3: continue to look at the portfolio while we have been added with N1 and some of the surfaces try to predict the future, take a look at what is needed today and try to make sure the partnership as well as filling the portfolio on some of the areas we continue to build that momentum. We feel good about what we are
Regarding the Middle East, it is important to note that Israel represents a local commercial market of around 20 million dollars annually, and that Israel further represents an important production location for our alpha biotech income brand. We will take steps to stabilize our supply chain, we do anticipate some volatility in the region, and this could impact our Q4 performance. Our update guidance reflects the impact of accelerating investments in Spark, as well as additional investments in our North American income business.
To predict the future take a look at what <unk>, what is needed today and try to make sure the authorship as well as filling the pause 40 on some of the areas we continue to build that momentum.
It feels good about will be our understanding.
Speaker 3: That is a big part of the problem. Do you exactly know what the issue is? We think that we now have that understanding. Now we have been in action. Starting in Q3, we're making those investment, we're adding resources, we're creating this training and education program, and you're gonna see a different performance as we go forward. Appreciate that.
That is a big part of the problem do you exactly know what the issue is <unk> that'd be now have that understanding now we have been in action as <unk> two three.
We expect these investments to continue into 2024 as implants in North America return to market level growth within the next year. While it is too soon to provide guidance for 2024, we are focused on delivering growth and margin expansion next year.
Making those investment you're adding resources with creating this training and education program and you're gonna see a different performance as we go for.
Now we turn the call back to Amir to discuss our long-term outlook and provide additional closing comments. Thanks, Steven. Moving forward, our priorities remain the same.
I appreciate that thank you.
Thank you.
Speaker 1: Our next question will come from John Block with Steeple. Your line is open.
Our next question will come from John Block, which T. For your line is open.
Accelerate growth, expand operating margins, and continue to transform a portfolio through discipline, capital deployment. Our intention is to partner with dental professionals to improve lives, and we believe that our diversified and comprehensive portfolio positions us as the partner of choice for clinicians globally. In our Tudonics business, we are focused on building and the strength of both our traditional back and on wire solutions, as well as our Spark clear a line of business to offer the orthodonic specialists the most comprehensive and integrated suite of treatment options available.
Thanks, guys good evening.
Speaker 6: Maybe the first one, you know, it sounds like the expectations for modest growth for revenue and EBITDA expansion in 2020.
Maybe the first one you know it sounds like the expectations for modest growth for revenue.
And EBITDA experiencing in 2024.
Speaker 6: even if I heard you correctly. So, you know, what do we think about the LRP EBITDA margin of 22.5 for 2026?
Even if I heard you correctly so.
What do we think about the L. R. P EBITDA margin of $22 five for 2026.
Speaker 6: That implies greater than 100 bibs off the new 185 this year. And next year doesn't seem like that's teed up for 100 bibs. It would be wildly back and weighted. So let me maybe start there. And do we take that off the table, which arguably was on the table only 9 or 10 months ago. And that'll ask the follow up.
That implies greater than 100 pips off the new 18, five this year.
Next year it doesn't seem like <unk>, you know for for 100, perhaps it would be wildly back and waited so let me maybe start there and.
We take that off the table, which are arguably was was on the table only.
We will support the Tudonics as they build strong practices that provide personalized care and improve patient's smiles. In our implant businesses, we are focusing on improving our short-term execution in North America, while continuing to deliver drive innovation, partnership and community. There is a significant opportunity to address the under treatment of Tudonics and ensure that implants are the treatment of choice. We will position to lead the future of implant knowledge.
10 months ago, and then I'll ask for follow up.
Speaker 3: Yes, happy to answer that John . We put a guidance out there and said that in the long run, I want to get to about a high single digit in 2026 to 2020, half percent. So what assumptions were we made when we make those guidance? And what has changed?
Yes, <unk> happy to answer that we put a guidance out there and so that in the long run I Wanna get to about high single digit in 2026 with 22.5%.
So what assumptions will be made when we make those.
What has changed.
Speaker 3: We just communicated that our intention is to develop the size of our spark business. That plays such an important role in reaching that goal milestone in the long run. To do that calculation, you find out in the next three years, we have significant opportunity for expansion, growth, and that area. One.
We just Smith I would just communicated our intention is double the size of a R. R. A spark business that plays such an important role in <unk>.
Reaching that.
<unk> my son in the long run.
Do that calculation, you'll find out in the next few years, we have significant opportunity for expansion or growth on that area one.
In our diagnostic business, we will continue to streamline our focus while accelerating the digitization of dental offices. Our goal is to provide clinicians with diagnostic, confidence, simplicity and productivity. Committee. We will drive penetration of IOS solutions globally. Further leveraging our strong install base, we will provide differentiated digital workflows that are augmented by assisted intelligence as support clinicians in providing superior care and improved clinical outcomes.
Speaker 3: to the margin on our spark is below fleet average.
To the marching on our spot is below average and will be <unk>.
Speaker 3: And what we have, if we look at it in the last seven quarters, specifically in the last three quarters, every quarter we have better margin than the previous.
If you look at it and the last seven quarters specific in the last three quarters every quarter, we have better margin than the previous phone.
Speaker 3: While we continue to make investment, we continue to do automation, EBS at work, try to improve the margin in order to get this to be fleet average as we get the other years. Such a significant investment and growth and portion of a portfolio getting to more fleet average really make that equation worse.
Why do we continue to make investment will continue to do automation E. B S. At <unk> tried to improve the marching in order to get these to be free to average as you're getting a auto years, such a significant investment and growth portion of a portfolio getting tomorrow fleet average really make that a.
Finally, in our consumable business, we will continue to focus on driving about market growth and sell out by offering a comprehensive portfolio of restorative and hedonic and infection prevention solutions. By supporting clinicians with workflows that are designed to deliver simplicity, high aesthetics, and great clinical outcomes, we will continue to be the brand of choice for clinicians globally.
<unk> so.
Speaker 3: So as a first element of the second, our implant business have been operating in the performing below market product.
So.
<unk> element circa are implant business has been operating performing below market proxies.
Speaker 3: The plan that we have to go execute it, but the plan that is in place, get that to the market proxies over the next couple of years, start improving that in 2024. It's such a high margin business, that by itself is going to make a huge difference.
<unk> I'd be happy I have to go execute it but the plan that is in place get that to the market proxies over the next couple of years start improving that in 2024 is such a high margin business that by itself is gonna make a huge difference the third piece of this equation is around.
Speaker 3: The third piece of this equation is around tag nostril.
Diagnostics.
Our purpose is to partner with dental professionals to improve patients' lives by digitizing personalizing and democratizing dental care. We are focused on delivering long-term value for patients, our customers, our employees, and our shareholders. Thanks, Amir. That concludes our formal comments.
Speaker 3: We course correct on the emphasizes some of the product categories region. That's going to be behind us. We're going to see a better performance. You have seen that in the past three quarter. Our equipment and consumer was as better margin and continue to deliver. Now imagine getting to market proxies, those single digit marketing, improving higher margin in that area. That is going to add to the proxy add to that long term.
Course, correct.
B emphasizes some of the product categories region, that's gonna be behind us you're gonna see a better points you have seen that in the past three quarter, our equipment and <unk> is b.
<unk>.
Marshall and continue to deliver not only match get into a market proxy still single digit market improving higher margin in that area that is going to add to the policy app to that long term view.
Operator, we are now ready to question. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star queue. Once again, that is star one to ask a question.
Speaker 3: We're not counting on any radical changes. We do that math. We execute the program that we have in place, but deliver on what we have in our long-term view without any acro-
Not counting on any radical changes, we do that math.
Extra cute.
That'd be having place, but deliver on what we have in our long term view without any acquisition, we see that long term goal is achievable.
Speaker 3: We think that long-term goal is achievable. We need to go ahead and execute it. In the short term, we have to make some trade-off between growth margin in order to build a foundation for the longer.
And our first question will come from Elizabeth Anderson with Evercore ISI, your line is open. Hi, guys. Thanks so much for the question, Sydney.
Need to go ahead and execute it in the short term you have to make some tradeoff.
Trade off between growth marching in order to build a foundation for the long run.
Speaker 3: This organization has proven that they have tracked record of confidence in building credibility and operational excellence.
Elizabeth Anderson: I have two questions. The first is on the current macro environment. You know, we've heard broadly how they are sort of going to step down in the environment in the, you know, in September. I was wondering if you could comment sort of more on those trends as you're seeing them through October and October and October 1st, so November. And then one other question I had just was sort of on the, you know, about a week ago, you reiterated the guidance for the full year.
This organization has proven track record of confidence.
Building credibility on operational excellence.
Speaker 3: 450 basis fund of operating margin improvement. We have done that. We can do that again moving forward.
450 basis point of operating margin improvement, we have done that we can do that again moving for.
Speaker 6: Okay, that was great. That was very helpful. I mean, the second question might just be a little bit more straightforward and I'll apologize in advance for it. But I just really don't understand the implant commentary. It seems like you've been the main shared donor in the industry of late. You're poorly weighted in terms of, call it premium versus value.
Okay. So it was great. It was very helpful. I mean, the second question might just be a little bit more.
Forward and I'll I'll apologize in advance for it but I just really don't understand the.
Commentary you know it seems like you've been the main shared donor.
Elizabeth Anderson: So, you know, what caused you to sort of change it within the last eight weeks is the function of that sort of step down a combination of other things. If you could provide a little bit more detail on that, that would be super helpful. Thank you. I'll post thank you Elizabeth.
And the industry of lay your poorly waited in terms of you know call a premium versus value.
Speaker 6: How do you expect to get back to market growth as early as 2024?
How do you expect to get back to market growth as early as 2024 or maybe you can detail. How you do that so quickly and then I feel like getting back to Margate growth in 24 is actually at odds with modest revenue growth because it's such a big chunk of your your portfolio a mere 40 per cent of it.
Let's talk about the macro person. Yeah, tremendous money insight by talking to a large number of ESOs group practices, doctors around the world. Despite the fact that they remain bullish in the long term, they're mindful of what's going on in current macro economics. What they're seeing is the ability in general and unrestoreative care. Most recently, in the past, probably eight to 12 weeks, more weakness in higher and dental procedures, adult orthodontics cases have declined and the full arts implant restorations, which was challenged to begin with, has seen a further step down.
Speaker 6: Maybe you can detail how you do that so quickly. And then I feel like getting back to market growth in 24 is actually at odds with modest revenue growth because it's such a big chunk of your portfolio, Mayor, 40% of your biz.
Your business is gonna grow mid single digit and Sparks still doing really well, it's hard not to land at mid single digit growth Ford you guys. When you should've wait everything out so I find them at odds maybe if you can talk to that and then that's a really quick turn to get back to market <unk>.
Speaker 6: is gonna grow mid-single digit and spark still doing really well it's hard not to land at mid-single digit growth for you guys when you sort of weight everything out so i find them at odds maybe if you can talk to that and then that's a really quick turn to get back to market brick growth considering your starting point with mix against you any details would be great thanks
Considering your starting point with mix it against you any details would be great. Thanks, guys.
Speaker 3: Thank you so much for your confidence, John . I really appreciate it. But let me tell you what is, let me brush this down for you. So 40% absolutely correct. 50% of that is just 20% of business. It operates and market proc.
Thank you so much for your confidence yeah, I really appreciate it but let me tell you what is let me break this down for you said, 40% absolutely correct, 50% of that is.
Clinicians are caution. They are very cautious about inventory management in their offices, on implant and back down wires, and one of the key elements of the growth was DSOs expanding the footprint around the NOAAs. There have been more cautious recently about borrowing money, investing, and expanding that business, which is directly impacting some of our equipment in business in the long run. On the business side and the implant side, we are seeing stable demand, but as I mentioned high end, is really challenged.
Does this 20 per cent of business operated market products.
Speaker 3: So this is not a whole spare transformation. There's about 50% of business, which is North America, operating below market proxies. As a stand.
So this is not a wholesale transformation is about 50 per cent of business, which is north America operating below market products.
Speaker 3: And because we sit down and do a lot of math about what the market proxies in the last nine months in each one of the segment look like, we think about 80% of our business today is operating on market prox.
Today, and we can sit down and do all of the math about what the market practice in the last nine months and each one of the segment look like rethink about 80% of our business today is operating and Mark Approx, 20% of the business, which is North America.
Speaker 3: 20% of the business, which is North America in fact, is below what those proxies are in North America. And again, you have a very good view of all the announcements coming up to what is taking place in North America. We know we are operating below market proxies. No question.
Is below what those proxies are in North America and again you you have a very good view of all day and I'll spend it is coming up to what is taking place in North America. We know we are offering below market products. There's no question about it.
And we have a really good fill on a number of implant that their place worldwide is specifically in North America. We are seeing some challenges. They started in Q2 and continued throughout Q3 and most recently. An ortho generally resilient for teens, adult cases has been weaker. On diagnostics, we have seen it in radically different that we have communicated before, major concern around higher interest rate, macro challenges, and I'm consuming what is stable and resilient.
Speaker 3: All right, we take a step back and say, what is causing that? What is, what's the purpose? And is that something that short term you can do immediately while you look at the long term? We're not committing that. We're going to start taking share in the long term. We're committing to a quarter to quarter improve.
We take a step back and say what is causing that what is what's the <unk> and is that something that's short term can do immediately while you look at the longer we're not <unk>, we're gonna start taking sharing the long.
Come in and to a quota to quota improvement were put in you stop the bleeding and some of these specific areas getting new customer building the training education doing a better job with the customer experienced overtime. These are the things that we have done John we did this in Europe with our.
Speaker 3: We're putting, we stop bleeding in some of the specific areas, getting new customer, building the training and education, doing a better job at the customer experience over time. These are the things that we have done. John , we did this in Europe with our implant business. We started that in 2021 and we started to result in that in 2021, in 2023. We're operating in that proxy and in some geographies, we're even better than Pro.
And I can take you through geography, by geography, the study we developed market, stable demand for basic procedures, high end, high end procedures, lower demand for it. China, we saw a really rapid pent up demand coming out of COVID, and specifically after the VBP. The key issues that everybody tells us, and toward our visits, we were communicated to that, the consumer sentiment remains a challenge in China. So the longer visibility is a little bit more difficult in that geography.
Implant business started that in 2021.
And we started resulted in 2020 102, and 20 twenty-three you operate in that proxy and some trp's you even better than process. So it is not unheard of is not something that we haven't.
Speaker 3: So it is not unheard of, it is not something that we haven't done. What we are saying is, and we haven't committed to a 2024 guidance. We're working through that by the time we get together in February , with the investors, we would give you a better view of that, and we deliver Q4, we would give you the guidance for 2024. But we think actions that we are taking that we have started, it's going to start paying off as we go through 2024. Okay, okay, that's great, that's great.
What we are saying is in within the we haven't committed to a 2024 guidance, we're walking through that by the time, we get together in February.
Russia, demand is soft, continuing conflict, and we are working through some of the challenges that we have around licensing. Emerging market, outside Russia and China, demand is stable. We're happy with what we have seen so far and continue that progression. Unfortunately, the recent challenges in Israel have caused additional commercial execution issues and manufacturing issues while in Vista.
<unk>, we would give you a better view of that can be delivered two four we will give you the guidance for 2024, what we see actions that we are taking that'd be haven't started it's gonna start paying off as we go through 2024.
Okay. Okay. That's great that's great color. Thanks for me I appreciate it.
Speaker 7: Of course.
Of course.
Speaker 1: Our next question will come from Nathan Rich with Goldman Sachs. Your line is open.
Our next question will come from my Sandwich with Goldman Sachs. Your line is open.
Now, coming back to your question about what change in last eight weeks? Or a specific element? One, the macro environment is increasingly volatile and more concerned than we had seen in the past. Geopolitical complexity has become even more challenging than it was eight weeks ago, ten weeks ago. Normally, after summer, we expect to see a ramp up around some of the procedures, specifically in Europe, and some high-end procedures in North America, we are not seeing that.
Speaker 8: Hi, good afternoon. Thanks very much for the questions. Maybe we wanted to start with the fourth quarter guidance. It looks like it implies a low single digit declining core growth.
Hi, good afternoon, thanks, very much for the questions maybe wanted to start with the fourth quarter guidance. It looks like it implies a low single digit declining core growth.
And last but not least, the North America distribution challenges, a putting tremendous amount of uncertainty in our view of what we see in the near-term in the rest of the year, together. Combining all of that together, we thought it would be prudent for us to consider the challenges and take advantage of the opportunity that we have and make sure that we continue to make investment, accelerating the spark. That ramp that we talked about is spark that a year ahead of plan has ramification about mix.
Could you maybe help us think about the impact by segment you know you call a macro weakness it seems like that would be more targeted on the uhm specialty segment with implants in the liners. The the distribution challenges I'd imagine impact E. N. C. So could you just you know maybe help us thing through the relative performance of the two segments.
Speaker 3: the distribution challenges that imagine impact ENC. So could you just maybe help us think through the relative performance of the two segments in Q4. And a couple of specific ones related to that. Obviously, Henry Schein's been impacted by disruption to their order management. Has that had an impact on your fourth quarter business? And is it really to Israel? I guess I wasn't clear. Is there a specific headwind embedded in the Q4 guidance or were you just highlighting that? Is an additional swing factor? Thanks very much. And sorry for the long question. Of course, Nathan, three questions. I asked the first two and I'll have Stephen talk to Q4. Let's start with Henry Schein. This is my year eight. Does it exist resourceuer? I don't know.
In Q4, and a couple of specific ones related to that obviously Henry shines been impacted by disruption to their order management has that had an impact on your fourth quarter business and as it relates Israel I I guess I wasn't clear is there a specific headwind embedded in the queue.
For guidance or were you just highlighting that as an additional swing factor thanks, very much and sorry for the one question.
Speaker 3: Of course, I have three questions. I answered the first two and I'll have Stephen talk to you for. Let's start with Henry Schanck. This is my year eight being in this industry. Sally Bergman has been a friend, a mentor to me, and somebody that I have tremendous respect for.
Of course, I think three questions I asked for the first two and a half. So you can talk to <unk>, let's just start with Henry <unk>. This is my ear ache.
This industry Sally bereavement has been a friend and mentor to me and somebody that I have tremendous respectful. We have reached out to them. We have offered our support if told them that we are here to help in any way that we chat.
Speaker 3: We have reached out to them, we have offered our support, we have told them that we are here to help them any way that we can. It's an unfortunate situation. We have a very close relationship with them, and we are trying to figure out how we can mitigate some of this negative impact. But China is our largest distributed North America.
The spark marting or below fleet average so the higher that volume, more challenging in our margin. And then investment that we have made a decision to make on North America implant our marketing, training education, community development, we thought the timing is right for us to do that in order to build a foundation for growth as we go forward. That combination of those challenges plus the decision that we have made, we thought it is the right time for us to adjust our guidance to build that stronger, more resilient business in the long run. Start it. Thank you very much. You're welcome. Thank you.
Fortunate situation.
We have a very close relationship with them.
And we are trying to figure out <unk>. Some of these negative impact, but China is our largest distributor in North America.
Speaker 3: But as I mentioned, two-third of our equipment and consumable businesses in North America.
But as I mentioned to sort of our equipment and consumable businesses in North America.
Speaker 3: And given that dynamic is something that we cannot forecast and really see how that's going to impact us. We're working with customers, we're working with all the distribution, but visibility is really very, very difficult. And to for us to be able to say when that recovery is going to take place, they can't take order, they have some other challenges. It's directly impacting us. Let me talk about it.
Given that.
Dynamic is something that we cannot forecast and really see how that's gonna impact us or working with customers. We're working with all the distribution, but visibility is really very very difficult to for us to be able to say when that recovery is gonna take place. They can't take order to have some of the challenges is directly.
Jeffrey Johnson: Our next question will come from Jeff Johnson with Beard. Your line is open. Thank you. Good afternoon. Can you hear me guys? Yes. All right. Great.
Impacting news, let me talk about a b T a little bit a b C is Israeli company the Nobel Bob prior to our acquisition, we have it incredible manufactured inside and outside Tel Aviv.
Speaker 3: A-V-T is Israeli company that Nobel bought prior to our acquisition. We have an incredible manufacturing side in Moding in, outside Tel Aviv. Our people have come to work and they're working, but environment is really difficult. They're about a 20 million dollar business as a whole in Israel.
Amir, you and I have known each other a long time so I'm going to ask you the two, you know, maybe tough questions, but I think fair questions here. So on the equipment and consumables side, you know, looks like it's going to be down for the year on a core growth basis. It was down last year, year over year. And even if I go back to the three years pre-COVID, 17, 18, and 19, you were negative in EMC on a core growth basis, you know, my sense is most of those years, that's a couple of few points below market, although hard to tell each of those years.
People have come to work and they're working environment.
Environment is really difficult.
20 million dollar business as a whole in Israel.
Speaker 3: that obviously we're not expecting to see anything in Q4, but also is a huge manufacturing site for us, for our ABP business, which is present in Latin America in Europe , in China. We're trying to build inventory, trying to kind of manage through that, but these realities that we're dealing with, at conflict has...
Obviously, we're not expecting to see anything to four but also is a huge manufacturing site for us for a for our a b T business, which is present in Latin America, and Europe, and China, We're trying to build inventory trying to kind of manage through that but he's realities that you're dealing with a cough like has.
So I guess my question is, you know, when the market recovers, whether we get back to a two, three, three, four percent kind of market growth rate in EMC for the broader market, do you think you can be at market or is there something structurally disadvantaged in your product categories or your positioning that's going to make it tough to even get back to market when market improves eventually? Well, I appreciate the question.
Speaker 2: uncertainty that we didn't face eight weeks ago. Now let's talk about a little bit Q4 and the gap that we see there. And I think Nate really what you're seeing here is, looking at Q4, we're going to expect continued strong growth in Spark as we've delivered consistently. But that growth is ultimately going to be tempered by some of the macro weakness that Amir is alluded to.
Cause uncertainty that within face eight weeks ago now, let's talk about that a little bit two four and the gap that'd be C. Correct.
You get to the heart of it and I'd love to be able to answer that question and tell you that we went through a radical transformation of our equipment and consumer business. We have been with us since 2015, in the past eight years that I've been around, the first two or three years of this journey of building and this side of the stance today was a lot of transformation. Moving away from product categories, geographies that really within advantage, moving away and setting obviously the carbon business, moving from animal health care and many other businesses.
And it really what you're seeing here is look in Q4 weeks. We're gonna expect continued strong growth and spark as we've delivered consistently but that growth is ultimately going to be tempered by some of the macro weakness telomeres alluded to as well as look we're not expecting a north American implant business to turn around in the fourth quarter. We expect continued kind of underperformers in the in the fourth quarter.
Speaker 2: As well as, look, we're not expecting our North American implant business to turn around in the fourth quarter. We've continued kind of under performance in the fourth quarter as we set up for better performance next year.
<unk>, we set up for better performance next year.
Speaker 2: And then again really come and then on top of that on the ENC side, you have the the planned exits or the the emphasis of specific geographies and products that will be of the modest growth the headwind to growth and then again as as we were talked about you have the uncertainty around the North American distribution channel and specifically the lumpiness around potential sales in a on a considerable size so that comes together for a low
And then they can really come and then on top of that on the E&C side you have.
The the planned exits or the <unk>, the de-emphasis, a specific geographies and products that will be at the modest growth.
So if I take a look at the last nine months as an example and then compare it to 2022, here's what I see, here's what we see. If I take the exits of the geographies that we have moved, we have a really good field that was gone on inventory and consumable and they sell out. About, I would say, two-third of our business, of our consumer equipment is in North America. We have tremendous amount of insight about the sellout.
Wind to growth.
Then again as in you talked about you have the.
Uncertainty around the North American distribution channel and specifically the the lumpiness around potential sales and a ton of considerable side.
So that comes together for low single digit growth.
Speaker 9: And obviously on the margins side we'll continue to make investments on both Spark and Inplants, which do temper the margin profile that we're talking about.
<unk> and <unk>.
Obviously, an emergency I will continue to make investments on both spark and in plants, which do temper the the margin.
We are at or above sellout in the past nine months in almost every category. So I appreciate the perspective and looking back, but that's the reality of what we see on the ground. We watch that very carefully, we watch inventory, we watch sellout. You may see a quarter to quarter ups and downs, but in the past, you know, quarter to day are consumable at or above sellout and categories are imaging at or above sellout.
Profile that we're talking about.
Great. Thank you.
Thank you.
Speaker 1: Our next question comes from Jason Begnar with Piper Sandler. Your line is open.
Our next question comes from <unk> <unk> Your line is open.
Speaker 6: Good afternoon, next second, the questions. I want to start here on EBITDA margin for the year. And I get positive. I know we've covered this in a few different ways already, maybe, but just trying to understand the message and really consider where we're at versus where we've been all year long.
Hey, good afternoon. Thanks for taking the questions I wanted to start here on EBITDA margin for the year.
And I do apologize we've covered this in a few different ways already maybe but I'm just trying to understand the message you really consider wherever adverse where we've been all your long.
But now I want to turn the discussion forward and tell you what we expect, to see. Majority of deemphasizing some of the product categories, some geographies, is going to be behind us. We're going to manage this business, get it to a more of a stable, differentiated. We're there with the consumable, the infection prevention, the endo, the resto. Last piece of this equation is around imaging.
Speaker 10: You know, the last nine months, the message is then, you know, for investor with God EBS, we're lean, we're restructuring the business and certain geographies that you're paying off. We're going to deliver an improvement in EBITDA margins in the second half of this year. It's back half weighted, but we know it. We know that.
The last nine months of the message has been <unk>.
For Investor We've got a P. S were lean where restructuring the business in certain geographies that you're paying off rent deliver an improvement in EBITDA margins in the second half of this year. It's back have waited, but we know we know we know that but today's message seems like a pivot where you're you're meeting a tougher operating environment with higher spending and business Reinvestments Sir.
Speaker 10: But today's message seems like a pivot where you're meeting a tougher operating environment with higher spending and business reinvestments. So I understand that's a tough question. And there are things that are outside of your control like we're just talking about with Henry Schein. But can you help with the cadence of decisions and messaging here around you, but that's March.
We think we're going to be in a really good place starting in 2024. And then innovation is going to play such an important role in here. Just in the past three months, we have put a new category, OP3D-LX, that is going to expand our presence. We have released a new interora scanner. We have now FDA-approved AI that we are putting in our large install base of sensors. Combination of go-to-market activities, focus on innovation, and continuation of a DBS, EBS at work, is going to put this business at or about market as we go forward.
What I understand it's a tough question and there are things that are outside of your control like we're just talking about with Henry Schein, but can you help with the cadence of decisions and messaging ear around EBITDA margins.
Speaker 3: Yeah, happy to do it. So.
Yeah happy happy to do it so.
Speaker 3: So the mix played a very important role.
So the mix play a very important role in here.
Speaker 3: Spark growing a lot faster and we are doubling down, opening a new factory, expanding that wildest bro, fleet average, that plays an important role in.
Spot growing a lot faster than we are dabbling down opening a new factory expanding that wireless Bureau fleet average that plays an important role in here.
Speaker 3: In plan, as Steven talked about, we're not expecting any radical shift. We're expecting continuous improvement, core after core after core, the moving forward. Uncertainty that we talked about run North America distribution plays an important role. These are high margin products.
Implant.
Is Stephen talked about we're not expecting any radical shift we respect continuous improvement core after quarter after quarter moving for uncertainty there'll be talks about Ron North America distribution plays an important role does the high margin products that if you're not able to.
We are really confident that this is the trajectory, this is the future we're seeing here, and all the work that we have done is put us in a really positive position today. Jeff, you know this market very well. It changes and turns slower than you expect. What we have done, we have done a lot of those changes now, you know, in a really good place on relationship without distributors. And we think what we move forward, we're going to see a different performance as I mentioned again, app or above market processes.
Speaker 3: that if we are not able to with certainty put that in the channel deliver to customers it's going to have implications.
Certainty.
That and the channel deliver to customer is gonna have a vacation.
Speaker 3: combination of all of that. It is not about continuous improvement on our part. We're doing everything possible to make sure that gross margin and areas such as on the specific spot continue to improve core after core.
Combination of all of that it is not about continuous improvement on our part we are doing everything possible to make sure. The gross margin in areas such as the specific spot continue to improve core after quota.
All right, well that's great to hear.
And let me ask the second question then is on your North American implant business. And you know, obviously you have the noble bio-care business here, you have the implant direct business. You know, it seems like a bit of a gap, at least in my view, a gap in kind of that premium minus category, maybe the $350 to $400 price point, something like that. And I think as practice profitability has come under pressure here in the past 12, 18 months, at a lot of these offices, you know, that's $150 savings off the premium price points, you know, maybe a start to appeal to some implant docs out there.
Speaker 3: Imaging business getting more and more profitable going forward a consumer is in the best possible format from
Imaging business getting more and more profitable going forward, a consumable isn't the best possible format from.
Speaker 3: meantime, deliver quality margin support.
On time delivery quality March and destruction.
Speaker 3: The headwind we are seeing on those areas is really having a drastic impact. We have to rethink.
It had been seen in those areas is really have any drastic impact we have to rethink.
Speaker 3: what we are able to do with certainty to achieve for. And then we wanna build this business for a long run. Yes, we have commitment and we wanna deliver to those guidance that we have, but we also wanna make sure that we do a balance of investment versus margin expand.
We are able to do with certainty through two four and then we wanted to build this business for a long <unk>, yes, we have commitment and we wanted to deliver to those guidance that we have but we also want to make sure that we do a balance of investment versus margin expansion investment that we're making today.
So my question is, you know, you're putting more channel support out there, you're putting more investments in the North American business, training, education, things like that. Is that enough? Do you need to fill that product gap in that premium minus?
Speaker 3: Investment that we are making today on Spark, North America, and Nobel commercial activities is going to have a long-term impact. And we're going to see the outcome of that in 2024, 2025, and driving toward achievement of what we said in 2020.
Spock North American Nobel commercial activities is gonna have a long term impact and we're gonna see the off come up that in 2024 2025.
And if you do, how do you do it? Yeah, great, great question, Jeff. You know what, what we did, what we have done in the past five, six to nine months, we went back and said, let's take a look at 2016 to 2019. Let's assume that's no. That's what the word before COVID looked like. We look at the number of implants, we look at the pricing, we look at premium versus value, let me say okay, a race 2020, look at 2021, 22, 23, try to see what that looked like in order for us to be able to look at what the new award order looked like in 24 to 26.
Driving toward achievement of we'll be sending 2026.
Speaker 3: Those are tough decisions that we needed to make and looking back on what we have done in the past. We think this is the time for us to make those balanced decisions to get ourselves in a better place, to put ourselves in a better position for the longer.
He was a tough decisions that we needed to make and looking back on what we have done in the past. We think this is the time for us to make those balance decisions to get our stuff in a better place to put our stuff in a better position for the law.
Okay.
Speaker 10: Are you able to quantify maybe how much the distribution disruption is impacting profitability? That seems like the biggest delta versus where we were at three months ago. And then I did want to piggyback off John Bloch's question. Are you saying that your LRP for 2026 is intact or are the goalposts moving here where your LRP is now by definition long term rather than a line in the sand like 2026?
Are you able to quantify maybe how much the distribution disruptions is impacting profitability as that seems like the biggest delta versus where we were at three months ago, and then I did want to piggyback off John blocks question are you, saying that your L. R. P. For 2026 is intact or are the goalposts moving here, where you're L. R. P.
What we see in here, the pricing and implant, we're purely talking implant on the premium. So it hasn't dropped as radically as, you know, anticipated value prices have dropped a lot quicker, a lot faster. Volume, if you look at the volume, volume on the value set has increased a lot quicker, a lot faster, but that shift that people anticipate is going to happen, everything going to value, it's not happening. But now if you take the volume aside and say, I'll look at the dollar, the dollar span, which is in crude, prosthetic, regenerative, all that.
Is now by definition longterm, rather than a line in the sand like 2026.
Speaker 3: So we don't provide guidance by specific segments. We're just anticipating what the challenges is going to look like in North America's specifically through distribution, as well as what we talked about on AABT, some of the additional risk that we have other places. That's how we kind of re-wise our forecast.
Yeah. So we are we don't provide guidance by a specific segment.
Anticipating what the challenges is gonna look like in North America specific is the distribution as realize what we talked about on a B T.
Additional risk that'd be have other places that's how we kind of re wise forecast.
Primium continues to be an important part of this equation. The dollar is spent both on the patient side, as well as on practitioner to stay on the premium side and has really hasn't changed that radically. I mentioned one more point and then I answer your question about no bad. If you go back to look at price of a placing one single impact from 2016 to today, despite of all the changes in the market and price reduction and bad, the prices have gone up. So people are charging more now than they charged before. So this business remains a very healthy business with a high margin. Now we say why now?
Speaker 3: or we have communicated on 2026.
Well, we have come in it will be communicated on 2026.
Speaker 3: Those milestones are there and we have a path to get
It was milestones Adair and we have a path to get.
Speaker 3: There are a series of activities that we have to do to get assuming the macroing wire man doesn't deteriorate faster or worse than what it is. The mathematics that they're in place, the activities that we are putting in place, the innovation and investment should get us to that 2026 guidance that we have provided.
There are a series of activities that we have to do to get assuming the macro <unk> doesn't deteriorate.
Worse than what it is the mathematics that there are in place to activities that we have put in place that innovation and investment should get us to that 2026 guidance that we have provided.
Speaker 3: We have a lot more work to do, a lot more opportunities to have that discussion when we meet in February and after Q4 results.
We have a lot more work to do a lot more opportunities to have that discussion when we meet in February and after two four results.
Why did you all of a sudden recognize you have this challenge? After COVID, we kind of that pent up demand caused us to misread a lot of what was taking place in place in in in realities. All the changes that we did and the commercial execution and customer experience, training, education, RVP in China to paying off over 50% of our business outside North America is performing a proxy or above proxies. When we start digging it into the North America, who is placing this impact?
Speaker 3: Right now we're focusing trying to do the best that we can to take care of our customers to make sure that our team sees the future of what we can do as a company, making a huge difference. We have come a long way in the past four years. We're not stopping in here and we think what we see in the short term is what we need to do to build the future of this industry and the future of Envista. Thank you so much.
Right now, we're focusing trying to do the best that we can take care of our customers to make sure that our team sees the future. What we can do as a company, making a huge difference we have come a long way in the past four years, we're not stopping in here and we think what we see in the short term is it <unk>.
To do to build the future of this industry in the future and <unk>. Thank you so much.
Speaker 9: Thank you for that. We're going to conclude the call. Really appreciate everyone's time. We look forward to talking to you.
Okay.
Thank you with that we're gonna include the call really appreciate everyone's time move forward to talking to you in the coming weeks.
The specialists, those high volume GPs, the DSOs, the value proposition, what you need to do for each segment radically different and we need to change and adjust that approach. We need to become a lot localized. We need to be on the ground in front of these people. Customer experience becomes a lot more important. Relationship community of the future, younger or surgeon, more diverse. These are what they're going to build the future of this business.
Speaker 1: Thank you ladies and gentlemen. This concludes the end of the holding's corporations third quarter, 2023 earnings results conference call. You may now disconnect.
Thank you ladies and gentlemen, this concludes the youngest of Holdings Corp.
2023 earnings conference call.
May now disconnect.
[noise] [music].
Speaker 11: I.
Mmm Mmm mmm.
Mhm.
[music].
We need to build that community. We need to give these people opportunity to learn and teach an impacting environment. We have been at this for quite some times. We wanted to make sure that we have a really good understanding of what is taking place on the ground before we take serious actions. We have that understanding now. Now let me go back to the portfolio. Nobel is a well-known brand. When we interview and we have interviewed a large number of people, product gap, important but is not the most important thing that we got to do.
I'm not moving away from innovation. I'm not suggesting that we shouldn't be doing that. There are some short-term, long-term approach. In short-term, customer experience, getting people to learn how to place impact. Building the communities have the drastic impact and importance. Continue to look at the portfolio. While we have been added with N1 and some of the surfaces tried to predict the future, take a look at what is needed today and try to make sure that the partnership, as well as filling the portfolio on some of the areas, we continue to build that momentum. We feel good about what we are understanding.
Andy. That is a big part of the problem. Do you exactly know what the issue is? We think that we now have that understanding. Now we have been in action. It's starting in Q3. We're making those investments. We're adding resources. We're creating this training education program. And you're going to see a different performance as we go forward. Appreciate that. Thank you.
John Block: Our next question will come from John Block with people. Your line is open. Thanks, guys.
Good evening. Maybe the first one, you know, it sounds like the expectations for modest growth for revenue and even dog expansion in 2024. Stephen, if I heard you correctly, so what do we think about the LRP EBITDA margin of 22.5 for 2026? That implies greater than 100 bibs off the new 185 this year. And next year doesn't seem like that's teed up for 100 bibs. So it would be wildly back and weighted.
So let me maybe start there. And, you know, do we take that off the table, which arguably was on the table only 9 or 10 months ago and then I'll ask the follow-up? Yes, happy to answer that, John. We put a guidance out there and said that in the long run, we want to get to about a high single digit in 2026 or 2020.5%. So what assumptions would we made when we make those guidance and what has changed?
We just meant, we just communicated that our intention is to devil the size of our spark business. That plays such an important role in reaching that goal milestone in the long run. So do that calculation. You'll find out in the next three years, we have significant opportunity for expansion or growth on that area. One, two, the margin on our spark is below fleet average. And what we have, if we look at it in the last seven quarters, specific in the last three quarters, every quarter we have better margin than the previous one.
While we continue to make investment, we continue to do automation, EBS at work, try to improve the margin in order to get this to be fleet average as we get in other years. Such a significant investment and growth and portion of a portfolio getting to more fleet average really make that equation work. So as a first element of the second, our implant business has been operating in performing below market proxies. The plan that we have to go executed, but the plan that is in place, get that to the market proxies over the next couple of years start improving that in 2024.
It's such a high margin business that by step is going to make a huge difference. The third piece of this equation is around diagnostics. We of course correct on the emphasizes some of the product categories region. That's going to be behind us. We're going to see a better performance. You have seen that in the past three quarters. Our equipment and consumer has better margin and continue to deliver. Now imagine getting to market proxies, those single digit, market improving, higher margin in that area.
That is going to add to the proxy add to that long term. Review. We're not counting on any radical changes. We do that math. We execute the program that we have in place, but deliver on what we have in our long-term view without any acquisition. We think that long-term goal is achievable. We need to go ahead and execute it. In the short term, we have to make some trade-off between growth margin in order to build the foundation for the longer. This organization has proven that they have tracked record of confidence in building credibility and operational excellence. 450 basis fund of operating margin improvement. We have done that. We can do that again moving forward.
That was great. That was very helpful. I mean, the second question might just be a little bit more straightforward and I'll apologize in advance for it, but I just really don't understand the implant commentary. It seems like you've been the main shared donor in the industry of late. You're poorly weighted in terms of call of premium versus value. How do you expect to get back to market growth as early as 2024?
Maybe you can detail how you do that so quickly. And then I feel like getting back to market growth in 24 is actually at odds with modest revenue growth because it's such a big chunk of your portfolio mere. 40% of your biz is going to grow mid-single digit and spark still doing really well. It's hard not to land at mid-single digit growth for you guys when you sort of weight everything out.
So I find them at odds. Maybe if you can talk to that. And then that's a really quick turn to get back to market growth considering your starting point with mix against you. Any details would be great. Thank you guys. Thank you so much for your confidence. Yeah, I really appreciate it. But let me tell you what is, let me break these down for you. So 40% absolutely correct. 50% of that is just 20% of business.
They operate at market proxies. So this is not a wholesale transformation. There's about 50% of business which is North America operating below market proxies as a stand today. And we can sit down and do a whole lot of math about what the market proxies in the last nine months in each one of the segments look like we think about 80% of our business today is operating at market proxies. 20% of the business which is North America implant is below what those proxies are in North America.
And again, you have a very good view of all the announcement that is coming up to what is taking place in North America. We know we are operating below market proxies. No question about it. All right, we take a step back and say what is causing that what is what's the purpose and is that something that short term can do immediately while you look at the long term. We're not committing that we're going to start taking share in the long.
We're committing to a quarter to quarter improvement. We're putting we stop the bleeding in some of the specific areas getting new customer building the training education doing a better job with the customer experience. Over time, these are the things that we have done. John, we did this in Europe with our implant business. We started that in 2021 and we started resulted at in 2021 to in 2023. We are operating in that proxy and in some geographies we're even better than proxies.
So, it is not unheard of, it is not something that we haven't done. What we are saying is, and we haven't committed to a 2024 guidance. We're working through that by the time we get together in February with the investors. We would give you a better view of that, and we deliver Q4. We would give you the guidance for 2024.
Okay, that's great. This is great color. Thanks, Amir. I appreciate it. Of course.
Nathan Rich: Our next question will come from Nathan Rich with Goldman Sachs. Your line is open. Hi, good afternoon. Thanks very much for the questions. I maybe wanted to start with the fourth quarter guidance. It looks like it implies a low single digit declining core growth. But, you know, could you maybe help us think about the impact by segment? You know, you call it macro weakness. It seems like that would be more targeted on the specialty segment with implants and aligners.
Nathan Rich: The distribution challenges that imagine impact ENC. So, could you just, you know, maybe help us think through the relative performance of the two segments in Q4. Or, and a couple of specific ones related to that. Obviously, Henry Schein has been impacted by disruption to their order management. Has that had an impact on your fourth quarter business? And is it really to Israel? I guess I wasn't clear. Is there a specific headwind embedded in the Q4 guidance? Or were you just highlighting that as an additional swing factor? Thanks very much. And sorry for the long question. Of course, I think three questions. I answered the first two.
And I'll have Stephen talk to you Q4. Let's start with Henry Schein. This is my year eight. Been in this industry. Stanley Bergman has been a friend and mentor to me and somebody that I have tremendous respect for. We have reached out to them. We have offered our support. We have told them that we are here to help them anyway that we can. It's an unfortunate situation. We have a very close relationship with them.
And we are trying to figure out how we can mitigate some of these negative impact. But China is our largest distributed North America. But as I mentioned, two-third of our equipment and consumable businesses in North America. And given that dynamic is something that we cannot forecast and really see how that's going to impact us. We're working with customers. We're working with all the distribution. But visibility is really very, very difficult night to for us to be able to say when that recovery is going to take place. They can't take order. They have some other challenges. It's directly impacting us.
Let me talk about the ABT a little bit. ABT is Israeli company that Nobel bought prior to our acquisition. We have an incredible manufacturing site in North Indian, outside Tel Aviv. Our people have come to work and they're working. But environment is really difficult. We have about a 20 million dollar business as a whole in Israel. Obviously, we're not expecting to see anything in Q4, but also is a huge manufacturing site for our ABT business, which is present in Latin America, in Europe, in China. We're trying to build inventory, trying to kind of manage through that. But these realities that we are dealing with. At conflict has caused uncertainty that we didn't face eight weeks ago.
Now let's talk about a little bit Q4 and the gap that we see there. And I think Nate really what you're seeing here is looking to forward. We're going to expect continued strong growth in spark as we've delivered consistently. But that growth is ultimately going to be tempered by some of the macro weakness that Amir is alluded to. As well as look, we're not expecting our North American implant business to turn around in the fourth quarter.
We've continued kind of under performance in the fourth quarter as we set up for better performance next year. And then again, really come and then on top of that on the E&C side, you have the the planned exits or the the emphasis of specific geographies and products that will be of the modest growth. Had to win to growth. And then again, as Amir talked about, you have the uncertainty around the North American distribution channel and specifically the lumpiness around potential sales in a on a considerable size.
So that comes together for a low single-digit growth decline. And obviously on the margin side we'll continue to make investments on both spark and implants which do temper the margin profile that we're talking about. Great, thank you.
Thank you.
Jason Bednar: Our next question comes from Jason Bednar with Piper Sandler. Your line is open. Hey, good afternoon. Thanks for the questions. I want to start here on EBITDA margin for the year. And I know it's covered this in a few different ways already maybe, but just trying to understand the message and really consider where we're at versus where we've been all year long. You know, the last nine months, the message is then, you know, for Envista, we've got EBS, we're lean, we're restructuring the business and certain geographies that you're paying off. We're going to deliver an improvement in EBITDA margins in the second half of this year. It's back half-weighted, but we know it. We know we know that.
But today's message seems like a pivot where you're meeting a tougher operating environment with higher spending and business reinvestments. So what I understand is a tough question, and there are things that are outside of your control, like we're just talking about with Henry Shine. But can you help with the cadence of decisions and messaging here around EBITDA margins? Yeah, happy, happy to do it. So the mix played a very important role in here.
The spark growing a lot faster, and we're doubling down, opening a new factory, expanding that wildest bro, fleet average, that plays an important role in here. In plan, as Stephen talked about, we're not expecting any radical shift. We're expecting continuous improvement, core after core after quarter, moving forward. Uncertainty that we talked about, run North America distribution plays an important role. These are high margin products that if we're not able to with certainty, put that in the channel delivered to customers, it's going to have implication on combination of all of that.
It is not about continuous improvement on our part. We're doing everything possible to make sure that gross margin and areas such as on the specific spark continue to improve core after core. Our imaging business getting more and more profitable going forward, a consumer is in the best possible format from on time delivery, quality, margin structure. The headwind we are seeing on those areas is really having a drastic impact. We have to rethink what we are able to do with certainty to achieve for.
Then we want to build this business for a long run. Yes, we have commitment and we want to deliver to those guidance that we have. But we also want to make sure that we do a balance of investment versus margin expansion. Investment that we are making today on the spark North America Nobel commercial activities is going to have a long term impact. We are going to see the outcome of starting in 2024 or 2025 and driving toward achievement of what we said in 2020, of 2006.
Those are tough decisions that we needed to make, and looking back on what we have done in the past, we think this is the time for us to make those balanced decisions, to get ourselves in a better place, to put ourselves in a better position for the longer.
Okay, Amir, are you able to quantify maybe how much the distribution disruption is impacting profitability? That seems like the biggest delta versus where we were at three months ago. And then I did want to piggyback off John Block's question. Are you saying that your LRP for 2026 is intact or are the goalposts moving here where your LRP is now by definition long term rather than a line in the sand like 2026?
Yeah, so we are, we don't provide guidance by a specific segment. We'll just anticipate in what the challenges is going to look like in North America, specifically the distribution, as well as what we talked about on ABT, some of the additional risk that we have other places. That's how we kind of a revise our forecast. What we have committed will be communicated on 2026. Those milestones are there and we have a path to get there.
There are a series of activities that we have to do to get assuming the macroing wireman doesn't deteriorate faster or worse than what it is. The mathematics that they're in place, the activities that we are putting in place, the innovation and investment should get us to that 2026 guidance that we have provided. We have a lot more work to do, a lot more opportunities to have that discussion when we meet in February and after Q4 results.
Right now we're focusing trying to do the best that we can to take care of our customers to make sure that our team sees the future of what we can do as a company, making a huge difference. We have come a long way in the past four years. We're not stopping in here and we think what we see in the short term is a blip in what we need to do to build the future of this industry and the future of Envista.
Thank you so much. Thank you.
With that we're going to conclude the call. I really appreciate everyone's time moving forward to talking to you in the coming weeks. Thank you ladies and gentlemen. This concludes the Envista Holdings Corporation's third quarter of 2023 earnings results conference call.
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