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spk03: My name is Chelsea, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Invista Holdings Corporation's first quarter 2022 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 star and then the number one on your keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. I will 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.
spk08: Good afternoon, and thanks for joining us on the call. With us today are Amir Agday, our President and Chief Executive Officer, and Howard Yu, our Chief Financial Officer. I want to point out that our earnings release, the slide presentation supplementing today's call, and the reconciliation and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during a call are all available on the investor section of our website, www.vistaco.com. The audio portion of this call will be archived on the investor section of our website later today under the headings Events and Presentations. It will remain archived until our next quarterly call. As announced on January 3rd, 2022, we have closed the vesture of the Colorado Treatment Unit and Instrument business. For the first quarter of 2022 and the full year of 2021, the results of this business are reflected as discontinued operations in our financial statements, as required by generally accepting accounting principles. All references in these remarks and accompanying presentations to earnings, revenues, and other company-specific financial metrics relate only to the continuing operation of this business, except for cash flow measures. 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 year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the first quarter of 2022, and the 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 available only in certain markets. During the call, we will make forward-looking statements within the meaning of 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 as required by law. With that, I'd like to turn the call over to Amir.
spk10: Thank you, Stephen, and welcome, everyone, to INVISA's Q1 2022 earning calls. Despite a challenging macroenvironment and localized COVID lockdowns, numerous supply chain disruptions, meaningful inflation, and a challenging geopolitical environment, I'm pleased to report that Envista was able to deliver a strong first quarter marked by mid-single-digit core growth and better-than-expected adjusted EBITDA margins. Our performance in the quarter is a testament to the team's passion, dedication, and focus on execution. I'm proud of our team's effort and believe that we are strategically differentiated and have a proven track record of execution. By partnering with professionals to improve patients' lives, we are well positioned to continue to outperform the market. Before I turn it to Howard to discuss our first quarter results in more detail, I want to provide more color on our progress toward our long-term priorities of accelerating growth, expanding our operating margins, and transforming our portfolios. At Invista, we see significant opportunity to improve patients' quality of life by digitizing, personalizing, and democratizing oral care. On March 31st, we hosted our inaugural Invista Summit where we brought together the legacy Ormco Forum and Nobel BioCare Symposium with a brand-new technology track to demonstrate our clinical workflow capabilities that improve the productivity and predictability of clinical procedures. With over 1,700 attendees, both in person and virtually, this event allowed us to articulate our vision for the future of dentistry while highlighting the combined strengths and a scale of the investor portfolio. We provided high-impact training in orthodontics, implantology, and digital workflows, and introduced clinicians to the latest advancements in dental care that will transform dentistry over the coming decade. At the summit, we also hosted our first investor day as a public company where we outlined our long-term plans for accelerating growth to high single digits while continuing to drive margin expansion. We shared our vision and how we will create value for patients, customers, employees, and shareholders, and further demonstrated how INVISTA is strategically differentiated and has a proven track record of execution. Our Q1 performance was another step in delivering on our long-term commitments. In Q1, we saw continued strength in our orthodontic business with solid mid-single-digit core growth in brackets and wires and over 100% core growth in SPARC clear aligners versus Q1 2021. Our focus on providing orthodontic professionals with a portfolio of treatment options differentiates us and supports our long-term growth objectives. We're ramping up investments in SPARC and are also focused on driving innovation in our core brackets and wires business. Sales of Damon Ultima continue to accelerate and orthodontists appreciate faster and more precise finishing it offers during treatment. Our implant-based tooth replacement solution grew high single digits despite the temporary lockdowns in major China cities that significantly impacted the last week of the quarter. Our growth was driven by continued strength in our core premium implant business in Europe and North America, as well as accelerating growth in regeneratives and prosthetics. In the first quarter of 2022, we trained our first cohort of N1 ambassadors in North America. We're excited about the long-term prospects of N1's biologically given treatment protocols, which we believe will shorten time to teeth for patients while improving the surgical and healing experience. In our equipment and consumer segment, we saw accelerated performance in our restorative business and continued strength in imaging and diagnostics. In March, we obtained FDA clearance for intelligence mandibular nerve tracing feature in our DTX Studio Clinic platform. We continue to invest in DTX to add assisted intelligence or AI functionality that helps reduce the time clinicians spend on time-consuming tasks while simultaneously helping prevent complications and enabling increased focus on patient. A development partnership with Pacific Dental Services, PDS, announced in Q1 2022 was created to harness the power of AI in support of clinical image analysis across the dental market. Independently, Envista and PDS have been investing in industry-leading work on AI-supported clinical imaging. Together, we will deploy INVISTA's DTX Studio Clinic software platform throughout all PDS-supported practices to bring the benefits of AI-supported image sorting and interpretations to PDS-supported clinicians. INVISTA and PDS aimed to harness the power of data and machine learning to transform the ease with which dentists use clinical imagery to diagnose, plan, and enhance patient care. In addition to driving growth and investing into our strategic initiatives, we remain intensely focused on expanding our margins. In Q1 2022, we achieved an adjusted EBITDA margin of 19.7%. This represents 120 basis point of sequential margin improvement versus Q4 2021. The investor business system, EBS, and its focus on continuous improvement drives our execution. It helps us to offset and countermeasure the impacts of inflation and supply chain challenges while supporting our ability to invest for growth. In the quarter, we use EVS and our daily management tools to mitigate many of the significant supply chain disruptions, delay and reduce the impact of inflation, and deploy appropriate pricing actions. While we are proud of the work we have done today, it is important to note that inflation, supply chain issues, and geopolitical challenges are persisting, and we expect to face continued headwinds in Q2, the second half of the year. We are focused on transforming our portfolio to higher growth and higher margin businesses within dental. On April 20th, the closed acquisition of the CareStream Dental's intraoral scanner IOS business. This acquisition is an important step in our journey of digitizing, personalizing, and democratizing dental care. IOS scans are a critical first step to many high-value specialty dental procedures, including implant surgical guides, prosthetics, and clear aligner treatments. The newly branded line of DEXA's iOS scanners is an attractive entry point into this segment. This 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 growth by increasing customer reach and expanding in under-penetrated geographies and customer segments. As we have discussed before, this business comes with a strong R&D team and a promising development pipeline that will further accelerate dental digitization for years to come. Now that we have welcomed the new iOS team to Invista, their focus on driving growth and accelerating performance. We will be making significant investments to further integrate this business into INVISTA while leveraging EPS to improve its operational capabilities and set it up for long-term double-digit growth. While we are excited about the strategic moves that we have made today, we continue to see opportunities to further improve our portfolio. We're committed to pursuing an aggressive but disciplined approach to capital deployment. We have a strong balance sheet and have both the financial capability and organizational bandwidth to make additional acquisitions. We continue to utilize our EBS-driven M&A approach to manage a robust actively cultivating new opportunities. I will now turn the call over to Howard to go through our first quarter financials and provide more details on our segment performance.
spk07: Thanks, Amir. Before we begin, I'd like to remind you that our first quarter results are compared against prior years based on continuing operations, reflecting the sale of our Cato Treatment Unit and Instruments business. First quarter sales across all our businesses increased 3.1% to $631.4 million. Reported sales were negatively impacted 2.3% due to foreign currency exchange rate. Our core sales growth was 5.4% compared to the first quarter of 2021. Our year over year growth reflects solid performance across most of our portfolio, which was partially offset by temporary weakness in our infection prevention business, as well as the COVID related lockdown that occurred in Shanghai during the last week of the quarter. The catalyst for growth in Q1 was our specialty product and technology segment, which was up more than 11% versus Q1 of 2021. On a consolidated basis, Western Europe grew 17.6%, while North America increased 2.4%, dragged down by greater exposure to infection prevention. Overall, emerging markets outside of China continue to expand from pandemic lows, growing 15.6%. China was down 14.3% versus prior year, driven by the zero COVID policy that led to localized lockdowns in Shanghai and other regions across China. Our primary warehouse in China has been affected by the lockdown in Shanghai, and this has impacted our ability to ship product locally. We have been able to continue to serve our clinicians and patients outside of Shanghai by leveraging our distribution partners across China to provide product and maintain share in terms of sellout. Our first quarter adjusted gross margins from continuing operations was 59.2%, increasing by 20 basis points compared to the prior year due to higher volumes, favorable geographic mix, and productivity initiatives across our portfolio. The adjusted Q1 2022 EBITDA margins was 19.7%, which is approximately 185 basis points lower than Q1 of 2021. As previously discussed, in Q1 2022, we continue to invest in our long-term innovation while increasing spend on travel and in-person customer-facing activities, including our first InVista Summit in the last week of the quarter. Our adjusted EBITDA was also negatively impacted by approximately $2 to $3 million in stranded costs related to the sale of the Cabo Treatment Unit in Instruments Business. We began addressing the estimated greater than $10 million of annualized stranded costs in Q1. Our first quarter adjusted EPS was $0.47 from continuing operations compared to $0.49 in the comparable period of the prior year. In our specialty product and technology segment, our core revenue increased by 11.2% compared to the first quarter of 2021, driven by strong growth in implants and continued strong growth from Sparks. In the first quarter, our orthodontic business grew 18.7% with our core bracket and wires business growing mid-single digits and Sparks continuing to accelerate. We remain very confident in our Spark business and believe that we have a tremendous opportunity to draw long-term growth. Therefore, we continue to accelerate investments to capitalize on this important opportunity. Our implant-based tooth replacement business grew high single digits in Q1 of 2022 versus Q1 of 2021, driven by strong growth in developed markets and most emerging markets, partially offset by the impact of the localized lockdown in China. In addition to strong growth in core implants, our prosthetics and regenerative business continue to accelerate. Our specialty products and technology segment adjusted operating profits finished at 22.2% in the first quarter. This is down 420 basis points from Q1 of 2021, primarily due to the significant increase in investments to drive long-term growth, as well as the increase in customer-facing activities we participated in the quarter. Sequentially, we drove 10 basis points of margin improvement versus Q4 of 2021 in this segment. Our first quarter equipment and consumable segment core sales from continuing operations decreased by 3.3% compared to Q1 of 2021. Strong demand and solid execution in our curve restorative business drove results higher in this segment, with core growth of greater than 10% compared to the first quarter of 2021. Our imaging business also performed well in Q1, delivering mid-single-digit core growth versus 2021. This is led by strong performance in our developed markets. As expected, sales of our infection prevention solutions continue to decline from peak pandemic demand. Despite the lower Q1 sales, inventory sellout trends reported by our distribution partners indicate that we're gaining market share in our core dental market. We further believe that sell-in and sell-out are more balanced and that this business should return to growth in the second half of 2022. Long-term, we continue to expect this business to grow mid-single digits. Equipment and consumables adjusted operating profit margin was 20.7% from continuing operations in the first quarter of 2022 versus 21.4% in Q1 of 2021. Solid margin improvement in imaging and restorative solutions was offset by the slowdown in infection prevention. Further, we experienced some inflation related to the chemical commodities that impacted our infection prevention business. The segment was also burdened with approximately $2 to $3 million of stranded costs in the quarter related to the sale of the Cabo Treatment and Instruments business. With the sale of the Cabo Treatment and Instruments business and the addition of the newly acquired IOS business, we are confident that our equipment and consumables business will grow faster and be more profitable as we move forward. In the first quarter, we consumed $16.3 million of free cash flow and ended the quarter with more than $1 billion in cash, enabling us to close the CareStream Dental IOS acquisition with cash on hand. Historically, Q1 is our weakest quarter for free cash generation, owing to the seasonality of supplier payments and impact of annual incentive funds. Our working capital increased sequentially as we continue to proactively manage our suppliers to ensure supply stability while mitigating inflation. Our overall balance sheet is very strong and we have ample liquidity even after closing the acquisition of the iOS business on April 20th. We have the flexibility to pursue additional inorganic growth opportunities when the right assets become available. Now, I'll turn the call over to Amir to discuss our outlook for the balance of the year and provide closing comments. Thanks, Howard.
spk10: We remain mindful of the challenges in the macro environment driven by localized COVID lockdowns, geopolitical risks, inflation, and continued supply chain disruptions. We're also encouraged by the strong start to 2022 and more optimistic about the long-term outlook for the dental market and our evolving business. As it relates to our iOS acquisition for 2022, we're expecting the newly branded DEXA's iOS business to deliver sales of between $35 to $45 million over the balance of the year. we expect sales to accelerate significantly throughout the year, with Q2 being relatively lower based on owning this business for two months in the quarter, as well as on short-term pressure related to the China lockdowns impacting operations in Shanghai. It's important to note that we are planning to invest over $10 million in one-time costs to support both the integration of this business into Invista and to position DEX's IOS for rapid growth in 2023 and beyond. About half of this investment will come in Q2. For the rest of our business, there is no change to our previous guidance of core growth between 6% to 8% for 2022. We remain committed to achieving an adjusted EBITDA margin of over 20% for the full year. We're monitoring the ongoing lockdowns in China, and while we don't believe these challenges will have a material impact on the full-year outlook, they could impact the quarterly results. Our current view is that the core growth in Q2 will be in mid-single digit, and we will accelerate growth in the second half of the year. We expect Q2 adjusted EBITDA margins to be in the high teens, as we make the one-time investments in DEX's iOS integration and further navigate through inflation and the impact of spot buys in our equipment and consumable businesses as we steady our supply chain. Moving forward, our priorities remain the same. We will accelerate growth, expand our operating margins, and continue to further transform our portfolio through our active and disciplined capital deployment. Our intention is to be the leader in orthodontics, providing a differentiated and integrated suite of treatment options, including racks and wires and clear aligners. Our comprehensive offering empowers orthodontists to provide the best individualized treatment plan for each patient. We will further accelerate our growth in implant-based tooth replacements by leveraging our diagnostics and digital capabilities to provide complete solutions across the implant workflow, including regenerative and prosthetic solutions. 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 draw upon our EBS heritage to both improve our execution and drive margin expansion. Finally, we see 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 discipline, capital deployment, and inorganic investments. As we continue in our journey to digitize, personalize, and democratize the inter-care, we're excited about the future of dentistry. We're strategically differentiated and have a proven track record of execution. We continue to see significant opportunity to accelerate our growth, improve our margins, and create long-term value for patients, our customers, our employees, and our shareholders.
spk08: Thanks, Amir. That concludes our formal comments. Operator, we are now ready for questions.
spk03: At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and 1 to ask a question. And our first question will come from Jeff Johnson with Baird.
spk01: Thank you. Good afternoon, guys. Amir, I've got two questions, if I could, real quickly, just on pricing. You know, I know another price increase went in May 1st. Just wondering, one, how broad is that across product lines? And two, is it fair to think about that price increase kind of helping offset, obviously, some of the China pressures right now and maybe a little bit of macro uncertainty elsewhere across the globe? Just conceptually, is that how to think about that?
spk07: Hey, Jonathan, this is Howard. Maybe I'll take that one on pricing. You know, we are actively managing price. I think even in late 2021 and into the first quarter here this year, we took selective price increases, reduced discounts, and instituted freight surcharges as appropriate. You know, while we're not instituting across-the-board price increases, each opto is closely monitoring inflation, market dynamics, and, you know, taking the necessary price actions as appropriate. Certainly, it will provide a tailwind here for growth, and it will help countermeasure some of the inflationary impact that we're seeing as well.
spk10: From a macro environment, Jeff, what we are seeing in here, you know, China – We believe that the situation is going to work itself out throughout Q2. The significant market, the tremendous amount of opportunities, we are committed to it, and we'll work through some of the interim challenges until we are able to provide the support and capabilities that are needed in that country. We have been able to manage our way through Russia issues, was committed to helping our partners, the professionals to provide better quality of life to patients. And we have been able to get actually products into Russia and continue to be bullish about our ability to manage some of the challenges that we see in this environment. Here is where BBS come in play, ability to really focus on daily management, improve the operational capabilities, the segmentation, the commercial approach that we have. And we think that we are, the past several quarters, have proven that we have the ability to manage through some of those. In the short term, obviously, we're facing some challenges, but our commitment in delivering to that guidance that we have provided earlier remains, and we think we can solve some of the challenges that is coming our way.
spk01: Thank you, Amir. That's helpful. And then just a quick follow-up on Spark. You know, obviously doubling year over year, more than doubling a good number. I think we're all trying to figure out and titrate between, you know, some pressures your largest competitor in clear aligners felt this quarter versus you guys more than doubling that Spark revenue. But if I look at that and we try to have a detailed model on Spark, it looks like to me maybe sequentially from 4Q to 1Q, revenue was still down a little bit, which would be normal for seasonality and totally get that. But just want to confirm that because that would kind of show, I think, that you and others in the space, you know, are kind of just seeing normal seasonal patterns right now and kind of similar trends to a certain extent. Thanks.
spk10: Jeff, in Q1, we saw a strong sequential growth, 17.3%. Q1 versus the Q4 of last year. So we had a strong sequential growth. We saw increasing the number of active doctors. We saw more utilization of our active doctors. Growth is widespread across various geographies. Western Europe is showing notable strength, and we continue to add as far as the different geographies through our registration process. We're seeing doctor adoption continue in various geographies, North America, Europe, China, and expansion into the DSOs as well. This double-digit growth and the number of doctors that they're using at Spark as well, those are some of the things that we have seen in here, and continue to be committed to what we said before, which is about tripling the size of this business over the next three years.
spk01: Well, I will sharpen my pencil on that model. Thanks, Amir.
spk06: Of course.
spk03: Thank you. Our next question will come from Elizabeth Anderson with Evercore ISI.
spk08: Hey, Elizabeth.
spk02: Hey. I have a question about the China number. One, it seems like, from my recollection, China's about 10% of your total revenue or maybe about half of your emerging market revenue. So does that imply that these results came through with China being down about 15% year over year? Does that seem about roughly the right ballpark?
spk10: Yes. So if I get back to the emerging market a little bit, Outside China, the emerging market in Q1 was up almost 15%. So look at our overall emerging market business is about 23%, 24%. And China is about 10% of that. We have seen a strong growth on other geographies. In exactly as Howard said, that was about 14% to 15% down. In Q1, the rest of the business did extremely well. And we think that commitment that we have made to emerging market continues to deliver for us in the long run. As China opens up, we have orders in our hand. As warehouses open up in Shanghai, we think that we can catch up and compensate for some of the challenges that we had due to lockdown.
spk02: Got it. That's super helpful. And then I also just want to make sure I understand all the different macro drivers. Did I also hear you say that you think the Russia revenue should sort of come back into Q and thus not be a headwind as we think about the go-forward revenue?
spk10: In Q1, we did better than our original plan in Russia and Ukraine. We have said that this business is about $100 million worth. And obviously, the conflict is going to continue in here. Our expectation is for the rest of the year, we're going to see a flat, maybe a little bit modestly lower than what we saw last year. But if you go back only four weeks ago, four to six weeks ago, we have a better outlook of what is taking place underground. And as I mentioned earlier, we are now in a position that we can actually get some products into Russia that help us to continue to provide help to the patients and to the doctors and provide that quality of care that we have become accustomed to to our Russian customers.
spk02: Got it. That's super helpful. Thank you very much.
spk03: Thank you. Our next question will come from Erin Wright with Morgan Stanley.
spk11: Great, thanks. Can you speak to what the initial focus is in terms of the integration of CareStream here? You've mentioned, obviously, some of the near-term investment on that front, but what is some of the near-term opportunities to capture greater market share with that offering, and then also maybe some of the longer-term opportunities that would require maybe some incremental investment as well? Thanks.
spk10: Of course. So I'd like to break it down into three key areas of what that integration looks like. But before I do that, this is about a billion dollars, you know, over a billion dollar market. It's going double digit. We've got a business that it is really R&D and from a technology perspective is well established as an EBITDA margin of over 30%. And overall, iOS as a whole is less than 15% penetrated worldwide. So now coming back to the integration, three areas. Number one is around the go-to-market and commercial activities. We have over 3,000 people in our commercial organization. Over 60% of our business is direct. They have access to large areas of underpenetrated geographies that Kirsten was not able to reach, and great relationship with the DSOs. That gives us an opportunity to really ramp up the reach, the access of this business in various geographies, in various segments, bundle it with our direct product, go through DSOs, and work with the partners that we have around the world. So that's the first area. And we are in a really good place already to leverage what they have done in the past and add to it going forward. The second part of this is around operations. We're known for our lean approach in improving on-time delivery, quality, margin. And I think we can add a lot of substantial amount of effort in here as soon as we have access to that manufacturing site. We can improve the quality, delivery, margin, and reliability of this product. And we have a long-term plan for it, and we have a really good insight into the due diligence of what we can do to improve it continuously. create a product that is really outstanding and one-of-a-kind in the segment. Last but not least is around innovation. This team comes with a very good exception on R&D team. They have a robust hardware. They have a really good suite of applications, and they have some capabilities that is really positioned for DSOs and aligners. We take that, you integrate it into our DTX, you integrate it into our clear aligner business and our implant placement capabilities. Now we have a full-blown solution, digital workflow capabilities that we can put that as a first step of many high-value dental procedures, implant prosthetic clear aligners. So go-to-market, operational improvement, and R&D, and having the long tail of the product that we can put out there in order to really advance this over time. We think this business in the long run requires some investment on our part. It's a car walk. It has basic investment in IT and other operational piece that we need to do. But as we have communicated in the past, we think, It's going to add about a 50 basis point of growth and over 40 basis point of a margin to our current portfolio as we ramp it up over time.
spk11: Okay, that's really helpful there. And just one other smaller item was on supply chain challenges just across equipment. It seems like you have better visibility there at this point, and I guess that goes into a broader question on the reaffirmed guidance. Do you think you have enough buffers in there, just given all the variables from a macro supply chain geopolitical perspective at this point? It just seems you have better visibility there. Is that the right way to think about it? Thanks.
spk07: Aaron, this is Howard. I think that, you know, we're cautious about, you know, consistently the supply chain. We know that things are dynamic in the marketplace. We have deployed our EBS tools. One of the things that we've done and we talked about was increasing our inventory supply to ensure that we still have our consistent lead times. The reality is there is some challenges around petroleum-based types of products as well as chips. And so we're monitoring that very carefully, but the team has done an exceptional job to date in ensuring that we haven't, you know, we've been able to meet customer demand. And so that's what we continue to anticipate as we move forward.
spk03: Okay. Thank you. Thank you. Our next question will come from Nathan Rich with Goldman Sachs.
spk04: Hey, good afternoon. Thanks for the questions. Amir, I wanted to start maybe high level. You obviously acknowledge some of the macro pressures facing the consumer, but it sounds like you expect demand for dental procedures to remain pretty strong. I guess... Could you maybe just help us think about or talk about what played out in kind of March and April as some of these macro headwinds became more acute and, you know, why you kind of feel like the business is going to be pretty resilient kind of in light of some of the uncertainty out there?
spk10: Thanks, Danny. What we think is a fundamental shift in the long-term view of the dental industry. We don't think this is We have seen that during the early stages of the 2020. We saw the resilience of industry, how quickly it came back. You see, there is a fundamental change in how people invest and use dentistry to improve the quality of life. So in the long run, we believe that this industry has tremendous amount of runway. But now going back, what we saw in December and January specifically in North America and Europe, the volume of patients dropped significantly. And it was purely because of Omicron. And we saw cancellation. We saw some postponement. In some places, up to about 30% of even dental professionals, they had some challenges coming to work in December and January. So in February, we saw a wrap taking place and continue. That wrap continued through February, March. April has been an interesting month. You know, you have Easter. You had some holidays in here. And then purely what we are seeing in here is the China impact. Outside of that. We see a continuation of what we saw in February and March. So as long as we can work through that process and we are able see our way sometimes in May, maybe early June, that China opens up. We think that the market is resilient. The market is going to come back. That's why we feel comfortable with the guidance that we have provided. And we think we can manage through some of the sharpness in the short term in order to be able to execute going forward. The other part of this, Nate, that may be worth mentioning in here is our ability to execute. We have become a lot better in putting energy around a specific set of priorities and continue to build robust capabilities. Example, Spark, Ramp that we have done in the past nine months, and one training that we are now able to do on a cohort and week after week after week, we have been able to do those things. And that would give us that confidence that we would be able to continue to expand our businesses for years to come from here.
spk04: That's helpful. And then maybe just a quick follow-up on China. One of the other focuses in the market right now is just the volume-based procurement that the government's putting in place on the implant side. Could you maybe just update us on your expectations around that and maybe remind us how big your implant business is in China as well as the timing for when we might see an impact on that front? Thank you.
spk10: Yeah, of course. We have mentioned that we have, you know, over $200, $250 million business in China, about 10% of our business is in China. A big part of our business is implant. That business has been growing significantly. The volume-based procurement for dental implant is something that is going to become reality in selected provinces in 2022 and probably national rollout in 2023. It's important to notice that the Chinese dental market is a self-paid market. Volume-based procurement does not directly impact in the private sector. It's unlikely that it's going to have, in the long run, much of an impact. As we have shifted our business into more a private sector and on the premium side, on the self-paid, we think that our focus on the that segment, the rise in middle class, growing disposable income, we would be able to manage through this. It would have an impact, but that impact is not that substantive. We think that we would be able to compensate for it, and it's not going to impact our long-term growth expectation in China.
spk04: Thanks very much.
spk10: Of course.
spk03: Thank you. Our next question will come from Michael Cherney with Bank of America.
spk06: Hi, afternoon. Thanks for all the details. If I could jump back to North America, I know you called out the infection prevention business as part of the headwind for the quarter. Can you give us a sense of what North America grew X infection prevention or what the headwind entailed, especially given some of the choppiness that we've seen from some companies, specifically within the U.S. and North American markets?
spk10: Outside infection prevention, we have seen continuous growth in right here for our business. We mentioned that our implant business has had six quarter of a positive and every quarter has been better than the previous quarter. So our premium implant continued to perform really well, high single digit. Our spark business and on-call business continues to perform. Our bracket and wire business in the mid single digit, double digit on the spark side. imaging mid single digit continue to grow and are consumable outside the infection prevention at an incredible q1 high single digit growth in that area put all of that together we think it is in a low single digit growth uh north america and we mentioned that it's two to three percent as a whole but a big part of that the impact is this course correction and infection prevention
spk07: Yeah, maybe just to jump in here, Michael. I think our Q1, you know, that was the one low light as it relates to North America. If you think about our core growth, as Amir indicated, you know, CAVO, our instruments business, or I'm sorry, our imaging business was up, you know, high single digits. Our ARMCO business in North America combining both wire and bracket as well as aligners was up. well into the double digits. And our Nobel, you know, overall, our implant business, our premium implant business is also up high in the business. So really a lot to be very favorable about. It's just that infection prevention. And, again, a lot of it has to do with the comp. We anticipate by the second half that we get back to growth there. And long-term, even in that business, we anticipate that being the single digits.
spk06: Understood and helpful. And if I could just circle back on the VBP question relative to China. As you think about your exposure between the public versus the private hospitals, at what point in time do you feel like you have visibility around, A, where VBP will impact your public hospital business? And then, B, I know at times in some of the other markets, it seems like there's been some pricing spillover from public to private hospitals. How are those conversations going with your significant private hospital market contract about how they think about pricing in a world where the VBP could impact the public hospital pricing?
spk10: Yeah, I'm in touch with them in spite of all the challenges of not traveling. We are an ongoing discussion with some of our partners in there. Over 75% of our business is in the private segment, and that has continued to increase almost every quarter. Yeah, your assumption is absolutely correct. It's going to have an impact on the public hospitals and would have an impact. So this is where innovation, training, and education – and the commercial execution that we have comes in place. This is not necessarily related to China, but overall. Let's say you want to do a full-arch treatment. In most of these places, even in China, a full-arch treatment It's over $20,000. The cost of implant in those areas, when you get the credibility, the support, the reliability, it's fairly small compared to what you get on the consumer side. And given the self-pay nature of this, if you have the support capabilities, the training and education, the technical innovation that people are looking for, you're able to manage through this to get yourself in a much better position. That's what we have been able to do in various geographies. And I don't think China is going to be any different than other geographies. The value segment of the implant exists everywhere. That has been a phenomenon that has been around for quite some time. In parallel to that, we continue to grow our premium Nobel business while we're getting prices.
spk06: Got it. And thank you, Father Collar.
spk10: Of course.
spk03: Thank you. Our last question will come from Jason Bednar with Piper Sandler.
spk09: Hey, good afternoon. Interesting questions here. Really just building on a couple from earlier in the call. Just maybe on CareStream to start, Howard or Amir, when do we see some of the fruits from the pipeline that you've referenced now a few times or I guess maybe asked another way, how do you see the new product cycle and replacement cycle playing out now that the iOS asset is under your ownership? Yes, happy to answer that, Jason.
spk10: So the Corinth portfolio has been Group of products. That's three different products already. A point solution. I kind of found that value side. The 3,700 has been in the market. And then the newly released of the 3,800. This is really an outstanding product with wireless capabilities. And that was just launched. So you've got to... continuum of a product that it is already in the market and unfortunately the 3,800 didn't get as much of a momentum because of the COVID as well as the lockdown in China. We think the current portfolio offers a range of options that we can put out there and start getting momentum on it. Integration of this product into the DTX, into the bundle solution that we do, is going to be a significant opportunity for us, not only on the iOS side as a point solution, but also improving our position in orthodontics as well as in clear alignment as well as on the implant base. But we have done tremendous amount of due diligence in this company and the innovation part of it. And they have a long-term development and opportunities for improvement and add to the product categories. But what we see today, what we have today is sufficient for us to make an impact on growth and it's sort of seeing the momentum in here. Keep in mind that this market is less than 15% penetrated. The product that they have is one of the top five, and they have less than 10% market share, and that gives us an opportunity to really ramp that up very quickly, very fast.
spk09: Very helpful. And then maybe coming back to Nathan's question earlier and just looking at trends here, March to April, and thinking bigger picture here, understanding dental may be not exposed to some of the issues that are going on in other parts of healthcare, but are you seeing capacity constraints or staffing dynamics creating capacity constraints when you look across specialists or general dentists that are out there, and whether that's been a bottleneck to getting back to normal, or has that not really been an issue, again, across all the markets that you play in? Thank you.
spk07: Yeah, I think maybe addressing our own kind of the discussion around our own labor concerns. I mean, we have seen some type localized challenges with regards to adding some labor, you know, but I think that we've been able to manage that through our EBS and improve productivity as well. And certainly, you know, long-term, we know that the best team wins, and so we focus on recruiting and retaining employees. the best folks. As part of our circle culture, we continue to engage closely with our employees and want to make sure that, you know, we are and we remain the preferred employer of choice wherever we operate.
spk10: But we do see some labor shortage in the dental offices. And, you know, here's where we really can make a difference in the DBS at work to take a look at opportunity for productivity, opportunity for predictability. This is where software, integration, workflow really make a difference. To be able to take waste out of the system. So we're looking at the market not necessarily as a provider of a specific product, but enabling the dental offices to be a lot more productive. to get the acceptance rates to go up, to treat more patients. That's the charter, that's the approach that we are taking, and we're beginning to see good momentum and results as the outcome of it. But your assumption about the labor shortage and some of the challenges are absolutely true and continue to be an issue, and not only in between March and April, and I think it's going to be with us for quite some time. That's where innovation, productivity, IT related capabilities of software really can make a difference.
spk09: We've done a very good job managing through it, so congrats on that. Thanks, guys. Thank you.
spk03: All right, thank you. We do have a question from John Block with Steeple.
spk05: Thanks, guys, and sorry about that. I might have had some technical issues. Howard or Amir, I'll just sort of ask a direct question because this is what I'm getting some inquiries on. You know, Russia are in and around 4% of 2021 REVs, I believe. Within the 6% to 8% core revenue growth guidance range, Talk to us about that assumption. In other words, is it the assumption that Russia's only modestly down this year? I think you might have alluded to something like that earlier. And then sort of, you know, ditto or same playing book for China. China's 10% of revenue, again, approximately. It was down, I think, Howard, you said 14%. But you also seem to say, hey, look, it's a little bit timing on China, right? Quarter to quarter, what can go out and what can't. So maybe just if you guys can give a little bit more color embedded in the six to eight, what are the assumptions on Russia 22, you know, even at a high level? And same sort of question specific to China. And then I promise I'll ask a shorter follow up. Yeah, no problem, China.
spk07: So with regards to the China component, and I think Amir addressed this a little bit as well, you know, clearly we're a bit more positive on Russia than we were six weeks ago during our analyst meeting, largely because we're able to address some of the supply constraints and getting product into Russia. For the year, as it's been contemplated in our guidance, we think that Russia, overall business with Ukraine, you know, combined will be, you know, somewhere flat to marginally down is what we anticipate. And then as it relates to China, you're right, we did see a decrease of, you know, mid-teens. I think there was almost 15% down in China in the quarter. You know, we do anticipate that we'll still see some growth in China this year. You know, just based on past experience, I think if you remember in 2020 with the beginning of the COVID situation, I think we had our business in China go down by in excess of 35% in that respective quarter. And by the end of the year, I think we were essentially flat. And so, you know, leaning on that experience and the expectation that that demand does come back, we do have some modest growth in there for China in our guidance.
spk05: Okay, great, very helpful. Now, maybe I'll just stick with you and stick to the P&L. So I know the gross margin is a really impressive flat to actually up slightly year-over-year considering freight, et cetera. So maybe just talk to us about how you get to the EBITDA margin over 20%. In other words, does it hold the line on GM and then get some off-ex leverage? And then just maybe a clarity question on the same topic is the greater than 20% EBITDA margin includes the DEXA's IOS investments near-term? Thanks. Yeah, sure.
spk07: No problem, John. So, yeah, I think that we anticipate, you know, gross margins. I think we had 59.2%. It's a 20 basis point improvement. We anticipate those to be fairly stable throughout the year. For us to get to that 20%, you know, EBITDA number for the full year, we do see some additional improvements on the spend side. And obviously we're going to see some additional growth. And so in the second half of the year, we anticipate that our growth accelerates. overall, as well as our margins improving overall. And so that's how we get there. And then as it relates to the IOS and the DEXA IOS investments, that is included as it relates to the expense side of the investments in that 20% EBITDA number. All good. And thanks for taking the question. Yep.
spk03: All right. Thank you.
spk08: Thank you very much, everyone. I think that we are out of time, so appreciate all the time and look forward to following up with each of you after the call. Thank you. Thank you.
spk03: Thank you, ladies and gentlemen. This does conclude today's daily conference, and we appreciate your participation. You may disconnect at any time.
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