Envista Holdings Corporation

My name is David, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Invista Holdings Corporation's fourth quarter 2021 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press the star, then the number one on your keypad. If you would like to withdraw your question, please press the pound key. I'll now turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Invista Holdings. Mr. Keller, you may begin your conference call.

Thank you. Hello, and thanks for joining us on the call today. With us here in the room are Amir Agday, our President and Chief Executive Officer, and Howard Yu, our Chief Financial Officer. I want to point out that the earnings release, the slide presentation, supplement phase calls, and the reconciliation and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are available on the investor section of our website, www.infistico.com. The audio portion of this call will be archived on the investor section of our website later today under the heading Events and Presentations. It will remain archived until our next quarterly call. As announced on January 3, 2022, we have closed the divestiture of our CAVO treatment unit and instrument business. For the fourth quarter and the full year 2021, the results of this business are reflected as discontinued operations in our financial statements as required by generally accepted accounting principles. Additionally, the financial statements to be included in our 10-K for the fiscal 2021 will reflect CAVO treatment unit and instrument business as discontinued operations as required by GAAP. All references in these remarks and accompanying presentation to earnings, revenues, and other company-specific financial metrics relate only to the continuing operations of Invista's business, except for cash flow measures. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. Supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these materials and supplemental materials to company-specific financial metrics relate to the fourth quarter of 2021, and all references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices that have applications submitted impending certain regulatory approvals or are available only in certain markets. During the call, we will make forward-looking statements within the meaning of the Federal Securities Law, including statements regarding events or developments that we believe, anticipate, or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements except where as required by law. With that, I'd like to turn the call over to Amir.

Thank you, Stephen, and welcome everyone to NVISA's fourth quarter 2021 earnings call. I want to begin by thanking our employees for delivering an outstanding 2021. Despite a challenging macro environment with COVID-related headwinds, numerous supply chain disruptions, At significant inflation, our employees deliver outstanding results by partnering with dental professionals to improve the lives of patients and expand access to oral care. Our employees' passion and dedication allow us to deliver on our commitment to our clinicians and our shareholders. For the full year 2021, we delivered core revenue growth of 29%, over 2020 and 8.9% over 2019. While we did see some softening in patient volumes in late QFO, continuing into January, our views that this is primarily related to staff shortages and patient cancellations driven by Omicron variant and increasing rates of infection. As infections peak, we believe patient volumes will come back with limited loss of demand. We're still growing significantly above pre-pandemic levels, and we continue to benefit from the repositioning of our portfolio, our improved commercial execution, and our long-term investments in innovation. For 2021, our adjusted EBITDA margin was 19.7%, representing a greater than 650 basis point improvement over the pandemic impacted 2020 and delivering over 400 basis point of improvement versus 2019. Before I turn it over to Howard to discuss our fourth quarter result, I want to provide more color on our progress towards our long-term priorities of transforming our portfolio accelerating our growth and expanding our operating margins. 2021 was a transformational year for Invista. It took significant steps to reorient our portfolio to higher growth, higher margin segments of the dental industry where we can create competitive sustainable advantage. We announced and completed that the divestiture of the CAVO treatment unit and instruments business, thus shifting our business from a 50-50 split between our two reporting segments to a more attractive 60-40 mix in favor of the faster growth and higher margin specialty products and technology segment. Greater than 80% of our sales are now consumables, and over 60% of our sales are direct to clinicians. In late December, we also announced the planned acquisition of CareStream Dental's inter-oral scanner business. Expected to close in Q2 of 2022, this acquisition is consistent with InVista's long-term strategy and will help support the digitization of dental workflows. iOS scanners are a large, fast-growing segment of the dental industry that has above-average profitability. IOS scans are a critical first step to many high-value specialty dental procedures, including implant surgical guides, prosthetics, and clear aligner treatments. CareStream Dental's IOS business is a very attractive entry point into this segment. Business comes with a proven suite of scanning solutions, that include both a proficient hardware platform and powerful software capabilities. It is a substantial global business with significant growth upside over the long run. We're confident that we can accelerate the growth of this business by increasing customer reach and expanding in under-penetrated geographies and customer segments. This acquisition also comes with a strong R&D team and a promising development pipeline that will further accelerate dental digitization for years to come. Lastly, our proven EBS tools and processes will allow us to improve quality, delivery, and long-term operating margins of this business. While we took significant steps to transform our portfolio through inorganic actions, We also focus on accelerating our growth through organic investment in innovation and commercial execution. As a result of this focused investment, we have made meaningful progress across our businesses. With a uniquely differentiated portfolio, our orthodontic business continues to deliver a strong result, delivering core growth of 38% versus full year 2020. We offer clinicians a full range of orthodontic treatment options, enabling them to provide better, more personalized treatment plans to more patients for better outcomes. We continue to invest in innovation to accelerate our performance. In our core bracket and wire business, the Daemen Ultima solution, which was designed for faster and more precise finishing in treatment, continues to grow nicely in North America. We recently launched a solution in Europe and hosted eight Daemon Ultima events across six countries in Europe, educating more than 600 clinicians on this innovation. The broader Daemon system has now been in Europe for 25 years and continues to be a leading solution in brackets and wires. Our SPARC cleaner aligner business continues to grow rapidly, hitting a $100 million run rate in November of 2021, more than a year ahead of our original plan. In December of 2021, Dr. Ignacio Arias Embal of Madrid, Spain, treated 100,000 patients with SPARC, demonstrating the global reach of this differentiated and best-in-class aligner treatment. We're confident that our focus on partnering with professionals to deliver and drive predictable and superior outcomes for patients will help us become the leading orthodontic solution provider to specialists worldwide. Our implant business continues to accelerate, delivering over 30% core growth in 2021. Our focus on innovation and commercial execution is a key to our recent success that will allow us to drive and deliver sustainable high single-digit growth in implants. With over 1,300 direct feet on the street, we work with clinicians every day to deliver the best-in-class implant, regenerative, and prosthetic solutions. In 2021, over 750 events and trained more than 100,000 clinicians on new products, new technologies, and best practices in implantology. Long-term innovation remains a critical part of our success. We are pleased with the continued success of our TiUltra and Zeal surfaces that are designed to promote bone and soft tissue integration. Globally, over 30% of premium implant sales now feature these innovative surface treatments. In December 2021, we received FDA clearance for our N1 implant system in the US. Following our SPARC playbook, we're now focused on rolling out N1 to a committed group of Qi experts and ambassadors who will then advocate for the product and help train other clinicians. We expect N1 to support the continued acceleration of our in-plan business growth in 2022 and beyond. Our diagnostics and digital businesses continue to perform well. It delivered core growth of over 25% in full year 2021, as dental professionals remain confident in the outlook for their practices and remain focused on investing for the long term. Our imaging offerings, combined with our DTX Studio Clinic software solution, provide our customers with a seamless diagnostic workflow and integrated digital experience. We continue to invest in DTX as an advanced assisted intelligence solution. In Q4, our DTX Studio Clinic 2.3 in the United States was released. This new version features many improvements, including an AI-based magic sword functionality that assists clinical users automatically ordering full-mouth 2D x-rays, saving time and effort, and allowing the clinicians to spend more time with patients. Finally, we continue to focus on establishing a strong relationship and partnership with DSOs, which will be an important factor in achieving our long-term growth targets. In January, we announced a novel development partnership with Pacific Dental Services to focus on the AI support of clinical image analysis into PDS-supported practices, as well as across the dental market. NVISA and PDS aim to harness the power of data and machine learning to transform the way in which dentists use clinical imagery to diagnose, plan, and treat patients. Our long-term goal is to help clinicians identify and validate the best treatment options, leading to increased acceptance rates and improved patient outcomes. In addition to new technologies, long-term we are positioned well to meet the needs of DSOs and can offer a comprehensive set of clinical solutions to DSOs as they work to expand dental care worldwide. In 2021, our DSO business grew by more than 25%, and now represents approximately 10% of our total sales. In addition to driving growth, we remain focused on expanding our margins. In 2021, we achieved a full-year adjusted EBITDA margin of 19.7%. This represents over 650 basis points of a margin improvement versus 2020, and more than 400 basis points of a margin improvement since the IPO. The investor business system and our focus on continuous improvement is a foundation that drives our short- and long-term profitability. We continuously work to reduce the structural costs, consolidate our footprint, improve productivity, and drive operational improvements, all while enhancing the customer experience. Across our businesses, adjusted gross margins improved more than 250 basis points in the full year 2021. This is despite of some of the inflationary headwind we have seen as well as investment and ramping up production of Spark. Today, our EBS-driven daily management and focus on execution has allowed us to mitigate many of the significant supply chain disruptions that the world is currently experiencing. I will now turn the call over to Howard to go through our fourth quarter financial and provide more detail on our segment performance.

Thanks, Amir. Before we begin, I'd like to remind you that our fourth quarter results are based on continuing operations reflecting the sale of our Cabo Treatment Unit and Instruments business. Accordingly, the quarterly results of Cabo Treatment Unit and Instruments business are reported as discontinued operations. Fourth quarter sales increased 5.8% to $651.8 million. Reported sales were negatively impacted by 0.5% due to foreign currency exchange rates and further negatively impacted by 0.3% related to other discontinued products. Our core sales growth was 6.6% compared to fourth quarter of 2020. Our year-over-year growth reflects solid growth from our orthodontic, implant, and imaging businesses, which was offset by temporary weakness in our infection prevention business. Geographically, Western Europe grew 15%, while North America grew 1.8%, dragged down by its greater exposure to infection prevention. Overall, emerging markets continue to expand from pandemic lows, growing 12.8%, despite relative weakness in China driven by localized pandemic lockdowns. Our fourth quarter adjusted growth margin from continuing operations was 57.1%, increasing by 60 basis points compared to the prior year due to higher volume, favorable product mix, and productivity initiatives across our portfolio. The adjusted Q4 2021 EBITDA margin was 18.5%, which is 110 basis points lower than in Q4 of 2020. As expected, in Q4, we continue to invest in our long-term innovation while increasing spend on travel and in-person customer-facing activities with the continued easing of the pandemic-related lockdowns. Our adjusted EBITDA was also negatively impacted by approximately $4 million in stranded costs related to the sale of the Cabo Treatment Unit and Instruments business. We expect to address the estimated greater than $10 million of annual stranded costs in 2022. Our fourth quarter adjusted diluted EPS was $0.46 from continuing operations compared to $0.43 in the comparable period of the prior year. Our specialty products and technology segment core revenue increased 14.5% compared to the fourth quarter of 2020, driven by strong growth in premium implant and continuing strong growth from SPARC. In the fourth quarter, our orthodontics business grew over 20%, with our core bracket and wire business growing mid-single digit and Spark continuing to accelerate. As Amir mentioned, sales of Spark hit a $100 million run rate in late 2021, and we continue to invest to drive growth. Our implant business grew double digits in Q4 2021 versus Q4 of 2020, and we continue to accelerate, realizing double-digit sequential growth in the quarter. Our specialty product and technology segment adjusted operating profit expanded by 150 basis points, reaching 22.1% in the fourth quarter. This expansion is despite the increase in Spark and N1 investment and despite the increased spend in customer-facing activities. Our fourth quarter equipment and consumable segment core sales from continuing operations decreased by 3.3% compared to Q4 of 2020. Strong demand and solid execution in our imaging business drove the results in the segment with core growth of 9% compared to the fourth quarter of 2020. Our curresto endo business also performed well in Q4 delivering mid single digit core growth. This was led by strong performance in Europe and Latin America Sales growth continues to be driven by sellout, and channel inventories remain at healthy levels. As expected, sales of our infection prevention solutions declined from peak pandemic demand. Despite the lower Q4 sales, inventory sellout trends reported by our distribution partners indicate that we are gaining market share in our core dental market. Long term, we expect this business to grow mid-single digits. Equipment and consumables adjusted operating profit margin was 21.4% from continuing operations in the fourth quarter of 2021 versus 23% in 2020. Solid margin improvement in our imaging and restorative solutions was offset by the slowdown in infection prevention. Further, we experienced some inflation related to chemical commodities that impacted our infection prevention business. The segment was also burdened with approximately $4 million of stranded costs in the quarter related to the sale of the Cabo Treatment Unit and Instruments business. We have begun to address these stranded costs and are confident that we will be able to minimize the impact as we move through 2022. With the sale of the Cabo Treatment Unit and Instruments business and the pending acquisition of CareStream Dental's IOS business, we are confident that our equipment consumer business will grow faster and be more profitable. For the fourth quarter, we generated free cash flow of $157.1 million, and we ended the quarter with over a billion dollars in cash. Our working capital increased in the quarter due to our increased sales, Selective inventory bills associated with our restructuring activities and proactive supplier management allowing us to ensure supply stability while mitigating inflation. Our balance sheet is very strong, and we have ample liquidity to both close the acquisition of CareStream Dental's IOS business while also pursuing additional inorganic growth opportunities as they become available. Looking forward to 2022, Barring any major COVID-related disruptions, we are expecting to deliver core growth of between 6% and 8%, and expecting to deliver full-year adjusted EBITDA margin of greater than 20%. Our guidance reflects our balanced focus on accelerating growth while continuing to expand margins. In 2022, we expect to continue to significantly invest in our long-term growth initiatives, including SPARC, N1, and our digital workflow solutions. Further, we expect to continue to increase our spend on customer-facing activities, which we curtailed during 2020 and 2021 due to COVID. In terms of phasing, we expect our adjusted EBITDA margins for the first half of 2022 to be in the high teens as we continue to invest in our long-term growth while also addressing our stranded costs related to the sale of combo treatment unit and instruments business. For the second half of 2022, we expect our adjusted EBITDA margins to be higher as we benefit from the portfolio transformation and we continue to focus on driving productivity while investing in growth. It is important to note that our guidance does not reflect the impact of the pending acquisition of CareStream Dental's IOS business. We currently expect this to close in Q2 and will provide updated guidance related to the underlying business as well as planned integration and growth-related investments once we have closed the transaction. I'll turn the call over to Amir for some closing comments.

Thanks, Howard. We are pleased with our 2021 results and remain very optimistic about the future of the dental industry. Given our recent portfolio moves, we are now more focused on the faster-growing, higher-margin, and most attractive segments within dental. We continue to work with our clinical partners to streamline their operations and improve patient care while expanding access to oral care around the world. Moving forward, our priorities remain the same. We will accelerate growth, expand our operating margin, and continue to further transform our portfolio through active and disciplined capital deployments. Our intention is to be the leader in orthodontics, providing a differentiated and integrated suite of treatment options, including bracket and wires and clear aligners. Our comprehensive offering empowers orthodontists to provide the best treatment modality for each patient. Based on our broad portfolio and this powerful combination, We plan to triple our Spark business in the next three years while continuing to gain share in wire and brackets. We will further accelerate our growth in implants by leveraging our premium implant franchise to provide full solutions across the implant workflow, including regenerative and prosthetic offerings by leveraging our diagnostics and digital capabilities. We will continue to grow and broaden access to our highly profitable and differentiated consumables business. Finally, we will leverage our strength in imaging and diagnostics to build digitally integrated workflows from diagnostics to treatment planning to execution for our clinical partners. We will continue to utilize our EBS heritage to both improve our execution and drive margin expansion. We are committed to delivering annual margin expansion. Finally, we continue to see significant opportunities to invest organically and inorganically, and we have the financial flexibility and management focus to further accelerate our growth trajectory via disciplined capital deployment and inorganic investments. As we continue in our journey to digitize, personalize, and democratize the dental industry, we are excited about hosting our first InVista Summit, designed to highlight our unique and differentiated product portfolio and digitally integrated solutions. This event will bring together our historically popular Ormco Forum and Nobel BioChair Symposium with a brand new technology track to create a three-track agenda designed to educate and train dental professionals in every aspect of dentistry, united by our best-in-class customer experience and products. The progress we made this quarter and in 2021 is a direct reflection of our culture-centered and continuous improvement and our commitment to our customers and the dental industry. Our purpose is to partner with dental professionals and improve patients' lives by personalizing, digitizing, and democratizing dental care. We're excited about our continued growth journey in 2022 and beyond.

Thanks, Amir. That concludes our formal comments. We are now ready for questions.

At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing the pound key. Once again, to ask a question today, please press the star and one keys on your touchtone telephone keypad. And we'll take our first question from Elizabeth Anderson with Evercore. Please go ahead. Your line is open.

Hi, guys. Thanks so much, and congrats on a nice quarter. Maybe to kick us off, Amir, can you give us a little bit more details on the impact of Omicron this time around? It seems like it was maybe a little bit, obviously, different than earlier waves. maybe either by different areas or sort of also as we go into January, how those trends have been continuing. Thanks.

Thank you, Elizabeth. What we saw at the end of Q4, the last two weeks of December, a lot of feedback from our partners in various DSOs and companies that we work with, there was a significant slowdown in the past, in the last two weeks of December. And that was purely because of the infection ramping up, increased rate of infection, a lot of cancellation, as well as staff shortages. This trend continued in the first two weeks of January as well. What we are seeing now, a ramp back up to normal demand and patient volumes And we think that as infections move past the peak, we believe patient volumes would come back with limited loss of demand. Overall, really optimistic about underlying demand, remain mindful of continued risk of COVID. But we think that we are really centered in helping, supporting our customers to manage through these challenging times. And we do not see that as being a major impact in our growth as we go throughout the year.

Thanks so much. And maybe as a follow-up, Howard, I know you gave the guide for the full year with the first half versus second half margin differences and some of the details there. As you think about maybe the demand profile, are there any more details you can share with us about sort of how you see demand progressing as we go through the year, and anything else that would be good to call out just in terms of the phasing of the quarters?

Sure, sure, Elizabeth. Thanks for the question. Yeah, as we indicated, we see the full-year guide is growing 6% to 8% with the adjusted EBITDA margins north of 20%. If we talk about, let's say, Q1, you know, with some of the slowdown that we saw very early on in the quarter, you know, we expect mid-single-digit growth, core growth here in Q1, and high teens EBITDA, particularly as we work through some of the stranded costs. as well as continue to fortify a lot of the investments that we're making. As Amir indicated, we're really pleased with where our Spark business is, and we're prepared to go ahead and continue to invest in that business. And so you're seeing a little bit of softness there. But then throughout the year, I'd say with each quarter, you're going to see improvements in our growth rates as well as our margins. That's helpful. Thanks. Sure.

We'll take our next question from Jeff Johnson with Baird. Please go ahead. Your line is open.

Hey, Jeff. Thank you. Hey, guys. Good afternoon. Two questions here for me. One, just on the price increases, you know, we've confirmed with a couple of the dealers you did take a price increase here at the start of the year. Seems like 2% to 3% kind of holding across most of consumables. Is that a fair way to think about it, one? And then, two, is there any pricing power in any other parts of the portfolio? We've heard anecdotally some of the implant guys taking price increases. Would like to know what you're doing there maybe or anything else in the portfolio. Thanks.

So, yeah, Jeff, I don't think that we don't institute across-the-board price increases. Each of our opcos are taking appropriate pricing actions to drive growth while protecting and expanding our margins. Pricing should be seen as a tailwind, as you indicated. We have done some of that in some of our businesses. I would say that it wouldn't be limited just to the consumables piece. You mentioned implants. Even as it relates to orthodontics as well, we see that as being an opportunity. Longer term, I think we continue to believe that our focus on innovation is the key to maintaining and expanding average selling prices and margins, as well as we look to drive growth.

All right, that's helpful. Thank you. And then, Amir, maybe on Spark, you know, you hit that $100 million run rate earlier than I think any of us were expecting. It sounds like about $75 million for the full year. And you're talking about now tripling that over three years. So is that a fair way to think about it? $75 million in 2021 going to $225 million over the next three years. And what are you seeing just in the short run here? In clear aligners, I know you're in market share taking position, so it's hard to see kind of a slowdown if there's been a pull forward or some discretionary spending dollars that aren't as strong this year as they might have been in the heat of last year. But just what are you seeing for the clear aligner demand side of the equation over the next few quarters? Thanks.

Yeah, of course. Your calculation is not wrong. You're close to what we are seeing, not exactly those numbers, but it's not far off. Yeah, we have created and we have talked about this continuously, a differentiated solution that is really focused on a professional medtech segment of the market. And that has been proven that it is truly differentiated. People see the value of it, not only on the product itself, but on training, education, on service and support, and the way that we bring people up to speed and continue to support them moving forward. For sure, there has been some pull forward. But we don't expect that that would have any impact in our ramp as we go forward. As you know very well, we started through a very phased approach of adding dentists every quarter and seeing them coming up to speed. That process has continued as we have gone forward. To give you a little bit of a feel, both on the production as well as the number of dentists that are now using Spark as their primary clear aligner, we are seeing a double-digit growth in the number of dentists, number of doctors that they're using, and it is across geographies. In fact, in Europe, Our RAP is exceeding what we saw in North America. So we are pretty confident that what we have done, the approach that we have taken, is working. And some of the things that you're seeing in the market, it actually has proven the approach that we took, slow and steady, make sure that we provide a differentiated solution, is working. And we feel that's going to be the trend to continue as we go forward.

Thank you.

We'll take our next question from John Krieger with William Blair. Please go ahead. Your line is open.

Hey, thanks very much. Amir, could you talk a little bit more about the CareStream strategy? I'm curious if you look at that install base to what degree those are sort of your customers already, or are they kind of a new customer opportunity situation? And how is the integration at this point? Will you be up and running, let's say, with Spark and other solutions right away, or should we assume that will take some time?

Hey, John. Let me maybe just a little bit frame this on the iOS market first, and then I ask that question. We think this market is over a billion dollars. It's growing double digit. We think this market has above EBITDA compared to the rest of the product out there. And our estimates are that this is less than 15% penetrated. So those are some key numbers in there to think about. The business was about, you know, close to about $60 million last year. If you go back, take a look at it mathematically or since the introduction of it, $3,600, $3,700, and $3,800, The care team has less than 10,000 install base worldwide. So now take a look at the ramp that is taking place, the access that we can provide, integration with the DTX, and then 3,400 salespeople that we have out there, access to geographies and DSOs. It gives us an opportunity to take this business and bring it to a different level. continue to invest in r d integrated into our software and then ebs plays such an important role in here to improve delivery quality and margin over time we have been looking at as you will know in in this space for almost five or six years and we found that carestream ios has and meets many of those qualifications that we have been looking for. It's a great product. Hardware is just really good. It has the sweetest software that is already in place. And where we can add value is really complementary to what CareStream has done in the past. I can't comment a lot until this deal is completely closed, but we expect an integration, a DTS that takes place as soon as the deal is closed in Q2, and we expect a ramp throughout the year in various geographies as we go forward. We think impact in you know, in the next few years, it's going to be over 50 basis point of a core growth to our run rate, as well as over 40 basis point of a margin expansion. So it is a really complementary business that is going to help us not only on its core as a product, but also in our intention of digitizing the industry as a whole.

Sounds great. Thanks for all the detail.

Thank you, John.

We'll take our next question from John Block with Stiefel. Please go ahead. Your line is open.

Hey, John. Great. Thanks. Hey, good afternoon. Just first wanted to add one. If you guys can just talk to the rollout cadence in the U.S., and will Omicron delay the pace of that rollout a little bit, and then maybe just to level set as a tack-on. I think previously you guys have talked about 300 doctors trained in Europe on N1. What's that off of a base of, just so we can sort of size up where you are in the training process in Europe, since it was obviously approved over there several quarters ago? And then I'll ask a follow-up.

Yeah. Yeah, I'm happy to give you that background, John. Exactly correct. We started training in Europe, and we have several hundred dentists that they are now using actively N1. Actively, in our opinion, is more than one-time purchases. They're beginning to transition some of their current usage. two-in-one, and they're beginning to see the outcome of that, and they're giving us some really good feedback. Our approach in the U.S. is very similar to what we did with Spark. We're going to create these cohorts of five to ten people in a smaller, safe setting. In fact, the first group is going to take place this weekend. We're going to teach them, train them, bring them up to speed. These are the key experts, the ambassadors. Let them become very familiar with the product, use it in their facility. We're going to put people on site to work with them. And as they become comfortable, they're going to start teaching and rolling this out on our behalf. Then we would sign up the next cohort, the next cohort, and the next cohort going forward. I want to do a little bit of a compare for you. SPARC, the way rollout has taken place now, some of the key experts in some geographies, Spain as an example, now they are creating this followership model that they train on their own, invite a large number of orthodontists, they see the value, they can show cases, and they can see a migration and transition to a spark. Our goal with N1 is to replicate that model in 2022 in North America. Be thoughtful, be really diligent about how we want to go about it, and manage in a safe environment, a cohort, a group of people that they can truly see the value of it. Step up. Besides N1, our implant businesses, specifically Nobel, In Q4, premium implant grew double digit compared to 2020 and double digit compared to 2019. So our performance has improved significantly and we are beginning to see and we have seen in the past six quarter, quarter after quarter, better performance. I think N1 is just going to be an addition to what our team in North America in Europe and China has been doing for us, which is getting this business to a high single-digit growth in an ongoing basis.

That's great. That was very helpful. And just as a second question, and I might try to fit two in there, Howard, for you, more than 20% of you have adopted margins. I just felt previously when you guys used to talk high teens. I mean, when you say more than 20 and, you know, you used to talk 50 to 75 bips per annum, you know, just maybe some clarity. Like, what does that mean? Is the 50 to 75 bips that you used to talk about intact off the 19-7? And then, admittedly, a separate second question in there, can you just get the street comfortable with the mid-single-digit infection prevention long-term? I think if there was any blemish in the quarter, It was just around infection prevention. Why the confidence? You guys alluded to some of the sellout data. You know, I know you're going into new markets there, but why should we feel confident in that MSD long-term? Thank you.

Sure, John. So let me go ahead and answer the first one as it relates to the EBITDA guide. You know, we remain focused on delivering balanced performance. We've said that all along, of accelerating growth while expanding our margins. In 2022, you know, we're raising our growth outlook and still expanding our margins. But we also are planning to make some pretty significant investments to sustain and certainly to ultimately accelerate our long-term growth. And so, as you recall, at the time of IPO, we went from no growth to low single-digit growth to mid-single-digit growth, and now we're taking it up to mid-single-digit plus growth and looking to even drive higher over the long term. And so, certainly the 50 to 75 basis points was something that we committed to on a per-annual basis. We've driven over 400 bps of margin expansion in the last two years. We think that we want to be balanced in our approach, and we certainly want to go ahead and invest where we see the long-term growth and the opportunity. And so we're taking advantage of that opportunity. And we're still going to deliver some margin expansion. Also keep in mind the reality of where we're at today. You know, we know that there is some inflationary factors that are impacting our business a little bit here as well. And so we want to be thoughtful and prudent about what we lay out for next year or for 2022.

Let me answer the IPS question. So we outlined the underlying macro drive. We said, you know, the safety protocols is going to continue to exist and is going to be in place, and it's a long-term trend and is not going to change. We know that there are expansion of the offices. People are getting a lot more sophisticated on how they treat patients and go forward. So the underlying macro trends are there, and the business has been very focused on the dental. We have over 50 up to about 60% market share in the dental in the U.S., and not a whole lot of presence in Europe as well as on the medical side. So combine those with what has been happening. If you look at the sellout, on a sellout basis, we continue to take share in dental, and we continue to see long-term growth. opportunities in medical. What we saw in second half is a combination of overstock inventory, and nothing necessarily wasn't all of our inventory. You know, there was a little bit of hoarding took place in 2020, demand peak, People need to kind of work through that inventory. The inventories are coming down. We are pretty confident that by Q2, the second half, this business is going to be back to what we expected to be normal, high profitability, as well as mid-single-digit growth, what it used to be before COVID. With all the changes that we have done with management effort, consolidation of some of our activities, focus, EBS focus on the commercial. We think we have runway in this business. So we're committed, confident that we can get this back on a mid-single-digit growth with high profitability part of our portfolio, and most likely by second half, if not sooner. That's great color to both. Thanks, guys. Thank you.

We'll take our next question from Erin Wright with Morgan Stanley. Please go ahead. Your line is open.

Great. Thanks. A follow-up on SPARC here. Can you speak to the traction in U.S. versus international markets and how the broader international rollout is progressing and how also you're incorporating SPARC into maybe some of your DSO relationships and the strategy on that front? Thanks.

Yeah. Thank you, Erin. So, The reason that the approach that we have taken is, I want to go back to our bracket and wire business. We have close to about 20% share. Seventy percent of that business is outside U.S. We have significant presence in emerging markets, in Europe. We have an incredible training and education program, and we have done a really good job while everybody is moving away from that business. We just continue to take share in that. So we had said our first effort on Spark was just to go back to the true and tested customer base of OMCO. That was in the U.S., in Europe, and now we're signing, we're registering, we're going through the registration process, approval process, geography by geography, specifically when we are really strong on our base business of our OMCO. And the way we are approaching it is make sure that orthodontists and those that they have primarily focused in these procedures see the value of a spark and also see the value of a combination of the same company, giving them the competitive advantage, giving them tools that they can become really productive. That has been our first approach. Then we started looking at, you know, as you said, the DSOs. You look at some of the new announcement that we have made relationship with some of the largest DSOs in U.S. and Europe. They have an orthodontist capability inside those DSOs. Pacific, Wittenden, they already do a large number of cases. They already use a large number of aligners. So our focus on orthodontists, on professionals, is not changing. We're just expanding that. And last but not least, a lot of GPs now are coming to us and they're asking to learn about the SPARC as they are seeing the benefit of it, as they're learning and coming up to speed. So as we had said, we're not after direct consumers, but for those that they are committed to the orthodontist segment and they want to give people option, improve the quality of life, we're there to help them to do better job, to provide better services to their patients. And we're going to follow that trend, and we think there is a significant amount of runway for us in that space.

Okay, great. And in terms of M&A, can you speak to the pipeline at the moment and where the focus is, especially following your care stream acquisition, what makes sense at this juncture?

Yeah, happy to do that. I mean, we outlined a set of priorities for us, and this is, honestly, it's not a new thing. This is my year seven in dental, and the past seven years, we have been cultivating various companies. We have been analyzing the market. We are looking at various trends. And what we are seeing, where there is an opportunity for differentiated solution in order to really improve patients' life, it is an opportunity. Implant, and not necessarily only an implant itself, from diagnostic all the way to prosthetic. In that space, we see opportunities for adding to our value implant portfolio regenerative prosthetic pieces and continue to add digital capabilities around AI, guided surgery, robotic, navigated surgery. We look at the orthodontist space, ortho space. We see this combination of bracket and wire as well as clear aligner offers significant opportunity for us to become a lot more digitally capable. I want to put something in here. Last year, we put two new releases of a spark out there. This year, our intention is to really wrap that up to be the product of choice. In order to do that, we want to create an open platform that we can integrate other capabilities, other software tools, other AI tools, so we can give people choices, both on that two segments that we talked about. Ortho Implant. through digitally enabled workflow integration. That's where we wanna be focused on. We have been cultivating company, working with company, and we're gonna continue to stay on that track.

Great, thank you.

We'll take our next question from Nathan Rich with Goldman Sachs. Please go ahead, your line is open.

Hi, good afternoon. Thanks for the questions. Howard, I maybe wanted to ask on the building blocks to the 6% to 8% organic growth. I think in 2021, you know, the innovation products that you called out drove 300 basis points of growth last year. I guess, could you maybe talk about what you're expecting from those products in 2022 and And then going back to your comments on cadence kind of starting at mid-single-digit growth in the first quarter, it implied that you'd, I think, end the year at the high end or maybe even a bit above that 6% to 8% range. You know, is that just driven by the kind of effect of sequential growth in these products as they continue to ramp? I appreciate any details you could share around that.

Sure, Nate. So maybe for the first part of that question, consistent with what we've said and what we believe here as it relates to the guide for 2022, we think that, you know, the SPARC and N1 will deliver at least, you know, north of 200, somewhere between 200 and 300 basis points of growth once again here in 2022. And clearly, you're going to see the mix-up, as we said, in the specialty side as that growth has been, and we've enjoyed faster growth in that segment of the business. And so, we'll continue to see that as well, bearing in mind, again, that this guidance does not contemplate the CareStream Dental IOS acquisition. So that's the first piece. And then as it relates to, you know, phasing and the like, yeah, we think that we see a little bit of slowdown here in the first quarter, and that's why we see the mid-single-digit growth. And it will ramp up to get us likely, you know, on the high end of that guide. It's not slightly north of that by the end of the year. And we'll see a steady, consistent improvement in growth quarter over quarter is the plan here.

Okay, great. And then if I could ask on China, could you maybe just go into a bit more detail on how it performed in the fourth quarter? I know you said it was below the 13% growth in emerging markets. But can you maybe just talk about what you saw in the fourth quarter and so far here in the first quarter? And then related to that, I think you have Spark in China now as well. It's a clear line of market that's dominated by two players right now. I guess, you know, what has the uptake of Spark been like in China as we think about that market opportunity? Thank you.

Sure. Happy to answer that, Nick. You know, the China zero COVID policy is in place and continues to be in place. 15 provinces hit various level of lockdown in Q4. And it's a OMICRON CONTINUES TO BE AN IMPORTANT FACTOR SPECIFICALLY GIVEN THE WINNER OLYMPICS TRAVEL AND MANY OTHER ELEMENTS PLAY A ROLE IN HERE BUT LET ME BREAK THAT DOWN FOR YOU OUR SPECIALTY BUSINESS OUR IMPLANT AND ORTO IN THE QUARTER WAS GROWING DOUBLE DIGIT AND CONTINUES TO THAT TREND CONTINUES AS WE HAVE COME THROUGH 2022 IN What we're seeing in the consumer and equipment business, we saw a general weakness in there. And the decline was primarily in that segment, a low single-digit decline. We expect that it's going to continue weakness in Q1. But in long term, we think that we are really confident in what is taking place in China, We have a significant presence. There is an under-penetrated opportunity in there. We continue to build capabilities, manufacturing, marketing, and sales, working with DSOs. Now, answering your question about Spark, we have been very thoughtful about priorities, where we wanted to start building presence, building capabilities, We have the product already approved. We have not only from a clinical perspective, but also manufacturing capabilities in China. But this is a process that we have taken step by step, geography by geography. Make it successful, take the next one. That's the approach that we are taking. Last part of that, Nate, is add every other geography. We're not focused on the low-cost, direct-to-consumers, you know, commodity. based. Our bracket and wire is growing rapidly in China. Focus on the professional. Medtech professional. And Spark is exactly positioned in data space. That's where we want to be really in a good position. And we say we want to be the number one player in data space. That's the space that we are focusing on. And we let the pool through. Those people teach it. establish it, show the outcome, and it's going to create a domino effect, a network effect, and we're going to see the outcome of that over time, as we have seen in other geographies.

Thanks very much.

And in the interest of time, we'll turn the program back to Mr. Stephen Keller for any closing comments.

Thank you, everyone, for your time today. We really appreciate it. If you have any questions, we're here. Happy to take any calls. But have a great afternoon and great evening, and thank you for your time.

This does conclude today's program. Thank you for your participation.