Envista Holdings Corporation

I'd like to welcome everyone to Invista Holdings Corporation's second quarter 2024 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'd like to ask a question during that time, please press star, then the number one on your keypad. If you'd like to withdraw your question, please press star, then two on your telephone keypad. I will now turn the conference over to Mr. Stephen Keller, Principal Financial Officer of Invista Holdings, Mr. Keller, you may begin.

Good afternoon, and thanks for joining the call. With me today is Paul Keel, our President and Chief Executive Officer, and Eric Hammes, who will assume the position of Chief Financial Officer tomorrow. Paul and I will be leading the call today and will handle the Q&A at the end of the prepared remarks. 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 are relating to any non-GAAP financial measures provided during a call are all 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 impacted year-over-year performance, The supplemental materials describe additional factors that impacted our year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 2024, 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, 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 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 Paul.

Thank you, Stephen. Good afternoon and welcome to Invista's second quarter 2024 earnings call. We appreciate you taking the time to join us today. We'll cover three items in the next 30 minutes or so and then reserve the last half hour for Q&A. I'll start with some opening thoughts on the quarter, on my first 90 days with Invista, and on the broader dental market. I'll then turn it over to Stephen to walk us through the numbers, and we'll come back later in the presentation with a strategic update and outlook for 2024. Four thoughts by way of introduction. First, Invista is a fundamentally good business. With significant unmet global demand, dental has proven to be a secularly growing market over time. And Invista is well positioned to serve this demand, holding a top three position in the most attractive segments. As a former Dan of her business, we have a high performing continuous improvement culture, which is evident in our strong operations and talented people. Having spent most of my career in other structurally advantaged companies, I know what they look like and can see that this company is built on a very solid foundation. With that as a starting point, I would also say that our recent performance does not reflect our full capabilities, much less our vast potential. While free cash flow was strong in the quarter, up 41%, our core growth of negative 3% and adjusted EBITDA margin of 10% was below expectations. As Stephen will explain in a moment, these include a number of one-time and non-cash charges. Excluding the impact of these items, we believe this implies an underlying performance of the business in line with Q1. Even at these levels, though, we are capable of more. And as such, we are swiftly taking action to position our company for better performance moving forward. To that end, we filled three critical executive roles in Q2. We're making important investments in Spark manufacturing technology to improve profitability and support long-term growth. We're drawing down channel inventory in our distribution businesses, connecting us even more closely to end-user demand, and we're continuing to make growth investments in our largest and most profitable business, Nobel Biocare. We're excited by the return potential of these investments. On the back of all this, we are reinstating full year guidance of negative 1% to negative 4% core growth and 10 to 12% adjusted EBITDA margins. The P&L impact of the actions I mentioned are concentrated in Q2 and Q3, and we expect a return to growth in Q4. Absent one-time and non-cash charges that Stephen will detail later, we believe that the underlying performance of our business would be more in line with modest growth and low teens' margins on a full-year basis. As you will recall, I joined Invista on May 2nd, and my first 90 days with the business have been both productive and encouraging. As I previewed on our Q1 earnings call, I focused the lion's share of my time over the past few months in three primary areas. customers, colleagues, and operations. With respect to the first, I've had the pleasure to meet with dozens of customers, key opinion leaders, and business partners. With close to two-thirds of our business sold direct, our customer connectivity is strong and the quality of our portfolio is well recognized. Stakeholders know that Invista is a great company and they want and expect even more from us. Regarding my colleagues, I've connected with nearly all of our top 150 leaders as well as many of our frontline teams. They also know how strong their company is and are similarly eager and committed to performing up to our potential. Ours is a continuous improvement culture, which means we know we must be better tomorrow than we are today. The opportunities I've seen in just the first 90 days are both meaningful and actionable. For as far as this and our predecessors have come across our 100 plus year history, Our brightest days are still ahead. Finally, in terms of operations, I expected to find a capable organization and have not been disappointed. I have visited most of our largest sites around the world already, and the benefits of the INVISTA business system are readily apparent. EBS is an important differentiator for us. However, even here, there remains opportunities to extend the impact of EBS across our global footprint. there is more we can do to convert our capabilities into consistently strong results. This is what good companies do, and most of what I've seen across my first 90 days supports what I said on the previous slide. Invista is a fundamentally good company. Before I turn it over to Stephen, let me say a few words about the dental market as well as our relative performance within it. In total, we estimate that the global dental market grew low single digits in the quarter, Compared to its longer-term growth, this relative market softness that we and others have commented on continued in Q2, driven by macro factors like higher interest rates, moderate consumer confidence, and rebalancing of demand following the post-COVID market surge in late 2022 and 23. On the positive, patient traffic remained steady, and several of our larger customers enjoyed solid growth in the quarter. Looking at sector-specific conditions, the implant market was flat to slightly positive in Q2, with value outperforming premium and single-tooth procedures appearing better than full arch. While we underperformed the market in the second quarter, we took steps to improve our overall performance. We have significantly increased our local training programs, aimed at supporting our top customers and their referral networks, delivering more than 800 local training courses in H1 alone. In addition, year to date, we've had more than 5,000 customers participate in national events aimed at attracting and developing new doctors. We believe these investments are starting to pay off. In North America, our performance relative to the market also improved. Our new customer win rate in Nobel is up, and sales from new customers grew both year over year as well as sequentially. Still more, on a global basis, our value in plants business grew for a second consecutive quarter, as we continue to build momentum in this important segment. The orthodontics and dental consumables markets also saw flat to low single-digit growth in Q2, and we gained share in both of these segments. On the ortho side, our traditional bracket in wire business saw a solid uptick with particular strength in emerging markets. Reported sales growth for Spark slowed in the quarter, as we're now deferring a larger portion of case revenues. As described in our filing, we recognize a portion of SPARC revenue at the start of the case and the balance over the treatment time. This change in deferral has no impact on the cash flows or true economics of the business. Indeed, we believe our case starts grew above market in the quarter. Diagnostics was the only major dental market segment experiencing a contraction in Q2, down mid-single digits, impacted by the higher interest rate environment I mentioned earlier. Our business contracted high single digits in the quarter as we saw the continued impact of exiting some lower priority, more price sensitive geographic markets. In summary, it's been an encouraging first three months for me at Invista. I'm pleased with our ability to attract world class talent and impressed with how quickly the organization is moving to enact the changes needed to improve our trajectory moving forward. We still have much to do, but we're off to a promising start. With that as an overview, I'll turn it over to Stephen to take us through the numbers.