Q2 2024 Envista Holdings Corp Earnings Call

August 7, 2024

Music

Operator: Please stand by; your program is about to begin. If you need assistance during your conference call today, please press star zero. My name is Stephanie, and I'll be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's second quarter 2024 earnings results conference call. All lines have been placed on mute to prevent any background noise.

Operator: Welcome back. Your program is about to begin. If you need assistance during your conference call today, please press star zero. My name is Stephanie, and I'll be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's second quarter 2024 earnings results conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star, then the number one on your keypad. If you'd like to withdraw your question, please press star, then 2 on your telephone keypad. I will now turn the conference over to Mr. Stephen Keller, Principal Financial Officer of Envista Holdings. Mr. Keller, you may begin.

Stephanie: My name is Stephanie, and I'll be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's second quarter 2024 earnings results conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star, then the number 1 on your keypad. If you'd like to withdraw your question, please press star, then 2 on your telephone keypad.

Stephen Keller: I will now turn the conference over to Mr. Stephen Keller, Principal Financial Officer of Envista Holdings. Mr. Keller, you may begin.

Stephen Keller: Good afternoon, and thanks for joining the call. With me today is Paul Keel, our President and Chief Executive Officer, and Eric Hammes, who will assume the position of Chief Financial Officer tomorrow. Paul and I will be leading the call today and will handle the Q&A at the end of the prepared remarks.

Speaker Change: Good afternoon and thanks for joining the call. With me today is Paul Keel, our President and Chief Executive Officer, and Eric Hammes, who will assume the position of Chief Financial Officer tomorrow. Paul and I will be leading the call today and we'll handle the Q&A at the end of the prayer remarks.

Stephen Keller: Paul and I will be leading the call today and will handle the Q&A at the end of the prepared remarks. I want to point out that our earnings release, the slide presentation supplementing today's call, and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investor section of our website, www.investico.com. The audio portion of this call will be archived on the Investors section of our website today under the heading Events and Presentations. It will remain archived until our next quarterly call.

Stephen Keller: I want to point out that our earnings release, the slide presentation supplementing today's call, and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investor section of our website, www.investico.com. The audio portion of this call will be archived on the Investors section of our website today under the heading Events and Presentations. It will remain archived until our next quarterly call.

Speaker Change: 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

Speaker Change: relating to any non-GAAP financial measures provided during the call.

Speaker Change: are all available on the investor section of our website, www.investico.com.

Speaker Change: The audio portion of this call will be archived on the Investors section of our website layer today under the heading Events and Presentations.

Stephen Keller: During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 2024, and references to period-to-period increases or decreases in financial metrics are year-over-year. During the call, we may describe certain products and devices that have applications submitted and are pending certain regulatory approvals or are available only in certain markets. We will 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 the future.

Stephen Keller: During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. Supplemental materials describe additional factors that impacted our year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 2024, and references to period-to-period increases or decreases in financial metrics are year-over-year. During the call, we may describe certain products and devices that have applications submitted and are pending certain regulatory approvals or are available only in certain markets.

Speaker Change: It will remain archived until our next quarterly call. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our year-over-year performance.

Speaker Change: Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 2024, and references to period-to-period increases or decreases in financial metrics are year over year.

Speaker Change: During the call, we may describe certain products and devices that have applications submitted and pending certain regulatory approvals, or are available only in certain markets.

Stephen Keller: We will 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 the future. Such forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements except as required by law.

Speaker Change: We will 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 the future.

Stephen Keller: These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'd like to turn the call over to Paul. Thank you.

Speaker Change: These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings.

Speaker Change: And actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'd like to turn the call over to Paul.

Paul Keel: Thank you, Stephen. Good afternoon, and welcome to Envista's second quarter 2024 earnings call. We appreciate you taking the time to join us today. We'll cover three items in the next 30 minutes or so and then reserve the last half hour for Q&A. I'll start with some opening thoughts on the quarter, on my first 90 days with Envista, and on the broader dental market. I'll then turn it over to Stephen to walk us through the numbers, and we'll come back later in the presentation with a strategic update and outlook for 2024. Four thoughts by way of introduction.

Paul Keel: Thank you, Stephen. Good afternoon and welcome to Envista's second quarter 2024 earnings call. We appreciate you taking the time to join us today. We'll cover three items in the next 30 minutes or so and then reserve the last half hour for Q&A.

Paul Keel: I'll start with some opening thoughts on the quarter, on my first 90 days with Envista, and on the broader dental market. I'll then turn it over to Stephen to walk us through the numbers, and we'll come back later in the presentation with a strategic update and outlook for 2024.

Paul Keel: First, Envista is a fundamentally good business. With significant unmet global demand, dental has proven to be a sectorally growing market over time. And Envista is well positioned to serve this demand, holding a top three position in the most attractive segment. As a former Danica business, we have a high performing continuous improvement culture, which is evident in our strong operations and talented people. Having spent most of my career in other structurally advantaged companies, I know what they look like and can see that this company is built on a very solid foundation.

Speaker Change: Four thoughts by way of introduction.

Speaker Change: First, Envista is a fundamentally good business.

Speaker Change: With significant unmet global demand, Dental has proven to be a sectorally growing market over time, and Envista is well positioned to serve this demand, holding a top three position in the most attractive segment.

Speaker Change: As a former Daneker business, we have a high-performing, continuous improvement culture, which is evident in our strong operations and talented people.

Speaker Change: Having spent most of my career in other structurally advantaged companies, I know what they look like and can see that this company is built on a very solid foundation.

Paul Keel: With that as a starting point, I would also say that our recent performance does not reflect our full capabilities, much less our vast potential. While free cash flow was strong in the quarter, up 41%, our core growth of negative 3% and adjusted EBITDA margin of 10% were below expectations. As Stephen will explain in a moment, these include a number of one-time and non-cash charges.

Speaker Change: With that as a starting point, I would also say that our recent performance does not reflect our full capabilities, much less our vast potential.

Speaker Change: While free cash flow was strong in the quarter, up 41%, our core growth of negative 3%, and adjusted EBITDA margin of 10% was below expectations. As Stephen will explain in a moment, these include a number of one-time and non-cash charges.

Paul Keel: Excluding the impact of these items, we believe this implies an underlying performance of the business in line with Q1. Even at these levels, though, we are capable of more. And as such, we are swiftly taking action to position our company for better performance moving forward. To that end, we filled three critical executive roles in Q2.

Stephen Keller: Excluding the impact of these items, we believe this implies an underlying performance of the business in line with Q1.

Stephen Keller: Even at these levels, though, we are capable of more. And as such, we are swiftly taking action to position our company for better performance moving forward.

Stephen Keller: To that end, we filled three critical executive roles in Q2. We're making important investments in SPARC manufacturing technology to improve profitability and support long-term growth.

Paul Keel: We're making important investments in SPARC manufacturing technology to improve profitability and support long-term growth. We're drawing down channel inventory in our distribution businesses, connecting us even more closely to end user demand. And we're continuing to make growth investments in our largest and most profitable business, Nobel Biotech. We're excited by the return potential of these investments. On the back of all this, we are reinstating full-year guidance of negative 1% to negative 4% core growth and 10% to 12% adjusted EBITDA margin.

Stephen Keller: We're drawing down channel inventory in our distribution businesses, connecting us even more closely to end-user demand, and we're continuing to make growth investments in our largest and most profitable business, Nobel Biocare.

Stephen Keller: We're excited by the return potential of these investments.

Stephen Keller: On the back of all this, we are reinstating full year guidance of negative 1% to negative 4% core growth and 10 to 12% adjusted EBITDA margins.

Paul Keel: The P&L impact of the actions I mentioned is concentrated in Q2 and Q3, and we expect a return to growth in Q4. However, absent one-time and non-cash charges that Stephen will detail later, we believe that the underlying performance of our business would be more in line with modest growth and low teens margins on a full-year basis. As you will recall, I joined Envista on May 2nd, and my first 90 days with the business have been both productive and encouraging.

Stephen Keller: The P&L impact of the actions I mentioned are concentrated in Q2 and Q3, and we expect a return to growth in Q4.

Paul Keel: And we expect a return to growth in Q4. Absent one-time and non-cash charges that Stephen will detail later, we believe that the underlying performance of our business would be more in line with modest growth and low teens margins on a full-year basis. As you will recall, I joined Envista on May 2nd, and my first 90 days with the business have been both productive and encouraging. As I previewed on our Q1 earnings call, I focused the lion's share of my time over the past few months on three primary areas: customers, colleagues, and operations. With respect to the first, I've had the pleasure of meeting with dozens of customers, key opinion leaders, and business partners.

Stephen Keller: Absent one-time and non-cash charges that Stephen will detail later, we believe that the underlying performance of our business would be more in line with modest growth and low teens margins on a full-year basis.

Speaker Change: as you will recall a jointed invista on me second and my first ninety days with the business been both productive and encouraging

Paul Keel: As I previewed on our Q1 earnings call, I focused the lion's share of my time over the past few months on three primary areas: customers, colleagues, and operations. With respect to the first, I've had the pleasure to meet with dozens of customers, key opinion leaders, and business partners.

Speaker Change: As I previewed on our Q1 earnings call, I focused a lion's share of my time over the past few months in three primary areas—customers, colleagues, and operations.

Stephen Keller: With respect to the first, I've had the pleasure to meet with dozens of customers, key opinion leaders, and business partners. With close to two-thirds of our business sold direct, our customer connectivity is strong and the quality of our portfolio is well recognized.

Paul Keel: With close to two-thirds of our business sold directly, our customer connectivity is strong, and the quality of our portfolio is well-recognized. Stakeholders know that Envista is a great company, and they want and expect even more from us. Regarding my colleagues, I've connected with nearly all of our top 150 leaders, as well as many of our frontline teams.

Stephen Keller: Stakeholders know that Invista is a great company and they want and expect even more from us.

Stephen Keller: Regarding my colleagues, I've connected with nearly all of our top 150 leaders, as well as many of our frontline teams. They also know how strong their company is and are similarly eager and committed to performing up to our potential.

Paul Keel: They also know how strong their company is and are similarly eager and committed to performing up to our potential. Ours is a continuous improvement culture, which means we know we must be better tomorrow than we are today. The opportunities I've seen in just the first 90 days are both meaningful and actionable. For as far as this and our predecessors have come across our hundred plus year history, our brightest days are still ahead.

Stephen Keller: Ours is a continuous improvement culture, which means we know we must be better tomorrow than we are today.

Stephen Keller: the opportunities i've seen in just the first ninety days for both meaningful and actionable

Stephen Keller: For as far as this and our predecessors have come across our hundred-plus year history, our brightest days are still ahead.

Paul Keel: Finally, in terms of operations, I expected to find a capable organization and have not been disappointed. I have visited most of our largest sites around the world already, and the benefits of the Envista business system are readily apparent.

Paul Keel: I expected to find a capable organization and have not been disappointed. I have visited most of our largest sites around the world already, and the benefits of the Envista business system are readily apparent. EBS is an important differentiator for us. However, even here, there remain opportunities to extend the impact of EBS across our global footprint. There is more we can do to convert our capabilities into consistently strong results. This is what good companies do. And most of what I've seen across my first 90 days supports what I said on the previous slide.

Speaker Change: Finally, in terms of operations, I expected to find a capable organization and have not been disappointed. I have visited most of our largest sites around the world already, and the benefits of the Envista business system are readily apparent.

Paul Keel: EBS is an important differentiator for us. However, even here, there remains opportunities to extend the impact of EBS across our global footprint. There is more we can do to convert our capabilities into consistently strong results. This is what good companies do. And most of what I've seen across my first 90 days supports what I said on the previous slide.

Stephen Keller: EBS is an important differentiator for us. However, even here, there remains opportunities to extend the impact of EBS across our global footprint.

Stephen Keller: There is more we can do to convert our capabilities into consistently strong results. This is what good companies do, and most of what I've seen across my first 90 days supports what I said on the previous slide. Envista is a fundamentally good company.

Paul Keel: Envista is a fundamentally good company. Before I turn it over to Stephen, let me say a few words about the dental market, as well as our relative performance within it. In total, we estimate that the global dental market grew low single digits in the quarter. Compared to its longer-term growth, this relative market softness that we and others have commented on continued in Q2, driven by macro factors like higher interest rates, moderate consumer confidence, and rebalancing of demand following the post-COVID market surge in late 2022 and 2023.

Paul Keel: On the positive, patient traffic remained steady, and several of our larger customers enjoyed solid growth in the quarter. Looking at sector-specific conditions, the implant market was flat to slightly positive in Q2, with value outperforming premium and single tooth procedures faring better than Fuller. While we underperformed the market in the second quarter, we took steps to improve our overall performance. We have significantly increased our local training programs aimed at supporting our top customers and their referral members, delivering more than 800 local training courses in H1 alone. In addition, year-to-date, we've had more than 5,000 customers participate in national events aimed at attracting and developing new doctors.

Speaker Change: Before I turn it over to Stephen, let me say a few words about the dental market as well as our relative performance within it. In total, we estimate that the global dental market grew low single digits in the quarter.

Stephen Keller: compared to its longer-term growth.

Stephen Keller: This relative market softness that we and others have commented on continued in Q2, driven by macro factors like higher interest rates, moderate consumer confidence, and rebalancing of demand following the post-COVID market surge in late 2022 and 2023.

Speaker Change: On the positive, patient traffic remained steady, and several of our larger customers enjoyed solid growth in the quarter.

Stephen Keller: Looking at sector-specific conditions, the implant market was flat to slightly positive in Q2, with value outperforming premium and single-tooth procedures appearing better than Fuller's.

Stephen Keller: While we underperformed the market in the second quarter, we took steps to improve our overall performance.

Stephen Keller: We have significantly increased our local training programs, aimed at supporting our top customers and their referral networks, delivering more than 800 local training courses in H1 alone.

Stephen Keller: In addition, year-to-date we've had more than 5,000 customers participate in national events aimed at attracting and developing new doctors.

Paul Keel: We believe these investments are starting to pay off. In North America, our performance relative to the market has also improved. Our new customer win rate in Nobel is up, and sales from new customers grew both year over year as well as sequentially. Meanwhile, on a global basis, our valued implants business grew for a second consecutive quarter as we continue to build momentum in this important sector. The orthodontics and dental consumables markets also saw flat to low single-digit growth in Q2, and we gained share in both of these sectors.

Paul Keel: We believe these investments are starting to pay off. In North America, our performance relative to the market has also improved. Our new customer win rate in Nobel is up, and sales from new customers grew both year over year as well as sequentially. Still more on a global basis, our value in plants business grew for a second consecutive quarter as we continue to build momentum in this important sector. The orthodontics and dental consumables markets also saw flat to low single-digit growth in Q2, and we gained share in both of these sectors.

Stephen Keller: We believe these investments are starting to pay off. In North America, our performance relative to the market also improved. Our new customer win rate in Nobel is up, and sales from new customers grew both year over year as well as sequentially.

Stephen Keller: Still more, on a global basis, our value in plants business grew for a second consecutive quarter as we continue to build momentum in this important segment.

Stephen Keller: The orthodontics and dental consumables markets also saw flat to low single-digit growth in Q2, and we gained share in both of these segments.

Paul Keel: On the ortho side, our traditional bracket in why your business saw a solid uptick with particular strength in emerging markets. However, reported sales growth for Spark slowed in the quarter as we're now deferring a larger portion of case revenue. As described in our filing, we recognize a portion of SPARC revenue at the start of the case and the balance over the treatment time. This change in deferral has no impact on the cash flows or true economics of the business.

Speaker Change: on the orthoside our traditional bracket in while your business saw a solid uptick with particular strength in emerging marketts

Stephen Keller: Reported sales growth for SPARC slowed in the quarter as we're now deferring a larger portion of case revenues. As described in our filing, we recognize a portion of SPARC revenue at the start of the case and the balance over the treatment time.

Stephen Keller: this change to burl has no impact on the cash flows gre true economics of the business indeed we believe our case guards grew above market in the quarter

Paul Keel: Indeed, we believe our case starts grew above market in the quarter. However, diagnostics was the only major dental market segment experiencing a contraction in Q2, down mid-single digits, impacted by the higher interest rate environment I mentioned earlier. Our business contracted by high single digits in the quarter as we saw the continued impact of exiting some lower priority, more price sensitive geographic markets.

Stephen Keller: Diagnostics was the only major dental market segment experiencing a contraction in Q2, down mid-single digits, impacted by the higher interest rate environment I mentioned earlier.

Speaker Change: Our business contracted high single digits in the quarter as we saw the continued impact of exiting some lower priority, more price sensitive geographic markets.

Paul Keel: In summary, it's been an encouraging first three months for me at Envista. I'm pleased with our ability to attract world-class talent and impressed with how quickly the organization is moving to enact the changes needed to improve our trajectory moving forward. We still have much to do, but we're off to a promising start.

Speaker Change: In summary, it's been an encouraging first three months for me at Envista.

Stephen Keller: I'm pleased with our ability to attract world-class talent and impressed with how quickly the organization is moving to enact the changes needed to improve our trajectory moving forward. We still have much to do, but we're off to a promising start.

Stephen Keller: With that as an overview, I'll turn it over to Stephen to take us through the numbers.

Stephen Keller: Thanks, Paul. Before reviewing our second quarter results in detail, I would like to comment on a non-cash impairment charge related to goodwill and intangible assets that were recorded in the second quarter. As Paul mentioned, the general market softening, driven in part by higher interest rates and moderate consumer confidence, has contributed to reduced revenue, operating margins, and expectations for future cash flows. These effects, coupled with the decline in our stock price, have resulted in the estimated fair value of certain parts of our businesses falling below their carrying value. Therefore, we recorded a $1.2 billion non-cash charge for goodwill and intangible impairments in the quarter.

Stephen Keller: Thanks, Paul.

Stephen Keller: Before reviewing our second quarter results in detail, I would like to comment on a non-cash impairment charge related to goodwill and intangible assets that were recorded in the second quarter. As Paul mentioned, the general market softening, driven in part by higher interest rates and moderate consumer confidence, has contributed to reduced revenue, operating margins, and expectations for future cash flows.

Paul Keel: These effects, coupled with the decline in our stock price, have resulted in the estimated fair value of certain parts of our businesses to fall below their carrying value. Therefore, we recorded a $1.2 billion non-cash charge for goodwill and intangible impairments in the quarter.

Stephen Keller: Turning to our results for the second quarter, we delivered sales of $633 million. However, adjusting for the impact of currency exchange rates, core sales for the quarter declined 3.2%. This reflects growth in our specialty products and technology segment, offset by a 10-point decline in our equipment and consumables segment. Additionally, outside of typical business drivers, sales in the quarter were also impacted by two unusual dynamics. First, as Paul mentioned earlier, we have increased the proportion of revenue we are deferring on new SPARC cases. The increase in deferral is based on our current best estimate of aligner usage rates and the timing of future shipments.

Speaker Change: Turning to our results in the second quarter, we delivered sales of $633 million.

Stephen Keller: Adjusting for the impact of currency exchange rates, core sales for the quarter declined 3.2%. This reflects growth in our specialty products and technology segment, offset by a 10-point decline in our equipment and consumables segment.

Paul Keel: Outside of typical business drivers, sales in the quarter were also impacted by two unusual dynamics.

Paul Keel: First, as Paul mentioned earlier, we have increased the proportion of revenue we are deferring on new SPARC cases.

Paul Keel: The increase in deferral is based on our current best estimate of aligner usage rates and the timing of future shipments. As the number of completed SPARC cases continues to grow, we empirically adjusted our estimates to reflect actual experience, better matching revenue, and aligner use by our customers.

Stephen Keller: As the number of completed SPARC cases continues to grow, we empirically adjusted our estimates to reflect actual experience, better matching revenue, and aligner use by our customers. It is important to note that this change only impacts the timing of revenue, creating a near-term impact on reported results. This change does not impact the underlying performance of the business, nor does it impact the timing of cash flows associated with cases sold to doctors.

Paul Keel: It is important to note that this change only impacts the timing of revenue, creating near-term impact on reported results. This change does not impact the underlying performance of the business, nor does it impact the timing of cash flows associated with cases sold to doctors.

Stephen Keller: In addition to the changes in SPARC's deferred revenue, Q2's reported revenue was also impacted by a strategic decision to reduce consumable inventory in the North American distribution channel. Over the last few years, we have worked to reduce the number of weeks on hand with our distribution partners. Given our strong operational performance and consistently high customer service rates, we took the decision to further reduce inventory in the channel and believe that this is better for both our own business and our distribution partners.

Paul Keel: Second.

Paul Keel: In addition to the changes in SPARC's deferred revenue, Q2's reported revenue was also impacted by a strategic decision to reduce consumable inventory in the North American distribution channel. Over the last few years, we have worked to reduce the number of weeks on hand our distribution partners.

Paul Keel: Given our strong operational performance and consistently high customer service rates, we took the decision to further reduce inventory in the channel and believe that this is better for both our own business and our distribution partners.

Stephen Keller: We closed Q2 with North American Channel inventory at roughly half the levels we had at the peak of 2023. While this creates a near-term impact on growth and margin, it positions Envista for better performance moving forward. Geographically, our developed markets declined by mid-single digits, with both North America and Europe declining in the quarter. Nearly all of the decline was driven by the increase in SPARC deferrals and the realignment of dealer inventory. Excluding these impacts, developed markets grew most.

Paul Keel: We closed Q2 with North American Channel Inventory at roughly half the levels we had in the peak of 2023. While this creates a near-term impact on growth and margin, it positions Envista for better performance moving forward.

Paul Keel: Geographically, our developed markets declined mid-single digits with both North America and Europe declining in the quarter. Nearly all the decline was driven by the increase in SPARC deferrals and the realignment of dealer inventory. Excluding these impacts, developed markets grew modestly.

Stephen Keller: Our emerging market business grew low single digits in the quarter. Russia delivered high double-digit growth versus sanctions impacting Q2 of 2023. China declined low single digits against a very strong second quarter in the prior year. While there has been near-term volatility in China and Russia, these are good markets for us.

Paul Keel: Our emerging market business grew low single digits in the quarter. Russia delivered high double-digit growth versus sanction-impact in Q2 of 2023.

Paul Keel: China declined low single digits against a very strong second quarter in the prior year. While there has been near-term volatility in China and Russia,

Stephen Keller: We have been serving customers here for a long time, and we are well-positioned for continued profitable growth in these critical markets. Our second quarter adjusted gross margin was 54.2%, a decrease of 370 basis points compared to the prior year. The decline was driven by lower volumes associated with channel inventory reduction, a less favorable mix, and one-time costs associated with technology investments in SPARC manufacturing. Our adjusted EBITDA margin for the quarter was 10%, which was 910 basis points lower than in Q2 of 2023. I will walk you through the components of this in a moment.

Stephen Keller: We have been serving customers here for a long time, and we are well-positioned for continued profitable growth in these critical markets. Our second quarter adjusted gross margin was 54.2%, a decrease of 370 basis points compared to the prior year. The decline was driven by lower volumes associated with channel inventory reduction, a less favorable mix, and one-time costs associated with technology investments in spark manufacturing. Our adjusted EBITDA margin for the quarter was 10%, which was 910 basis points lower than in Q2 of 2023. I will walk you through the components of this in a moment.

Paul Keel: These are good markets for us. We have been serving customers here for a long time and we are well positioned for continued to long-term profitable growth in these critical markets.

Speaker Change: Our second quarter adjusted gross margin was 54.2%, a decrease of 370 basis points compared to the prior year. The decline was driven by lower volumes associated with channel inventory reduction, less favorable mix, and one-time costs associated with technology investments in spark manufacturing.

Speaker Change: our adjusted ebitda margin for the quarter was ten percent which was nine hundred and ten basis points lower than in q two of two and y three i will walk you through the components of this in a moment

Stephen Keller: Our second quarter adjusted diluted EPS was $0.11 compared to $0.43 in the comparable period of the prior year. Our free cash flow in the quarter was a bright spot as we delivered $86.3 million of free cash flow, a 40% increase versus the prior year. Given the unusual dynamics in both our core growth and adjusted EBITDA margins, we have added two additional bridges to provide further transparency regarding our quarterly results. From a reported revenue perspective, the increase in SPARC deferrals negatively impacted top-line results in the quarter by $11 million, or roughly $107 billion.

Paul Keel: Our second quarter adjusted diluted EPS was $0.11 compared to $0.43 in the comparable period of the prior year. Our free cash flow in the quarter was a bright spot as we delivered $86.3 million of free cash flow, a 40% increase versus prior year.

Paul Keel: Given the unusual dynamics in both our core growth and adjusted EBITDA margins, we have added two additional bridges to provide further transparency regarding our quarterly results.

Paul Keel: From a reported revenue perspective, the increase in SPARC deferrals negatively impacted top line results in the quarter by $11 million, or roughly 170 basis points.

Stephen Keller: We expect to recognize all the deferred revenue over the next 18 months. Commercially and operationally, we continue to make progress with SPARC. In the quarter, we saw a greater than 20% increase in the number of active SPARC doctors. And year-to-date, we have launched SPARC in six additional countries.

Paul Keel: We expect to recognize all the deferred revenue over the next 18 months.

Paul Keel: Commercially and operationally, we continue to make progress in SPARC. In the quarter, we saw a greater than 20% increase in the number of active SPARC doctors, and year-to-date, we have launched SPARC in six additional countries.

Stephen Keller: We expect SPARC to continue to be a growth engine for Envista over the long term. When it comes to the realignment of dealer inventory, the impact reduced our sales volumes by greater than $17 million in the quarter as compared to last year. With channel inventory levels now less than half of where they peaked in 2023, we expect to see sequential growth in consumable sell-in as we move through the second... Furthermore, long-term, we expect sell-in to match sell-out more closely, leading to more consistent growth and the opportunity for additional shares.

Paul Keel: We expect SPARC to continue to be a growth engine for Envista over the long term.

Paul Keel: When it comes to the realignment of dealer inventory, the impact reduced our sales volumes by greater than 17 million dollars in the quarter as compared to last year.

Paul Keel: With channel inventory levels now less than half of where they peaked in 2023, we expect to see sequential growth in consumable sell-in as we move through the second half.

Paul Keel: Further, long-term, we expect sell-in to match sell-out more closely, leading to more consistent growth and the opportunity for additional share gains.

Stephen Keller: Outside of these two major dynamics, we saw a solid contribution to growth driven by price. As you can see from the chart, our adjusted EBITDA margins in the quarter were down 910 basis points year-over-year. A little over a third of this reduction was driven by one-time costs that are not expected to recover.

Paul Keel: Outside of these two major dynamics, we saw a solid contribution to growth driven by price inlinks.

Speaker Change: Thank you. Thank you.

Speaker Change: As you can see from the bridge, our adjusted EBITDA margins in the quarter were down 910 basis points year over year. A little over a third of this reduction was driven by one-time costs that are not expected to repeat.

Stephen Keller: As mentioned, these included investments to further improve SPARC manufacturing, where unit costs declined double digits in the quarter. After another, roughly one-third of the impact was driven by the increase in SPARC revenue deferrals and the decrease in dealer inventory. In the case of dealer inventory, we do not anticipate further drawdowns moving forward, although there will be a year-over-year impact in Q3 relative to higher levels in 2020. Similarly, while SPARC deferral will result in further P&L headwinds in the near term, it provides an equal and offsetting tailwind down the road.

Speaker Change: as mentioned these included investments to further improve spark manufacturing bring cost decline doubledigits in the quarter

Speaker Change: After another roughly one-third of the impact was driven by the increase in SPARC revenue deferrals and the decrease in dealer inventory. In the case of dealer inventory, we do not anticipate further drawdowns moving forward, although there will be a year-over-year impact in Q3 relative to higher levels of 2023.

Speaker Change: Similarly, while SPARC deferral will result in further P&L headwind in the meter term,

Stephen Keller: Deferred SPARC revenue will be recognized fully over the next 18 months, and consumable sell-in should normalize in line with sell-out of our product. As discussed on previous calls, we continue to make strategic investments, particularly in the implant business. The investments are centered on training and education, sales and marketing, and R&D, and all are aimed at accelerating growth.

Speaker Change: It provides an equal and offsetting tailwind down the road. Deferred SPARC revenue will be recognized fully over the next 18 months, and consumable sell-in should normalize in line with sell-out of our products.

Speaker Change: as discussed on previous calls we continue to make strategic investments particular in the impl business

Speaker Change: The investments are centered on training education, sales and marketing, and R&D, and all are aimed at accelerating growth. Provided we are successful in this regard, the high margin profile of this business should result in attractive returns for these investments.

Stephen Keller: Provided we are successful in this regard, the high margin profile of this business should result in attractive returns for these investors. A few other items of note, we delivered 100 basis points of margin expansion from the price of the quarter and delivered 100 basis points of net productivity. Turning now to segment performance, core revenue in specialty products and technologies increased by 0.9% compared to the second quarter of 2023. Our orthodontic business grew mid-single digits, with Spark delivering growth despite the increase in deferred revenue.

Speaker Change: A few other items of note, we delivered 100 basis points of margin expansion from price of the quarter and delivered 100 basis points of net productivity.

Speaker Change: turning now to segment performance core revenue and specialty products and technologies increased by zero point nine percent compared to the second quarter of two thousand and y three our orthodotic business grew mid-single digits with sparked delivering growth despite the increased in deferred revenue

Operator: Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero.

Stephen Keller: Our brackets and wire business grew solid mid-single digits as we saw robust growth in Russia and China, balanced with more tepid demand in other parts of the world. However, inplants declined low single digits in the second quarter.

Stephanie: My name is Stephanie and I'll be your conference called facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's second quarter, 2024, earnings results conference call. All lines have been placed on mute to prevent any background noise. After this pickers remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star than the number one on your keypad. If you'd like to withdraw your question, please press star than two on your telephone keypad.

Speaker Change: Our brackets and wire business grew solid mid-single digits as we saw robust growth in Russia and China, balanced with more tepid demand in other parts of the world.

Stephen Keller: I will now turn the conference over to Mr. Stephen Keller, principal financial officer of Envista Holdings.

Stephen Keller: Our value implant business posted modest growth, a continuation of the improving performance that we saw in Q1. Our premium business was impacted by the continued market weakness in full-arch implant restorations and continued underperformance in the North American market. However, as Paul mentioned, we are starting to see benefits from the investments we are making.

Stephen Keller: Our value in plant business posted modest growth, a continuation of the improving performance that we saw in Q1. Our premium business was impacted by the continued market weakness in full-arch implant restorations and continued underperformance in the North American market. However, as Paul mentioned, we are starting to see benefits from the investments we are making.

Speaker Change: Inplants declined low single digits in the second quarter. Our value implant business posted modest growth, a continuation of improving performance that we saw in Q1.

Speaker Change: Our premium business was impacted by the continued market weakness in full arch implant restorations and continued underperformance in the North American market.

Speaker Change: However, as Paul mentioned, we are starting to see benefits from the investments we are making, our performance relative to the market has improved, and we continue to protect existing customers and win new business at an accelerating rate.

Stephen Keller: Our performance relative to the market has improved, and we continue to protect existing customers and win new business at an accelerating rate. For the second quarter, our specialty products and technology segment had an adjusted operating profit of 9.1%. This was down 960 basis points versus the same period in the prior year, driven by the impact of investments, one-time costs, and deferred revenues described previously. Core sales in our equipment consumables segment decreased by 10.1 percent compared to the second quarter of 2023. Our Diagnostics business declined by high single digits. The decline was primarily driven by weakness outside of North America.

Stephen Keller: Mr. Keller, you may begin. Good afternoon, and thanks for joining the call. With me today is Paul Keel, our president and chief executive officer, and Eric Hames, who will assume the position of chief financial officer tomorrow. Paul and I will be leading the call today and will handle the Q&A at the end of the prior remarks. I want to point out that our earnings release, the side presentation supplement today's call, and the reconciliation and other information required by SEC regulation G, relating to any non-GAP financial measures provided during a call, are all available on the Investor section of our website, www.investico.com.

Paul Keel: For the second quarter, our specialty products and technology segment had an adjusted operating profit of 9.1%. This was down 960 basis points versus the same period in the prior year, driven by the impact of investments, one-time cost, and deferred revenues described previously.

Speaker Change: Core sales in our equipment and consumables segment in the second quarter decreased by 10.1% compared to the second quarter of 2023. Our diagnostics business declined high single digits. The decline was primarily driven by weakness outside of North America.

Stephen Keller: Encouragingly, our North American business grew as demand is stabilizing. However, emerging markets saw a large decline in the quarter, driven by the combined effect of the muted macro conditions and our de-emphasizing of non-strategic geographies. With these efforts, we continue to refine our focus and cost-fair energy in markets where we can build and maintain sustainable competitive advantage. Our consumables business declined double digits in the quarter, driven by the drawdown in channel inventory in North America.

Stephen Keller: The audio portion of this call will be archived on the Investor section of our website later today onto 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 impacted year-over-year performance. The supplemental materials describe additional factors that impacted our year-over-year performance. Otherwise noted, references in these remarks to company specific financial metrics relates to the second quarter of 2024 and references to period-to-period increases or decreases in financial metrics are year-over-year.

Paul Keel: encouragingly our north american business grew as demand is stabilizing

Speaker Change: Emerging markets saw a large decline in the quarter driven by the combined effect of the muted macro conditions and our de-emphasizing of non-strategic geographies and solutions.

Speaker Change: With these efforts, we continue to refine our focus and concentrate our energy in markets where we can build and maintain sustainable competitive advantage.

Speaker Change: Our consumables business declined double digits in the quarter, driven by the drawdown in channel inventory in North America. As discussed, patient demand remains resilient, and we continue to strengthen our partnership with our distributors to drive sellout.

Stephen Keller: As discussed, patient demand remains resilient, and we continue to strengthen our partnership with our distributors to drive sellout. Equipment and Consumables Adjusted Operating Profit Margin was 16.1% in the second quarter of 2024 versus 25.7% in Q2 of 2024. Most of the decline was directly related to volume and mix, along with some discrete investments in our distribution partnerships and in diagnostics marketing.

Stephen Keller: During the call, we may describe certain products and devices that have applications submitted and pending certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the media of the federal securities laws, including statements regarding events or developments that we believe anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC violence.

Speaker Change: Equipment and Consumables Adjusted Operating Profit Margin was 16.1% in the second quarter of 2024 versus 25.7% in Q2 of 2023.

Stephen Keller: And actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, but we do not assume any obligation to update any forward-looking statements except as required by law.

Speaker Change: Most of the decline was directly related to volume and mix along with some discrete investments in our distribution partnerships and in diagnostics marketing.

Stephen Keller: We expect Equipment and Consumables growth and margins in Q3 to remain challenged due to the year-over-year comparisons. Conversely, Q4 should show a marked improvement both year-over-year and sequentially as we position our E&C business to deliver growth in 2025 and beyond. In the second quarter, we generated a free cash flow of $86.3 million, a 41% improvement versus the prior year. Our increased cash flow was driven primarily by improved collections and better vendor management. And we believe that our improving free cash flow is indicative of the solid underlying performance of our business. I'll now turn the call over to Paul for a strategic update.

Speaker Change: we expect equipment and consumables growth in margins in q three to remain challenged due to the year-over-year comparisons confirst conversely q four should show a market improvement with both year-over-year and sequentially as we position our againen c business to deliver growthin two thousand and twenty five and beyond

Speaker Change: In the second quarter, we generated a free cash flow of $86.3 million, a 41% improvement versus prior year.

Paul Keel: With that, I'd like to turn a call over to Paul. Thank you, Steven. Good afternoon and welcome to Envistas' second quarter 2024 earnings call. We appreciate you taking the time to join us today. We'll cover three items in the next 30 minutes or so and then reserve the last half-hour for Q&A. I'll start with some opening thoughts on the quarter, on my first 90 days within this set, and on the broader dental market.

Speaker Change: Our increased cash flow was driven primarily by improved collections and better vendor management. And we believe that our improving free cash flow is indicative of the solid underlying performance of our business.

Speaker Change: I'll now turn the call over to Paul for a strategic update.

Paul Keel: Over the next few slides, I'll share additional background on our recent executive appointments, highlight areas of particular focus for us in H2, and go into a bit more detail on the full year guidance I sketched out earlier.

Paul Keel: Thank you, Stephen. Over the next few slides, I'll share additional background on our recent executive appointments, highlight areas of particular focus for us in H2, and go into a bit more detail on the full year guidance I sketched out earlier.

Paul Keel: I'll then turn it over to Steven to walk us through the numbers and we'll come back later in the presentation with a strategic update and outlook for 2024. Four thoughts by way of introduction. First, Envista is a fundamentally good business. With significant unmet global demand, Dental has proven to be a secretly growing market over time. An Envista is well positioned to serve this demand, holding a top reposition in the most attractive segments.

Paul Keel: Eric Hammes as CFO, Stefan Nielsen as the president of Nobel BioCare, and Veronica Acurio as president of Orthodontics. Eric joins us from Rockwell Automation, where he served as vice president of FP&A. Prior to Rockwell, Eric spent over 25 years at 3M, where he held a variety of senior financial and operational leadership roles, including Chief Accounting Officer, CFO of 3M's health care business, Director of Finance for 3M's orthodontics division, and SVP of Finance for 3M International, which represents roughly two-thirds of the company's revenue.

Paul Keel: Eric Hammes as CFO, Stefan Nielsen as the president of Nobel BioCare, and Veronica Acurio as president of Orthodontics. Eric joins us from Rockwell Automation, where he served as vice president of FP&A. Prior to Rockwell, Eric spent over 25 years at 3M, where he held a variety of senior financial and operational leadership roles, including Chief Accounting Officer, CFO of 3M's healthcare business, Director of Finance for 3M's orthodontics division, and SVP of Finance for 3M International, which represents roughly two-thirds of the company's revenue.

Speaker Change: On July 15th, we announced three new members of our executive team, Eric Hammes as CFO , Stefan Nielsen as the President of Nobel BioCare, and Veronica Acurio as President of Orthodontics.

Paul Keel: In addition to his deep finance and accounting experience, Eric has also held several senior operating roles, including EVP of Business Transformation, Chief Country Governance Officer, and EVP of Enterprise Operations, with responsibilities spanning 170 manufacturing sites and over $30 billion in annual production.

Speaker Change: Eric joins us from Rockwell Automation where he served as vice president of FP&A.

Paul Keel: As a former Danifer business, we have a high performing continuous improvement culture which is evident in our strong operations in talented people. Having spent most of my career in other structurally advantaged companies, I know what they look like and can see that this company is built on a very solid foundation. With that at the starting point, I would also say that our recent performance does not reflect our full capabilities much less our vast potential.

Speaker Change: Prior to Rockwell, Eric spent over 25 years at 3M, where he held a variety of senior financial and operational leadership roles, including Chief Accounting Officer.

Eric Hammes: CFO of 3M's Healthcare Business, Director of Finance for 3M's Orthodontics Division, and SVP of Finance for 3M International, which represents roughly two-thirds of the company's revenues.

Paul Keel: While free cash flow is strong in the quarter, up 41 percent, our core growth of negative 3 percent and adjusted EBITDA margin of 10 percent was below expectations. As Stephen will explain in a moment, these include a number of one-time and non-cash charges. Excluding the impact of these items, we believe this implies an underlying performance of the business in line with Q1. Even at these levels though, we are capable of more.

Speaker Change: In addition to his deep finance and accounting experience, Eric has also held several senior operating roles.

Eric Hammes: including EVP of Business Transformation, Chief Country Governance Officer, and EVP of Enterprise Operations, with responsibilities spanning 170 manufacturing sites and over $30 billion in annual production.

Paul Keel: Relevant to Envista, Eric's entire career has been in businesses with a focus on growth and a continuous improvement culture. He has global experience, having lived and worked in the US, Europe, and Asia, and he knows our dental markets well, having worked in and around them for many years. At the same time that we welcome Eric to Envista, I would like to express my deepest gratitude to Stephen Keller, who capably served in an interim capacity while we searched for a permanent CFO. As Eric is with us today on the call, I'll ask him to say a few words of introduction prior to his appointment as CFO tomorrow. Eric, welcome to Envista. Thanks, Paul.

Speaker Change: Relevant in this step, Eric's entire career has been in businesses with a focus on growth and a continuous improvement culture.

Paul Keel: And as such, we are swiftly taking action to position our company for better performance moving forward. To that end, we filled three critical executive roles in Q2. We're making important investments in Spark manufacturing technology to improve profitability and support long-term growth. We're drawing down channel inventory in our distribution businesses, connecting us even more closely to end user demand, and we're continuing to make growth investments in our largest and most profitable business Nobel Biocare.

Speaker Change: His experience is global, having lived and worked in the U.S., Europe , and Asia, and he knows our dental markets well, having worked in and around them for many years.

Speaker Change: At the same time that we welcome Eric to Envista, I would like to express my deepest gratitude to Stephen Keller, who capably served in an interim capacity while we searched for a permanent CFO .

Speaker Change: As Eric is with us today on the call, I'll ask him to say a few words of introduction prior to his appointment as CFO tomorrow. Eric, welcome to Envista.

Paul Keel: I'm thrilled to join Envista at such an exciting time for the company. Our leading brand in the most attractive segments of dental, coupled with the strength of our people, creates a foundation to compete, grow, and win. Like so many of you, I see the unique opportunity at this time in Envista's decorating history to create real value for all of our stakeholders. In the weeks and months to come, I look forward to meeting our partners and customers, my colleagues, and our shareholders. Thank you, Eric.

Eric Hammes: I'm thrilled to join Envista at such an exciting time for the company. Our leading brand in the most attractive segments of dental, coupled with the strength of our people, creates a foundation to compete, grow, and win. Like so many of you, I see the unique opportunity at this time in Envista's decorating history to create real value for all of our stakeholders. In the weeks and months to come, I look forward to meeting our partners and customers, my colleagues, and our shareholders. Thank you, Eric.

Paul Keel: We're excited by the return potential of these investments. On the back of all this, we are reinstating full-year guidance of negative 1 percent to negative 4 percent core growth and 10 to 12 percent adjusted EBITDA margins. The P&L impact of the actions I mentioned are concentrated in Q2 and Q3 and we expect a return to growth in Q4. Absent one time and non-cash charges that Stephen will detail later, we believe that the underlying performance of our business would be more in line with modest growth and low teens margins on a full-year basis.

Eric Hammes: Thanks, Paul. I'm thrilled to join Envista. Such an exciting time for the company.

Speaker Change: Our leading brands in the most attractive segments of dental, coupled with the strength of our people, create the foundation to compete, grow, and win.

Speaker Change: Like so many of you, I see the unique opportunity at this time in Envista's decorated history to create real value for all of our stakeholders.

Speaker Change: in the weeks and months to come i look forward to meet our partners and customers my colleagues and our shareholders

Paul Keel: Moving forward, Stefan Nielsen joins us from Coliseum Dental, working with CEO for over five years. Under his leadership, Coliseum more than doubled in revenues, growing to be Europe's largest dental service organization. Envista is highly customer-centric, and few are as well positioned to understand the needs of our customers as Stefan, who was one himself for many years. He knows firsthand the distinctive strengths on which we're building as well as specific opportunities for us to be even more competitive.

Stefan Nielsen: Thank you, Eric. Moving forward, Stefan Nielsen joins us from Coliseum Dental, where he was CEO for over five years. Under his leadership, Coliseum more than doubled in revenues, growing to be Europe's largest dental service organization.

Paul Keel: As you will recall, I joined in Vista on May 2nd and my first 90 days with the business have been both productive and encouraging. As I previewed on our Q1 earnings call, I focused the line share of my time over the past few months in three primary areas, customers, colleagues, and operations. With respect to the first, I've had the pleasure to meet with dozens of customers, key opinion leaders, and business partners.

Speaker Change: Envista is highly customer centric and few are as well positioned to understand the needs of our customers as Stephan, who was one himself for many years.

Speaker Change: He knows firsthand the distinctive strengths on which we're building, as well as specific opportunities for us to be even more competitive.

Paul Keel: Prior to Coliseum, Stefan was CEO of Grand Vision in Brazil, a leading optical service provider, and before that, he spent over 18 years at Nestle in a variety of operations, marketing, and general management roles around the world.

Paul Keel: With close to two-thirds of our business will direct, our customer connectivity is strong and the quality of our portfolio is well recognized. Stakeholders know that invest is a great company and they want and expect even more from us. Regarding my colleagues, I've connected with nearly all of our top 150 leaders as well as many of our frontline teams. They also know how strong their company is and are similarly eager and committed to performing up to our potential.

Speaker Change: Prior to Coliseum, Stefan was CEO of Grand Vision in Brazil, a leading optical service provider, and before that, he spent over 18 years at Nestle in a variety of operations marketing and general management roles around the world.

Paul Keel: Like Eric, Stefan brings relevant breadth and depth to Envista. Underpinning our global reach, Eric and Veronica will be based at Envista's headquarters here in Southern California, while Stephan will be based at Nobel's HQ in Zurich. Veronica Acurio brings to Envista more than 30 years of dental and medical technology experience. She was most recently president of 3M's largest business, the roughly $5 billion Medical Solutions Division. Prior to that, she held various commercial, operational, and business leadership roles of increasing responsibility, including SVP of 3M Healthcare in the Greater China Region, Managing Director of 3M Taiwan, VP of Business Development for 3M Healthcare in Latin America, and Global Business Director of 3M Oral Care's Restorative Business. Like Eric and Stefan, she's lived and worked all over the world, including the U.S., Asia, and Latin America.

Speaker Change: Like Eric, Stephan brings relevant breadth and depth to Envista.

Speaker Change: Underpinning our global reach, Eric and Veronica will be based at Envista's headquarters here in Southern California, while Stephan will be based at Nobel's HQ in Zurich.

Paul Keel: Our is a continuous improvement culture, which means we know we must be better tomorrow than we are today. The opportunities I've seen in just the first 90 days are both meaningful and actionable. For as far as this and our predecessors have come across our 100 plus year history, our brightest days are still ahead. Finally, in terms of operations, I expected to find a capable organization and have not been disappointed. I have visited most of our largest sites around the world already and the benefits that the Envista business system are readily apparent.

Speaker Change: Veronica Acurio brings to Envista more than 30 years of dental and med tech experience.

Speaker Change: to his most recently president of three am's largest business to roughly five billion dollar medical solutions division

Veronica Acurio: Prior to that, she held various commercial, operational, and business leadership roles of increasing responsibility, including SVP of 3M Healthcare in the Greater China Region.

Veronica Acurio: Managing Director of 3M Taiwan, VP of Business Development for 3M Healthcare in Latin America, and Global Business Director of 3M Oral Care's Restorative Business.

Paul Keel: EBS is an important differentiator for us. However, even here, there remains opportunities to extend the impact of EBS across our global footprint. There is more we can do to convert our capabilities into consistently strong results. This is what good companies do and most of what I've seen across my first 90 days supports what I said on the previous slide. Envista is a fundamentally good company.

Speaker Change: Like Eric and Stefan, she's lived and worked all over the world, including the U.S., Asia, and Latin America.

Paul Keel: Like Stephan and Eric, Veronica knows dental specifically and medtech more broadly. And like Eric and Stefan, she has consistently demonstrated the commercial, financial, and operational excellence needed to realize the exciting potential we all see here at Envista. Having touched on our progress in Q2, let's now look forward to the second half, where we'll intensify our focus on three particular areas, growth, operations, and people. Growth remains our first priority. With the high margins that accompany our leading positions, accelerating top-line growth is the key to even faster expansion in earnings and cashflow. We'll see this play out in dental consumables as we expect a return to saline growth in Q4 with meaningfully lower channel inventory.

Speaker Change: Like Stephan and Eric, Veronica knows dental specifically and medtech more broadly. And like Eric and Stephan, she has consistently demonstrated the commercial, financial, and operational excellence needed to realize the exciting potential we all see here at Envista.

Paul Keel: We'll see the same in implants as the investments we are making continue to pay off. And we'll see this in our fastest growing business, Spark, where our attention remains squarely focused on expanding the number of ordering clinicians and associated case volumes. Moving on to operations, we have more opportunity to optimize our cost structure, continuing to save where we can so we can invest where we want. As SPARC is still highly dilutive to overall margins, the faster it has grown, the more margin compression we've absorbed.

Paul Keel: Before I turn it over to Stephen, let me say a few words about the dental market as well as our relative performance within it. In total, we estimate that the global dental market grew low single digits in the court. Compared to its longer term growth, this relative market softness that we and others have commented on continued in Q2 driven by macro factors like higher interest rates moderate consumer confidence and rebalancing of demand following the post COVID market surge in late 2022 and 23.

Speaker Change: Having touched on our progress in Q2, let's now look forward to the second half, where we'll intensify our focus in three particular areas, growth, operations, and people.

Speaker Change: Growth remains our first priority. With the high margins that accompany our leading positions, accelerating top-line growth is the key to even faster expansion in earnings and cash flow.

Speaker Change: We'll see this play out in dental consumables as we expect a return to saline growth in Q4 with meaningfully lower channel inventory.

Paul Keel: On the positive patient traffic remain steady and several of our larger customers enjoy solid growth in the quarter. Looking at sector specific conditions, the implant market was flat, slightly positive in Q2 with value outperforming premium and single tooth procedures pairing better than full arts. While we under perform the market in the second quarter, we took steps to improve our overall performance. We have significantly increased our local training programs aimed at supporting our top customers and their referral networks delivering more than 800 local training courses.

Veronica Acurio: We'll see the same in implants, as the investments we are making continue to pay off, and we'll see this in our fastest-growing business, Spark, where our attention remains squarely focused on expanding the number of ordering clinicians and associated case volumes.

Paul Keel: We have more opportunity to optimize our cost structure, continuing to save where we can so we can invest where we want. As Spark is still highly dilutive to overall margins, the faster it has grown, the more margin compression we've absorbed. As Spark continues to scale, this margin headwind will eventually shift to accretion. A good part of this is driven by volume, and we are amplifying the benefit through the technology investments mentioned earlier. And most importantly, people make all the progress possible.

Speaker Change: Moving on to operations. We have more opportunity to optimize our cost structure, continuing to save where we can so we can invest where we want.

Speaker Change: As SPARC is still highly dilutive to overall margins, the faster it has grown, the more margin compression we've absorbed.

Paul Keel: As spark continues to scale, this margin headwind will eventually shift to accretion. A good part of this is driven by volume, and we are amplifying the benefit through the technology investments mentioned earlier. And most importantly, people make all the progress possible.

Veronica Acurio: As SPARC continues to scale, this margin headwind will eventually shift to accretion. A good part of this is driven by volume, and we are amplifying the benefit through the technology investments mentioned earlier.

Paul Keel: In addition, year to date, we've had more than 5,000 customers participate in national events aimed at attracting and developing new doctors. We believe these investments are starting to pay off. In North America, our performance relative to the market also improved. Our new customer win rate in Nobel is up and sales from new customers grew both year over year as well as sequentially. Still more on a global basis, our value implants business grew for a second consecutive quarter as we continue to build momentum in this important segment.

Paul Keel: The sustained success of Envista will hinge on our ability to further advance our culture of performance, inclusion, and continuous improvement. The fact that we are able to so quickly attract world-class leaders points to the enormous upside in this company that the Envista team will unlock together. This all begins with delivering on our updated 2024 commitments, so let's turn to those now.

Veronica Acurio: And most importantly, people make all the progress possible.

Veronica Acurio: The sustained success of Envista will hinge on our ability to further advance our culture of performance inclusion and continuous improvement.

Veronica Acurio: The fact that we are able to so quickly attract world-class leaders points to the enormous upside in this company that the Envista team will unlock together.

Paul Keel: The orthodontics and dental consumables markets also saw flat to low single-digit growth in Q2 and we gained share in both of these segments. On the ortho side, our traditional bracket in why your business saw a solid uptick with particular strength in emerging markets. Reported sales growth for Spark slowed in the quarter as we're now deferring a large proportion of case revenues. As described in our filing, we recognize a portion of Spark revenue at the start of the case and the balance over the treatment time.

Veronica Acurio: And this all begins with delivering on our updated 2024 commitments. So let's turn to those now.

Paul Keel: As mentioned at the outset, we are reinstating full-year guidance of negative 1 to negative 4% core growth and 10 to 12% adjusted EBITDA margins, inclusive of the one-time and non-cash charges that Stephen detailed earlier. We're acting now to position Envista for improved performance moving forward. The P&L impact of the actions covered on today's call will be even larger in Q3, before a projected return to growth in Q4. Excluding the impact of the one-time and non-cash charges, we would expect modest score growth and low-teens EBITDA margins for the year. We will build on this momentum as we move into 2024. Four closing thoughts before we open it up for your questions.

Veronica Acurio: As mentioned at the outset, we are reinstating full-year guidance.

Veronica Acurio: of negative 1% to negative 4% core growth and 10% to 12% adjusted EBITDA margins inclusive of the one-time and non-cash charges that Stephen detailed earlier. We're acting now to position Envista for improved performance moving forward.

Veronica Acurio: The P&L impact of the actions covered on today's call will be even larger in Q3 before a projected return to growth in Q4.

Paul Keel: This change in deferral has no impact on the cash flows or true economics of the business. Indeed, we believe our K-starts grew above market in the quarter. Diagnostics was the only major dental market segment experiencing a contraction in Q2, down mid single digits impacted by the higher interest rate environment I mentioned earlier. Our business contracted high single digits in the quarter as we saw the continued impacts of exiting some lower priority more price sensitive to geographic markets.

Veronica Acurio: Excluding the impact of the one-time and non-cash charges, we would expect modest for growth and low teens EBITDA margins for the year. We will build on this momentum as we move into 2025.

Veronica Acurio: Four closing thoughts before we open it up for your questions.

Paul Keel: First, I'll underline again that dental is an attractive market with proven long-term growth drivers. We're seeing a short-term softening here in 2024, but over any meaningful period of time, this market has grown at stable GDP-plus rates. Second, Envista has built leading and defensible positions in the most exciting segments of the dental market. Our portfolio is well balanced, both by category as well as by geography. And the business has high margins and strong cash flow characteristics, allowing us to self-fund steady growth embedded structurally in our market.

Veronica Acurio: First.

Speaker Change: I'll underline again that dental is an attractive market with proven long-term growth drivers. We're seeing a short-term softening here in 2024, but over any meaningful period of time, this market has grown at stable GDP plus rates.

Paul Keel: In summary, it's been an encouraging first three months for me and Envista. I'm pleased with our ability to attract world-class talent and impress with how quickly the organization is moving to enact the changes needed to improve our trajectory moving forward. We still have much to do, but we're off to a promising start.

Speaker Change: second inv a has built leading indepensiable positions in the most exciting segments of the dbal market

Speaker Change: Our portfolio is well-balanced, both by category as well as by geography. And the business has high margins and strong cash flow characteristics, allowing us to self-fund a steady growth embedded structurally in our markets.

Paul Keel: With that, it's an overview.

Stephen Keller: I'll turn it over to Steven to take us through the numbers. Thanks, Paul. Before reviewing our second quarter results in detail, I would like to comment on the non-cash impairment charge related to goodwill and intangible assets that were recorded in the second quarter. As Paul mentioned, the general market softening driven and part by higher interest rates and moderate consumer confidence has contributed to reduced revenue operating margins and expectations for future cash flows. These effects, coupled with the decline of stock price, have resulted in the estimated fair value of certain parts of our businesses to fall below their carrying value.

Paul Keel: Third, we need to do more to access this opportunity, and we are swiftly taking the actions needed to accelerate top and bottom line growth. The actions taken in Q2 and Q3 should allow us to return to growth in Q4 and then carry the momentum forward into 2025. Finally, and most importantly, we are propelled by the significant opportunity we clearly see in front of us to create even more value for our key state. I applaud my colleagues for the encouraging progress we've made together in my first three months. And in the same way, we're grateful for the strong support we enjoy from our customers, partners, and shareholders.

Speaker Change: Third, we need to do more to access this opportunity and we are swiftly taking the actions needed to accelerate top and bottom line growth.

Speaker Change: The actions taken in Q2 and Q3 should allow us to return to growth in Q4 and then carry the momentum forward into 2025.

Speaker Change: Finally, and most importantly, we are propelled by the significant opportunity we clearly see in front of us to create even more value for our key stakeholders.

Stephen Keller: Therefore, we recorded a $1.2 billion non-cash charge for goodwill and intangible impairments in the quarter. Turning to our results in the second quarter, we delivered sales of $633 million, adjusting for the impact of currency exchange rates, core sales for the quarter declined 3.2%. This reflects growth in our specialty products and technology segment, offset by a 10-point decline in our criminal and consumable segment. Outside of typical business drivers, sales in the quarter were also impacted by two unusual dynamics.

Speaker Change: I applaud my colleagues for the encouraging progress we've made together in my first three months. And in the same way, we're grateful for the strong support we enjoy from our customers, partners, and shareholders.

Operator: Thank you, Paul. That concludes our formal comment. Paul and I will now take your questions.

Speaker Change: Thank you, Paul. That concludes our formal comment.

Speaker Change: Paul and I will now take your questions.

Operator: Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, please press star, then 1 on your telephone keypad. If you'd like to remove yourself from the queue, you may press star 2. Again, that is star 1 to ask a question. And our first question will come from Elizabeth Anderson with Evercore ISI.

Operator: Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, please press star, then 1 on your telephone keypad. If you'd like to remove yourself from the queue, you may press star 2. Again, that is Star 1 to ask a question. And our first question will come from Elizabeth Anderson with Evercore ISI.

Paul Keel: Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, please press star then 1 on your telephone keypad. If you'd like to remove yourself from queue, you may press star 2. Again, that is star 1 to ask a question.

Stephen Keller: First, as Paul mentioned earlier, we have increased the proportion of revenue we are deferring on new sparkcases. The increase in deferral is based on our current best estimate of aligner usage rates and the timing of future shipments. As a number of completed sparkcases continues to grow, we empirically adjusted our estimates to reflect actual experience, better matching revenue and aligner use by our customers. It is important to note that this change only impacts the timing of revenue, creating a near-term impact on reported results.

Speaker Change: And our first question will come from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson: Hi guys, thanks so much for the question and congrats on starting all together and as we go through the rest of the year. Can you talk to me a little bit about the like actual run rate of the business because I'm doing the math here it looks like the EBITDA, the midpoint of the EBITDA that you're guiding to for the back half of the year is something like a hundred and twenty five million dollars the range like a hundred hundred fifty ish on on my math like is that the right actual like run rate of the business as we think about that I know that there are a number of one-time items in the quarter but I'm thinking more as we think about like the back half of the year and forward thank you

Elizabeth Anderson: Hi guys, thanks so much for the question and congrats on starting all together.

Elizabeth Anderson: as we go through the rest of the year. Can you talk to me a little bit about the actual run rate of the business? Because I'm doing the math here, it looks like the EBITDA, the midpoint of the EBITDA that you're guiding to for the back half of the year is something like $125 million, the range is like $100, $150-ish on my math. Is that the right actual run rate of the business?

Stephen Keller: This change is not impacting underlying performance of the business, nor does it impact the timing of cash flows associated with cases sold to doctors. Second, in addition to the changes in sparks deferred revenue, Q2's reported revenue was also impacted by a strategic decision to reduce consumable inventory in the North American distribution channel. Over the last few years, we have worked to reduce the number of weeks on hand of our distribution partners.

Stephen Keller: Given our strong operational performance and consistently high customer service rates, we took the decision to further reduce inventory in the channel and believe that this is better for both our own business and our distribution partners. We closed Q2 with North American channel inventory at roughly half the levels we had in the peak of 2023. While this creates a near-term impact on growth and margin, it positions in VISTA for better performance moving forward.

Speaker Change: I know that there are a number of one-time items in the quarter, but I'm thinking more as we think about the back half of the year and forward. Thank you.

Paul Keel: Thanks for the question, Elizabeth, and it is the right place to start. So, let me recap. There were, as you said, a number of moving pieces in the quarter. We announced reported core growth of negative 3% and reported EBITDA margins of 10%. If we adjust for the one-time and non-cash impacts, underlying performance was more like positive 1% core growth and 14% EBITDA margin in the quarter, pretty similar to what we announced in Q1.

Speaker Change: Thanks for the question, Elizabeth, and it is the right place to start. So let me recap. There were, as you said, a number of moving pieces in the quarter. We announced reported core growth of negative 3 percent and reported EBITDA margins of 10 percent.

Speaker Change: If we adjust for the one-time and non-cash impacts, underlying performance was more like positive 1% core growth and 14% EBITDA margin in the quarter, pretty similar to what we announced in Q1.

Paul Keel: Now, on a full-year basis, we've reinstated guidance of negative 1% to negative 4% core growth and 10% to 12% EBITDA on a reported basis. But on a similar normalized basis, excluding the one-time and non-cash effects, we expect to deliver a similar 1-ish percent core growth and 14-ish percent EBITDA margin for the full year. Now looking at the second half by quarter, I'd again underline that the impact of the one-time charges will be larger in Q3 than in Q2, and this will show in the Q3 reported results.

Stephen Keller: Geographically, our developed markets decline mid-single digits with both North America and Europe decline in the quarter. Nearly all of the decline was driven by the increase in Spark deferrals and the re-alignment of dealer inventory. Excluding these impacts, developed markets grew mostly. Our emerging market business grew low single digits in the quarter, Russia delivered high double digit growth versus sanctioned impact in Q2 of 2023. China declined low single digits against a very strong second quarter in the prior year.

Speaker Change: Now, on a full-year basis, we've reinstated guidance of negative 1 to negative 4 percent core growth and 10 to 12 percent EBITDA on a reported basis.

Speaker Change: But on a similar normalized basis, excluding the one-time and non-cash effects, we expect to deliver a similar 1-ish percent core growth and 14-ish percent EBITDA margin for the full year.

Speaker Change: Now, looking at the second half by quarter, I'd again underline that the impact of the one times will be larger in Q3 than Q2, and this will show in the Q3 reported results.

Stephen Keller: While there has been near-term volatility in China and Russia, these are good markets for us. We have been serving customers here for a long time, and we are well positioned for continued to long-term profitable growth in these critical markets. Our second quarter adjusted gross margin was 54.2%, a decrease of 370 basis points compared to the prior year. The decline was driven by lower volumes associated with channel inventory reduction, less favorable mix, and one-time cost associated with technology investments in Spark manufacturing.

Paul Keel: On the flip side, the impact will be less in the final quarter, so we expect a return to growth in Q4, allowing us to build momentum heading into 2025. And most importantly, I'd go back to where I began. Envista is a fundamentally strong company. Although our underlying performance in the quarter was above our reported results, it was still below our demonstrated capability. So we have a clear line of sight to what improvements are required to improve our trajectory, and many of those actions are underway already. We have work to do here, but we're pointed in the right direction.

Paul Keel: On the flip side, the impact will be less in the final quarter, so we expect a return to growth in Q4, allowing us to build momentum heading into 2025. And most importantly, I'd go back to where I began. Envista is a fundamentally strong company. However, with our underlying performance in the quarter, above our reported results, it was still below our demonstrated capability. So we have a clear line of sight to what improvements are required to improve our trajectory, and many of those actions are underway already. We have work to do here, but we're pointed in the right direction.

Speaker Change: Conversely, the impact will be less in the final quarter, so we expect to return to growth in Q4, allowing us to build momentum heading into 2025.

Speaker Change: And most importantly, I'd go back to where I began, Envista is a fundamentally strong company. With our underlying performance in the quarter, above our reported results, it was still below our demonstrated capabilities.

Speaker Change: So we have a clear line of sight to what improvements are required to improve our trajectory, and many of those actions are underway already. We have work to do here, but we're pointed in the right direction.

Stephen Keller: Our adjusted EBITDA margin for the quarter was 10%, which was 910 basis points lower than in Q2 of 2023. I will walk you through the components of this in a moment. Our second quarter adjusted deluded EPS was 11 cents compared to 43 cents in the comparable period of the prior year. Our free cash flow in the quarter was at bright spot as we delivered $86.3 million of free cash flow, a 40% increase versus prior year.

Elizabeth Anderson: Got it. That's sugar in a helpful context.

Paul Keel: Got it. That's sugar in a helpful context. So I guess on that map, it gives you an implied 200 jump-off point, which is helpful. How do we think about, as we go forward and you guys, particularly in the implant business, what are the key actions you guys are thinking about on a short-term basis versus things you're thinking about that might have a couple-year trajectory? I know, obviously, the macro is whatever the macro is, but where do you see those things as the near-term and maybe longer-term priorities for that business in particular?

Elizabeth Anderson: So I guess on that method, it gives you an implied 200 jump-off point, which is helpful. How do we think about, like, as we go forward, and you guys, particularly in the implant business, what are the sort of key actions you guys are thinking about on a short-term basis versus, you know, things you're thinking about that might be a couple years kind of trajectory? I know, obviously, the macro is whatever the macro is, but, like, where do you see those things as kind of, like, the near-term and maybe longer-term priorities for that business in particular?

Speaker Change: Got it. That's sugar helpful context. Thank you.

Speaker Change: So I guess on that math, it gives you an implied 200 jump off point, which is helpful. How do we think about, like, as we go look forward and you guys, particularly on the implant business, what are the sort of key actions you guys are thinking about on a short-term basis versus things you're thinking about that might be a couple-year kind of trajectory? I know, obviously, the macro is whatever the macro is, but where do you see those things as kind of like the near-term and maybe longer-term priorities on that business in particular?

Stephen Keller: Given the unusual dynamics in both our core growth and adjusted EBITDA margins, we have added two additional bridges to provide further transparency regarding our quarterly results. From a reported revenue perspective, the increase in Spark deferrals negatively impacted top line results in the quarter by $11 million, a roughly 107 basis points. We expect to recognize all the deferred revenue over the next 18 months. Commercially and operationally, we continue to make progress in Spark.

Paul Keel: Also a good

Paul Keel: Also a good question. So with implants, you have to begin with the underlying market and margin characteristics of the business. So this is, you know, a proven growth category. Right now, premium growth has slowed, in particular for the full arch procedures, and value has done a little bit better. We expect both of those to accelerate moving forward. And as we noted, we're seeing improvement on both sides of our business.

Speaker Change: Also a good question. So with implants you have to begin with the underlying market and margin characteristics of the business.

Speaker Change: So, this is a, you know, a proven growth category. Right now, the premium growth has slowed, in particular for the full-arch procedures, and value has done a little bit better.

Stephen Keller: In the quarter, we saw a greater than 20% increase in the number of active Spark doctors, and here today, we have launched Spark in six additional countries. We expect Spark to continue to be a growth engine for Envisto over the long term. When it impact reduced our sales volumes by $317 million in the quarter as compared to last year, with channel inventory levels now less than half of where they peaked in 2023, we expect to see sequential growth in consumables selling as we move through the second half.

Speaker Change: We expect both of those to accelerate moving forward, and as we noted, we're seeing improvement on both sides of our business. Our gap to overall market growth on the premium side shrunk in the quarter, and we had a second consecutive period of growth on the value side.

Paul Keel: Our gap to overall market growth on the premium side shrunk in the quarter, and we had a second consecutive period of growth on the value side. The second part of that equation, of course, is margins. You know, one of the things we all like about these businesses is that as you accelerate growth, it has an incremental effect on the growth of earnings, you know, expanding margins. So we'll continue to make the investments that began in Q1 and continued across Q2 to accelerate growth in implants. That's about 6 million a quarter. And while that has a near-term impact on margins, you know, we've all seen this enough, we'll know over time when you get the growth, it more than pays for itself.

Paul Keel: Our gap to overall market growth on the premium side shrunk in the quarter, and we had a second consecutive period of growth on the value side. The second part of that equation, of course, is margins. You know, one of the things we all like about these businesses is that as you accelerate growth, it has an incremental effect on the growth of earnings, you know, expanding margins. So we'll continue to make the investments that began in Q1 and continue to cross into Q2 to accelerate growth in implants. That's about $6 million a quarter. And while that has a near-term impact on margins, you know, we've all seen this enough, we'll know over time when you get the growth, it more than pays for itself.

Erin Wright: Thank you. The next question will come from Erin Wright with Morgan Stanley.

Stephen Keller: Further, long term, we expect selling to match sell out more closely, leading to more consistent growth and the opportunity for additional shareings. Outside of these two major dynamics, we saw a solid contribution to growth driven by price in the incurred. As you can see from the bridge, our adjusted EBITDA margins in the quarter were down 910 basis points zero over year. A little over a third of this reduction was driven by one-time costs that are not expected to repeat.

Speaker Change: Second part of that equation, of course, is margins. One of the things we all like about these businesses is that as you accelerate growth, it has an incremental effect on the growth of earnings, expanding margins.

Speaker Change: So, we'll continue to make the investments that began in Q1 and continued across Q2 to accelerate growth in implants, that's about $6 million a quarter.

Speaker Change: And while that has a near-term impact on margins, we've all seen this enough, we'll know over time when you get the growth, it more than pays for itself.

Stephen Keller: As mentioned, these included investments to further improve Spark manufacturing, where unit costs decline double digits in the quarter. After another roughly one-third of the impact was driven by the increase in Spark revenue deferrals and the decrease in delay inventory. In the case of delay inventory, we do not anticipate further drawdowns moving forward, although there will be a year-over year impacting Q3 relative to higher levels of 2020.

Speaker Change: Got it. Thanks so much.

Speaker Change: Thank you. Our next question will come from Erin Wright with Morgan Stanley.

Paul Keel: Great, thanks. You mentioned a few times that you think the long-term growth rate in dental care, like a GDP plus type of rate, I guess. How are you thinking about the market getting to there? And then, in terms of how you're thinking about getting to growth in sort of the fourth quarter, I guess, what does that entail in terms of underlying market growth for the balance of the year here near term?

Erin Wright: Great. Thanks. You mentioned a few times that you think the long-term growth rate in dental is like a GDP-plus type of rate. I guess, how are you thinking about the market getting to there? And then in terms of how you're thinking about getting to growth in sort of the fourth quarter, I guess, what does that entail in terms of underlying market growth for the balance of the year here near term?

Stephen Keller: III. Similarly, while Spark Deferro will result in further P&L headwind in the midterm, it provides an equal and off-sane tailwind down the road. Deferred Spark revenue will be recognized fully over the next 18 months and consumable and consumable selling should normalize in line with sellout of our products. As discussed on previous calls, we continue to make strategic investments, particularly in implant business. The investments are centered on transportation, sales and marketing, and R&D, and all are aimed at accelerating growth.

Erin Wright: Yeah, I mean, as you guys know, I've been in and around the dental market for, I'll call it, 20 years now, and so we have seen macro ups and downs during that time. In fact, two of the more pronounced contractions that hopefully we'll witness in our lifetimes happened in that period, and so from that, we know dental is not immune to macro forces, but it is less sensitive than other categories. And I think you're seeing the same thing currently.

Paul Keel: Yeah, I mean, as you guys know, I've been in and around the dental market for, I'll call it, 20 years now, and so we have seen macro ups and downs during that time. In fact, two of the more pronounced contractions that, hopefully, we'll witness in our lifetimes happened during that period. And so from that, we know dental is not immune to the macro, but it is less sensitive than other categories.

Speaker Change: Yeah, I mean I as you guys know I've been in and around the dental market for they'll call it 20 years now And so we have seen macro ups and downs during that time, you know, in fact two of the more pronounced Contractions that hopefully will witness in our lifetimes happen in that period

Speaker Change: And so from that, we know dental is not immune to the macro, but it is less sensitive than other categories.

Stephen Keller: Provided we are successful in this regard, the high margin profile of this business should result in attractive returns for these investments. A few other items of note, we delivered 100 basis points of margin expansion from price to the quarter, and delivered 100 basis points of net productivity. Turning now to segment performance, core revenue and especially products and technologies increased by 0.9 percent compared to the second quarter of 2023. Our orthodontic business grew mid-single digits with Spark delivering growth despite the increase in deferred revenue.

Paul Keel: And I think you're seeing the same thing currently. Now with respect to the second half, our return to growth in the fourth quarter is mostly a function of how the one times we talked about play out. It's not dependent on any improvement in the macro. I would expect 2025 to be, from a market perspective, a bit better than 2024, and we'll benefit from that as well. That's how it's played out in the past; long-term drivers of growth in dental just have not changed.

Erin Wright: Now with respect to the second half, our return to growth in the fourth quarter is mostly a function of how the one times we talked about play out. It's not dependent on any improvement in the macro. I would expect 2025 to be, from a market perspective, a bit better than 2024, and we'll benefit from that as well. That's how it played out in the past; long-term drivers of growth in dental just have not changed. Okay.

Speaker Change: and I think you're seeing the same thing.

Speaker Change: currently. Now with respect to the the second half, our return to growth in the in the fourth quarter is mostly a function of the how the one times we talked about play out. It's not dependent on any improvement in the macro.

Speaker Change: i would expect two thousand and twenty five to be from a market perspective a bit better than two thousand andtwenty four and 'will be willll benefit from that as well and so it's playedoutin

Stephen Keller: Our bracket-to-wire business grew solid mid-single digits as we saw robust growth in Russia and China, balanced with more tepid demand in other parts of the world. In plants declined low single digits to the second quarter. Our value in plant business posted modest growth, it continuation of improving performance that we saw in Q1. Our premium business was impacted by the continued market weakness and full-arge implant restorations, and continued underperformance in the North American market.

Speaker Change: long-term drivers of growth in dental just have not changed.

Erin Wright: Okay, and then if I could ask one follow-up just on SPARC, and could you talk about what underlying normalized growth would be kind of for SPARC for you and kind of just underlying kind of traction in the market competitive dynamics that you can speak to in the various different markets that you participate in from a geography perspective? Thanks.

Paul Keel: Okay, and then if I could ask one follow-up just on SPARC, and could you talk about what underlying normalized growth would be kind of for SPARC for you and kind of just underlying kind of traction in the market competitive dynamics that you can speak to in the various different markets that you participate in from a geography perspective? Thanks.

Speaker Change: Okay, and then if I could ask one follow-up just on SPARC and could you talk about what underlying normalized growth would be kind of for SPARC for you and kind of just underlying kind of traction in the market competitive dynamics that you can speak to in the various different markets that you participate from a geography perspective? Thanks.

Stephen Keller: However, as Paul mentioned, we are starting to see benefits on the investments we are making. Our performance role to the market has improved, and we continue to protect existing customers and win new business at an accelerating rate. For the second quarter, our specialty products and technology segment had an adjusted operating profit of 9.1 percent. This was down 960 basis points for the same period in the prior year, driven by the impact of investments, one-time cost, and deferred revenues prescribed previously.

Paul Keel: Yeah, for Spark, I mean, the Clear Aligner category is a high single-digit grower, and we've been growing better than that category over time. You know, in the next couple of quarters, things will be a bit clouded for us because of the impact on reported results related to the increased deferred revenue. But the underlying growth of the business won't be impacted. For example, we look, in addition to core growth, at the number of ordering clinicians, and we look at the number of submitted cases. The number of ordering clinicians for us was up strong, double digits in the quarter, and then the growth of submitted cases was up high single digits.

Speaker Change: Yeah, for SPARC, I mean, the Clear Aligner category is a high single-digit grower. We've been growing better than the category over time. You know, in the next couple of quarters, that'll be a bit clouded for us because of the impact in reported results related to the increased...

Speaker Change: deferred revenue, but the underlying growth of the business won't be impacted.

Stephen Keller: Core sales and equipment consumables segment in the second quarter decreased by 10.1 percent compared to the second quarter of 2023. Our diagnostics business declined high single digits, so the client was primarily driven by weakness outside of North America. Encouragingly, our North American business grew as demand is stabilized. Emerging markets saw a large decline in the quarter driven by the combined effect of the muted macro conditions, and our de-emphasizing and non-strategic geographies and solutions.

Speaker Change: For example, we look, in addition to the core growth, we look at the number of ordering clinicians and we look at the number of submitted cases. The number of ordering clinicians for us was up strong, double digits in the quarter, and then the growth of submitted cases was up high single digits.

Paul Keel: The number of ordering clinicians for us was up strong, double digits in the quarter, and then the growth of submitted cases was up high single digits. So, you know, we believe we'll continue to have good growth on the Spark side, accretive growth for Envista. The second comment on Spark is around profitability. Now, that remains highly dilutive to us from a margin perspective, where SPARC grows for us. We've absorbed more margin compression, we had good progress in the quarter in terms of our unit costs; unit costs, or per aligner costs, were down double digits in the quarter. Eventually, that'll turn out to be accretive. And over the past several years, we have entirely funded the building of the SPARC business out of operating income and cash flow, and that will turn into a tailwind here as that business becomes accretive.

Paul Keel: So, you know, we believe we'll continue to have good growth on the Spark side, accretive growth for Envista. The second comment on Spark is around profitability. Now, that remains highly dilutive to us from a margin perspective. So, conversely, where SPARC grows for us, we've absorbed more margin compression, we had good progress in the quarter in terms of our unit costs; unit costs per aligner were down double digits in the quarter, and eventually that'll turn out to be accretive. And over the past several years, we have entirely funded the building of the SPARC business out of operating income and cash flow, and that will turn into a tailwind here as that business becomes accretive.

Speaker Change: so we we believe we'll continue to have good growth on the ar side accretive growth invista the second comment on spark is around profitability now that's remains highly dilutive to us from a margin perspective though'll converse

Stephen Keller: With these efforts, we continue to refine our focus and concentrate energy in markets where we can build and maintain sustainable competitive advantage. Our consumables business declined double digits in the quarter driven by the drawdown and channel inventory in North America. As discussed, patient demand remains resilient, and we continue to strengthen our partnership with our contributors to drive sell-off. Equipment and consumables adjusted operating profit margin was 16.1 percent in the second quarter of 2024 versus 25.7 percent in Q2 of 2023.

Speaker Change: where SPARC grows for us, we've absorbed more margin compression.

Speaker Change: We had good progress in the quarter in terms of our unit costs. Unit costs or aligner per aligner costs were down double digits in the quarter. Eventually that'll turn to accretive and you know over the past several years we have entirely funded building the Spark business out of operating income and cash flow and that will turn to a tailwind here is that that business becomes accretive.

Stephen Keller: Most of the decline was directly related to volume and mix, along with some discrete investments in our distribution partnerships and in diagnostics marketing. We expect equipment and consumables growth and margins in Q3 to remain challenged due to the year-over-year comparisons.

John Block: Thank you. Our next question will come from John Block, with Stiefel.

John Block: Thank you. Our next question will come from John Block with Stiefel. Thank you.

Speaker Change: Okay, thank you.

Speaker Change: Thank you. Our next question will come from John Block with Stiefel.

John Block: Great. Thanks, guys. Good afternoon.

Paul Keel: Great. Thanks, guys. Good afternoon.

John Block: Great. Thanks, guys. Good afternoon. You know, Paul, it seems like there's some data points that suggest

Paul Keel: You know, Paul, there seem to be some data points that suggest that Envista's implants, you know, the division's improved growth was closer to that of the market relative to what you guys experienced in past quarters. So, I guess the question is, you know, do you feel confident you have the portfolio to get back to market growth, with the portfolio being the right mix of premium value? Are you confident that the current investments are sufficient to get back to market growth? And maybe, you know, if so, the timeline in which you hope to achieve something like that?

Stephen Keller: Q4 should show a market improvement with both year-over-year and sequentially as we position our agency business to deliver growth in 2025 and beyond. In the second quarter, we generated free cash flow of $86.3 million, a 41% improvement versus prior year. Our increased cash flow was driven primarily by improved collections and better vendor management, and we believe that our improving free cash flow is indicative of the solid underlying performance of our business.

John Block: and Envista's implants, you know, the division improved growth was closer to that of market relative to what you guys experienced in past quarters. So I guess the question is, you know, do you feel confident

Speaker Change: You have the portfolio to get back to market growth, portfolio being the right mix of premium value. Are you confident that the current investments are sufficient to get back to market growth? And maybe, you know, if so, the timeline in which you hope to achieve something like that?

John Block: Hey John, thanks for the question. So first, on the portfolio. Yes, the combination of Nobel and our two value businesses is a good portfolio. We're well positioned to compete globally in both categories. The second thing I would say is, you know, my view, having been working in the business now for three months, is that we did not invest sufficiently previously in either of these businesses, and that's what caused the management team to start putting money back in in Q1, continue it in Q2, and we intend to do the same here across the back half of the year.

Paul Keel: Hey John, thanks for the question. So first, on the portfolio. Yes, the combination of Nobel and our two value businesses is a good portfolio. We're well positioned to compete globally in both categories. The second thing I would say is, you know, my view, having been working in the business for three months, is that we did not invest sufficiently previously in either of these businesses. And that's what caused the management team to start putting money back in in Q1, continue it in Q2, and we intend to do the same here across the back half of the year.

Paul Keel: I'll now turn the call over to Paul for a strategic update. Thank you, Stephen. Over the next few slides, I'll share additional background on our recent executive appointments, highlight areas of particular focus for us in age two, and go into a bit more detail on the full year guidance I sketched out earlier.

Speaker Change: Hey John , thanks for the question. So first on portfolio, yes, the combination of Nobel and our two value businesses, these are good portfolios. We're well positioned to compete globally in both categories.

Speaker Change: Second thing I would say is my view, having been working in the business now for three months, is that we did not invest sufficiently previously in either of these businesses.

Paul Keel: On July 15th, we announced three new members of our executive team, Eric Hamas, a CFO, Stefan Nielsen as the president of Nobel BioCare, and Veronica Aquario as president of orthodontics. Eric joins us from Rockwell Automation, where he served as vice president of FPNA. Prior to Rockwell, Eric spent over 25 years at 3M, where he held a variety of senior financial and operational leadership roles, including Chief Accounting Officer, CFO with 3M's healthcare business, director of finance for 3M's orthodontics division, and SVP of finance for 3M International, which represents roughly two thirds of the company's revenue.

Speaker Change: And that's what caused the management team to start putting money back in in Q1, continue it in Q2, and we intend to do the same here across the back half of the year.

John Block: You pointed to the leading indicators we're also looking at that give us confidence that those investments are starting to pay off, you know, but we have to now convert that into results that we share with you guys. In terms of timing, you know.

Paul Keel: You pointed to the leading indicators we're also looking at that give us confidence that those investments are starting to pay off. You know, but we have to now convert that into results that we share with you guys. In terms of timing, you know.

Speaker Change: You pointed to the leading indicators we were also looking at that give us confidence that those investments are starting to pay off, you know, but we got to now convert that into the results that we share with you guys.

Speaker Change: In terms of timing, you know, I don't know we're yet in a position where I can call when that will turn to positive, but we hope to make sequential improvement across the second half and, again, carry that momentum into 25.

Paul Keel: In addition to his deep finance and accounting experience, Eric has also held several senior operating roles, including EVP of business transformation, Chief Country Governance Officer, and EVP of Enterprise Operations, with responsibility spanning 170 manufacturing sites and over $30 billion in annual production. Relevant to Envista, Eric's entire career has been in businesses with a focus on growth and a continuous improvement culture. His experience is global, having lived and worked in the US, Europe, and Asia, and he knows our dental markets well, having worked in and around them for many years.

Paul Keel: Got it. Very helpful. And maybe just to shift gears a little bit, you know, I thought I heard you in the commentary sort of allude to, for Envista, modest growth and mid-teens margins, and when you think about the 2024 numbers, you might think, hey, that's far away, but to your point, when you normalize the numbers this year, I think you called out,

Paul Keel: Got it. Very helpful, and maybe just to shift gears a little bit, you know, I thought I heard you in the commentary sort of allude to modest growth and mid-teens margins for Envista, and when you think about the 2024 numbers, you might think hey, that's far away, but to your point, when you normalize the numbers this year, I think you called out

Speaker Change: Got it. Very helpful and maybe just to shift gears a little bit, you know, I thought I heard you in the commentary sort of allude to for Envista modest growth and mid-teens margins.

Speaker Change: And when you think about the 2024 numbers, you might think, hey, that's far away, but to your point, when you normalize the numbers this year, I think you called out 1% top line and 14% EBITDA margin. So that modest growth, call it, in mid-teens.

Speaker Change: is that something that wedont have to look two far on the road for other words that something where' use the normalized numbers for twenty-four we might land there for two thousand and twentyfive when we think about things thanks for your time

Paul Keel: At the same time that we welcome Eric to Envista, I would like to express my deepest gratitude to Steven Keller, who capably served in an interim capacity while we searched for permanent CFO.

Paul Keel: So let me take it in steps. So yes, I did say that the 1% core growth normalized and 14% EBITDA fairly characterized our underlying performance. That's about what we reported in Q1. It was normalized in Q2.

Speaker Change: like

Eric Hames: As Eric is with us today on the call, I'll ask him to say a few words of introduction prior to his appointment as CFO tomorrow.

Speaker Change: So, let me take it in steps. So, yes, I did say the 1% core growth normalized and 14% EBITDA fairly characterized our underlying performance. That's about what we reported in Q1. It's normalized in Q2. And if you work through the math, that's about what we're guiding to for the full year, again, adjusting for the one-time and non-cash expenses.

Eric Hames: Eric, welcome to Envista. Thanks, Paul. I'm thrilled to join Envista, such an exciting time for the company. Our leading brand in the most attractive segments of dental, coupled with the strength of our people, creates a foundation to compete, grow, and win. Like so many of you, I see a unique opportunity at this time in Envista's decorated history to create real value for all of our stakeholders. In the weeks and months to come, I look forward to meeting our partners and customers, my colleagues, and our shareholders. Thank you, Eric.

Paul Keel: And if you work through the math, that's about what we're guiding to for the full year, again, adjusting for the one-time and non-cash expenses. So that's point number one. Point number two is, you know, we're not yet giving guidance for 2025. We'll come on to that. But our goal here in the second half is to get back to growth in Q4. We want to, again, emphasize that Q3 reported results will be difficult and then carry that momentum into 25 and hopefully do better, you know, consistent with our kind of continuous improvement culture.

Speaker Change: So that's point number one. Point number two is, you know, we're not yet giving guidance for 2025. We'll come on to that, but our goal here in the second half is to get back to growth in Q4. I want to again emphasize Q3 reported results will be difficult.

Paul Keel: Moving forward, Stefan Nielsen joins us from Policy and Dental, where he was CEO for over five years. Under his leadership, policy and more than doubled in revenues, growing to be Europe's largest dental service organization. Envista is highly customer centric, and few are as well positioned to understand the needs of our customers as Stefan, who was one himself for many years. He knows firsthand the distinctive strengths on which we're building as well as specific opportunities for us to be even more competitive.

Speaker Change: And then carry that momentum into 25 and hopefully do better, you know, consistent with our kind of continuous improvement culture.

Jeff Johnson: Thank you. Our next question will come from Jeff Johnson with Bayard.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question will come from Jeff Johnson with Bayer.

Paul Keel: Thank you. Good afternoon, guys.

Jeff Johnson: Thank you. Good afternoon, guys.

Paul Keel: Paul, maybe going back to some of the value implant comments you made earlier, you know, we don't talk about that part of your business very often. We don't get much insight into it. You know, my understanding is that some of that alpha product has come off the market given MDR issues in Europe a couple of years ago. In the U.S., I think your implant direct business has a lot of older style implants that the market has, you know, maybe started moving somewhat away from over the last five years or so.

Paul Keel: Paul, maybe going back to some of the value implant comments you made earlier, you know, we don't talk about that part of your business very often. We don't get much insight into it. You know, my understanding is that some of that alpha product has come off the market given MDR issues in Europe a couple years ago. In the U.S., I think your implant direct business has a lot of older style implants that the market has, you know, maybe started moving somewhat away from over the last five years or so.

Jeff Johnson: Thank you. Good afternoon, guys. Paul, maybe going back to some of the value implant comments you made earlier, you know, we don't talk about that part of your business very often. We don't get much insight into it. You know, my understanding has been some of that Alpha product has come off the market, given MDR issues in Europe a couple years ago. In the U.S., I think your implant direct business, you know, has a lot of older style implants that the market has, you know, maybe started moving somewhat away from over the last five years or so. So, you know, do you think you have the right value implant portfolio today? And how do you kind of beef that up, I guess, over the next few years, if that's the way the market's at least starting to trend in some areas? Thanks.

Paul Keel: Prior to Coliseum, Stefan was CEO of Grand Vision in Brazil, a leading optical service provider, and before that, he spent over 18 years at Nestle, in a variety of operations marketing and general management roles around the world. Like Eric, Stefan brings relevant breath and depth to Envista, underpinning our global reach, Eric and Veronica will be based at Envista's headquarters, here in Southern California, while Stefan will be based at Nobel's HQ in Zurich.

Paul Keel: So, you know, do you think you have the right value implant portfolio today? And how do you kind of beef that up, I guess, over the next few years, if that's the way the market's at least starting to trend in some areas? Thanks.

Jeff Johnson: Yeah, it's an important segment for us. So let me unpack your questions. You asked about Implant Direct and Alpha Bio currently, and then whether we think we'd benefit from bolstering that portfolio moving forward. So first, with respect to Alpha Bio, it's actually performing quite well for us. I'm looking at Stephen, I want to say, a high single-digit, low double-digit grower right now.

Paul Keel: Yeah, it's an important segment for us. So let me unpack your questions. You asked about Implant Direct and Alpha Bio currently, and then whether we think we'd benefit from bolstering that portfolio moving forward. So first, with respect to Alpha Bio, it's actually performing quite well for us. I'm looking at Stephen, I want to say, a high single-digit, low double-digit grower right now.

Speaker Change: he has an important segment for us so so let me unpack your questions had a question about implant direct and alpha bio currently and then whether we think we've benefit from bolststream net portfolio moving forward

Paul Keel: Veronica Ecurio brings to Envista more than 30 years of dental and med-tech experience. She was most recently president of 3M's largest business, the roughly $5 billion medical solutions division. Prior to that, she held various commercial, operational, and business leadership roles of increasing risk responsibility, including SVP of 3M health care in the greater China region, managing director of 3M Taiwan, VP of business development for 3M health care in Latin America, and global business director of 3M oral cares restorative business.

Speaker Change: So first, with respect to Alpha Bio, it's actually performing quite well for us. I'm looking at Stephen, I want to say high single-digit, low double-digit grower right now.

Paul Keel: And you're correct about Implant Direct; that has been the slower grower of our two businesses. Implant Direct is mostly in North America, while Alpha Bio is mostly outside of North America. So that's question number one. Question number two, with respect to our value implant portfolio, you know, it's a good category right now, one of the faster growing in dental, and we'd certainly like to make it bigger. Our first, you know, objective is to build organically on the nice platform that we already have in place. But, as you guys know, we've had some good luck over the years with creative M&A. So that'll remain in the toolkit as well.

Speaker Change: And you're correct on Implant Direct. That has been the slower grower of our two businesses. Implant Direct is mostly North America. Alpha Bio is mostly outside of North America.

Speaker Change: So, that's question number one. Question number two, with respect to our value implant portfolio.

Paul Keel: Like Eric and Stefan, she's lived and worked all over the world, including the US, Asia, and Latin America. Like Stefan and Eric, Veronica knows dental specifically and med-tech more broadly. And like Eric and Stefan, she has consistently demonstrated the commercial financial and operational excellence needed to realize the exciting potential we all see here at Envista.

Speaker Change: You know, it's a good category right now, one of the faster-growing in dental, and we'd certainly like to make it bigger.

Speaker Change: Our first, you know, look is to build organically on the nice platform that we already have in place. But as you guys know, we've had some good luck over the years with the Creative M&A, so that will remain in the toolkit as well.

Jeff Johnson: All right, that's helpful. And then just back over on the Spark business, on the increased deferrals, we've got it in the very, very ballpark, maybe an extra 150 bucks a month, or, sorry, per case that you're deferring. Are we somewhat in the ballpark there? And then we've seen these changes in deferral rates in the past; it's usually because acuity is going up, maybe you're doing tougher and tougher cases, and as you do those tougher cases, you have to defer some revenue for added refinements down the road and all that. Just what's the driver of the increased deferment, I guess, number one? And two? Boy, I forgot my second question.

Paul Keel: All right, that's helpful. And then just back over on the Spark business, on the increased deferrals, we've got it in the very, very ballpark, maybe an extra 150 bucks a month, or, sorry, per case that you're deferring. Are we somewhat in the ballpark there? And then we've seen these changes in deferral rates in the past; it's usually because acuity is going up, maybe you're doing tougher and tougher cases, and as you do those tougher cases, you have to defer some revenue for added refinements down the road and all that. Just what's the driver of the increased deferment, I guess, number one. And two, boy, I forgot my second question.

Paul Keel: Having touched on our progress in Q2, let's now look forward to the second half, where we'll intensify our focus in three particular areas, growth, operations, and people. Growth remains our first priority, with the high margins that accompany our leading positions, accelerating top-line growth is the key to even faster expansion in earnings and cash flow. We'll see this play out in dental consumables, as we expect to return to selling growth in Q4 with meaningfully lower channel inventory.

Speaker Change: All right, that's helpful. And then just back over on the Spark business, on the increased deferrals, we've got it very, very ballpark, maybe an extra $150 a month, or sorry, per case that you're...

Speaker Change: that you're deferring, you know, are we somewhat in the ballpark there? And then, you know, when we've seen these changes in deferral rates in the past, it's usually because acuity is going up, maybe you're doing, you know, tougher and tougher cases, and as you do those tougher cases, you have to...

Speaker Change: to defer some revenue for added refinements down the road and all that. Just what's the driver of the increased deferment, I guess, number one, and two,

Paul Keel: We'll see the same in implants, as the investments we are making continue to pay off, and we'll see this in our fastest growing business spark, where our attention remains squarely focused on expanding the number of ordering clinicians and associated case volumes. Moving on to operations, we have more opportunity to optimize our cost structure, continuing to save where we can so we can invest where we want. As spark is still highly dilutive to overall margins, the faster it has grown, the more margin compression we've absorbed. As spark continues to scale, this margin headwind will eventually shift to accretion. A good part of this is driven by volume, and we are amplifying the benefit to the technology investments mentioned earlier.

Jeff Johnson: My second question is, oh, how far does that increased deferral rate maybe push profitability, break even, on the Spark business? I think at one point, we thought you could get to break even on Spark maybe by the end of 25. Does this push it out a year or further than that, beyond the end of 25? Thanks.

Stephen Keller: My second question is, oh, how far does that increased deferral rate maybe push profitability, break even, on the Spark business? I think at one point, we thought you could get to break even on Spark maybe by the end of 25. Does this push it out a year or further than that, beyond the end of 25? Thanks.

Speaker Change: Boy, I forgot my second question. My second question, oh, how far does that increased deferral rate maybe push profitability, break even out on the Spark business? I think at one point we thought you could get to break even on Spark maybe by end of 25. Does this push it out a year or further than that beyond the end of 25? Thanks.

Paul Keel: This is Stephen's last call in the hot seat, so I'm not going to let him get off too easy. I'm going to call that one.

Stephen Keller: This is Stephen's last call in the hot seat, so I'm not going to let him get off too easy. I'm going to pitch that one to Stephen.

Speaker Change: This is Stephen's last call in the hot seat, so I'm not going to let him get off too easy. I'm going to pitch that one to Stephen.

Stephen Keller: Yeah, I mean, Jeff, I mean... different products, but I mean you're in the right ballpark in terms of the additional deferral. That's about the right amount.

Stephen Keller: Yeah, I mean, Jeff, I mean... different products. But I mean, you're in the right ballpark in terms of the additional deferral. That's about the right amount.

Stephen Keller: And you're also right about what's driving the deferral. I mean, the increased deferral is really two things. It's basically us having more data monitoring kind of overall usage rates, but then, more importantly, projecting out kind of the mix that we expect going forward. Obviously, we focus more on the orthodontic segment, so we do get more comprehensive cases. And as we look at where we're growing, we do think it's prudent to defer a little bit more revenue for the cases that we expect in the future. So that is where we are.

Speaker Change: different products, but I mean you're in the right ballpark in terms of the additional deferral. That's about the right amount.

Stephen Keller: And you're also right about what's driving the deferral. I mean, increased deferral is really two things. It's basically us having more data, monitoring kind of overall usage rates, but then, more importantly, projecting out kind of the mix that we expect going forward. Obviously, we focus more on the orthodontic segment, so we do get more comprehensive cases, and as we look where we're growing, we do think it'll be, you know, prudent to defer a little bit more revenue for the cases that we expect in the future.

Speaker Change: And you're also right about what's driving the deferral. I mean, the increased deferral is really two things. It's basically us having more data, monitoring kind of overall usage rates.

Paul Keel: And most importantly, people make all the progress possible. The sustained success of Envista will hinge on our ability to further advance our culture of performance, inclusion, and continuous improvement. The fact that we are able to so quickly attract world class leaders, point to the enormous upside in this company that the Envista team will unlock together, and this all begins with delivering on our updated 2024 commitments.

Speaker Change: But then, more importantly, projecting out kind of the mix that we expect going forward. Obviously, we focus more on the orthodontic segment, so we do get more comprehensive cases.

Speaker Change: And as we look at where we're growing, we do think it's prudent to defer a little bit more revenue for the cases that we expect in the future.

Stephen Keller: So that is where we're at. In terms of profitability, look, this does obviously have a short-term impact on profitability. I think, you know, again, I think you will see us continue to improve profitability as we kind of lap some of these impacts on the deferral rate. I think in terms of really laying out the long-term profitability and the long-term growth of SPARC, I think we're gonna wrap that up with our capital markets data that we're planning to do in Q1 of next year, where we can really talk through the long-term outlook for the growth of the overall Envista portfolio and the relative profitability of the technology.

Stephen Keller: In terms of profitability, look, obviously, it does have a short-term impact on profitability. Again, I think you will see us continue to improve profitability as we kind of lap some of these impacts on the deferral rate. I think in terms of really laying out the long-term profitability and the long-term growth of SPARC, I think we're gonna wrap that up with our capital markets day that we're planning to do in Q1 of next year, where we can really talk through the long-term outlook for, the growth of the overall Envista portfolio, and the relative profitability of the tech.

Speaker Change: So that is where we're at. In terms of profitability, look, this does have a – obviously, it does have a short-term impact on profitability. I think, you know, again, I think what –

Paul Keel: So let's turn to those now. As mentioned at the outset, we are reinstating full-year guidance of negative 1 to negative 4% cord growth and 10 to 12% adjusted EBITDA margins, inclusive of the one time and non-cash charges that Stephen detailed earlier. We're acting now to position Envista for improved performance moving forward. The P&L impact of the actions covered on today's call will be even larger in Q3 before a projected return to growth in Q4. Excluding the impact of the one time and non-cash charges, we would expect modest 4 growth and low teens EBITDA margins for the year. We will build on this momentum as we move into 2025.

Speaker Change: You will see us continue to improve profitability as we kind of lap some of these impacts on the deferral rate.

Speaker Change: I think in terms of really laying out the long-term profitability and the long-term growth of SPARC, I think we're going to wrap that up with our Capital Markets Day that we're planning to do in Q1 of next year, where we can really talk through the long-term outlook for...

Speaker Change: The growth of overall Envista portfolio and the relative profitability of the different segments.

Brandon Vazquez: Thank you. Our next question will come from Brandon Vazquez with William Blair.

Speaker Change: Fair enough. Thank you.

Speaker Change: Thank you. Our next question will come from Brandon Vazquez with William Blair.

Stephen Keller: Everyone, thanks for taking the question. Maybe first, can we just talk a little bit about the kind of normalized EBITDA margins that you guys are talking about? I think you're talking about a 14% kind of quote unquote normalized EBITDA margin in the quarter versus the 10% reported. Can you just explain to us what those four points are? There's a very helpful slide on the EBITDA margin bridge, but there are a lot of points in there. So, what are the four points you guys would consider getting you to a normalized EBITDA margin range as we think about the run rate, especially going into 2025?

Brandon Vazquez: Everyone, thanks for taking the question. Maybe first, can we just talk a little bit about the kind of normalized EBITDA margins that you guys are talking about? I think you're talking about a 14% kind of quote-unquote normalized EBITDA margin in the quarter versus the 10% reported. Can you just explain to us what those four points are? There's a very helpful slide on the EBITDA margin bridge, but there are a lot of points in there. So, what are the four points you guys would consider getting you to a normalized EBITDA margin range as we think about the run rate, especially going into 2025?

Brandon Vazquez: Everyone, thanks for taking the question. Maybe first, can we just talk a little bit about the kind of normalized EBITDA margins that you guys are talking about?

Paul Keel: 4 closing thoughts before we open it up for your questions. First, I'll underline again that dental is an attractive market with proven long-term growth drivers. We're seeing a short-term softening here in 2024, but over any meaningful period of time, this market has grown at stable GDP plus rates. Second, Envista has built leading indefensible positions in the most exciting segments of the dental market. Our portfolio is well-balanced, both by category as well as by geography, and the business says high margins and strong casual characteristics, allowing us to self-fund the steady growth embedded structurally in our markets.

Brandon Vazquez: You're talking about a 14% kind of quote-unquote normalized EBITDA margin in the quarter versus the 10% reported. Can you just bridge us what those four points are? There's a very helpful slide on EBITDA margin bridge, but a lot of points in there. So what are the four points?

Speaker Change: You guys would consider get you to a normalized EBITDA margin range as we think about the run rate, especially going into 25.

Stephen Keller: I mean, look, it's really, you can really break it into three. The things that we need normalized for are really three big buckets.

Speaker Change: I mean look it's really you can really break it into three the things that we need normalized for really three three big buckets

Stephen Keller: There is just a one-time cost that in the quarter that will not repeat. We, you know, we made some investments to accelerate our spark manufacturing kind of accelerated technology that we're using. There's some bad debt. There's a few kind of one-time non-repeat costs. That's about a third of the issue.

Speaker Change: There is...

Speaker Change: Just one-time cost in the quarter that will not repeat.

Speaker Change: We, you know, we made some investments to accelerate our spark manufacturing, to kind of accelerate the technology that we're using.

Speaker Change: There's some bad debt, except there's a few kind of one-time, non-repeat costs. That's about a third of the issue. Then as we called on the slides, about 300 basis points that's related to the profitability on loss and the increased SPARC revenue deferral, as well as the dealer inventory reduction.

Stephen Keller: Then, as we called on the slides, about 300 basis points that are related to the profitability on loss and the increased spark revenue deferral as well as the dealer inventory reduction. And then you have these kind of longer-term investments that we've kind of flagged that we're making that are specifically in Nobel North American implants, not everywhere, but in some other places, but specifically there. Those are, we made a decision to invest ahead of getting increased sales because we know it's the margin profile of the business. This is a good investment to make. So when you normalize for those kind of three things, that's where you're kind of, that's where we kind of come out with around 14%.

Stephen Keller: Then, as we called on the slides, about 300 basis points that are related to the profitability on loss and increased spark revenue deferral as well as the dealer inventory reduction. And then you have these kind of longer-term investments that we've kind of flagged that we're making that are specifically in Nobel North American implants, not everywhere, but in some other places, but specifically there. Those are, we made a decision to invest ahead of getting increased sales because we know it's the margin profile of the business. This is a good investment to make. So when you normalize for those kind of three things, that's where you're kind of, that's where we kind of come out with around 14%.

Speaker Change: And then you have this kind of these longer-term investments that we've kind of flagged that we're making that are in, you know, specifically in Nobel North American implants, not everywhere, but in some other, but specifically there.

Paul Keel: I applaud my colleagues for the encouraging progress we've made together in my first three months, and in the same way we're grateful for the strong support we enjoy from our customers, partners, and shareholders. Thank you, Paul.

Speaker Change: Those are, we made a decision to invest ahead of getting increased sales

Paul Keel: That concludes our formal comments.

Operator: Paul and I will now take your questions. Thank you. At this time, we will open the word for questions. If you'd like to ask a question, please press star then one on your telephone keypad. If you'd like to remove yourself from Q, you may press star two. Again, that is star one to ask a question.

Speaker Change: It's the margin profile of the business, this is the good investment to make. So when you normalize for those kind of three things, that's where you're kind of, that's where we kind of come out with around the 14% EBITDA margin.

Brandon Vazquez: Obviously, there's a little bit of art when you're kind of trying to formalize this on your own. Yep, understood. I'll ask a follow-up to that, another one, just put them together here.

Stephen Keller: Obviously, there's a little bit of art when you're kind of trying to formalize this on your own. Yep, understood. I'll ask a follow-up question about that. Another one, just put them together here.

Speaker Change: obviously a littlebit hard wor when you're kind of ed some on

Speaker Change: Yes, understood. I'll ask a follow-up to that and another one just...

Elizabeth Anderson: In our first question, we'll come from Elizabeth Anderson with Evercore ISI. Hi, guys. Thanks so much for the question, and congrats on starting all together, as we go through the rest of the year.

Brandon Vazquez: As you're talking about the 300 basis points there, the SPARC margin headwind, you also mentioned that that needs to annualize, right, that'll be next year. So, do we think of that as 300 basis points if you've got margin headwind every quarter for the next couple of quarters until it annualizes? Then another follow-up question is just the specialty and technology section operating margins are kind of half of what they used to be a year ago. What gets those back up more meaningfully? I think we're about 9% right now. What gets that to amid the high team number again in the next couple of years?

Stephen Keller: As you're talking about the 300 basis points there, the SPARC margin headwind, you also mentioned that that needs to annualize, right? That'll be next year. So, do we think of that as 300 basis points if you've got margin headwinds every quarter for the next couple of quarters until it annualizes? Then another follow-up question is just the specialty and technology section operating margins are kind of half of what they used to be a year ago? What gets those back up more meaningfully? I think we're about 9% right now. What gets that to amid the high teens number again in the next couple of years? Thank you.

Speaker Change: put them together here.

Speaker Change: As you're talking about the 300 basis points there, SPARC margin headwind, you also mentioned that that needs to annualize, right, that'll be next year. So do we think of that as 300 basis points if you've got margin headwind every quarter for the next couple of quarters until it annualizes?

Stephen Keller: Can you talk to me a little bit about the actual run rate of the business? Because I'm doing the math here. It looks like the midpoint of the EBITDA that you're guiding to for the back half of the year is something like $125 million, the range like $150 million on my math. Is that the right actual run rate of the business as we think about that? I know that there are a number of one-time items in the quarter, but I'm thinking more as we think about the back half of the year and forward.

Speaker Change: Then the other follow-up question is just...

Speaker Change: The specialty and technology section op margins are kind of half of what they used to be a year ago. What gets those back up more meaningfully? I think we're about 9% right now. What gets that to amid the high team number again in the next couple of years? Thank you.

Stephen Keller: So, just to be clear, 300 base points is not only related to SPARC. It's also related to dealer inventory reduction. So, as Paul called out during the paired remarks, Q3 will be a little bit more challenged from a reported adjusted EBITDA margin related to some of these dynamics. But fundamentally, as you go into Q4, they start to normalize...both those issues start to normalize and get more towards that, you know, that kind of underlying performance. Then, sorry, the other question was:

Speaker Change: So,

Speaker Change: So, just to be clear, 300 base points is not only related to SPARC, it's also related to dealer inventory reduction. So as Paul called out during the prepared remarks...

Stephen Keller: Thank you. Thanks for the question, Elizabeth, and it is the right place to start. So let me recap. There were, as you said, a number of moving pieces in the quarter. We announced reported core growth of negative 3% and reported EBITDA margins of 10%. We just, for the one time in non-cash impacts underlying performance was more like positive 1% core growth and 14% EBITDA margin in the quarter, you know, pretty similar to what we announced in Q1.

Speaker Change: Q3 will be a little bit more challenged from a reported adjusted EBITDA margin related to some of these dynamics, but fundamentally, as you go into Q4, both those issues start to normalize and get more towards that.

Speaker Change: You know that kind of underlying performance

Stephen Keller: related to SP&T margins. Yeah, the SP&T margins. A lot of these costs, specifically around the one-time costs and also the investments that we're making, are disproportionately impacting the SP&T segment. And so again, the one-time costs will not repeat, and then, you know, the investments will pay for themselves over time. So, you know, we should expect a reasonable recovery in SP&T margins. But again, with Q2 being a little, Q3 being a little bit more challenged across the portfolio, but then going into Q4 getting closer to, becoming more normalized.

Speaker Change: Sorry, the other question was...

Stephen Keller: Now, on a full-year basis, we reinstated guidance of negative 1 to negative 4% core growth and 10 to 12% EBITDA on a reported basis, but on a similar normalized basis, excluding the one time in non-cash effects, we expect to deliver a similar 1% core growth and 14% EBITDA margin for the full year. Now, looking at the second half by quarter, I'd again underline that the impact of the one times will be larger in Q3 than Q2, and this will show in the Q3 reported result.

Speaker Change: Related to SP&T margins. The SP&T margins, a lot of these costs, specifically around the one-time costs and also the investments that we're making are disproportionately impacting the SP&T segment.

Speaker Change: And so, again, the one-time costs will not repeat.

Speaker Change: And then, you know, the investments will pay for themselves over time. So, you know, we should expect a reasonable recovery in SP&T margins. But again, with Q2 being a little—Q3 being a little bit more challenged across the portfolio, but then going into Q4 getting closer to the—getting more normalized.

Stephen Keller: Conversely, the impact will be less in the final quarter. So we expect to return to growth in Q4, allowing us to build momentum heading in to 2025. And most importantly, I'd go back to where I began. In this case, it's a fundamentally strong company. With our underlying performance in the quarter, above our reported results, it was still below our demonstrated capabilities. So we have clear line of sight to what improvements are required to improve our trajectory, and many of those actions are underway already.

Stephen Keller: You know, we have work to do here, but we're pointed in the right direction. God, it's a super helpful context. Thank you. So I guess I'm on that math that gives you an implied 200 jump off point, which is helpful.

Kevin Caliendo: Thank you. The next question will come from Kevin Caliendo with UBS.

Stephen Keller: Thank you.

Speaker Change: Thank you. Thank you. Our next question will come from Kevin Caliendo with UBS.

Stephen Keller: So, just to be clear, 300 base points is not only related to SPARC. It's also related to dealer inventory reduction. So, as Paul called out during the paired remarks, Q3 will be a little bit more challenged from a reported adjusted EBITDA margin related to some of these dynamics, but fundamentally, as you go into Q4, they start to normalize and get more towards that, you know, that kind of underlying performance. Then, sorry, the other question was:

Paul Keel: Thank you very much. First question here: as you talk about those investments that you made in Nobel this past quarter, it seems like most of them were on the sales and marketing side. I'm just wondering, from a product perspective, do you feel that the Nobel products that you have today are sufficient to carry you to a premium market long-term growth rate? Or perhaps more R&D investment in 2025 is going to take you there?

Kevin Caliendo: Thank you very much. First question here, as you talk to those investments that you made in Nobel this past quarter, it seems like most of it was on the...

Stephen Keller: related to SP&T margins. Yeah, the SP&T margins. A lot of these costs, specifically around the one-time costs and also the investments that we're making are disproportionately impacting the SP&T segment, and so again, the one-time costs will not repeat, and then you know the investments will pay for themselves over time. So you know we should expect a reasonable recovery in SP&T margins but again with Q2 being a little, Q3 being a little bit more challenged across the portfolio but then going into Q4 getting closer to being more normalized.

Kevin Caliendo: Thank you. The next question will come from Kevin Caliendo with UBS.

Kevin Caliendo: Sales and Marketing side. I'm just wondering, from a product perspective, do you feel that the Nobel products that you have today are sufficient to carry you to look up?

Kevin Caliendo: Thank you very much. First question here: as you talk about those investments that you made in Nobel this past quarter, it seems like most of them were on the sales and marketing side. I'm just wondering, from a product perspective, do you feel that the Nobel products that you have today are sufficient to carry you to a premium market long-term growth rate? Or perhaps more R&D investment in 2025 is going to take you there?

Speaker Change: premium market long term growth rate, or perhaps some more R&D investment in 2025 is going to take you there.

Paul Keel: How do we think about like, as we go look forward and you guys particularly on the implant business, you know, what are the sort of key actions you guys are thinking about on a short-term basis versus, you know, things you're thinking about that might be a couple of year kind of trajectory. I know obviously the macro is whatever the macro is, but like where do you see those things is kind of like the near-term and maybe longer-term priorities on that business in particular.

Paul Keel: Yeah, the $6 million or so per quarter going to Nobel covers both new product development, R&D, as well as sales and marketing. And so a good portion of that is to strengthen the new product pipeline. Again, similar to the earlier question, writ large, the implant portfolio is good. We compete globally with what we have, but it's a dynamic category. You know, highly evidence-based and with a lot of involvement from clinicians.

Speaker Change: Yeah, the six million or so per quarter into Nobel covers both new product development, R&D, as well as sales and marketing.

Speaker Change: And so a good portion of that is to strengthen the new product pipeline.

Speaker Change: Again, you know, similar to the earlier question, writ large, the implant portfolio is good. We compete globally with what we have, but it's a dynamic category, you know, highly evidence-driven and with a lot of involvement from clinicians, so it's always moving forward. And I think what we found over the last couple of years is, as we weren't investing enough in that, the market kept moving forward, and we didn't move forward as quickly.

Paul Keel: Also a good question. So with implants, you have to begin with the underlying market and margin characteristics of the business. So this is a, you know, a proven growth category. Right now, the premium growth has slowed in particular for the full-art procedures and value has done a little bit better. We expect both of those to accelerate moving forward. And as we noted, we're seeing improvement on both sides of our business. Our gap to overall market growth on the premium side strunk in the quarter, and we had a second consecutive period of growth on the value side.

Kevin Caliendo: We compete globally with what we have, but it's a dynamic category, you know, highly evidence-based and with a lot of involvement from clinicians. So it's always moving forward. And I think what we found over the last couple of years is that as we weren't investing enough in that, the market kept moving forward, and we didn't move forward as quickly. So we're trying to rectify that imbalance.

Paul Keel: So it's always moving forward. And I think what we found over the last couple of years is that if we weren't investing enough in that, the market kept moving forward, and we didn't move forward as quickly. So we're trying to rectify that imbalance.

Paul Keel: Thank you. Helpful.

Kevin Caliendo: And then, kind of switching gears, about 30 years in business, you work with dealers. How do you feel where you sit today in those relationships? Do you think those relationships are mutually beneficial? Or do you see anything in those partnerships you'd like to change?

Paul Keel: And then, kind of switching gears, about 30 years in business, you work with dealers. How do you feel where you sit today in those relationships? Do you think those relationships are mutually beneficial? Or do you see anything in those partnerships you'd like to change?

Speaker Change: So, we're trying to rectify that imbalance.

Speaker Change: Thank you. Helpful. And then as a follow-up, kind of switching gears, about 30-year business,

Speaker Change: You work with dealers. How do you feel where you sit today in those relationships? Do you think those relationships are mutually beneficial, or do you see anything in those partnerships you'd like to change?

Paul Keel: Second part of that equation, of course, is margins. You know, one of the things we all like about these businesses is that as you accelerate growth, it has an incremental effect on the growth of earnings, you know, expanding margins. So we'll continue to make the investments that began in Q1 and continue to cross Q2 to accelerate growth in implants. That's about six million a quarter. And while that has a near-term impact on margins, you know, we've all seen this enough, we'll know over time when you get the growth, it more than pays for itself. I got it. Thanks so much. Thank you.

Paul Keel: Yeah, I mean, I think you started in the right place. You know, two-thirds of our business is in the specialty categories, which tend to go direct. So the general topic is less central to Envista than it is to some of our peers.

Speaker Change: Yeah, I mean, I think you started in the right place. You know, two-thirds of our business is in the specialty categories, which tend to go direct. So, the general topic is

Speaker Change: less central to Envista than it is to some of our peers, but specific to the one-third that does go to distribution, you know, we don't call them distribution partners lightly. We really mean that.

Paul Keel: But specific to the one-third that does go to distribution, you know, we don't call them distribution partners lightly. We really mean that. We've been working with these folks for decades, and when we go to market with our channel partners, we're glad we do. We see real value from what they bring, and I think they can tell you this. As part of my onboarding and reconnecting with the industry, I spoke to my counterpart at all of our large partners, and I was encouraged by the collaborative relationship between the two organizations.

Kevin Caliendo: But specific to the one-third that does go to distribution, you know, we don't call them distribution partners lightly. We really mean that. We've been working with these folks for decades, and when we go to market with our channel partners, we're glad we do. We see real value from what they bring, and I think they can tell you this. As part of my onboarding and reconnecting with the industry, I spoke to my counterpart at all of our large partners, and I was encouraged by the collaborative relationship between the two organizations.

Paul Keel: Thank you. Very helpful.

Speaker Change: We've been working with these folks for decades, and where we go to market with our channel partners, we're glad we do. We see real value from what they bring, and I think they tell you the same thing.

Erin Wright: Our next question will come from Erin Wright with Morgan's daily. Great. Thank you.

Paul Keel: Imagine a few times that you think the long-term growth rate in dentals, like a GDP plus type of rate. I guess, how are you thinking about the market getting to there? And then in terms of how you're thinking about getting to growth in sort of the fourth quarter, I guess, what is that entail in terms of underlying market growth for the balance, for the balance of the year here in your term?

Speaker Change: you know it's part of that my onboarding reconnecting with the industry i spoke to you know my counterpart it all of our large partners and i was encouraged by the collaborative relationship between the two organizations

Paul Keel: Thank you. Very helpful.

Michael Czerny: Thank you. The next question comes from Michael Czerny with Lee Ring Partners.

Michael Czerny: Thank you. The next question comes from Michael Czerny with Levering Partners.

Speaker Change: Thank you. Very helpful.

Paul Keel: Yeah, I mean, as you guys know, I've been in and around the dental market for, I'll call it 20 years now. And so, we have seen macro ups and downs during that time. In fact, two of the more pronounced contractions that hopefully will witness in our lifetimes happen in that period. And so, from that, we know dental is not immune to the macro, but it is less sensitive than other categories. And I think you're seeing the same thing currently.

Speaker Change: Thank you. Our next question comes from Michael Czerny with Levering Partners.

Michael Czerny: Great, thank you. This is Dan Clark. I'm from Mike. Just wanted to circle back to the implant again here, for starters, you know. Paul, you haven't been here for very long, and yet you're already talking about an uptick in sort of new customer wins off of, you know, your change in the sales strategy. Like, how should we think about the pace of that going forward, given that, you know, you're starting to see some improvement here fairly early on?

Paul Keel: Great, thank you. This is Dan Clark. I'm from Mike. Just wanted to circle back to the implant again here, for starters, you know. Paul, you haven't been here for very long, and yet you're already talking about an uptick in sort of new customer wins off of, you know, your change in the sales strategy. Like, how should we think about the pace of that going forward, given that, you know, you're starting to see some improvement here earlier?

Speaker Change: Great, thank you. This is Dan Clark on from Mike. Just wanted to circle back to the implant again here. For starters, you know,

Speaker Change: Paul, you haven't been here for very long, and yet you're already talking about an uptick in sort of new customer wins off of, you know, your rechange in the sales strategy. Like, how should we think about the pace of that going forward, given that, you know, you're starting to see some improvement here fairly early on?

Paul Keel: Now with respect to the second half, our return to growth in the fourth quarter is mostly a function of how the one times we talked about play out, it's not dependent on any improvement in the macro. I would expect 2025 to be from a market perspective a bit better than 2024, and will benefit from that as well.

Paul Keel: Yeah, I mean, this is how you accelerate growth in a high-margin category like, like implants. You know, one of the good and the bad things about specialty dental is that it tends to be pretty sticky.

Speaker Change: Yeah…

Speaker Change: I mean this is how that that's how you accelerate growth in a high-margin category like like implants. You know one of the good and the bad things about specialty dental is that it tends to be pretty sticky. If you have a customer and you treat them well you often have them for for decades.

Michael Czerny: If you have a customer and you treat them well, you often have them for decades. But the flip side of that is, if you do lose a customer, it's a little bit more work getting them back, you know, on your side of the ledger. So that's why we spoke about the uptick in new product wins or new customer wins because it has an impact on the quarter, but it's also a longer-term proven indicator that your underlying business is improving.

Paul Keel: If you have a customer and you treat them well, you often have them for decades. But the flip side of that is, if you do lose a customer, it's a little bit more work getting them back, you know, on your side of the ledger. So that's why we spoke about the uptick in new product wins or new customer wins because it has an impact on the quarter, but it's also a longer-term proven indicator that your underlying business is improving.

Paul Keel: That's how it's played out in the long-term drivers of growth in dental, just have not changed.

Speaker Change: But the flip side of that is if you do lose a customer, it's a little bit more work getting them back on your side of the ledger.

Paul Keel: Okay, and then if I could ask one follow-up just on Spark, and could you talk about what underlying normalized growth would be kind of for Spark for you and kind of just underlying kind of traction in the market, competitive dynamics that you can speak to in the various different markets that you participate from a geography perspective? Thanks. Yeah, for Spark. I mean, the clear-liner category is a high single-digit grower. We've been growing better than the category over time.

Speaker Change: So that's why we spoke about the uptick in new product wins, or in new customer wins, because it has an impact in the quarter, but it's also a longer-term proven indicator that your underlying business is improving.

Michael Czerny: So listen, you know, we're very far from declaring victory in premium implants in North America. What I meant to signal on this call was two things. One, we're continuing to invest in it, and it will pay off, and two, we see green shoots, that it's starting to yield benefits.

Paul Keel: So, listen, you know, we're very far from declaring victory in premium implants in North America. What I meant to signal on this call was two things. One, we're continuing to invest in it, and it will pay off, and two, we see green shoots, that it's starting to yield benefits.

Speaker Change: So listen, you know, we're very far from declaring victory in premium implants in North America. What I meant to signal on this call was two things. One, we're continuing to invest in it.

Speaker Change: payoff, and two, we see green shoots, that it's starting to yield benefit.

Paul Keel: You know, in the next couple of quarters, that'll be a bit clouded for us because of the impact in recorded results are related to the increased deferred revenue. But the underlying growth of the business won't be impacted. For example, we look in addition to the core growth. We look at the number of ordering clinicians, and we look at the number of submitted cases. The number of ordering clinicians for us was up strong double digits in the quarter, and then the growth of submitted cases was up high single digits.

Paul Keel: Got it, thank you. And then, just as we think about some of the R&D investments you're making in Novell and implants, like what sort of a timeline for where we might see these improvements come to market? Thank you.

Paul Keel: Got it, thank you. And then, just as we think about some of the R&D investments you're making in Novell and implants, like what's sort of a timeline for where we might see these improvements come to market? Thank you.

Speaker Change: Got it. Thank you. And then just as we think about some of the R&D investments you're making in Novell and in plants, like what's sort of a timeline for where we might see these improvements come to market? Thank you.

Michael Czerny: Yeah, you know, I think I am going to take a pass on the details of that right now. For competitive reasons, we're not going to talk through the timing of our new product pipeline, but I'd say broadly that it's in a couple of categories. So, first, digitization of workflows and implants is well understood. We're fortunate in that we have both a diagnostics business as well as a specialty business. We make both sides of the equation, but connecting the two, I think, is an opportunity for us.

Paul Keel: Yeah, you know, I think I am going to take a pass on the details of that right now. For competitive reasons, we're not going to talk through the timing of our new product pipeline, but I'd say broadly that it's in a couple of categories. So, first, digitization of workflows and implants is well understood. We're fortunate in that we have both a diagnostics business as well as a specialty business. We make both sides of the equation, but connecting the two, I think, is an opportunity for us.

Speaker Change: Yeah, you know, I think I am going to take a pass on the details of that right now. For competitive reasons, we're not going to talk through the timing of our new product pipeline, but I'd say broadly it's in a couple of categories. So first, digitization of workflows and implants, well understood.

Paul Keel: So we believe we'll continue to have good growth on the Spark side, a creative growth for InVISTA. The second comment on Spark is around profitability. Now that remains highly dilutive to us from a margin perspective. So conversely, Spark grows for us. We've absorbed more margin compression. We had good progress in the quarter in terms of our unit costs. Unit costs are a per-aligner cost. We're down double digits in the quarter. Eventually, that'll turn to a credo.

Speaker Change: We're fortunate in that we have both a diagnostics business as well as a specialty business. We make both sides of the the equation, but connecting the two I think is an opportunity for us, so we're spending time on that.

Michael Czerny: So, we're spending time on that. Second, we talked a little bit about the mix between premium and value. We are under-indexed in value. So that's a second category that we're focused on. And then the third is, you know, the prosthetic part of this we also participate in. The crown and bridge part of it. And we think that's another area where we could probably do more. Again, we're unique in being across all pieces of the solution there.

Paul Keel: So, we're spending time on that. Second, we talked a little bit about the mix between premium and value. We are undervalued in value. So, that's a second category that we're focused on. And then the third is, you know, the prosthetic part of this we also participate in. The crown and bridge part of it. And we think that's another area where we could probably do more. Again, we're unique in being across all pieces of the solution there.

Speaker Change: Second, we talked a little bit about the mix between premium and value. We are under-indexed in value, so that's a second category that we're focused on.

Paul Keel: And, you know, over the past several years, we have entirely funded building the Spark business out of operating income and cash flow. And that will turn to a tailwind here. Is that that business becomes a credo?

Speaker Change: And then the third is...

Speaker Change: You know, the prosthetic part of this, we also participate in, the crown and bridge part of it, and we think that's another area where we could probably do more. Again, we're unique in being across all pieces of the solution there.

Paul Keel: Thank you.

John Block: Our next question will come from John Block with Diffle. Great. Thanks guys. Good afternoon. It seems like there's some data points that suggest that Envista's implants, you know, the division improved growth was closer to that of market relative to what you guys experienced in past quarter. So I guess the question is, you know, do you feel confident you have the portfolio to get back to market growth, portfolio being the right mix of premium value? Are you confident that the current investments are sufficient to get back to market growth? And maybe, you know, if so, the timeline in which you hope to achieve something like that.

Speaker Change: www.thevenusproject.com

Paul Keel: Thank you. Our next question comes from Jason Bednar with Barber Sandler.

Jason Bednar: Thank you. Our next question comes from Jason Bednar with Piper Zandler.

Speaker Change: Thank you. Our next question comes from Jason Bednar with Barber-Sandler.

Jason Bednar: Hey, good afternoon. Thanks for taking the questions.

Jason Bednar: Good afternoon. Thanks for taking the questions.

Paul Keel: Paul, I wanted to start on the pricing side. It's good to see just the pricing that you're taking across the organization and the benefits you saw here in 2Q. You've been around the market for a long, long time, the dental market, that is. You've seen the evolution of pricing, the shift in pricing power in the industry over the last couple decades. I'd just be interested to hear your perspective, your high-level view of, like, where do you see pricing going within the portfolio you have? And feel free to comment, whether it's SP&T or E&C. Yeah,

Jason Bednar: Paul, you know, wanted to start.

Jason Bednar: On the pricing side, you know, good to see, you know, just the pricing that you're taking across the organization, the benefits you saw here in 2Q.

Speaker Change: You've been around the market for a long, long time, the dental market that is. You've seen the evolution of pricing, the shift in price and power in the industry over the last couple decades. I'd just be interested to hear your perspective, your high-level view of where do you see pricing going within the portfolio you have, and feel free to comment whether it's SP&T or E&C.

Paul Keel: Hey, John, thanks for the question. So first on portfolio, yes, the combination of Nobel and our two value businesses, these are good portfolios. We're well positioned to compete globally in both categories. Second thing I would say is, you know, my view having been working in the business now for three months is that we did not invest sufficiently previously in either of these businesses. And that's what caused the management team to start putting money back in Q1, continuing in Q2, and we intend to do the same here across the back half of the year.

Paul Keel: Yeah, thanks for the question. So again, just to kind of recap, we had, I'll call it, 8.5 million of positive price in the quarter. That's a little better than a point of growth for us. It differed by segment. We got a higher price for ortho and in consumables, but we got less for implants and diagnostics. But for the most part, pricing was, you know, in a tight band around that, I call it, the point of positive that I mentioned.

Jason Bednar: Yeah, thanks for the question. So again, just to kind of recap, we had, I'll call it, 8.5 million of positive price in the quarter. That's a little better than a point of growth for us. It differed by segment. We got a higher price for ortho and in consumables, but we got less for implants and diagnostics. But for the most part, pricing was, you know, in a tight band around that, I call it, the point of positive that I mentioned.

Speaker Change: Yeah, thanks for the question. So again, just to kind of recap, we had, I'll call it eight and a half million of positive price in the quarter. You know, that's a little better than a point of growth for us.

Speaker Change: It differed by segment. We got more price in ortho and in consumables. We got less in implants and diagnostics.

Speaker Change: But for the most part, pricing was, you know, in a tight band around that, I call it, point of positive that I mentioned.

Paul Keel: My experience in the category is that it tends to be less price-sensitive, certainly than other investment categories and less price-sensitive than other med-tech categories. So I'm trying to learn whether that's still the case as I kind of reconnect. But the underlying sort of drivers of why that relative price inelasticity, Bill Eric Chuck Steve, for us to capture more price, and of course, that's a kind of multivariate equation, how you get to that, and probably a longer conversation than this call, but the core of your question is correct. I think there's more we can do.

Jason Bednar: My experience in the category is that it tends to be less price-sensitive, certainly than other investment categories, and less price-sensitive than other med-tech categories. So I'm trying to learn whether that's still the case as I kind of reconnect. But the underlying sort of drivers of why that relative price inelasticity, Bill Eric Chuck Steve, for us to capture more price. And of course, that's a kind of multivariate equation, how you get to that, and probably a longer conversation than this call. But the core of your question is correct. I think there's more we can do.

Paul Keel: You pointed to the leading indicators we were also looking at that give us confidence that those investments are starting to pay off. You know, but we got to now convert that into the results that we share with you guys. In terms of timing, you know, I don't know where yet in a position where I can call when that will turn to positive, but we hope to make sequential improvement across the second half. And again, carry that momentum into 25. Got it. Very helpful.

Speaker Change: My experience in the category is that it tends to be less price sensitive, certainly, than other investment categories, and less price sensitive than other medtech categories.

Speaker Change: So I'm trying to learn whether that's still the case, you know, as I kind of reconnect. But the underlying sort of drivers of why that relative price inelasticity is so important

Speaker Change: Attorney for Michael Flynn, and to all of our viewers, we wish you the best. We look forward to seeing you soon.

Stephen Keller: And maybe just to shift gears a little bit. You know, I thought I heard you in the commentary sort of allude to for investor modest growth in mid-teens margins. And when you think about the 2024 numbers, you might think, hey, that's far away, but to your point, when you normalize the numbers this year, I think you called out 1% top line and 14% EBITDA margins. So that modest growth, call it in mid-teens.

Speaker Change: for us to capture more price. And of course that's a kind of multivariate equation how you get to that and probably a longer conversation than this call. But the core of your question is correct. I think there's more we can do here.

Paul Keel: Okay, that's helpful. And then, just as a follow-up, I wanted to focus a little bit on the SPARC manufacturing investments that you're making, and maybe you can give us some flavor of the benefits or the contributions from those investments, any details on what exactly you're doing that's hitting the P&L and not just CapEx. How much cost are you taking out of the process with these investments? And I don't know if you'll be willing to provide it or not, but just quantitatively, what do these actions mean for SPARC's gross margins if we're sitting here 12 or 18 months from now?

Paul Keel: Okay, that's helpful. And then, just as a follow-up, I wanted to focus a little bit on the SPARC manufacturing investments that you're making, and maybe you can give us some flavor of, you know, the benefits or the contributions from those investments. Any details on what exactly you're doing that's hitting the P&L and not just CapEx? How much cost are you taking out of the process with these investments? And, you know, I don't know if you'll be willing to provide it or not, but just quantitatively, what do these actions mean for SPARC's gross margins if we're sitting here, you know, 12 or 18 months from now? Yeah, so let's see.

Speaker Change: Okay, all right, that's helpful. And then just as a follow-up, I wanted to focus a little bit on the

Speaker Change: the Spark Manufacturing investments that you're making and just maybe you can give us some flavor of you know the benefits of the contributions from From those investments any details on what exactly you're doing that's hitting the P&L and not just CapEx

Stephen Keller: Is that something that, you know, we don't have to look too far down the road for another word? Is that something where you use the normalized numbers for 24 and we might land there for 2025 when we think about things? Thanks for your time.

Speaker Change: How much cost are you taking out of the process with these investments? And, you know, I don't know if you'll be willing to provide it or not, but just quantitatively, what do these actions mean for SPARC gross margins if we're sitting here, you know, 12 or 18 months from now?

Stephen Keller: So let me take it in steps. So yes, I did say the 1% core growth normalized in 14% EBITDA fairly characterized or underlying performance. That's about what we reported in Q1. It's normalized in Q2. And if you work through the math, that's about what we're guiding to for the full year. Again, adjusting for the one time and non-cash expenses. So that's point number one. Point number two is, you know, we're not yet giving guidance for 2025.

Paul Keel: Yeah. So, let's see. There are three parts to your question. The first is just a reminder that we're building this business for long-term success. We built this organically entirely out of operating income and cash flow, and we put in place a foundation for a very large and lasting business. We have a global manufacturing footprint in place. The second thing I would say is that I have visited two of those facilities so far on two different continents and have been impressed with the trajectory of the improvement, both the scale-up of capacity as well as the drive-down of unit costs, and I referenced that in my prepared comments.

Paul Keel: Yeah, so let's go.

Paul Keel: Yeah, so let's see, three parts to your question. The first is just a reminder that we're building this business for long-term success. We built this organically entirely out of operating income and cash flow, and we put in place a foundation for a very large and lasting business. We have a global manufacturing footprint in place. The second thing I would say is that I have visited two of those facilities so far on two different continents and have been impressed with the trajectory of improvement, both the scale-up of capacity as well as the drive-down of unit costs, and I referenced that in my prepared comments.

Speaker Change: Yeah, so let's see three parts to your question. The first is just a reminder we're building this business for long-term success. We built this organically entirely out of operating income and cash flow and we put in place a foundation for a very large and lasting business. We have a global manufacturing footprint in place.

Stephen Keller: We'll come on to that. But our goal here in the second half is to get back to growth in Q4. One, again, emphasize Q3 reported results will be difficult. And then carry that momentum into 25 and hopefully do better, you know, consistent with our kind of continuous improvement culture. Thank you.

Speaker Change: Second thing I would say is that I visited two of those facilities so far on two different continents and have been impressed with the trajectory of the improvement.

Speaker Change: both the scale-up of capacity as well as the drive-down of unit costs, and I referenced that, you know, in my prepared comments.

Paul Keel: Now, specific to your question about how that plays out in the P&L, we had a double-digit decrease in unit costs in our SPARC business in just the quarter. So, this business, from a gross margin perspective, is profitable, but we still need to cover at that operating income level the large investment I mentioned in the global supply chain, and that's what's causing us to continue focusing on reducing unit costs, so it shifts from being margin dilutive to being margin accretive.

Paul Keel: Now, specific to your question about how does that play out in the P&L, we had a double-digit decrease in unit costs in our SPARC business in just the quarter, so this business on a gross margin perspective is profitable, but we still need to cover at the operating income level that large investment I mentioned in the global supply chain, and that's what's causing us to continue focusing on reducing unit costs, so the shifts from being margin dilutive to margin accretive.

Jeff Johnson: Our next question will come for Jeff Johnson with beer. Thank you.

Paul Keel: Good afternoon, guys. Paul, maybe going back to some of the value implant comments you made earlier. You know, we don't talk about that part of your business very often. We don't get much insight into it. You know, my understanding has been some of that alpha product has come off the market given MDR issues in Europe a couple years ago in the US. I think you're in plant direct business. You know, there's a lot of older style implants that the market has, you know, maybe started moving somewhat away from over the last five years or so.

Speaker Change: Now, specific to your question about how does that play out in the P&L, we had a double-digit decrease in unit costs in our SPARC business in just the quarter, so this business on a gross margin perspective is profitable.

Speaker Change: but we still need to cover at the operating income level that large investment I mentioned in the global supply chain and you know that's what what's causing us to continue focusing on reducing unit cost so this shifts from being margin dilutive to margin accretive.

Paul Keel: So, you know, do you think you have to write in value implant portfolio today? And, and how do you kind of beast that up? I guess over the next few years if that's the way the markets, at least starting to trend in some areas, thanks.

Operator: Thank you. That does conclude the time we have for questions today. I would like to now turn it back to our presenters for any closing remarks.

Speaker Change: Okay, thank you.

Speaker Change: Thank you. That does conclude the time we have for questions today. I would like to now turn it back to our presenters for any closing remarks.

Paul Keel: Yeah, it's an important segment for us. So, so let me unpack your questions. You had a question about implant direct and alpha bio currently and then whether. We think we'd benefit from bolstering that portfolio moving forward. So first, with respect to alpha bio, it's actually performing quite well for us. I'm looking at Steven. I want to say high single digit low double digit grower right now. Yes. And you're correct on implant direct that has been the slower grower of our two businesses implant direct is mostly North America alpha bio is mostly outside of North America.

Paul Keel: Thank you. As we noted in our prepared comments and echoed in the Q&A, this is a good business with leading positions in the best segments of a pretty attractive dental market. We have high gross margins, good cash flow, and a strong balance sheet. Underpinning all of this, we have a positive culture centered on performance, inclusion, and continuous improvement. So, from my perspective, most of the foundational elements of success are already in place at Envista.

Paul Keel: Thank you. As we noted in our prepared comments and echoed in the Q&A, this is a good business with leading positions in the best segments of a pretty attractive dental market. We have high gross margins, good cash flow, and a strong balance sheet. Underpinning all of this, we have a positive culture centered on performance, inclusion, and continuous improvement. So from my perspective, most of the foundational elements of success are already in place at Envista.

Speaker Change: Thank you. As we noted in our prepared comments and echoed in the Q&A, this is a good business with leading positions in the best segments of a pretty attractive dental market.

Speaker Change: We have high gross margins, good cash flow, and a strong balance sheet. Underpinning all of this, we have a positive culture centered on performance, inclusion, and continuous improvement.

Speaker Change: So from my perspective, most of the foundational elements of success are already in place at Envista.

Paul Keel: Our focus now is on generating better and more consistent performance from this strong foundation, and we're moving swiftly in this direction. As evidenced in Q2 with the executive hires, the growth investment, and the one-time action. While the P&L impact of this work will continue through Q3, the positive benefits should become more apparent in Q4, allowing us to build momentum as we roll into 2025. Thanks, everyone, for joining us on the call and for your continued help and support. Thank you, ladies.

Paul Keel: Our focus now is on generating better and more consistent performance from this strong foundation, and we're moving swiftly in this direction. As evidenced in Q2, with the executive hires, the growth investments, and the one-time action. While the P&L impact of this work will continue through Q3, the positive benefits should become more apparent in Q4, allowing us to build momentum as we roll into 2025. Thanks, everyone, for joining us on the call and for your continued help and support.

Speaker Change: Our focus now is on generating better and more consistent performance from this strong foundation. And we're moving swiftly in this direction, as evidenced in Q2 with the executive hires, the growth investments, and the one-time actions.

Paul Keel: So that's question number one question number two with respect to our value implant portfolio. You know, it's a good category right now one of the faster growing in dental and would certainly like to make it bigger. Our first, you know, look is to is to build organically on the nice platform that we already have in place. But as you guys know, we've had some good luck over the years with the creative emanate. So that will remain in the toolkit as well.

Paul Keel: Alright, that's helpful.

Speaker Change: While the P&L impact of this work will continue across Q3, the positive benefits should become more apparent in Q4, allowing us to build momentum as we roll into 2025.

Speaker Change: Thanks, everyone, for joining us on the call and for your continued help and support.

Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect. [music]

Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.

Speaker Change: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.

Stephen Keller: And then just back over on the spark business on the increased deferrals. We've got it very, very ballpark, maybe an extra 150 bucks a month or sorry per case that you're that you're deferring, you know, or we someone in the ballpark there. And then, you know, we've seen these changed and changes in deferral rates in the past. It's usually because the security is going up. Maybe you're doing tougher and tougher cases.

Stephen Keller: And as you do those tougher cases, you have to defer some revenue for added refinements down the road. No, that's just what's the driver of the increased deferment. I guess number one and two. Boy, I forgot my second question, my second question. Oh, how far does that increase deferral rate maybe push profitability break even out on the spark business? I think at one point we thought you could get to break even on spark, maybe by end of 25. Does this push it out a year or further than that beyond the end of 25 spent?

Stephen Keller: Now, this is Stephen's last call in the hot seats. I'm not going to let him get off too easy. I'm going to pitch that one to Stephen. Yeah, I mean, different products, but I mean, you're in the right ballpark in terms of the additional deferral. That's about the right amount. And you're also right about what's driving the deferral. I mean, the increased deferral is really two things. It's quite basically us having more data monitoring, kind of overall usage rates.

Stephen Keller: But then more importantly, projecting out kind of the mix that we expect going forward. Obviously, we focus more on the orthodontic segment. So we do get more comprehensive cases. And as we look where we're growing, we do think it'll be it's pruned to defer a little bit more revenue for the case that we expect in the future. So that that is where we're at terms of profitability. Look, this does have a obviously does have a short term impact on profitability. I think, you know, again, I think what. You will see us continue to improve profitability as we kind of lap some of these impacts on the deferral rate.

Speaker Change: HOUSE OF CARDS

Speaker Change: ? ? ? ? ? ? ?

Stephen Keller: I think in terms of really laying out the long-term profitability and the long-term growth of Spark, I think we're going to wrap that up with our capital market state that we're planning to do in Q1 of next year, where we can really talk through the long-term outlook for the growth of overall and VISTA portfolio and the relative profitability of the different segments.

Stephen Keller: Fair enough, thank you.

Brandon Vazquez: Thank you.

Stephen Keller: Our next question will come from Brandon Vazquez with William Blair. Everyone, thanks for taking the question. Maybe first can we just talk a little bit about the kind of normalized EBITDA margins that you guys are talking about. I think you're talking about a 14% kind of quote-unquote normalized EBITDA margin in the quarter versus the 10% recorded. Can you just bridge us what those four points are? There's a very helpful slide underneath the down margin bridge, but a lot of points in there.

Stephen Keller: So what are the four points you guys would consider get you to a normalized EBITDA margin range as we think about the run rate, especially going into 25? It's really, you can really break it into three. The things that we need normalized for are really three big buckets. There is just one time cost in the quarter that will not repeat. We made some investments to accelerate our spark manufacturing, kind of accelerate technology that we're using.

Stephen Keller: There's some bad decks. There's a few kind of one-time non-repeat costs. That's about a third of the issue. Then, as we called on the slides, about 300 basis points that's related to the profitability on loss of an increased spark revenue referral as well as a dealer inventory reduction. Then you have these longer term investments that we've flagged that we're making that are specifically in Nobel North American implants, not everywhere, but specifically there.

Stephen Keller: We made decision to invest ahead of getting increased sales because we know it's the margin profile of the business. This is the good investment to make. So, when you normalize for those kind of three things, that's where you're kind of, that's where we kind of come out with around a 14% EBITDA margin. Okay, obviously there's a little bit of artwork when you're kind of trying to formalize on your life. Yes, understood.

Stephen Keller: I'll ask a follow-up to that. Another one just put them together here. As you're talking about the 300 basis points there, spark margin headwind. You also mentioned that that needs to annualize. Right, that'll be next year. So, do we think of that as 300 basis points of EBITDA margin headwind every quarter for the next couple of quarters until it annualizes? Then, other follow-up question is just like the specialty and technology section op margins are kind of half of what they used to be a year ago.

Stephen Keller: What gets those back up more meaningfully? I think we're about 9% right now. What gets that to a mid to high team member again in the next couple of years. Thank you. So, just to be clear, 300 base points is not only related to spark. It's also related to dealer inventory reduction. So, as Paul called out during the paired remarks, Q3 will be a little bit more challenged from a reported adjusted EBITDA margin related to some of these dynamics.

Stephen Keller: But fundamentally, as you go into Q4, they start to normal. Those are both those as you start to normalize and get more towards that kind of underlying performance. The other question was related to S.P.A.P, margins. The S.P.A.P, margins, a lot of these costs, specifically around the one-time cost and also the investments that we're making are disproportionately impacting the S.P.A.P.T, segment. And so, again, the one-time cost will not repeat. And then, you know, the investments will pay for themselves over time.

Stephen Keller: So, you know, we should expect a reasonable recovery in S.P.A.P, and T, margins. But again, with Q2 being a little, Q3 being a little bit more challenged across portfolio, but then going into Q4 getting closer to the, getting more normalized. Thank you.

Kevin Kelly: Our next question will come from Kevin Kelly and Doe with UBS. Thank you very much. This first question here, as you talk to those investments that you made in Nobel this past quarter, seems like most of it was on the sales and marketing side.

Paul Keel: I'm just wondering, from a product perspective, do you feel that the Nobel products that you have today are sufficient to carry you to look up premium market long-term growth rate? Or, you know, perhaps some more R&D investment in 25 is going to take you there. Yeah, the six million or so per quarter into Nobel covers both new product development, R&D, as well as sales and marketing. And so a good portion of that is to strengthen the new product pipeline.

Paul Keel: Again, you know, similar to the earlier question, writ large, the implant portfolio is good. We compete globally with what we have. But it's a dynamic category, you know, highly evidence driven and with a lot of involvement from clinicians. So it's always moving forward. And I think what we found over the last couple years that is as we weren't investing enough in that, the market kept moving forward and we didn't move forward as quickly.

Paul Keel: So we're trying to rectify that imbalance. Thank you.

Paul Keel: Is there mutually beneficial, or do you see anything in those partnerships you'd like to change? Yeah, I mean, I think you started in the right place. You know, two thirds of our business is in the specialty categories, which tend to go direct. So the general topic is less central to investment is to some of our peers, but specific to the one third that does go to distribution. You know, we don't call them distribution partners likely.

Paul Keel: We really mean that. We've been working with these folks for decades and where we go to market with our channel partners. We're glad we do. We see real value from what they bring. And I think they tell you this. You know, it's part of my onboarding, reconnecting with the industry. I spoke to, you know, my toner part of all of our large partners. And I was encouraged by the collaborative relationship between the two organizations. Thank you. Very helpful.

Paul Keel: Thank you. Our next question comes from Michael just wanted to circle back to and plant again here. For starters, you know, Paul, you haven't been here for a very long, and yet you're already talking about an uppick and new, new customer wins off of, you know, your, your re-changing in the sales strategy. Like, how should we think about the pace of that going forward given that, you know, your experiences and improvement here earlier?

Paul Keel: Yeah, I mean, this is how that, that's how you accelerate growth in a high margin category like, like implants. You know, one of the good and the bad things about specialty dental is that it tends to be pretty sticky. If you have a customer and you treat them well, you often have them for, for decades. But the flip side of that is if you do lose a customer, it's a little bit more work getting them back, you know, back on your side of the ledger.

Paul Keel: So that's why we spoke about the uptick in new product wins or in a new customer wins because it has an impact in the quarter, but it's also a longer term proven indicator that your, your underlying business is improving.

Paul Keel: So listen, you know, we're very far from declaring victory in premium implants in North America. What I meant to signal on this call was two things. One, we're continuing to invest in it, pay off. And two, we see green, green shoots that it's starting to, to yield benefits. Got it. Thank you.

Paul Keel: And then just as we think about some of the R&D investments here, you're making and no value in implants, like what sort of a timeline for where my CD's improvements come to market? Thank you. Yeah, you know, I think I am going to take a path on the details of that right now. For competitive reasons, we're not going to talk through the timing of our new product pipeline, but I'd say broadly, it's in a couple of categories.

Paul Keel: So first digitization of workflows and implants well understood, we're fortunate in that we have both a diagnostics business as well as a specialty business. We make both sides of the the equation, but connecting the two I think is an opportunity for us. So we're spending time on that. Second, we talked a little bit about the mix between premium and value. We are under indexed in value. So that's a second category that we're focused on.

Paul Keel: And then the third is, you know, the, the prosthetic part of this, we also participate in the crown and bridge part of it. And we think that's another area where we could probably do more. Again, we're unique in being across all pieces of the solution there. Thank you.

Jason Bednar: Our next question comes from Jason Bednar with Bipersailer. Good afternoon. I've taken the questions. Paul, you know, wanted to start on the pricing side. Good to see you're just the pricing that you're taking across the organization, benefits you saw here in 2Q. You've been around the market for a long, long time, the dental market that is, you've seen the evolution of pricing, the shifts in price and power in the industry over the last couple of decades.

Jason Bednar: Just be interested here, your perspective, your high level view of like, where do you see pricing going within the portfolio you have and feel free to comment, whether it's S P and T or E and C? Yeah, thanks for the question. So again, just to kind of recap, we had, oh, call it eight and a half million of positive price in the quarter. You know, that's a little better than a point of growth for us.

Jason Bednar: It differed by segment. We got more price in ortho and in consumables. We got less in implants and diagnostics, but for the most part pricing was, was, you know, in a tight band around that call it point of positive that I mentioned. You know, my experience in the categories that it tends to be less price sensitive, certainly than other investment categories and less price sensitive and other med tech categories. So I'm trying to learn whether that's still the case, you know, as I kind of reconnect.

Jason Bednar: But the underlying sort of drivers of, of why that relative price in a list is still for us to capture more price. And of course, that's a kind of multivariate equation how you get to that and probably a longer conversation that's called. But the core of your question is correct. I think there's more we can do here. Okay, that's helpful.

Stephen Keller: And then just as a follow up, I wanted to focus a little bit on the spark manufacturing investments that you're making. And just maybe you can give us some flavor of the benefits of the contributions from, from those investments, any details on what exactly you're doing that's hitting the P and L. And not just CapEx, how much cost are you taking out of the process with these investments and, you know, I don't know if you'll be willing to provide it or not, but just quantitatively look what do these actions mean for spark roast margins if we're sitting here, you know, 12 or 18 months from now.

Stephen Keller: Yeah, so let's see three, three parts to your question. The first is just a reminder, we're building this business for long term success. We built this organically entirely out of operating income and cash flow. And we put in place a foundation for a very large and lasting business. We have a global manufacturing footprint in place. Second thing I would say is that I visited two of those facilities so far on two different continents and have been impressed with the trajectory of the improvement, both the scale up of capacity, as well as the drive down of unit costs.

Stephen Keller: And I referenced that, you know, in my prepared comments. Now specific to your question about how does that play out in the P and L. We had a double digit decrease in unit costs in our spark business in just the quarter. So this business on the gross margin perspective is profitable. But we still need to cover at the operating income level that large investment I mentioned in the global supply chain. And, you know, that's what's causing us to continue focusing on reducing unit costs, so the shifts from being margin diluted to margin of credo. Thank you.

Paul Keel: That does conclude the time we have questions today.

Paul Keel: I would like to now turn it back to our presenters for any closing remarks. Thank you. As we noted in our prepared comments and echoed in the Q&A, this is a good business, with leading positions in the best segments of a pretty attractive dental market. We have high gross margins, good cash flow and a strong balance sheet. Underpinning all of this, we have a positive culture centered on performance inclusion and continuous improvement.

Paul Keel: So from my perspective, most of the foundational elements of success are already in place at Envista. Our focus now is on generating better and more consistent performance from the strong foundation. And we're moving swiftly in this direction, as evidencing QQ with the executive hires, the growth investments, and the one-time actions. While the P&L impact of this work will continue across Q3, the positive benefits should become more apparent in Q4, allowing us to build momentum as we roll into 2025.

Paul Keel: Thanks, everyone, for joining us on the call and for your continued help and support.

Operator: Thank you, ladies and gentlemen.

Operator: This does conclude today's presentation.

Operator: You may now disconnect. .

Q2 2024 Envista Holdings Corp Earnings Call

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