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 the Invista Holdings Corporation's third 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 two. I will now turn the call over to Mr. Stephen Keller, Principal Financial Officer of Invista Holdings. Mr. Keller, you may begin your conference.

Great, thank you. Good afternoon, and thanks for joining the call. With me today is Amir Agday, our President and Chief Executive 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 related to any non-GAAP financial measures provided during the call are available on the investor section of our website, www.investico.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 impact 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 third 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 certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe, anticipate, or may occur in the future. 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 where as required by law. With that, I'd like to turn the call over to Amir.

Thank you, Stephen. Good afternoon, and welcome to Invista's third quarter 2023 earnings call. We appreciate you taking the time to join us today. In the third quarter, to deliver positive core growth and an adjusted EBITDA margin of 19.6%. Driven by our performance in our orthodontic business and continued strength in consumables, we were able to mitigate the challenges of an uncertain macro environment while setting up our business for long-term success. As discussed in previous quarters, we are proactively adjusting the focus of our imaging business to de-emphasize the specific product categories and selected geographies where we have less competitive advantage. By focusing our resources on our broader and more differentiated diagnostic solution, we will be able to create sustainable competitive advantage and improve our long-term growth and margins. While long-term our global implant business is well positioned, our performance in the quarter was below expectation. This was due to both continued macro uncertainties, specifically impacting higher-end full arch restorations, as well as underperformance in North America. While our results in North America were disappointing, we believe this will be temporary. We have an incredibly strong brand, a leading product portfolio, a passionate and capable team, and a dedicated community of implant specialists. Starting in the third quarter, we have made targeted investments to improve our commercial execution in North America, refresh our approach to marketing, improve our training and education, and further support our clinical community. we see a clear path through invigorating growth and aim to be growing with the market as we move through 2024. Before I turn it over to Stephen to discuss our third quarter results in more detail, I want to take this opportunity to provide further perspective on the current operating environment and then offer an update on our progress toward our strategic priorities. Globally, the market remains very dynamic with concerns around the macroeconomic backdrop and geopolitical risks weighing on market sentiment. While patient demand remained generally stable in the third quarter, we did see a continuation of a slowdown in higher-end dental procedures, including both adult orthodontic cases and full-arch implant restorations. Private practice doctors and DSOs are monitoring patient traffic, as well as the overall macro environment, and are being thoughtful about near-term investments in both equipment and clinic-level inventories. While this has created a more challenging operating environment in the short term, longer term, we are confident that patients will continue to prioritize dental care and that clinicians will proactively invest in areas that help them digitize their practice, making them more productive, and ensuring that they can provide the highest quality personalized care. Focusing on our progress in Q3, our uniquely positioned orthodontic business continues to perform well, driven by sustained performance in sparkly aligners. In April of 2022, we announced a long-term target of tripling our Spark business by the end of 2024. I'm pleased to announce that we are on track to reach that milestone in the fourth quarter of this year, over a year ahead of schedule. Orthodontic specialists continue to see the value of our comprehensive portfolio of solutions, and we are working hard to be the partner of choice for orthodontists worldwide. In this business system, EBS drives the SPARC growth formula, and we are consistently adding new doctors, increasing case volumes with existing doctors, and growing our revenue per case. Given our success today and our overall trajectory of SPARC, we're now focused on delivering our next long-term growth milestone. By the end of 2026, we intend to double our Spark business. In support of this ambitious growth, we continue to make investments to support the growth and long-term profitability of Spark, as well as our broader orthodontic business. In Q3, we received regulatory approval to produce Spark in our facility in the Czech Republic, which shipped our first clinical case out of this factory. This new factory will improve the customer experience for our European customers, increasing manufacturing flexibility and help expand margins in the medium term. In addition to opening a new factory, we are also investing in additional automation as we look to optimize production and further improve our margins. While the SPARC margins remain below our fleet average, we continue to make sequential improvements and are focused on balancing long-term growth, maximizing near-term profitability. As expected in Q3, we delivered a solid sequential improvement to our adjusted EBITDA margins. This 50 basis points expansion occurred despite our long-term investments, the impact of China VBP price reductions, and the commercial and the performance of our implant brands in North America. We leverage EBS to manage margins through a systematic focus on price optimization, expense controls, and structural cost reductions. Our performance in China is a perfect example of EBS in action. Despite the significant price pressure from the VBP program, we were able to expand our local operating margins by streamlining our organization, significantly reducing our expenses, and focusing our efforts in areas where we have the most competitive advantage. This focus on driving growth and margin expansion despite macro challenges epitomizes how we use EBS to execute every day. As we move into Q4 and next year, we will continue to maintain a balanced approach to growth investments and margin improvements. As I previously mentioned, we expect to accelerate investments in both Spark and air commercial capabilities supporting implants in North America. While these investments will put some short-term pressure on our planned margin expansion, they will help position us for faster growth while also setting the foundation for further significant margin expansion. Long-term, our priority is building a stronger, more differentiated, and more growth-oriented portfolio. By focusing on providing comprehensive solutions for orthodontists as well as implant specialists, we continue to shift our portfolio to the most attractive segments of dental. We are also transforming our imaging business to a diagnostic solution business that supports clinicians as they digitize their offices. With a comprehensive set of imaging and software solutions, our Texas business delivers simplicity productivity, and diagnostic confidence. In the third quarter, we launched a range of new products, including the OP3D LX and DEXIS IS3800 wired intraoral scanner. We also released the DEXAssist solution to integrate AI features into the DEXISTAN imaging software suite. The DexAssist solution helps practitioners to detect six pathologies in 2D inter-oral x-rays, including caries, calculus, bone loss, periodical radiolucency, root canal filling deficiencies, and discrepancies at the margin of existing restorations. DTX Studio Clinic Software was awarded the Celerant Best of Class Technology Award for the third consecutive year, recognizing the innovation we're bringing to the dental community. While we're excited about the strategic move that we have made today, we see additional opportunities to further improve our portfolio, both organically and inorganically. We utilize an EBS-driven M&A approach to manage our robust pipeline of partnerships and investment opportunities, and we are currently cultivating new opportunities. We're committed to pursuing a discipline and a strategic approach to capital deployment. I will now turn the call over to Stephen to go through our third quarter financials and provide more details on our segment performance.