Envista Holdings Corporation

Hello, my name is Chelsea and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Invista Holdings Corporation's second quarter 2023 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, then the number one on your telephone keypad. If you would like to withdraw your question, please press star and then the number two 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.

Good afternoon, and thanks for joining 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 reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the investor section of our website, www.nvistaco.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. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our year-over-year performance. Unless otherwise noticed, references in these remarks to company-specific financial metrics relate to the second quarter of 2023. And references to period-to-period increases or decreases in financial metrics are year-over-year. During a call, we may describe certain products and devices that have applications submitted and pending under regulatory approvals or available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding 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. 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 over the call to Amir.

Thank you, Stephen. Welcome to NVISA's second quarter 2023 earnings call. We appreciate you taking the time to join us today. As anticipated, our performance in the second quarter accelerated as we continue to focus on partnering with dental professionals to digitize, personalize, and democratize oral care. This quarter, we delivered core revenue growth of 2.1% and achieved an adjusted EBITDA margin of 19.1%. Sequentially, our adjusted EBITDA margin increased 90 basis points versus Q1 2023. We expect our performance to continue to accelerate in the second half of 2023 And we are positioned to meet our full year guidance of low single digit growth and adjusted EBITDA margin of 20% or greater. Before I turn it over to Howard to discuss our second quarter results in more detail, I want to take this opportunity to provide further perspective and the current operating environment, and then offer an update on our progress toward our strategic priorities. Globally, the dental market remains dynamic. While patient demand remains resilient, macro uncertainties including geopolitical risks continue to weigh heavily on the mind of both patients and clinicians, creating an uneven operating environment. In the second quarter, we saw some notable but not widespread weakness in higher-end dental procedures including adult orthodontic cases and full arch restorations. This weakness mostly came in the form of patients postponing treatments versus canceling the procedures. Offsetting this weakness, we saw a strength in the demand for restorative dental care and have further seen a continued commitment from clinicians to make selective investments in their practices. Clinicians are working to digitize their practices, and as a result, we saw a strong growth in our DEXIS iOS business in the second quarter. As we look to second quarter or second half of the year, we expect dental demand to remain resilient and our performance to strengthen as we focus on execution. Long term, we continue to work to accelerate our core growth expand our margins, and transform our portfolio. The investor business system, EBS, underpins our execution rigor, and we use it every day to continuously improve our operational capabilities in order to deliver better serve our customers and our shareholders. Two recent examples of EBS in action include the successful development and launch of a new product, in our Orascoptic business, and an annual President's Kaizen focus on improving customer satisfaction and streamlining our internal operations in our orthodontic business. For those of you less familiar with our full portfolio, Orascoptic is a leading provider of loops for all dental professionals, including oral surgeons, orthodontists, dentists, and dental hygienists. The business operates within our specialty products and technology segment. Recognizing the need to drive innovation and growth, the Roscoptic leadership team used the EBS voice-to-customer tool to design the next generation of loops, the RDH Elevate, targeted a dental hygienist market, a predominantly female market that has traditionally been underserved. The RDH Elevate is a titanium frame designed to eliminate discomfort while still prioritizing a style with custom designs that are lightweight and affordable. It's a high-quality fashion-centric option. Since its recent debut, we have seen rapid adoption contributing to our high single-digit growth in this business. This is a great demonstration of how utilizing EBS can accelerate our product development plans, igniting growth and improving customer satisfaction. Turning to our own core orthodontic business, in the second quarter, the leadership team ran a President's Kaizen aimed at advancing our EBS journey while driving continuous improvement throughout the organization. During the concentrated week-long The orthodontics team ran 11 individual Kaizans involving over 100 employees. Each Kaizan was focused on a different process that was standardized, simplified, and improved. Our team successfully identified and implemented concrete improvements that will produce over $5 million in annual cost savings while enhancing our customers' experience. The event positively impacts our full orthodontic business, including the SPARC, and is another step in our journey of consistently improving margins. Focusing on our progress in Q2, our uniquely positioned orthodontic business continues to perform well, driven by sustained performance in SPARC clear aligners. Once again, Spark was able to drive significant year-over-year growth while also growing double digits sequentially. We continue to leverage EBS to drive the Spark growth formula, and we are consistently adding new doctors, increasing case volumes at existing doctors, and growing our revenue per case. Spark is well-positioned to contribute to investors' long-term growth. While our traditional bracken and wire business was negatively impacted by U.S. sanctions on Russia, we continue to make progress with our Damon Ultima system worldwide. This innovative bracken and wire solution provides orthodontists more control for faster and more precise finishing. In the U.S., more than 30% of our sales of Damon products now consist of Damon Ultima. In Europe, penetration continues to accelerate. Our solutions for implant-based tooth replacements decline low single digits in the quarter with solid growth across most geographies impacted by declines in Russia and pockets of weakness in North America. In China, we grew mid-single digit, offsetting the impact of value-based pricing VBP through increased volumes driven by an accelerated demand for implants, as well as meaningful gain in share. VBP has narrowed the pricing difference between Nobel Biocare and other competitors in the local market, and this has encouraged many clinicians to trade up to our leading implant solutions. As expected, and adjusted EBITDA margin improved sequentially over the first quarter of 2023, increasing 90 basis points to 19.1%. This expansion occurred despite a temporary reduction in high margin sales to Russia, the impact of the China VBV price reductions, and our continued investments in our long-term growth initiatives. The leveraged EBS to manage margins through a systematic focus on price optimization, cost controls, structural cost reductions, and the emphasizing of non-strategic and less profitable businesses and geographies. We expect margin to expand in the second half of 2023, and we remain on track to deliver full-year guidance while making meaningful investments in long-term growth. we remain focused on building a stronger, differentiated, and growth-oriented portfolio. Having owned it for more than one year, our DEX as iOS business is now included in our core growth and is contributing to improvements in both growth and margin within our equipment and consumable business. The iOS market remains under-penetrated, and DEXA's IOS is well positioned to capitalize on growth in this area. In July, we reached the one-year anniversary of the Ostergenics Biomaterials acquisition. Moving forward, Ostergenics will be reported as core growth within the specialty products and technology segment. This business continues to perform well and will be accurate to our growth in 2023 and beyond. Combined, both acquired businesses are expected to contribute 75 basis points or greater of core sales growth for Invista in 2023. While we are excited about the strategic moves that we have made today, we see additional opportunities to further improve our portfolio. We're committed to pursuing a disciplined and a strategic approach to capital deployment. We utilize our EBS-driven M&A approach to manage our robust pipeline of inorganic partnerships and investments and continuously cultivating new opportunities. I will now turn the call over to Howard to go through our second quarter financials and provide more details on our segment performance.