Q4 2024 Envista Holdings Corp Earnings Call

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Hello, My name is David and I'll be your conference call facilitator. This afternoon at this time I would like to welcome everyone to invest our holdings Corporation's fourth quarter 2024 earnings results Conference call.

David: Hello, my name is David and I'll be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's 4th Quarter 2024 Earnings Results Conference. All lines have been placed on mute to prevent any background noise.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

David: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press the star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star and the number 2.

Speaker Change: I'd like to ask a question during that time. Please press. The Star then the number one on your telephone keypad. If he would like to withdraw your question. Please press the star and the number two.

Jim Gustafson: I'll now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference call.

Speaker Change: I'll now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at in Vista Holdings. Mr. Gustafson, you May begin your conference call.

Jim Gustafson: Good afternoon. Thanks for joining Envista's fourth quarter 2024 earnings call. We thank you for your interest in our company. With me today are Paul Keel, our president and chief executive officer, and Eric Hammes, our chief financial officer.

Jim Gustafson: Good afternoon.

Speaker Change: Thanks for joining <unk> fourth quarter 2024 earnings call. We thank you for your interest in our company with me today are Paul keel, our President and Chief Executive Officer, and Eric <unk>, Our Chief Financial Officer.

Jim Gustafson: Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call, and the reconciliation and other information required by SEC Regulation G relating to any non-GAAP financial measures providing during the call are all available on the Investors section of our website, www.invistaco.com.

Speaker Change: Before we begin I want to point out that our earnings release, the slide presentation, supplementing today's call and the reconciliation and other information required by SEC regulation G relating to any non-GAAP financial measures providing during the call are all available on the investors section of our website www dot.

Speaker Change: <unk> Dot com.

Jim Gustafson: The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials described additional factors that impacted the year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the fourth quarter of 2024, and references to period-to-period increases and decreases in financial metrics are year-over-year. 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.

Speaker Change: The audio portion of this call will be archived on the investors section of our website later today under the heading events and presentations during.

Speaker Change: 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 the year over year performance unless otherwise noted references in these remarks to company specific financial metrics relate to the fourth quarter of 2024.

Speaker Change: And references to period to period increases and decreases in financial metrics are year over year during.

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. 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.

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

Speaker Change: Or may occur in the future.

Speaker Change: These forward looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings and actual results may differ materially from any forward looking statements that we may make today. These forward looking statements speak only as of the date that are made and we do not assume any obligation to update any.

Speaker Change: Forward looking statements, except as required by law.

Jim Gustafson: With that, I'll turn the call over to Paul.

Speaker Change: That.

Speaker Change: I will turn the call over to Paul. Thank you Jim Good afternoon, and welcome everyone. We appreciate you taking the time to join us today.

Paul Keel: Thank you, Jim.

Paul Keel: Good afternoon and welcome, everyone. We appreciate you taking the time to join us today. We'll cover five items on today's call. I'll kick us off with some opening thoughts on our fourth quarter results, the steps we took in 2024 to improve performance, and a summary of our guidance for 2025.

Speaker Change: Well copper five items on today's call.

Paul: I'll kick this off with some opening thoughts on our fourth quarter result, the steps we took in 'twenty 'twenty four to improve performance and a summary of our guidance for 2025.

Paul Keel: Next, I'll turn it over to Eric to take us through the numbers in more detail. I'll wrap things up with some closing remarks, and then we'll open it up for your questions. Slide four summarizes three things, Q4 results, 2024 performance, and our 2025 outlook. I'll touch on each in turn. Results for Q4 were again in line with our expectations. We delivered core growth 2% and an adjusted EBITDA margin around 14%. We saw continued improvement in our implants business, including North America, which has been a particular focus for us. We had another quarter of share gains and gross margin improvement in SPARC and further operational improvements in areas like working capital and customer service supported by EBS.

Paul: Next I'll turn it over to Eric to take us through the numbers in more detail.

Paul: I'll wrap things up with some closing remarks, and then we'll open it up for your questions.

Paul: Slide four summarizes three things Q4 result, 'twenty 'twenty four performance and our 2025 outlook I'll touch on each in turn.

Paul: Results for Q4 were again in line with our expectations, we delivered core growth of 2% and an adjusted EBITDA margin around 14% we.

Paul: We saw continued improvement in our implant business, including North America, which has been a particular focus for us.

Paul: We had another quarter of share gains and gross margin improvement in spark and further operational improvements in areas like working capital and customer service supported by E. D. S.

Paul Keel: As has now been the case for the past several quarters, the global dental market was soft, but stable. We are seeing some headwinds in specific geographic markets, and macro volatility remains high.

Paul: That has now been the case for the past several quarters the global dental market was soft but stable, we're seeing some headwinds in specific geographic market and macro volatility remains high.

Paul: In terms of full year performance 2024, with a year of transition for us.

Paul Keel: In terms of full year performance, 2024 was a year of transition for us. We refreshed our leadership team, took numerous actions to support improved performance, and delivered against the 2024 guidance we reinstated on our Q2 call. Specific to that, core growth and adjusted EBITDA came in at negative 1.5% and 11.8% for 2024, both within their respective ranges. And we generated just over $300 million of free cash flow, a 35% increase over the prior year. With underlying growth and margin around 1 and 14% across 2024, no visible changes yet in the dental market and high macro uncertainty, we're guiding to something similar for 2025.

Paul: We refreshed our leadership team took numerous actions to support improved performance and delivered against the 'twenty 'twenty four guidance, we reinstated on our Q2 call.

Paul: Specific to that.

Paul: Core growth and adjusted EBITDA came in at negative one, 5% and 11, 8% for 2024, both within their respective ranges.

We generated just over $300 million of free cash flow of 35% increase over the prior year.

Paul: With underlying growth in margin around one and 14% across 2024, no visible changes yet in the dental market and high macro uncertainty, we're guiding to something similar for 2025.

Paul Keel: Core growth of 1 to 3% and adjusted EBITDA margin of approximately 14%. To provide additional transparency, we're adding a third guidance metric this year, EPS, which we expect to come in between $0.95 and $1.05 per share.

Paul: Core growth of 1% to 3% and adjusted EBITA margin up approximately 14%.

Paul: To provide additional transparency, we're adding a third guidance metric this year, EPS, which we expect to come in between 95 cents.

Paul: And $1 five per share.

Paul Keel: Two final items to note. First, a recently completed restructuring is expected to generate roughly $20 million of growth annualized savings moving forward. And second, earlier today we announced that our board has authorized share repurchases of up to $250 million over the next two years. While this is something new for our company, Envista is a highly cash generative business. And as Eric will explain shortly, we feel this is an appropriate addition to our capital allocation priority.

Paul: Two final items to note first our recently completed restructuring is expected to generate roughly $20 million of gross annualized savings moving forward.

Paul: And second earlier today, we announced that our board has authorized share repurchases of up to $250 million over the next two years.

Paul: While this is something new for our company and this is a highly cash generative business and as Erik will explain shortly we feel this is an appropriate addition to our capital allocation priorities.

Paul Keel: On my first call with you in May, I said we'd sharpen our focus in three areas, growth, operations, and people. Let me give you a quick update on our progress in that regard. Three items with respect to growth. First, we took the decision to invest an incremental $25 million to accelerate growth in our highest-margin businesses, like Nobel BioCare. We're beginning to see the benefit of this investment with Nobel improving across the year and returning to growth in Q4. SPARC is a second area where we continue to make progress. excluding the net impact from deferral, SPARC grew double digits in 2024, and we've achieved consecutive quarter-on-quarter gross margin improvement across the year.

Speaker Change: On my first call with you and me I said sharpen our focus in three areas growth operations and people.

Paul: We give you a quick update on our progress in that regard.

Speaker Change: Three items with respect to growth.

First we took the decision to invest an incremental $25 million to accelerate growth in our highest margin businesses like Nobel bio care.

Speaker Change: We're beginning to see the benefit of this investment with Nobel improving across the year and returning to growth in Q4.

Speaker Change: Spark is a second area, where we continue to make progress.

Speaker Change: Excluding the net impact from deferral spark grew double digits in 2024, we've achieved consecutive quarter on quarter gross margin improvement across the year.

Paul Keel: As we've shared previously, we expect this business to turn operating profit positive in the second half of 2025. And third, we're driving increased new product activity across Envista, having launched several new platforms, including Spark On Demand, new DEXA sensors, and the next generation CBCT platform.

Speaker Change: As we've shared previously we expect this business to turn operating profit positive in the second half of 2025.

Speaker Change: And third we are driving increased new product activity across in Vista, having launched several new platforms, including spark on demand new decks of sensors and the next generation CB CPE platform.

Paul Keel: On the operational front, we continue to enjoy strong contributions from the Envista business system, our continuous improvement methodology that is foundational to progress across our entire company. Some examples from 2024 include cutting SPARC customer setup times in half and unit costs by over 25 percent. driving double-digit productivity gains in one of our largest Nobel Biocare plants, and a double-digit reduction in consumables inventory through the use of dynamic convons and improved overstock visibility without impacting scrap or service levels. Alongside EBS, the work we're doing to capture price and productivity supports operating leverage, and strong cash flows support the $250 million share buyback program that I mentioned earlier.

Speaker Change: On the operational front, we continue to enjoy strong contributions from the investor business system, our continuous improvement methodology that is foundational to progress across our entire company.

Speaker Change: Some examples from 2024 include cutting spark customer setup times enhance and unit costs by over 25%.

Speaker Change: Driving double digit productivity gains and one of our largest Nobel bio care point and a double digit reduction in consumables inventory due to use of dynamic con bonds and improved overstock visibility without impacting scrap or service levels.

Speaker Change: Alongside UBS the work, we're doing to capture price and productivity supports operating leverage and strong cash flows support the $250 million share buyback program that I mentioned earlier.

Paul Keel: Finally, with respect to people, we refreshed our senior team by quickly onboarding three world-class leaders, all with deep dental market knowledge and global operating experience. We made meaningful investments in engagement, intent, talent development. We continued our support of the Envista Smile Project, our philanthropic foundation with over $2 million of contributions in 2024. And we made progress on a host of other people priorities, including a 25% decrease in recordable safety incidents and record participation in employee feedback surveys.

Speaker Change: Finally, with respect to people, we refreshed our senior team by quickly Onboarding three world class leaders, all with deep dental market knowledge and global operating experience.

Speaker Change: We made meaningful investments in engagement and talent development.

We continued our support of the investors Smile project, our philanthropic foundation with over $2 million of contributions in 2024.

Speaker Change: And we made progress on a host of other people priorities, including a 25% decrease in recordable safety incidents and record participation in employee feedback surveys.

Paul Keel: Before I turn it over to Eric, I'll touch on the dental market in Q4, as well as our relative performance therein.

Speaker Change: Before I turn it over to Eric I'll touch on the dental market in Q4 as well as our relative performance there in.

Paul Keel: In total, the global market was flat to slightly up with implants growing low single digits, ortho and consumables roughly flat, and diagnostics down mid-single.

Speaker Change: In total the global market was flat to slightly up with implants growing low single digits, ortho and consumables roughly flat and diagnostics down mid single digits.

Paul Keel: Our implants business also grew low single digits with Nobel and Challenger both in positive territory.

Speaker Change: Our implant business also grew low single digits with Nobel and challenge are both in positive territory.

Paul Keel: Orthodontics market growth was impacted by a sharp slowdown in China, as industry participants began drawing down inventories in preparation for BVP implementation sometime this year. Excluding China, our brackets and wire business was up low single digits and our aligner business grew double digits, resulting in continued market share gains for Spark.

Speaker Change: Orthodontics market growth was impacted by a sharp slowdown in China as industry participants began drawing down inventories in preparation for BP implementation sometime this year.

Speaker Change: Excluding China, our bracket and wire business was up low single digits and our aligner business grew double digits, resulting in continued market share gains for spark.

Paul Keel: The diagnostic sector contracted again in Q4, as did our business. We experienced negative imaging growth in several key markets, including China, and our iOS business contracted as well. While we expect lower interest rates to support increased diagnostics demand, we are not yet seeing compelling evidence of this in our order. Finally, the consumable sector was flat to slightly positive on a sell-out basis, and our performance was roughly the same. Channel inventories were stable quarter on quarter, and our service levels remained high, but general dental patient traffic was mostly flat in the quarter.

Speaker Change: The diagnostic sector contracted again in Q4 as did our business, we experienced negative imaging growth in several key markets, including China, and our iOS business contracted as well.

Speaker Change: While we expect lower interest rates to support increased diagnostics demand, we are not yet see compelling evidence of this in our order book.

Speaker Change: Finally, the consumable sector was flat to slightly positive on a sellout basis and our performance was roughly the same.

Speaker Change: Panel inventories were stable quarter on quarter, and our service levels remain high but general dental patient traffic was mostly flat in the quarter.

Eric Hammes: Having summarized Q4, 2024, and 2025 guidance, I'll now turn it over to Eric to take us through the details.

Eric: Having summarized Q4, 2024, and 2025 guidance I'll now turn it over to Eric to take us through the details.

Eric Hammes: Thanks, Paul. In the fourth quarter, we delivered sales of $653 million. Currency exchange rates impacted sales negatively year-over-year by 90 basis points. Adjusting for the impact of currency, core sales in the quarter increased 2%. Our specialty products and technology segment declined slightly, and equipment and consumables segment increased 6.4% year on year. As Paul noted, we delivered positive growth across both of our implant portfolios and SPARC delivered another strong quarter of growth, excluding the net impact from our deferral. In addition, our consumables business posted strong growth in the quarter, although this was off of a low comparable in Q4 2020.

Eric: Thanks, Paul in the fourth quarter, we delivered sales of $653 million currency exchange rates impacted sales negatively year over year by 90 basis points adjusting for the impact of currency core sales in the quarter increased 2%.

Our specialty products and technology segment declined slightly and equipment and consumables segment increased six 4% year on year.

Eric: As Paul noted, we delivered positive growth across both of our implant portfolios and spark delivered another strong quarter of growth excluding the net impact from our deferral change. In addition, our consumables business posted strong growth in the quarter. Although this was off of a low comparable in Q4 2023, when our sell in.

Eric Hammes: when our sell-in was impacted by the cyber attack on our channel partner. We also saw a significant slowdown in China, both in our diagnostics business, where the competitive dynamics are challenging, and in our orthodontics business, for the reasons Paul just mentioned. Our fourth quarter adjusted gross margin was 57.2%, an increase of nearly 500 basis points versus the prior year, helped by a transactional foreign exchange benefit.

Eric: <unk> was impacted by the cyber attack on our channel partner.

Eric: We also saw a significant slowdown in China, both in our diagnostics business or the competitive dynamics are challenging and in our orthodontics business for the reasons, Paul just mentioned.

Eric: Our fourth quarter adjusted gross margin was 57, 2% an increase of nearly 500 basis points versus the prior year helped by a transactional foreign exchange benefit.

Eric Hammes: Our adjusted EBITDA margin for the quarter was 13.9%, which was 170 basis points lower than the prior year. Adjusted EPS in the fourth quarter was $0.24, down $0.05 compared to the same quarter of last year. Finally, we delivered $124 million in free cash flow in Q4 and a total of $303 million in free cash flow for the full year, up 35% versus 2020.

Eric: Our adjusted EBITDA margin for the quarter was 13, 9%.

Eric: Which was 170 basis points lower than the prior year adjusted.

Eric: Adjusted EPS in the fourth quarter was <unk> 24 down <unk> <unk> compared to the same quarter of last year.

Eric: Finally, we delivered $124 million in free cash flow in Q4, and a total of $303 million in free cash flow for the full year up 35% versus 2023.

Eric Hammes: We've provided two bridges to help break down our year-over-year results. Let's first turn to the sales bridge. For year-over-year revenue, exchange rates were a headwind of approximately $6 million due to the dollar's strength. The SPARC revenue deferral change accounted for about $7 million in the quarter. This is consistent with the guidance we provided in the Q3 earnings call. On a full-year basis, the net deferral change was a headwind of $45 million. This will turn into a tailwind in 2025, which I'll say more about in a moment. Consumables sell-in was up high teens in the fourth quarter for the reasons mentioned.

Eric: We provided two bridges to help breakdown our year over year results, let's first turn to the sales bridge.

Eric: For year over year revenue exchange rates were a headwind of approximately $6 million due to the dollar strengthening.

Eric: The <unk> revenue deferral change accounted for about $7 million in the quarter. This is consistent with the guidance. We provided in our Q3 earnings call on a full year basis. The net deferral change was a headwind of $45 million.

Eric: This will turn into a tailwind in 2025, which I'll say more about in a moment.

Eric: Consumables sell in was up high teens in the fourth quarter for the reasons mentioned our.

Eric Hammes: Our estimated year-over-year impact from the favorable comparison is $20 million in sales. Excluding this impact, our dental consumables business grew low single digit. The net impact from the remainder of our businesses resulted in flat sales year-over-year. This includes growth in our implant businesses and another growth quarter for SPARC, offset by declines in diagnostics and... Turning to the adjusted EBITDA margin bridge, we had a net productivity gain of 80 basis points in the quarter as we continue to drive efficiency in several areas of our operation. We saw an improvement of another 80 basis points coming from positive core growth, inclusive of dental consumables, and a gross margin benefit noted early.

Eric: Our estimated year over year impact from the favorable comparison is $20 million in sales.

Excluding this impact our dental consumables business grew low single digits.

Eric: The net impacts from the remainder of our businesses resulted in flat sales year over year. This includes growth in our implant businesses and another growth quarter for spark offset by declines in diagnostics in China.

Eric: Turning to the adjusted EBITDA margin Bridge, we had a net productivity gain of 80 basis points in the quarter as we continue to drive efficiency in several areas of our operations.

Eric: We saw an improvement of another 80 basis points coming from positive core growth inclusive of dental consumables and the gross margin benefit noted earlier.

Eric Hammes: The impact from the SPARC net deferral change was a headwind of 90 bases. Investments in the business resulted in 130 basis point decline in adjusted EBITDA margins. Similar to other quarters, the largest portion of our Q4 investment was in Nobel BioCare, where we continue to strengthen our capabilities in commercialization, clinical, and R&D. We are also making investments in areas like Challenger Implants R&D, Spark Commercialization, and Dental Consumables Sales Coverage. Lastly, we had 110 basis point decline in adjusted EBITDA margins from other items. This includes the foreign currency transaction gain and a year-over-year increase in incentive compensation against a low 2023 payout comparable.

Eric: The impact from the spark net deferral change was a headwind of 90 basis points.

Eric: Investments in the business resulted in a 130 basis point decline in adjusted EBITDA margins.

Eric: Similar to other quarters, the largest portion of our Q4 investment was a Nobel bio care, where we continued to strengthen our capabilities and commercialization clinical in RMB.

Eric: We are also making investments in areas like challenger implants, R&D spark commercialization and dental consumables sales coverage.

Eric: Lastly, we had 110 basis point decline in adjusted EBITDA margins from other items. This includes a foreign currency transaction gain and a year over year increase in incentive compensation against the low 2023 payout comparable.

Eric Hammes: Turning to segment performance, core revenue in the specialty products and technology segment declined 40 basis points year-on-year. In the orthodontics business, there were a number of puts and takes in the quarter. On the positive side, as Paul described, SPARC continued to perform well. Brackets and wires, however, were down mid-single digits in the quarter as China declined 50 percent due to VBP preparation. We expect the China orthodontic market to continue to be slow for the next couple of quarters. Excluding the decline in China, brackets and wires were up low single digits, with solid growth in both North America and Europe.

Eric: Turning to segment performance core revenue in our specialty products and technology segment declined 40 basis points year on year.

Eric: And the orthodontics business there were a number of puts and takes in the quarter on the positive side as Paul described spark continued to perform well bracco.

Eric: Brackets and wires, however were down mid single digits in the quarter as China declined 50% due to Pvp preparations.

Eric: We expect the China orthodontic market to continue to be slow for the next couple of quarters excluding.

Eric: Excluding the decline in China brackets, and wires were up low single digits with solid growth in both North America and Europe.

Eric Hammes: Implants delivered another quarter of improved performance of growth. Adding to what Paul said earlier, this marked the fourth straight quarter of growth for Challenger, as well as the third straight consecutive quarter of improvement for Nobel in North America. Still more to do here, but we're encouraged by our trajectory. It's also worth noting that the Full Arch category saw good growth in the quarter, a positive signal for our premium implant system. In the fourth quarter, our specialty products and technology business had an adjusted operating margin of 11.5 percent, down almost 400 basis points year over year.

Eric: Implants delivered another quarter of improved performance of growth.

Speaker Change: Adding to what Paul said earlier this marked the fourth straight quarter of growth for challenger as well as the third straight consecutive quarter of improvement for Nobel in North America.

Eric: More to do here, but we're encouraged by our trajectory.

Eric: It's also worth noting that the full arch category saw good growth in the quarter, a positive signal for our premium implant business.

Eric: In the fourth quarter, our specialty products and technology business at an adjusted operating margin of 11, 5% down almost 400 basis points year over year. This decline was driven by the net impact from our spark deferral change in addition to growth investments and the decline in orthodontic China volumes.

Eric Hammes: This decline was driven by the net impact from our SPARC deferral change, in addition to growth investments and the decline in orthodontic china volume. Moving to our equipment and consumables segment, core sales in the quarter increased by 6.4% versus prior year. As I mentioned on the sales bridge, the main driver of this increase was a low prior year comparable for our dental consumables business. Our diagnostics business declined high single digits. This decline was felt across several geographies, driven by macroeconomic conditions and by low-cost competition in developing markets. China in particular continued to experience sharp declines.

Eric: Moving to our equipment and consumables segment core sales in the quarter increased by six 4% versus prior year.

Eric: As I mentioned on the sales bridge. The main driver of this increase was a low prior year comparable for our dental consumables business.

Our diagnostics business declined high single digits. This decline was felt across several geographies driven by macroeconomic conditions and by low cost competition in developing markets.

Eric: China in particular continued to experienced sharp declines North America also declined mid single digits after three straight quarters of growth.

Eric Hammes: North America also declined mid-single digits after three straight quarters of growth. Our consumables business grew in the high teens year on year. Our sellout was relatively flat year on year, consistent with prior quarters and the overall market. Emerging markets were strong, especially Russia, but as with our other businesses, China saw declining sales. Our adjusted operating margin for this segment increased 570 basis points versus Q4 2020. mainly driven by higher consumables volumes and FX transaction gains, partially offset by continued investments in the As mentioned previously, Q4 cash flows were strong, as we generated free cash flow of $124 million, compared to $100 million over the comparable period last year.

Eric: Our consumables business grew in the high teens year on year, our sellout was relatively flat year on year consistent with prior quarters and the overall market.

Eric: Emerging markets were strong, especially Russia, but as with our other businesses China saw declining sales.

Eric: Our adjusted operating margin for this segment increased 570 basis points versus Q4, 2023, mainly driven by higher consumables volumes and FX transaction gains partially offset by continued investments in the business.

Eric: As mentioned previously Q4 cash flows were strong as we generated free cash flow of $124 million compared to $100 million over the comparable period last year.

Eric Hammes: Our full year free cash flows were $303 million, up nearly $80 million over prior year, driven by improved working capital management and lower capital expenditure. The Envista team executed well in Q4. As many of you know, Envista has an excellent balance sheet and good underlying financial support. Across the past two quarters, we've worked to improve our capital deployment flexibility. We recently executed on repatriating over $300 million of international cash to the United States at a low incremental tax rate. This tax obligation was accrued in the fourth quarter, impacting our GAAP tax rate and GAAP earnings per share.

Eric: Our full year free cash flows were $303 million up nearly $80 million over prior year, driven by improved working capital management and lower capital expenditures.

Eric: The investor team executed well in Q4.

Eric: As many of you know in Vista has an excellent balance sheet and good underlying financial strength across the past two quarters, we've worked to improve our capital deployment flexibility.

Eric: We recently executed on repatriating over $300 million of international cash to the United States at a low incremental tax rate.

Eric: This tax obligation was accrued in the fourth quarter impacting our GAAP tax rate and GAAP earnings per share.

Eric Hammes: As a reminder, we have three capital priorities. First, we aim to invest in growing our business organically, including meeting growing demand, gaining share, and investing in innovation that will drive long-term value creation. Second, we will continue to target accretive M&A opportunities that provide attractive, risk-adjusted returns on capital and help us to improve our product portfolio and global reach. Third, we will aim to return surplus cash from these first two priorities to shareholders.

Eric: As a reminder, we have three capital priorities.

Eric: First we aim to invest in growing our business organically, including meeting growing demand gaining share and investing in innovation that will drive long term value creation.

Eric: Second we will continue to target accretive M&A opportunities that provide attractive risk adjusted returns on capital and help us to improve our product portfolio and global reach.

Eric: Third we will aim to return surplus cash from these first two priorities to shareholders.

Eric Hammes: Consistent with this, we announce today that our Board of Directors authorized up to $250 million in share repurchases between now and the end of 2026.

Eric: With this we announced today that our board of directors authorized up to $250 million in share repurchases between now and the end of 2026.

Eric Hammes: As Paul mentioned at the start of the call, we're initiating 2025 guidance, expecting 1 to 3% core growth. EBITDA margins of approximately 14% and adjusted EPS of $0.95 to $1.05. Let me go through a few of the underlying assumptions in our guidance, which we hope are helpful for you all to better understand our business expectations. First, our guidance does not assume significant improvement or, for that matter, deterioration in the dental market in 2025. Our guidance assumes FX rates flat with year ending 2024, namely 1 euro to 1.04 U.S. dollars. The stronger U.S. dollar represents about a 2% year-on-year headwind to 2025 revenue.

Eric: As Paul mentioned at the start of the call. We are initiating 2025 guidance expecting 1% to 3% core growth.

Eric: EBITDA margins of approximately 14% and adjusted EPS of <unk> 95 to $1 five.

Eric: Let me go through a few of the underlying assumptions in our guidance, which we hope are helpful. For you all to better understand our business expectations.

Eric: First our guidance does not assume significant improvements or for that matter deterioration in the dental market in 2025.

Eric: Our guidance assumes FX rates flat with year, ending 2024, namely one euro to $1 four U S dollars.

Eric: The stronger U S. Dollar represents about a 2% year on year headwind to 2025 revenues.

Eric Hammes: On terrorists, this is clearly a fluid situation, with uncertainty as to how the situation lands globally. As with anyone who operates in Canada, Mexico, and China, we have some exposure. but we benefit from a balanced global supply chain that allows us to respond flexibly to shifting dynamics. Until there's greater clarity on the tariff landscape, we have not included anything for tariffs in our guidance. We anticipate orthodontics VVP to be implemented in China at some point in 2025. Therefore, we anticipate bracket and wire sales in China in the first half of 2025 to be slow with the related market dynamics that we just saw in the past quarter.

Eric: On tariffs. This is clearly a fluid situation with uncertainty as to how the situation land globally.

Eric: As with any one who operates in Canada, Mexico, and China, we have some exposure but.

Eric: We benefit from our balanced global supply chain that allows us to respond flexibly to shifting dynamics.

Eric: Until there is greater clarity on the tariff landscape, we have not included anything for tariffs in our guidance.

Eric: We anticipate orthodontics DDP to be implemented in China at some point in 2025, therefore, we anticipate bracket and wire sales in China in the first half of 2025 to be slow with the related market dynamics that we just saw in the past quarter.

Eric Hammes: For the SPARC net deferral change, we expect a modest year-on-year headwind in the first quarter, with about two-thirds of the 2024 deferral impact to be recognized as a benefit in the second half, with the largest amount expected in the third quarter. We expect a gross benefit of $20 million in annualized savings from our recent restructuring, with the majority of this benefiting 2025. Please note, this benefit will be partially offset by investments in commercialization and R&D aimed at driving long-term growth in the business. We forecast our effective tax rate to be 37% for 2025. We recognize this tax rate is high relative to our history, and we're working on strategies to decrease.

Eric: For the spark net deferral change, we expect a modest year on year headwind in the first quarter with about two thirds of the 2024 deferral impacts to be recognized as a benefit in the second half with the largest amount expected in the third quarter.

Eric: We expect the gross benefit of $20 million in annualized savings from our recent restructuring with the majority of this benefiting 2025.

Eric: Please note this benefit will be partially offset by investments in commercialization and R&D aimed at driving long term growth in the business.

Eric: We forecast our effective tax rate to be 37% for 2025, we.

Eric: We recognize this tax rate is high relative to our history and we're working on strategies to decrease it.

Eric Hammes: The main factor contributing to the high tax rate is a cap on U.S. interest expense deductibility related to a significant intercompany loss. And finally, as mentioned, we expect to execute the buyback across the next two years with a commensurate impact in 2025. As we look at the totality of our 2025 guidance assumptions, we anticipate slower core growth in the first half, with Q1 slightly down year over year, and stronger growth in the second.

Eric: The main factor contributing to the high tax rate as a cap on U S interest expense deductibility related to a significant intercompany loan.

Eric: And finally as mentioned, we expect to execute the buyback across the next two years with a commensurate impact in 2025.

Speaker Change: As we look at the totality of our 2025 guidance assumptions, we anticipate slower core growth in the first half with Q1 slightly down year over year and stronger growth in the second half with that I'll turn the call back over to Paul.

Paul Keel: With that, I'll turn the call back over to Paul.

Paul Keel: Thanks, Eric. I'll wrap up with a few closing thoughts before we open it up for your questions. First, while the secular attractiveness of dental remains the same, we do not yet see strong evidence of an uptick in demand to the mid-single-digit range that is more typical of this market over time. Put another way, market growth is currently slow but stable. Second, our Q4 and full year results came in as guided. Core growth and margins fell within expected ranges, and we returned to growth in the fourth quarter as promised. Third, we initiated 2025 guidance consistent with our 2024 trajectory and stable market conditions, 1-3% growth and around 14% EBITDA margin.

Paul Bracco: Thanks, Eric I'll wrap up with a few closing thoughts before we open it up for your questions.

Paul Bracco: First while the secular attractiveness as dental remains the same we do not yet see strong evidence of an uptick in demand to the mid single digit range that is more typical of this market over time.

Paul Bracco: Put another way market growth is currently slow but stable.

Paul Bracco: Second our Q4 and full year results came in as guided core growth and margins felt within expected ranges and we returned to growth in the fourth quarter as promised.

Paul Bracco: Third we initiated 2025 guidance consistent with our 2024 trajectory and stable market conditions, 1% to 3% growth and around 14% EBITDA margin.

Paul Keel: Fourth, the economic engine of Envista is strong, generating more cash in 2024 than we consumed. This, coupled with the repatriation work that Eric described earlier, support the share repurchase program that we announced this afternoon.

Speaker Change: Fourth the economic engine of <unk> is strong generating more cash in 2024, then we consumed this coupled with the repatriation work that Eric described earlier support the share repurchase program that we announced this afternoon.

Paul Keel: And fifth, and maybe most importantly, we're thoughtfully and systematically putting in place the necessary building blocks for continued improvement moving forward.

Speaker Change: And fifth and maybe most importantly, we are thoughtfully and systematically putting in place the necessary building blocks for continued improvement moving forward.

Paul Keel: I'll close by thanking my 12,000 capable and committed colleagues around the world. I'm grateful and encouraged by the progress we're making together. And in the same way, we appreciate the strong support we enjoy from our customers, our partners, and our shareholders.

I'll close by thanking my 12000 capable and committed colleagues around the world.

Speaker Change: I am grateful and encouraged by the progress we're making together.

Speaker Change: And in the same way we appreciate the strong support we enjoy from our customers our partners and our shareholders.

David: And with that, we'll open it up for your questions. this time, if you'd like to ask a question.

Speaker Change: And with that we'll open it up for your questions.

Speaker Change: At this time, if you'd like to ask a question. Please press the star and <unk> on your telephone keypad keep in mind, you may remove yourself from the question queue by pressing star and two.

Elizabeth Anderson: If you don't mind, you may remove yourself from the question queue by pressing star or This is the first question from Elizabeth Anderson with Evercore ISI. Please go ahead, your line is open. Hi guys, congrats on the quarter and thanks for all the details around the guide for 25. You know, your 25 guide came in line with what you've been indicating as sort of the run rate, sort of what we've been expecting.

Speaker Change: We will take our first question from Elizabeth Anderson with Evercore ISI. Please go ahead. Your line is open.

Elizabeth Anderson: Hi, guys congrats on the quarter and thanks for all the details around the guide for 'twenty five.

Speaker Change: Yes.

Speaker Change: Guide came in line with what you've been indicating as sort of the run rate.

Speaker Change: Been expecting can you give us a little bit more and tell us a little bit more about where you could sort of outperform versus sort of that initial expectation and sort of any.

Paul Keel: Can you tell us a little bit more, tell us a little bit more about where you could sort of outperform versus sort of that initial expectation and sort of any risks to that guidance as we think about the year? Thanks for the question, Elizabeth. Sure.

Risks to that guidance as we think about the year.

Speaker Change: Thanks for the question Elizabeth shared let me quickly recap the framework for the guidance and then I'll cover the upside on the gross side and maybe I'll ask Eric to do the same thing for for margin.

Paul Keel: Let me quickly recap the framework for the guidance, and then I'll cover the upsides on the growth side, and maybe I'll ask Eric to do the same thing for margins. So, the framework for the guide is pretty straightforward. It centers on the same three things that we discussed in our prepared remarks. First, when you normalize out for the various puts and takes in 2024, we saw fairly consistent underlying growth in margins across the year. That's the 1% top line and 14% EBIT data that we've talked about. Second importantly, the dental market conditions for 2025 are expected to be broadly similar to 2024.

Speaker Change: Our framework for the guide pretty straightforward it centers on the same three things at.

Speaker Change: We discussed in our prepared remarks.

Speaker Change: First when you normalize out for the various puts and takes in 'twenty four we saw fairly consistent underlying growth in margins across the year.

Speaker Change: A 1% top line and 14% EBITDA that we've talked about <unk>.

Speaker Change: Second importantly, the dental market conditions for 2025 are expected to be broadly similar to 2024, and then thirdly is recent.

Paul Keel: And then thirdly, you know, as recent events have reminded us there is a fair bit of macro uncertainty at the moment. So you put all three of those together and that gets you to the one to 3% growth and 14% margin guide. Now, in terms of potential upsides to that, you know, I would I would note three in particular. You'd have to start with SPARC, consistently taking share and expanding gross margins. Add to that that the vast majority of ortho cases are treated by orthodontists, where we have a particularly strong position. So we feel like we have good momentum on the SPARC side.

Speaker Change: Recent events have reminded us there is a fair bit of macro uncertainty at the moment. So you put all three of those together.

Speaker Change: That gets you to the 1% to 3% growth and 14% margin guide.

Speaker Change: Now in terms of potential upside to that.

Speaker Change: I would I would note three in particular.

Speaker Change: To start with spark <unk>.

Speaker Change: Consistently taking share and expanding gross margins.

Speaker Change: Add to that that the vast majority of ortho cases are treated by orthodontist, where we have a particularly strong position. So we feel like we have good momentum on the spark side.

Paul Keel: Implants is another potential upside. Having turned positive in Q4, you know, we recognize that one point is far from a trend, but the positive growth and the continued progress across the year, you know, have been the expected outcome of the work that we're doing and the investments that we're making. So we like our progress there. And then third, I think I'd point to diagnostics. It's another area where we have a strong leadership position, particularly in North America. Now, that sector, of course, has been under pressure for a while now, but the market will come back.

Speaker Change: Implant is another potential upside.

Speaker Change: Having turned positive in Q4.

Speaker Change: We recognize that one point is far from a trend, but the positive growth and the continued progress across the year.

Speaker Change: The expected outcome of the work that we're doing any investments that we're making so we like our progress there.

Speaker Change: And then third I think I'd point to diagnostics, it's another area, where we have a strong leadership position, particularly in North America now sector of course has been under pressure for a while now but the market will come back.

Paul Keel: Every new clinic needs diagnostic equipment. Every dental procedure begins with a 2D, 3D and or interoral scan. So if that market returns quicker than as currently expected, that, of course, would be constructive for Envista as well.

Speaker Change: Every new clinic needs diagnostic equipment every dental procedure begins with a <unk> in a rural scan.

Speaker Change: So if that market returns quicker than currently.

Speaker Change: Currently expected bad of course, it would be constructive for investors as well.

Eric Hammes: Eric, maybe I'll turn it over to you for thoughts on the margin side.

Speaker Change: Eric maybe I'll turn it over to you for thoughts on the margin side.

Eric Hammes: Yeah, excellent. Thanks, Paul. Elizabeth, thanks for the forward-leaning question. Appreciate it.

Eric: Excellent. Thanks, Paul Elizabeth Thanks for the forward leaning question appreciate it so I would say three things in terms of opportunity for profit margin first I would just on the back of Paul's comment on growth.

Eric Hammes: So I would say three things in terms of opportunity for profit margin. First, I would just, on the back of Paul's comment on growth, anything we can do, of course, relative to core growth, volume price, you know, connected with the upside that Paul talked about, spark implants, diagnostics. Everybody on the call here is aware we've got strong gross margins across our portfolio. And every point of growth is helpful for us to grow profits and to a degree margin rate. So growth would be one possible upside. Second opportunity, I would say it would be over delivery on spark profitability.

Speaker Change: Anything we can do of course relative to core growth volume price connect.

Speaker Change: Connected with the upside that Paul talked about spark implants diagnostics.

Speaker Change: Everybody on the call here is where we've got strong gross margins across our portfolio.

Speaker Change: Every point of growth is helpful for us to grow profit and to a degree margin rate. So.

Speaker Change: Growth would be one possible upside.

Speaker Change: Second opportunity I would say it would be over delivery on spark profitability I think we've shown in the past multiple quarters that we've made good progress here we've.

Eric Hammes: I think we've shown in the past multiple quarters that we've made good progress here. We've talked about many quarters of costs down sequentially. We've talked about multiple quarters of gross margin improvement, largely driven by that cost. And I think that the foundation that we have of a really great manufacturing technology platform of automation kind of against the backdrop of our global network for manufacturing is an opportunity. We will be stepping up our investments there capitally in 2025. We of course have our commitment out there for SPARC profitability in 2025. But if we can go further faster, that's upside for us.

Speaker Change: We've talked about many quarters of cost down sequentially, we've talked about multiple quarters of gross margin improvement largely driven by that cost.

Speaker Change: And I think the foundation that we have a really great manufacturing technology platform of automation.

Speaker Change: Against the backdrop of our global network for manufacturing is an opportunity.

Speaker Change: We'll be stepping up our investments their capital in 2025.

Speaker Change: We of course have our commitment out there for spark profitability in 2025.

Speaker Change: But if we can go further faster that's that's upside for us.

Eric Hammes: And then I think the third area I would point out would be G&A costs. We talked on the three prepared remarks around an announcement structuring. It's mostly focused on G&A. It's embedded in our guidance, but, you know, we, we think that there's more that we can do there.

Speaker Change: And then I think the third area I would point out would be G&A costs, we talked on the prepared remarks around an announced restructuring is mostly focused on G&A.

Speaker Change: Embedded in our guidance, but we think that there's more that we can do there on the risk side, maybe again, just extending Paul's comment on the macro.

Eric Hammes: On the risk side, you know, maybe again, just extending Paul's comment on the macro tariffs, FX, interest rates. These are all examples of risks to our outlook. We saw, as many did, the strong dollar strengthening in Q4. That's consistent with our guide. It took about two points off in terms of FX or growth. It also hits us with about 50 basis points of a headwind on margin rate. It's in our guide again, but recent announcements and sort of what we're seeing in the political landscape just gives us a bit of pause and maybe there's some risk there.

Speaker Change: Tariffs FX interest rates. These are all examples of risk to our outlook.

Speaker Change: We saw as many did the strong dollar strengthening in Q4.

Speaker Change: That's consistent with our guide it took about two points off in terms of.

Speaker Change: FX our growth.

Speaker Change: It also hits us with about 50 basis points of a headwind on margin rate.

Speaker Change: It's in our guide again.

Speaker Change: Recent announcements and sort of what we're seeing in the political landscape just gives us a bit of pause and maybe theres. Some some risk there so.

Elizabeth Anderson: So I'll pause there, Elizabeth. Again, thanks for the question, getting us kicked off and through the forward lean. Yeah, no, that's super helpful.

Elizabeth Anderson: I'll pause there Elizabeth again, thanks for the question getting us kicked off into the forward lean.

Elizabeth Anderson: Yes, no that's super helpful. Thanks, So much I was wondering if we could maybe drill down also on the implant business is obviously really nice to see that return to low single digit growth. This year, how do you sort of think about your expectations for that business and can you give us a little bit more detail about some of the incremental investments whether that Mr. Hu <unk>.

Elizabeth Anderson: Thanks so much.

John Block: I was wondering if we could maybe drill down also on the implant business. It was obviously really nice to see that return to low single digit growth this year. How do you sort of think about your expectations for that business?

Paul Keel: And can you give us a little bit more detail about sort of the incremental investments, whether that was sort of in in the product development and what areas or on the go to market strategy? So, sure, you know, like Spark, we like the momentum that we're seeing on the implant side. You know, we talked about the positive growth for both the Challenger business as well as Premium and Q4, and then the fourth successive quarters of growth for Challenger. You know, I guess that's helpful in a couple regards. So, first, you like to see the positive growth, but second, it gives us confidence that the changes we're making and the investments that we're putting in are bearing fruit.

Elizabeth Anderson: Alright development and what areas or on the go to market strategy.

So sure.

Elizabeth Anderson: Like spark, we like the momentum that we're seeing on the implant side.

Elizabeth Anderson: We talked about the positive growth for both the challenger business as well as premium in Q4, and then the fourth successive quarter of growth for challenger.

Elizabeth Anderson: I guess that's helpful. In a couple regards so first do you like to see the positive growth, but second it gives us confidence that the changes, we're making and the investments that we're putting in are bearing fruit.

Paul Keel: You know, so, of course, these things are more than just putting money into the business.

Elizabeth Anderson: So of course these things are more than just putting money into the business. We had a leadership change in Nobel.

Paul Keel: We had a leadership change in Nobel that trickled down to a change in the way, you know, our go-to-market approach, some of our commercial activities in North America. We're doing more on the clinical side. We're stepping up our game on the innovation side. You know, all of those things helped in the quarter, but they also build momentum heading here into 2025.

Elizabeth Anderson: Trickled down to a change in the way our go to market approach some of our commercial activities in North America.

Elizabeth Anderson: We're doing more on the clinical side.

Elizabeth Anderson: Stepping up our game on the innovation side.

All of those things helped in the quarter, but they also build momentum heading here into 'twenty five.

Speaker Change: Very helpful. Thank you.

Speaker Change: We will take our next question from Jon Block with Stifel. Please go ahead. Your line is open.

John Block: We'll take our next question from John Block. Thanks, guys, and good afternoon. I'm sort of wondering where I want to go with the questions.

Jon Block: Thanks, guys and good afternoon.

Speaker Change: Sort of wondering where I want to go into questions. Maybe the first one Eric I thought I heard you correctly, the 50% decline in China wires and brackets as the industry participants drew down from GBP.

John Block: Maybe the first one, Eric, I thought I heard you correct me, the 50% decline in China wires and brackets as the industry participants sort of drew down, you know, for VVP. Where are you with the size of that China wires and brackets business? And maybe I'll try to be somewhat brave. I don't know, pre-VVP hit, was this around $50 to $60 million? And, you know, anything more in the cadence to 25 when they're done drawing down? And I'm guessing you think you're a beneficiary of that from Evolve's perspective into 26.

Jon Block: Are you with the size of that China wires and brackets business in <unk>.

Jon Block: Maybe I'll try to be somewhat brave I don't know pre EVP head was just around $50 to $60 million in anything more on the cadence to 'twenty five when they're done drawing down guessing.

Jon Block: Guessing you think you are a beneficiary of that from a volume perspective into 26, so a lot there, but I'll pause.

Eric Hammes: So a lot there, but I'll pause.

Eric Hammes: Yeah, sounds good, John. Yeah, so you heard it right.

Yes sounds good John Yes, So you heard it right Q4, I mentioned in the prepared remarks about 50%.

Eric Hammes: Q4, I mentioned the prepared remarks about 50% reduction year-over-year in brackets and wires. I won't talk kind of in depth about the size of our China business, but the way to think about our view of 2025 is that as the market prepares, so as, you know, call it, you know, procedures or customers We saw a version of that in Q4. We think we'll continue to see a version of that in Q1 and Q2, in addition to the fact that the channel is sitting with, you know, sort of a normal level of inventory, but that has to get repriced, you know, for a preparatory VBP somewhere, you know, mid-year.

Jon Block: Reduction year over year and in brackets and wires.

Jon Block: I won't talk kind of in depth about.

Jon Block: The size of our China business, but the way to think about.

Jon Block: Our view of 2025 is that as the market prepares so as you know.

Jon Block: Call it procedures or.

Customers.

Jon Block: Slow their purchases we saw version of that in Q4, we think we will continue to see a version of that in Q1 and Q2. In addition to the fact that the channel is sitting with sort of a normal level of inventory, but that has to get repriced.

For our preparatory GBP somewhere mid year that's perspective.

Eric Hammes: That's perspective. So, the way we think net-net about brackets and wires next year is it'll be down in the first half. We hope it'll be up in the second half as VBP comes around, and we're modeling it based on how we saw our implant business in China, you know, over the last two years basically move through VBP. Lots of variables that can play out there, but that's how we're thinking about it now.

Jon Block: So the way, we think net net about brackets and wires next year.

Jon Block: Because it'll be down in the first half we.

Jon Block: We hope it will be up in the second half as GDP comes around and we're modeling it based on how we saw our implant business in China over the last two years basically move through GDP lots of variables that can play out there, but that's how we're thinking about it next year.

Speaker Change: Okay very helpful, maybe I'll pivot.

Paul Keel: And maybe I'll pivot for the other question. Paul, you know, your implant portfolio certainly seemed to close the gap to market growth quicker than, you know, certainly we were thinking. Congrats there.

Speaker Change: The other question Paul your implant portfolio.

Speaker Change: Im certainly seem to close the gap to market growth quicker than.

Speaker Change: Certainly we were thinking congrats there I think maybe just to take a step back what's embedded in the 2025 guidance I don't think you touched upon this from two perspectives one market growth for implants, which I think the slide show have been around low single digits, but what's embedded for investors growth relative to market.

Paul Keel: I think maybe just to take a step back, what's embedded in the 2025 guidance? I don't think you touched upon this from two perspectives. One, you know, market growth for implants, which I think the slides show have been around low single digits. But what's embedded for Envista's growth relative to market? I mean, you've already gotten there.

Paul Keel: So is it more of the same or just trying to figure out what's the assumption within the top line guide? Thanks. Yeah, I mean, I'd be lying if I said that our guy gets down to specific market shares in specific categories and what we think is going to happen with that market. But, you know, generally speaking, John, we think we'll continue to gain momentum in our implant business for all the reasons that I addressed in Elizabeth's call. We're not expecting a dramatic change in the implants market in 25 relative to 24. If the market does turn more quickly, of course, that'll be constructive for us and that would be an upside to the guide.

Speaker Change: You've already gotten there so was it more of the same or just trying to figure out.

Speaker Change: What's the assumption within the topline guide thanks.

Speaker Change: Okay.

Speaker Change: Yeah, I mean I'd be lying if I said that our guide gets down to specific market shares in specific categories and what we think is going to happen with that market, but generally speaking John.

Speaker Change: We think we will continue to gain momentum in our implant business for all the reasons that that I addressed in Elizabeth call, we're not expecting a dramatic change in the implant market in 'twenty five relative to 24.

Speaker Change: If the market does turn more quickly.

Speaker Change: Of course that will be constructive for us and that would be an upside to the guide but broadly speaking.

Paul Keel: But broadly speaking, while the leading indicators for the market, you know, all the green shoots that you're well familiar with, consumer confidence, interest rates, employment levels, all of that, while they're favorable, you know, we're just not seeing a tangible uptick in patient flows or in our own order book. So same conditions, market conditions, 25 to 24 in the guide. If that happens quicker, that would be an upside. Fair enough.

Speaker Change: While the leading indicators to the market all the green shoots that you're well familiar with consumer confidence interest rates.

Speaker Change: Employment levels all of that while there.

Speaker Change: Favorable.

Speaker Change: We're just not we're just not seeing a tangible uptick in patient flows or in our own order book, So same conditions market conditions, 25% to 24 in the guide if that happens quicker that would be an upside.

Speaker Change: Fair enough. Thank you.

Speaker Change: We will take our next question from Michael Cherny with Leerink Partners. Please go ahead. Your line is open.

Michael Cherny: We'll take our next question from Michael Cherny with Leering Partners. Please go ahead. Hi, good afternoon, or good evening, I guess. Thank you for taking the question.

Michael Cherny: Hi, good afternoon, or good evening I guess, thank you for taking the question.

Michael Cherny: This is Ahmed Mohamed for Mike Cherny. First, I want to ask about SPARC profitability and how it will impact total operating margin when it does become profitable in 2H, I think you mentioned. So, like, what's the contribution on that kind of immediately? and then also like in the long term.

Speaker Change: Sure Mike Cherny.

Speaker Change: Firstly I wanted to ask about spark profitability and how it will impact.

Speaker Change: Total operating margin when it does become.

Speaker Change: Profitable and two which I think you mentioned.

Speaker Change: What's the contribution on that kind of immediately.

Speaker Change: And then also like in the long term.

Speaker Change: Okay, Yeah, I think Michael Thanks for the question I think we've disclosed previously sparks about a $250 million business for us. So it's about 10% of sales. So the math is easy there every point of margin improvement gives you 10 basis points of benefit at the investor level.

Eric Hammes: Yeah, I mean, I think, Michael, thanks for the question. I think we've disclosed previously sparks about a $250 million business for us. So it's about 10% of sales. So you know, the math is easy there. Every point of margin improvement gives you 10 basis points of benefit at the Envista level. So rule of thumb, that's probably a good way to think about it.

Speaker Change: Rule of thumb, that's probably a good way to think about it.

Michael Cherny: Got to end. Does the guidance assume? Diagnostics getting better for Envista. I know you said that the market is soft, but like what point does the numbers sort of bottom out? Is it driven by visits being depressed? Is it driven by a need for more innovation? Any color over there would be helpful.

Speaker Change: Got it.

Speaker Change: Does the guidance assume.

Speaker Change: Diagnostics getting better sugar and Vista I know you said that the market is soft.

Speaker Change: What <unk> does.

Speaker Change: We're sort of bottom out is it driven by just being depressed is it driven by a need for more innovation any color there would be helpful. Thank you.

Michael Cherny: Thank you.

Eric Hammes: Sorry, Michael, you're asking what's causing the market softness, or what was the nut of the question? I said, sorry, what does a guide assume for diagnostics? what point do numbers kind of bottom out? And is it? Is the weakness due to, for Envista, is the weakness due more to, more because of visits, or is it a need for more innovation?

Speaker Change: Sorry, Michael you're asking whats, causing the market softness or what was the other question.

Speaker Change: Okay.

Speaker Change: Sorry, what does the guide assumes for diagnostics.

Speaker Change: Yeah.

Speaker Change: <unk> two <unk>.

Speaker Change: <unk> kind of bottomed out and.

Speaker Change: Is it.

Weakness due to Vista weakness two more two more because visits or is it.

Speaker Change: Our need for more innovation.

Eric Hammes: Yeah, I can I can take that. So, I mean, just as a reminder, our our diagnostics business in 2024 was down, you know, mid to high single digits, fourth quarter, we talked about it being down high single digits. We expect the diagnostics business clearly to be better, you know, say, flat to low single digit type of growth. And that's multiple factors. So, you know, we don't expect significant market recovery from the fourth quarter, but the markets improved a little bit as we've gone through the year. And then many of the participants on the call know that we also had some favorable comps, if you will, in 2024.

Speaker Change: Yes, I can take that so I mean, just as a reminder, our our diagnostics business in <unk>.

<unk> thousand 24.

Speaker Change: Was down mid to high single digits fourth quarter, we talked about it being down high single digits.

Speaker Change: We expect the diagnostics business clearly to be better.

Speaker Change: Say flat to low single digit type of growth.

Speaker Change: And Thats multiple factors. So we don't expect significant market recovery from the fourth quarter, but the market has improved a little bit as we've gone through the year.

Speaker Change: And then many of the participants on the call know that we also had.

Speaker Change: Some favorable comps if you will in 2024, so we exited a few geographies.

Eric Hammes: So we exited a few geographies. That was to help the profitability of the business. Some of those things will help us to deliver a modestly better growth rate next year. And then as Paul opened in his remarks to Elizabeth's question, you know, this is a market we would hope gets a little bit better in 2025. But again, we're assuming that it trends flat versus effectively how we exited the year. Okay, got it.

Speaker Change: And that was to help the profitability of the business some of those things will help us to deliver.

Speaker Change: A modestly better growth rate next year, and then as Paul opened in his remarks to Elizabeth question.

Speaker Change: This is a market we would hope gets a little bit better in 2025, but again, we are assuming that it trends flat versus effectively how we exited the year.

Speaker Change: Okay got it thank you so much.

Speaker Change: We will take our next question from Jeff Johnson with Baird. Please go ahead. Your line is open.

Jeff Johnson: Our next question, from Jeff Johnson with Bayard. Hey Jeff, you might be on mute. Yeah, guys, sorry, I was on mute. Sorry about that. Hey, so I guess just a couple of clarifying questions here. Eric, if I could, on Spark, I'm just trying to understand the message here just on kind of clear aligner market and kind of Spark's performance relative to the market, which I think was above market, obviously, but you talk about in the press release that Spark revenue down double digits with the deferred revenue. In your slide deck, Spark is up double digits X the deferred headwind.

Speaker Change: Hey, Jeff you might be on mute.

Speaker Change: Yeah.

Speaker Change: Yes, sorry, I was on mute sorry about that.

Speaker Change: So I guess just a couple of clarifying questions here, Eric if I could.

Speaker Change: Spark I'm just trying to understand the message here just on kind of clear aligner market and kind of Sparks performance relative to the market, which I think was above market obviously, but.

Speaker Change: You talked about in the press release that spark revenue down double digits with the deferred revenue in your slide deck spark is up double digits ex the deferred.

Speaker Change: The headwind in your email you sent out it sounds like pieces for Stark were up mid single digits. Due I just connect those dots that pricing was up our asps were up five to seven points or something in the quarter. Just one can you confirm that ballpark accuracy and two if cases are growing mid.

Eric Hammes: In your email you sent out, it sounds like cases for Spark were up mid single digits. Do I just connect those dots that pricing was up or ASPs were up five to seven points or something in the quarter? Just one, can you confirm that ballpark accuracy? And two, if cases are growing mid single digits, how do you think that's performing relative to the clear aligner broader market? Thank you.

Speaker Change: Single digits, how do you think that's performing relative to the clear aligner broader market. Thank you.

Paul Keel: Yeah, Jeff, thanks. Let me just lay out. Yeah, there are a lot of numbers in your question. Let me just lay out the facts and then I'll turn it over to Eric to add color. So, on SPARC, revenues for deferral neutral, ex-neutral, I think you said grew double digits in Q4 and in 2024. That was correct. The number of ordering doctors also grew double digits in Q4 and 2024. And that's now many successive orders now, both of margin gain and we think above market growth or market share gains. So, hopefully that clarifies it. Eric, was there anything more you wanted to add to that?

Jeff Johnson: Yes, Jeff Thanks, let.

Speaker Change: Let me just lay out.

Speaker Change: Yes, there are a lot of numbers in your question. Let me just lay out the facts and then I'll turn it over to Eric to add color.

Speaker Change: So on spark revenues for deferral neutral ex neutral I think you said grew double digits in Q4 and in 2024 that was correct. The number of ordering doctors also grew double digits in Q4 and 2024.

Speaker Change: And that's now many successive.

Speaker Change: Quarters now both a margin gain and we think above market growth or market share gains.

Speaker Change: So hopefully that clarifies it Eric is anything more you wanted to add to that.

Eric Hammes: No, I think you got it, Paul. Jeff, maybe just another leg to that.

Eric: No I think I think.

Jeff Johnson: I think <unk> got at all Jeff maybe just another leg to that so.

Eric Hammes: So, as we go into then 2025, we gave this detail in the sort of the guidance assumptions or the guidance considerations, two-thirds of the 2024 SPARC deferral headwind, that's about $45 million, turns accretive next year. We've been given the same number for, you know, last couple months. So, no big change there. With a little bit of color just around the first half, second half. First half will be a little bit of a headwind. Second half will be a tailwind. And that gets us effectively to the, you know, the same numbers you mentioned in the beginning.

Jeff Johnson: As we go into 2025, we gave this detail on the.

Sort of the guidance assumptions or the guidance considerations to.

Jeff Johnson: Two thirds of the.

Jeff Johnson: 2020 for spark deferral headwind, that's about $45 million.

Jeff Johnson: It turns accretive next year, we've been given the same number for last couple of months, So no big change there.

Jeff Johnson: A little bit of color just around the first half second half first half will be a little bit of a headwind second half will be a tailwind and that gets us effectively.

Jeff Johnson: Same numbers you mentioned in the beginning.

Eric Hammes: Yep, got it, that all connects. Okay, that's helpful.

Scott: Yes, Scott if it all connects Okay. That's helpful. And then just I guess, one other bigger picture question in the diagnostic side.

Jeff Johnson: And then just, I guess, one other bigger picker's question in the diagnostic side.

Paul Keel: You know, hearing a little chatter out there that you might have a new iOS you're coming out with this year, internally developed through the Dexus brand. You know, one, anything you can talk about there? You know, it seems like the CareStream product that you acquired hasn't really picked up much share in the last year and a half that you've owned that asset or so. Just any thoughts there on whether or not this might help you better participate in that iOS market? Thanks.

Speaker Change: Hearing a little chatter out there that you might have a new ILS youre coming out with this year.

Scott: <unk> developed through the Texas brand.

Speaker Change: One anything you can talk about there just it seems like the care stream product that you acquired Hasnt really picked up much share.

Speaker Change: In the last year, and a half that you've owned that asset or so.

Speaker Change: Just any thoughts there.

Speaker Change: Whether or not this might help you better participate.

Speaker Change: Participate in that iOS market. Thanks.

Paul Keel: Yeah, so let's see, a couple questions in there specific to diagnostics. First, you picked up on there have been a lot of new product introductions on the diagnostic side. There was some additional functionality to the current version of the iOS we launched last year. There was also new sensors, 2D sensors, and we introduced a new 3D CBCT platform. So a lot of innovation work on the diagnostic side. And yes, the chatter you're picking up is correct. The iOS market, a lot of innovation in the category, and you got to keep up. So we will be introducing additional functionality, additional version of that iOS moving forward.

Speaker Change: Yes.

Speaker Change: Couple of questions in there specific to diagnostics first you picked up on there have been a lot of new product introductions on the diagnostic side. There were some additional functionality to the current version of the iOS. We launched last year. There was also new sensors <unk> sensors, and we introduced a new.

<unk> <unk> platform.

Speaker Change: Lot of innovation work on the diagnostic side and yes.

The chatter you're picking up is correct.

Speaker Change: IOS market a lot of innovation in the category.

Speaker Change: You got to keep up so we will be introducing additional functionality additional version of that.

Speaker Change: I'll bet iOS moving forward.

Paul Keel: So per usual, your G2 is right, Jeff.

Speaker Change: Per usual Youre G to his right Jeff.

Paul Keel: Yeah, anything you can say on that, Paul, as far as how it might differ from the current care stream, or is that something you don't want to talk about yet? Well, there'll be a couple of dental shows coming up. We got Chicago coming up, so we got IDS, so we'll be seeing more soon. Understood.

Speaker Change: Yes, anything you can say on that Paul as far as how it.

Speaker Change: <unk> differ from the current care stream or is that something you don't want to talk about yet.

Speaker Change: Well it would be a couple of dental shows coming up we got Chicago coming out.

Speaker Change: He got IVF, so we'll be St Maarten.

Speaker Change: Understood. Thanks.

Speaker Change: We'll take our next question from Kevin Caliendo with UBS. Please go ahead. Your line is open.

Kevin Caliendo: We'll take our next question from Kevin Caliendo with UBS. Please go ahead. Thanks, and thanks for taking my question. I appreciate it. Paul, you've been in the job for nine months, and yeah, I think it's been... I don't want to say shocking, but I think investors have to be happy with the fact that guidance has been very consistent with your commentary, and there haven't been a lot of surprises.

Kevin Caliendo: Thanks, and thanks for taking my question I appreciate it.

Kevin Caliendo: Paul you've been in the job for nine months and I think it's been.

Kevin Caliendo: I don't want to say shocking, but I think investors have to be happy with.

Kevin Caliendo: That guidance has been very consistent with your commentary and there hasnt been a lot of surprises and now were.

Paul Keel: And now we're a month or so away from an analyst day, which I'm and the other thing I suspect is going to be you providing some kind of long-term guidance. So, one, I wanted to kind of confirm that. And, two, you know, What should we be expecting at this Analyst Day in terms of, not specifics, but how comfortable are you making long-term projections about the market? Have there been any surprises or anything that either you feel better about or worse about when you think about putting together sort of long-term plans for the company? Thanks for the question, Kevin.

Kevin Caliendo: A month or so away from from an analyst day, which I suspect.

Kevin Caliendo: This is going to be you, providing some kind of long term guidance. So one I wanted to kind of confirm that.

Kevin Caliendo: And two.

Kevin Caliendo: What should we be expecting at this analyst day in terms of not specifics, but like what how comfortable are you, making long term projections about the market and have there been any surprises or anything that either you feel better about or worse about when you think about putting together sort of long term plans for the company.

Speaker Change: Hi, Thanks for the question, Kevin I'll, let say you had two parts in there first any surprises in the first nine months and then second what should you expect for the capital markets day here one month from today in fact.

Paul Keel: Let's see, you had two parts in there. First, any surprises in the first nine months? And then second, what should you expect for the capital markets day here, one month from today, in fact? So you're right, the first nine months, no major surprises. Both Eric and I have been in and around Dental for decades, and we came back to it because of three principal beliefs. First is that it is a secularly attractive market. All of the long-term growth drivers we're aware of, you know, pretty much all levels of the value chain have favorable economics. And that aside from COVID and maybe one year after the, or post the global financial crisis, you know, this market always grows.

Kevin Caliendo: So you are right the first nine months no major surprises.

Kevin Caliendo: Both Eric and I have been in and around dental for decades.

Kevin Caliendo: And we came back to it because of three principal beliefs first because that is a secular really attractive market.

Kevin Caliendo: All of the long term growth drivers were aware of.

Pretty much all levels of the value chain have favorable economics and that aside from Covid and maybe one year. After that are post the global financial crisis. Its market always growth. So good market was point number one point number two is this a great portfolio of businesses.

Paul Keel: So good market was point number one. Point number two is it's a great portfolio of businesses. Every one of the pieces of Envista has a good market position and all of them can be made better, which is the third reason, you know, we jumped to the opportunity. You look at the continuous improvement. mindset that's embedded in Envista and the culture where, you know, people here really want to get better each and every day. You can just see how you could turn that potential into improved performance moving forward.

Kevin Caliendo: Every one of the pieces of in Vista has a good market position in all of them can be better.

Kevin Caliendo: Which is the third reason, we jumped to the opportunity you look at the continuous improvement.

Kevin Caliendo: Mindset, that's embedded in Vista, and the culture, where people here really want to get better each and every day you can just see how you could turn that potential into improved our performance moving forward.

Paul Keel: So with that as a backdrop, that brings us to next month's CMD. You know, we had the good fortune to speak to a lot of folks who are on this call. And you guys told us you were interested in four things. So we were just put together an agenda that, you know, responds directly to that. First is embedded in your question. You know, people want to know what what's our thought on long term value creation here and how does it how do you kind of operationalize that? So I'll start with that. Secondly, investors told us they'd like a deeper dive into our two biggest businesses, implants and ortho.

Kevin Caliendo: So with that as a backdrop that brings us to next month's CMT.

Kevin Caliendo: We had the good fortune to speak to a lot of folks who are on this call.

Kevin Caliendo: You guys told US you were interested in four things so.

Kevin Caliendo: So we're just put together an agenda that.

Kevin Caliendo: Responds directly to that first is embedded in your question people want to know what what's our thought on long term value creation here and how does it how do you kind of operation like that.

Speaker Change: So I'll start with that secondly, investors told us they'd like a deeper dive into our two biggest businesses implants and ortho so you'll hear from Stephen from Veronica on that front.

Paul Keel: So you'll hear from Stephen and from Veronica on that front. And then third, also embedded in your question, we owe the market reinstated medium term targets. So Erica will finish up the agenda on March 5th with the financial wrapper to the plan, including medium term guidance.

Speaker Change: And then third also embedded in your question.

Speaker Change: So the market reinstated medium term targets are.

Speaker Change: <unk> will finish up the agenda.

Speaker Change: On March 5th.

Speaker Change: With the financial wrappers to the plan, including medium term guidance.

Paul Keel: The fourth item, of course, is you guys would like some exposure to the broader management team. So we'll have the full group there, both folks who are newer to invest, but also some of our our longer standing colleagues. So that's our plan. New York Stock Exchange, nine till noon on March 5, we sent out a press release today and we hope all you guys can make it. Thank you very much. I appreciate that. Look forward to seeing you there.

Speaker Change: Fourth item of course is you guys would like some exposure to the broader management team. So we will have the full group there both folks who are newer to invest but also some of our longer standing colleague.

Speaker Change: So that's our plan.

Speaker Change: New York Stock exchange nine till noon.

Speaker Change: March 5th we send out a press release today and we hope all you guys can make it.

Speaker Change: Thank you very much I appreciate that.

Speaker Change: I look forward to seeing you there.

Paul Keel: Yeah, she'll be fine.

Speaker Change: Yes, you'll be fine.

Speaker Change: We will take our next question from Erin Wright with Morgan Stanley. Please go ahead. Your line is open.

Erin Wright: We'll take our next question from Erin Wright with Morgan Stanley. Please go ahead, you're live. Great, thanks. So, on the equipment and consumables side, there were some moving pieces, I think, in the quarter in terms of sell-in versus sell-out trends. I think some of that's just from a comp perspective, but, you know, what are you seeing right now, kind of year-to-date, and how do we think about sort of that quarterly progression across that sort of segment for the balance of the year? Yeah, yeah, perfect.

Erin Wright: Great. Thanks, so on the equipment and consumable side there were some moving pieces I think in the quarter in terms of selling versus sell out trend I think some of that is just from a comp perspective, but what are you seeing right now kind of year to date and how do we think about sort of that quarterly progression across that that sort of segment for the balance of the year.

Erin Wright: Yes, yes, perfect. So I'll hit your I'll hit your point on the growth piece and then I'll I'll just talk about margins a little bit if that's embedded in the question. So I.

Eric Hammes: So I'll hit your, I'll hit your point on the growth piece. And then I'll, I'll just talk about margins a little bit, if that's embedded in the question. So, I think we've been pretty transparent as we've gone through the last many quarters. So the first point maybe to make here is in the consumables business, relative to distribution, relative to the channel, nothing really dramatically changed there as we've moved through the quarters. So, from second quarter to third quarter to fourth quarter, we've had very consistent inventory levels. I would say relatively lean inventory levels, and we see that as positive because our, our overall delivery performance, service performance is strong, even with lean working capital management with our distributed partners.

Erin Wright: I think we've been pretty transparent as we've gone through the last many quarters. So the first point maybe to make here is in the consumables business relative to distribution com.

Erin Wright: <unk> relative to the channel and nothing really dramatically change there as we move through the quarters. So from second quarter to third quarter to fourth quarter. We've had very consistent inventory levels I would say relatively lean inventory levels.

Erin Wright: And we see that as positive because our our overall delivery performance service performance is strong even with lean working capital management with our distributor partners. So that's point number one most of the revenue move we're talking about then and we show that in our revenue bridge that is primarily due to last year's.

Eric Hammes: So, that's point one, number one. Most of the revenue move we're talking about then, and we show that in our revenue bridge, that is primarily due to last year's cyber attack on the distribution channel. It's about 20Million dollars. It drove a good portion of the consumables and the E&C business. Underlying, we had sellout within dental consumables, roughly in line with where it's been the last several quarters, you know, flat to low single digits. Which we see as being in line with the market. So, that's kind of point number two. And then on the margins, the margins, we were up about 570 basis points year over year.

Erin Wright: Cyber attack on the distribution channel.

Erin Wright: About $20 million it drove a good portion of the consumables and the E&C business.

Underlying we had sellout within dental consumables.

Erin Wright: Awfully in line with where it's been the last several quarters flat to low single digits, which we see.

Erin Wright: Being in line with the market, so thats kind of point number two.

Erin Wright: And then on the margins the margins were up about 570 basis points year over year. We were also up sequentially a lot of that comes from the volume that I just mentioned on a year over year basis. We also had a pretty significant transaction gain so as the dollar strengthened our net monetary.

Eric Hammes: We were also up sequentially. A lot of that comes from the volume that I just mentioned on a year over year basis. We also had a pretty significant transaction gain. So, as the dollar strengthened, our net monetary assets provided us a gain. Basically, in the exchange, and that was partially offset by by incentive comp.

Erin Wright: <unk> provided us a gain.

And the exchange and that was partially offset by incentive comp. So let me pause there see if theres any.

Erin Wright: So, let me pause there. See if there's any further questions to begin. Yeah, so thanks, that was really helpful.

Erin Wright: Further questions to dig into.

Erin Wright: Yes.

Speaker Change: Thanks that was really helpful. Can you talk a little bit too about your positioning as it relates to Tara.

Erin Wright: Can you talk a little bit too about your positioning as it relates to tariffs and potential offsets? And have you been able to do anything kind of proactively to better position yourself in terms of in terms of exposure or anything you can quantify as well on that front? Thanks.

Erin Wright: Offset cheng.

Erin Wright: Have you been able to do anything kind of proactively to better position yourself in terms of sense in terms of exposure or anything you can quantify as well on that front.

Paul Keel: Yeah, maybe I'd say three things, Erin, on the tariff side. You know, we'll start with the obvious. It is a pretty fluid situation. With the Canada and the Mexico pieces on hold for, you know, 30 days, I guess, as of today, only the China piece is currently in place. And the impact, you know, to Envista from that is relatively small. You know, that, of course, could change at any time. Which brings me to the second thought. It's one that Eric mentioned in his prepared remarks.

Speaker Change: Yes, maybe I'd say three things erinn on the tariff side I will start with the obvious it is a pretty fluid situation.

Speaker Change: With the Canada, and the Mexico pieces on hold for 30 days I guess as of today only the China piece is currently in place and the impact to invest it for Matt is relatively small but that of course could change at any time.

Speaker Change: Which brings me to the second thought.

Speaker Change: And it's one that Eric mentioned in his prepared remarks until there's greater clarity and stability as to how things might play out on the tariff front I just want to underline that we don't include any tariff related impacts in our 2025 guide.

Paul Keel: You know, until there's greater clarity and stability as to how things might play out on the tariff front, I just want to underline that we don't include any tariff related impacts in our 2025 guide. And then third, maybe most importantly, that I think what the nut of your question was, you know, while we are a global business, and so by definition, we're exposed to various uncertainties, you know, tariffs included, we're also fairly well positioned to respond to any shifting landscapes. So we've long architected our supply chains with a local for local mindset, you know, meaning we aim to source materials in the same country or region where we manufacture.

Speaker Change: And then third maybe most importantly, I think what that none of your question was.

Speaker Change: While we are a global business and so by definition, we're exposed to various uncertainties tariff included now we're also fairly well positioned to respond to any shifting landscape.

Speaker Change: We've long architected, our supply chains with our local for local mindset meeting we aim to source materials in the same country or region, where we manufacture and then we try to serve our customers in a particular country or region from local sources of supply.

Paul Keel: And then we try to serve our customers in a particular country or region from local sources of supply. So, you know, all of our big product categories, all of our largest supply chains have manufacturing on multiple continents. You know, for example, we make spark in Mexico, in Czech Republic, and in China, we make consumables in three different countries, we make implants in three different countries, etc. So. You know, while the bad news is that uncertainty is high, the good news is that we're fairly nimble and able to respond to what shifts. You know, that just comes down to moving with urgency and executing well.

Speaker Change: So all of our big product categories, all of our largest supply chain have manufacturing on multiple continents.

Speaker Change: For example, we make spark in Mexico in Czech Republic, and in China, We make.

Speaker Change: <unk>.

Speaker Change: In three different countries, we make implant in three different countries.

Speaker Change: Et cetera. So.

Speaker Change: <unk>.

Speaker Change: While the bad news is that uncertainty is high.

The good news is that we are.

Speaker Change: Fairly nimble enabled to respond to what shifts that just comes down to it moving with urgency in executing well and I think that's something we're pretty good at.

Paul Keel: And I think that's something we're pretty good at.

Speaker Change: Okay, great. Thank you.

Paul Keel: Thank you.

Speaker Change: And we'll take our next question from Allen Lutz with Bank of America. Please go ahead. Your line is open.

Dev: our next question from Alan Lutz with Go ahead. Hey, this is Dev on for Alan Lutz at BFA. Thanks for taking my question. I had a couple here just, you know, on Spark, you know, multiple quarters of, you know, a margin expansion there. I think you guys. I'm just trying to quantify that a bit. I think you mentioned double-digit declines in unit costs in the last quarter. Is that the right way to think about the cadence of the margin improvement there? Would love some help framing the pace of that gross margin expansion, whether year-over-year or quarterly.

Speaker Change: Hey, this is Jeff on for Alan lots of Bofa.

Speaker Change: Thanks for taking my question.

Speaker Change: A couple here just on spark.

Speaker Change: Multiple quarters of margin expansion there I think you guys have.

Speaker Change: Scott that quiet thoroughly and I am just trying to quantify that a bit I think you mentioned double digit declines in unit costs in the last quarter.

Speaker Change: Is that the right way to think about the cadence of the margin improvement there.

Speaker Change: Would love some help trying to.

Speaker Change: Kind of.

Speaker Change: Framing the pace of that gross margin expansion by their year over year or quarterly.

Paul Keel: That would be great. So, I think you're asking, is there, should you model a double-digit unit of reduction every quarter for SPARC? Now you're testing my math. No, I think there's probably some, you know, diminishing returns as we move down that cost curve. But you should plan on continued unit cost improvement on SPARC. And as we talked about on previous calls, certainly an improvement in the market would help, but our improvement to date has not been driven by that. It has been driven by a very organized manufacturing technology strategy. All of the lines have the same design across the three sites.

Speaker Change: That'd be great. Thanks.

Speaker Change: So are you I think you are asking is there should you model at double digit units have reduction every quarter for spark.

Speaker Change: Now Youre testing my.

Speaker Change: Matt No I think theres, probably some diminishing returns as we move down that cost curve, but you should plan on continued unit.

Speaker Change: Cost improvement on spark.

Speaker Change: Yes, we've talked about on previous calls certainly an improvement in the market would help but.

Speaker Change: Our improvements to date has not been driven by that it had been driven by a very organized manufacturing technology strategy.

Speaker Change: All of the lines have the same design across the three sites, we have a pilot plant in California, where we designed the innovation and then we roll it out across the lines across the plans.

Paul Keel: We have a pilot plant in California where we design the innovation, and then we roll it out across the lines, across the plans. And so that leads to not only predictable improvement, but it also leads to that flexibility that was in Erin's question. Similar equipment, similar lines, similar regulatory filings for all the sites. So, you know, if things, you know, require a response here moving forward, we're relatively well positioned to do that.

Speaker Change: Plants, and so that leads to not only predictable improvement, but it also leads to that flexibility.

Aaron: That was an Aaron's Aaron's question.

Speaker Change: Similar.

Speaker Change: Shipments similar lines similar.

Speaker Change: Regulatory filings for all the sites so if things.

Speaker Change: Require a response here moving forward, we're relatively well positioned to do that.

Paul Keel: Thanks, Paul. That's helpful.

Speaker Change: Thanks, Paul that's helpful. And then just one clean up question here on the dealer inventory reduction I think it was $18 million headwind into Q $12 million in <unk> I'm, just trying to figure out is that a onetime headwind in full year 'twenty. Four is there a portion of that that's considered as maybe a reversal or a tailwind in.

Eric Hammes: And then just one cleanup question here on the dealer inventory reduction. I think, you know, with $18 million headwind in 2Q, $12 million in 3Q. I'm just trying to figure out if, you know, is that a one-time headwind in full year 24? Is there a portion of that that's considered as maybe a reversal or a tailwind in 25? Or should we maybe think of that as just, you know, consumables moving more in line with sellout as we move forward? Yeah, so the latter is really the right point. So, since Q2, we've been at the inventory, the months of inventory, the weeks of inventory in the channel that we see as healthy and our distribution partners see as healthy.

Speaker Change: 25, or should we maybe think of that I've just consumables growth.

Speaker Change: Moving more in line with sell out as we move forward.

Speaker Change: So the ladder. The latter is really the right the right point. So since Q2, we've been at the inventory.

Speaker Change: Months of inventory the weeks of inventory in the channel that we see is healthy and our distribution partners. He is healthy.

Eric Hammes: We effectively moved sideways, so no change to that in inventory dollars or in overall weeks on hand in Q3 and Q4. And then to your point, you know, we would like that very much to be similar, consistent, in line into 2025. So, no real major comp issues to deal with, if you will, when we get into 2025. Great, thank you.

Speaker Change: We effectively moved sideways so no change to that.

Speaker Change: Inventory dollars are an overall.

Speaker Change: <unk> on hand in Q3, and Q4 and then to your point we.

Speaker Change: Like that very much to be similar consistent in line into 2025, So no no real major comp.

Speaker Change: Issues to deal with if you will when we get into 2025.

Speaker Change: Great. Thank you.

Speaker Change: We will take our next question from Steven Valiquette with Mizuho Securities. Please go ahead. Your line is open.

Stephen Veliquette: We'll take our next question from Stephen Veliquette with Mizuho Securities. Go ahead, you're live. Thanks, guys. Thanks for taking my question.

Steven Valiquette: Okay. Thanks, guys. Thanks for taking my question so.

Eric Hammes: So, I'm listening to a couple of calls simultaneously here, but I'm wondering if anybody touched on the cadence of the EBITDA margin for 2025 yet, you know, I guess with the 14% EBITDA margin guidance for the full year 25 coming in, you know, essentially in line with just the just reported 4Q result. Just curious, you know, whether that EBITDA margin will be in a sort of a tight range quarterly throughout, you know, this year or does it step down and re-ramp? Just want to get more color on that. You can expand on that further. Thanks.

Steven Valiquette: And listen to a couple of calls simultaneously here, but I'm wondering if anybody touched on the cadence of the EBITDA margin for 2025, yet I guess with the 14% EBITDA margin guidance for the full year 25 coming in essentially in line with just the just reported for Q resolved.

Steven Valiquette: Just curious whether that EBITDA margin will be in a sort of a tight range quarterly throughout this year or does it or does it step down then re Ram just want to get more color on that.

Steven Valiquette: Can you expand on that further thanks.

Eric Hammes: Yeah, great question. And we haven't specifically talked about margin cadence. What we did cover in our prepared remarks, and we talked about a bit in a couple of the opening questions and comments, is we do expect slightly lower core growth in the first half. We expect slightly better core growth in the second half. For us, a lot of that is based on how we see the progression of China overall and BVP, and effectively a version of what we saw in fourth quarter, which was slower bracket and wire market, slower purchases in Q4, playing out in the first half.

Steven Valiquette: Yes, great Great question, and we haven't specifically talked about margin cadence.

Steven Valiquette: We did cover in our prepared remarks, and we talked about a bit in a couple of the opening questions and comments is we.

Steven Valiquette: We do expect slightly lower core growth in the first half, we expect slightly better core growth in the second half.

Steven Valiquette: For us a lot of that is based on how we see the progression of China overall, and BBT and effectively.

Steven Valiquette: Version of what we saw in fourth quarter, which was slower bracket and wire market slower purchases.

Steven Valiquette: In Q4, playing out in the first half and our business is sizable enough in China that that has an impact on the overall in Vista growth rate, so slower core growth first half a little bit better second half.

Eric Hammes: And our business is sizable enough in China that that has an impact on the overall Envista growth rate. So slower core growth, first half, a little bit better second half. Spark deferral is also something that we get the headwind back as a tailwind next year in the second half.

Steven Valiquette: Parked deferral is also something that we get.

Steven Valiquette: Headwind back as a tailwind next year in the second half and then to your question on margin I would just say, we won't talk about specific quarter or half margin guide, but because of the.

Eric Hammes: And then to your question on margin, I would just say, you know, we won't talk about specific quarter or half margin guide, but because of the healthy growth margins that we have, we will have slightly lower margins than the average in first half and slightly better in the second half as well. I think that's the easiest way to play it out.

Steven Valiquette: The healthy gross margins that we have we will have slightly lower margins than the average in first half and slightly better in the second half as well I think thats the easiest way to play it out for now.

Steven Valiquette: Okay, that's perfect. Thanks.

Brandon: Thanks. We'll take our next question from Brandon. Blair. Please go ahead, you're live. Hi, everyone. Thanks for taking the question. I wanted to start on dental implants. You guys have had a nice couple of quarters here of improvements, especially on the Nobel side, which is really encouraging.

Speaker Change: We'll take our next question from Brandon Vazquez with William Blair. Please go ahead. Your line is open.

Brandon Vazquez: Hi, everyone. Thanks for taking my question I wanted to start on dental implants, you guys have had a nice couple of quarters here of improvements, especially on the Nobel side, which is really encouraging I am curious if you can I know this might be a hard kind of exercise, but maybe parse out.

Paul Keel: I'm curious, though, if you can – I know this might be a hard kind of exercise, but maybe parse out, you know, as you guys look at improvements, is this simply a factor of, you know, your year-over-year comps are a little bit easier, or are you actually seeing commercial improvements, or are you seeing improvement in the markets? You had made an interesting comment that full-arch cases actually had good growth. That kind of suggested to me that there might have been a little bit of macro in there. So, I'm just curious if you could parse any of those out to give a better understanding of how durable the Nobel improvements can be going into 2025.

Brandon Vazquez: Guys look at improvements is this simply a factor of.

Brandon Vazquez: Your year over year comps are a little bit easier or are you actually seeing commercial improvement or are you seeing improvement in end markets. You had made an interesting comment that full arch cases actually had good growth.

Brandon Vazquez: That kind of suggested to me that there might have been a little bit of macro in there. So I'm. Just curious if you can parse any of those out to give a better understanding of how durable the nobel improvements can be coming into 'twenty five.

Paul Keel: Yeah, let me see if I can drill down into that. So, you know, maybe three things. First, we don't see a marked improvement in the underlying market. But we did see continued improvement of our business across the year, turning to positive in Q4 for both Premium and Challenger, both in North America and globally. So without improvement in the market, but improvement across our business, we do think that the work we're doing, the investments we're making are driving that improvement, and we're confident in them. And we think that'll continue moving forward.

Brandon Vazquez: Yes, let me see if I can drill down into that.

Brandon Vazquez: Maybe three things first.

Brandon Vazquez: We don't see a marked improvement in the underlying market, but we did see continued improvement of our business across the year turning to positive in Q4 for both premium and challenger.

Brandon Vazquez: Both in North America, and globally, so without improvement in the market, but improvement across our business.

Brandon Vazquez: We do think that the work we're doing the investments, we're making are driving that improvement and we're confident in them and we think that will continue moving forward.

Paul Keel: The second thing I would say is that, you know, we focus a lot, understandably, on the implant side of Nobel, but we're seeing good strength across that entire portfolio. Our regenerative and digital solutions businesses, both were up nicely in 2024. And our prosthetic business was also doing very well. So pretty good progression across that portfolio. Now, moving into 2025, if we do get, you know, a faster return to, you know, pre-COVID levels for implants, all of this work that we're doing in strengthening the business, of course, will benefit us, you know, the rising tide will be a better position to take advantage Great.

Brandon Vazquez: The second thing I would say is that we focus a lot understandably on the implant side of of Nobel, but we're seeing good strength across that entire portfolio, our regenerative and digital solutions businesses. Both were up nicely in 2024, and our <unk> business. We are also doing very well.

Brandon Vazquez: So pretty good progression across that portfolio now moving into 2025.

Brandon Vazquez: If we do get a.

Faster return to <unk>.

Brandon Vazquez: Pre COVID-19 levels for implants, all of this work that we're doing and strengthening the business.

Brandon Vazquez: Of course, we'll will benefit us the rising tide will be better positioned to take advantage of it.

Brandon Vazquez: Okay.

Paul Keel: That's helpful.

Paul Keel: And on the Spark side, do you think you could just bridge us a little bit on to what are the main contributors to get from where you are today to operating profitability in the back half of 2025? Thank you. Yeah, I mean, our base plan, what we stand behind in our guide to return to profitability in the second half is mostly within our control. It is those manufacturing improvements that I mentioned. You know, we have a whole pipeline of automation steps, you know, lean manufacturing steps. And we just roll those out one by one in a very organized, consistent way until we have predictable improvements in the unit cost.

Brandon Vazquez: That's helpful.

Brandon Vazquez: Spark side do you think you can just bridge us a little bit on to what are the main contributors to get from where you are today to operating profitability in the back half of 2025. Thank you.

Brandon Vazquez: Yes.

Brandon Vazquez: Our base plan, we stand behind and are our guide returned to profitability in the second half is.

Brandon Vazquez: Mostly within our control into those manufacturing improvements that I mentioned.

Brandon Vazquez: We have a whole pipeline of automation steps.

Brandon Vazquez: Lean manufacturing.

Brandon Vazquez: Steps and we just roll those out one by one in a very organized consistent way until we have predictable improvements in the unit cost that's the main driver of it.

Paul Keel: That's the main driver of it. On top of that, additional value, additional volume, you know, if our share gains accelerate, that can only help. If the market recovers more quickly, that can only help. And we have been getting a little bit of price on our clear aligner business. And that adds to it as well, of course. So a lot of different vectors pointed, you know, in a positive direction. And I think you hear that in our enthusiasm for the business. You know, the team's just doing a great job.

Brandon Vazquez: On top of that additional value.

Brandon Vazquez: Additional volume if our share gains accelerate that can only help.

Brandon Vazquez: If the market recovers more quickly vacuum only help and we have been getting a little bit of price on our clear aligner business and that adds to it as well of course, so a lot of different vectors pointed in a positive direction and I think you hear that in our enthusiasm for the business you know the teams teams just doing a great job.

Brandon Vazquez: Yeah.

Brandon Vazquez: Okay.

Speaker Change: And we'll take our next question from <unk> Chopra with Wells Fargo. Please go ahead. Your line is open.

Vik Chopra: We'll take our next question from Vik Chopra with Wells Fargo. Please go ahead. Your line is open. Hey, good evening, and thanks for taking the questions. Just two for me.

Speaker Change: Hey, good evening and thanks for taking the questions.

Speaker Change: Two for me I guess, maybe on the first one of your topline guidance can you talk about what gets you to the high end versus the low end of that guidance and then I had a follow up question. Please.

Vik Chopra: I guess maybe on the first one, on your top line guidance, can you talk about what gets you to the high end versus the low end of that guidance? And then I had a follow-up question, please. What gets us to the high end of our revenue guide versus the low end? I think it goes back to those upsides that we talked about before, and I would point to the same 3, Vic. SPARC, as we've talked about, a lot of ways that could go better than what's in the base guide. Our second thing we talked about was implants.

Speaker Change: Yeah.

Speaker Change: What gets us to the high end of our revenue guide versus the low end.

Speaker Change: I think it goes back to those upsides that we talked about before and I would I would point to the same three BEC.

Speaker Change: Spark is as we've talked about a lot of a lot of ways that could go better than than what's in the base guide.

Speaker Change: Second thing we talked about was implants that was embedded in the previous question.

Paul Keel: That was embedded in the previous question. And then the third, I guess we don't talk a lot about diagnostics because that category has been under pressure, but we have a strong position in it, and the category, we think, has to come back. You can't operate a dental clinic without diagnostic equipment. You can't start a dental procedure without some type of diagnostic step. So some version of those breaking the right way would get you to the higher end of that range.

And then the third I guess, we don't talk a lot about diagnostics because that category has been under pressure, but we have a strong position in it in the category. We think has to come back you can't operate a dental clinic without diagnostic equipment, you can't started dental procedure without some type of diagnostic step.

Speaker Change: So some version of those.

Speaker Change: Breaking the right way would get you to the higher end of that range.

Paul Keel: Great, that's helpful.

Speaker Change: Great that's helpful and then.

Vik Chopra: And then a good segue to my follow-up question.

Speaker Change: My follow up question, maybe just talk about the dental capital equipment environment. What are you hearing from your sales force is as they are out there talking with a dental practice as the dsos. Thank you.

Paul Keel: Maybe just talk about the dental capital, equipment, environment. You know, what are you hearing from your sales forces as they're out there talking to dental practices and DSOs?

Paul Keel: Thank you. I think the question is what capital equipment sales to DSOs, is that? Yeah, just what are you seeing in the field, what are you hearing from your sales folks? Just maybe high-level commentary on the capital equipment environment.

Speaker Change: I think the question is capital equipment sales to Dsos as that.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: What are you seeing in.

Speaker Change: In the field what are you hearing from your sales folks just maybe high level commentary on the capital equipment environment. Thank you.

Paul Keel: Thank you. Um, so let me just take two parts of it. Let me say, you know, what are we hearing from DSOs and then what are we hearing about capital equipment? Um, the DSO market, you know, I think is doing pretty well. The bit, the strong are getting stronger, uh, in that the, the biggest players, the Heartlands, the Aspens, the, you know, MV2s of the world, these are well-run, uh, companies. And they have many sites and they're often in several categories. So the, uh, the, the population of suppliers that can really serve them at the levels they need is relatively small.

Speaker Change: So let me just take two parts of it let me say what are we hearing from Dsos and then what are we hearing about capital equipment.

Speaker Change: The DSO market I think is doing pretty well.

Speaker Change: Wrong are getting stronger in that the biggest players the heartlands the aspen.

Speaker Change: <unk> of the World These are well run companies.

Speaker Change: And they have many sites and they are often in several categories. So.

The population of suppliers that can really serve them at the levels. They need is relatively small.

Paul Keel: You know, you need to have good national coverage, a consistent product, um, Salesforce coverage. And if you can do it across multiple dental categories, that's, that's helpful. So, um, We think DSOs are a big opportunity for us. With respect to capital equipment, it's consistent with the commentary we had on the diagnostic side. You need it to open a clinic. You need it to expand a DSO. But it happens to be a financed category. So it's sensitive to interest rates. Now, there's been, what, three interest rate cuts since the fall. That's helpful. But interest rates are still up several hundred basis points from where they were during COVID and pre-COVID.

Speaker Change: You need to have.

Speaker Change: Good national coverage, a consistent product sales force coverage and then if you can do it across multiple dental categories. That's that's helpful. So.

Speaker Change: <unk>.

Speaker Change: We think dsos are a big opportunity for us.

Speaker Change: With respect to capital equipment, it's consistent with the commentary we had on the diagnostic side you need it to open a clinic you need it to expand our DSO, but it happens to be a financed category. So it's sensitive to interest rates now theres been what three inch.

Speaker Change: Interest rate cuts since the fall that's helpful, but interest rates are still up.

Speaker Change: Several hundred basis points from where they were during COVID-19 and pre COVID-19.

Paul Keel: So I think we still need to see cheaper money out there before there's going to be a sharp inflection in the diagnostic equipment market.

Speaker Change: So I think we still need to see.

Speaker Change: Cheaper money out there before there's going to be a sharp inflection in that the diagnostic equipment market.

Paul Keel: With that, I think we are up against the time.

With that I think we are up against the time, so I'm going to wrap things up here and thank all of you for participating and for your questions.

Paul Keel: So I'm going to wrap things up here and thank all of you for participating and for your questions. Maybe I'll close just with a couple high-level thoughts, you know, reminding everyone why we are so excited about the opportunity we see in front of us. You know, first, at the highest level, you know, dental is a fundamentally attractive category. All of the structural long-term drivers we've talked about over time and the high gross margins and the opportunity for, you know, pretty attractive economics. Second, Envista is a great company, leadership positions in some of the very best categories in that attractive dental market.

Speaker Change: Maybe I'll close just with a couple of high level thoughts reminding everyone. Why we are so excited about the opportunity we see in front of us.

Speaker Change: First at the highest level.

Speaker Change: Dental is a fundamentally attractive category all of the structural long term drivers we've talked about over time and.

Speaker Change: The high gross margins and the opportunity for <unk>.

Speaker Change: Pretty attractive economics.

Speaker Change: Second and this is a great company our leadership positions in some of the very best categories in that attractive dental market.

Paul Keel: And then third, having been on board now for nine months, it's clear to me that we have both the capabilities and the culture to turn that potential into improved performance. Hopefully you're seeing elements of that across 2024, and I want you to know we're committed to building on that momentum here in 2025.

Speaker Change: And then third having been onboard now for nine months, it's clear to me that we have both the capabilities and the culture to turn that potential into improved performance.

Speaker Change: Hopefully youre seeing elements of that across 2024, and I want you to know we're committed to building on that momentum here in 2025.

Paul Keel: With that we'll wrap it up.

Speaker Change: With that we'll wrap it up I hope you guys can join us on the fifth.

Operator: Hope you guys can join us on the 5th next month at the Capital Markets Day and wish everybody a good day and a great week. Thank you.

Speaker Change: This month at the capital markets day, and wish everybody a good day and a great week. Thank you.

Speaker Change: This does conclude today's program. Thank you for your participation and you may now disconnect.

Operator: This does conclude today's program.

Operator: Thank you for your participation and you may now Bailiff Russell Ed Franco © transcript Emily Beynon Elon Musk Subscribe For The Best Cooking Videos Have a great day!

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