Envista Holdings Corporation

Hello, my name is David and I'll be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Invista Holdings Corporation's fourth 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 would like to ask a question during that time, please press the star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star and the number two. I'll now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Invista Holdings. Mr. Gustafson, you may begin your conference call.

Good afternoon. Thanks for joining Invista's fourth quarter 2024 earnings call. We thank you for your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer, and Eric Hammes, our Chief Financial Officer. Before we begin, 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 providing during the call are all available on the Investors section of our website, www.investico.com. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials described additional factors that impacted the year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the fourth quarter of 2024, and references to period-to-period increases and decreases in financial metrics are year-over-year. During the 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 may differ materially from any forward-looking statements that we may make today. These forward-looking statements speak only as of the date that are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I will turn the call over to Paul.

Thank you, Jim. Good afternoon and welcome, everyone. We appreciate you taking the time to join us today. We'll cover five items on today's call. I'll kick us off with some opening thoughts on our fourth quarter results, the steps we took in 2024 to improve performance, and a summary of our guidance for 2025. Next, I'll turn it over to Eric to take us through the numbers in more detail. I'll wrap things up with some closing remarks, and then we'll open it up for your questions. Slide four summarizes three things, Q4 results, 2024 performance, and our 2025 outlook. I'll touch on each in turn. Results for Q4 were again in line with our expectations. We delivered core growth 2% and an adjusted EBITDA margin around 14%. We saw continued improvement in our implants business, including North America, which has been a particular focus for us. We had another quarter of share gains and gross margin improvement in SPARC, and further operational improvements in areas like working capital and customer service supported by EBS. As has now been the case for the past several quarters, the global dental market was soft but stable. We are seeing some headwinds in specific geographic markets, and macro volatility remains high. In terms of full year performance, 2024 was a year of transition for us. We refreshed our leadership team, took numerous actions to support improved performance, and delivered against the 2024 guidance we reinstated on our Q2 call. Specific to that, Core growth and adjusted EBITDA came in at negative 1.5% and 11.8% for 2024, both within their respective ranges. And we generated just over $300 million of free cash flow, a 35% increase over the prior year. With underlying growth and margin around 1 and 14% across 2024, no visible changes yet in the dental market and high macro uncertainty, we're guiding to something similar for 2025. Core growth of 1% to 3% and adjusted EBITDA margin of approximately 14%. To provide additional transparency, we're adding a third guidance metric this year, EPS, which we expect to come in between $0.95 and $1.05 per share. Two final items to note. First, a recently completed restructuring is expected to generate roughly $20 million of gross annualized savings moving forward. And second, earlier today we announced that our board has authorized share repurchases of up to $250 million over the next two years. While this is something new for our company, Invista is a highly cash-generative business. And as Eric will explain shortly, we feel this is an appropriate addition to our capital allocation priorities. On my first call with you in May, I said we'd sharpen our focus in three areas, growth, operations, and people. Let me give you a quick update on our progress in that regard. Three items with respect to growth. First, we took the decision to invest an incremental $25 million to accelerate growth in our highest margin businesses like Nobel Biocare. We're beginning to see the benefit of this investment with Nobel improving across the year and returning to growth in Q4. Spark is a second area where we continue to make progress. Excluding the net impact from deferral, Spark grew double digits in 2024, and we've achieved consecutive quarter-on-quarter gross margin improvement across the year. As we've shared previously, we expect this business to turn operating profit positive in the second half of 2025. And third, we're driving increased new product activity across Invista. having launched several new platforms, including Spark on Demand, new DEXA sensors, and the next generation CBCT platform. On the operational front, we continue to enjoy strong contributions from the Invista business system, our continuous improvement methodology that is foundational to progress across our entire company. Some examples from 2024 include cutting Spark customer setup times in half and unit costs by over 25%, driving double-digit productivity gains in one of our largest Nobel BioCare points, and a double-digit reduction in consumables inventory through the use of dynamic Kanbans and improved overstock visibility without impacting scrap or service levels. Alongside EBS, the work we're doing to capture price and productivity supports operating leverage, and strong cash flows support the $250 million share buyback program that I mentioned earlier. Finally, with respect to people, we refreshed our senior team by quickly onboarding three world-class leaders, all with deep dental market knowledge and global operating experience. We made meaningful investments in engagement and talent development. We continued our support of the Invista Smile project, our philanthropic foundation with over $2 million of contributions in 2024. And we made progress on a host of other people priorities, including a 25% decrease in recordable safety incidents and record participation in employee feedback surveys. Before I turn it over to Eric, I'll touch on the dental market in Q4, as well as our relative performance therein. In total, the global market was flat to slightly up, with implants growing low single digits, ortho and consumables roughly flat, and diagnostics down mid single digits. Our implants business also grew low single digits, with Nobel and Challenger both in positive territory. Orthodontics market growth was impacted by a sharp slowdown in China. as industry participants began drawing down inventories in preparation for BBP implementation sometime this year. Excluding China, our brackets and wire business was up low single digits, and our aligner business grew double digits, resulting in continued market share gains for Spark. The diagnostic sector contracted again in Q4, as did our business. We experienced negative imaging growth in several key markets, including China, and our iOS business contracted as well. While we expect lower interest rates to support increased diagnostics demand, we are not yet seeing compelling evidence of this in our order book. Finally, the consumable sector was flat to slightly positive on a sellout basis, and our performance was roughly the same. Channel inventories were stable quarter on quarter, and our service levels remained high, but general dental patient traffic was mostly flat in the quarter. Having summarized Q4, 2024, and 2025 guidance, I'll now turn it over to Eric to take us through the details.