Envista Holdings Corp (NVST) Q3 2022 Earnings Report, Transcript and Summary

My name is Britney, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to the Envista Holdings Corporation's Third Quarter 2022 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Envista Holdings. Mr. Keller, you may begin your conference call.

Thank you, and good afternoon. With us today are Amir Aghdaei, 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 Investors section of our website, www.envistaco.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. They will remain archived until our next quarterly call. As announced on January 30, 2022, we have closed the divestiture of our Cabo treatment units instruments business for the first three quarters 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 accepted accounting principles. All references in these remarks and accompany the presentation to earnings, revenues and other company-specific financial metrics relate only to the continuing operations of Envista's 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 third quarter 2022 and references to period-to-period increases or decreases in financial metrics are year-over-year. During the call, we may also describe certain products and devices that have applications submitted and pending certain regulatory approvals or are available only in certain markets. Further, we will be making 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 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 Envista's third quarter 2022 earnings call. Today, we are pleased to announce that despite a challenging macro environment in this team, has once again delivered a strong quarter with mid-single-digit core growth and over 20% adjusted EBITDA margins. Our culture shift around customer centricity, innovation, respect continuous improvement and leadership, coupled within Envista Business System, EBS, is what drives our performance and allows us to deliver on our long-term objectives of accelerating growth expanding operating margins and transforming our portfolio. Our strategic differentiation, a proven track record of execution gives us confidence that we can continue to deliver balance of accelerating growth and expanding margins. Before I turn it over to Howard to discuss third quarter results in more detail, I want to take this opportunity to reiterate our long-term vision, provide some insight on core end market conditions and offer a quick update on the progress towards our strategic priorities. I will also provide a brief update on how we are embedding sustainable environmental, social and governance, ESG principles into our strategy. At Envista, our focus is to partner with dental professionals to improve quality of life by digitizing, personalizing and demarketizing oral care. We continue to engage with our customers to learn, educate and lead the dental community. On September 7, we hosted over 1,200 dental professionals in Vienna, Austria at the sold out Envista Summit. This European event was a great opportunity to articulate our vision for the future of the dentistry while highlighting the combined strength and the scare of the investor portfolio. We provided high-impact training in orthodontics, implantology and digital workflows and introduce clinicians to the latest advancement in dental care that it transformed dentistry over the coming decade. The feedback from the event was very positive and highlighted the long-term opportunities in the dental market, the importance of our unique and individualized solutions, the desire for premium training and education and the opportunity for Envista to lead and shape the future of dentistry. While private and group practices and DSOs remain excited about the promising outlook for dental, there is no doubt that the impact of inflation and potential for an economic slowdown coupled with the various geopolitical risks around the world, including the contract in Ukraine continues to be heavy on clinicians' minds. While patient traffic remains robust and is scheduled for specialty procedures, including implants, remain food, doctors are more cautious and thoughtful about their investments. Having said that, both private group practices and DSOs continue to invest in expanding their specialty treatments and are looking for ways to enhance their capabilities, improve their workflows and digitize their offices. We see opportunities to improve the efficiency and predictability of their treatments. While we expect there to be some continued uncertainty in the market over the short term, we remain confident that dental market is resilient and has ample room for continuous improvement and growth over the long term. Turning to our Q3 progress. Our orthodontic business continues to deliver strong results. Spark delivered greater than 100% year-over-year revenue growth while also driving double-digit quarter-over-quarter growth in the number of active Spark doctors. We recently announced the launch of Smart Clear Aligners Release 13, which features differentiated integrated hooks the CBCT true root feature and real-time approval in the Spark approved software. All of the innovation aimed at further enhancing treatment planning while continuing to build a sustainable competitive advantage for Spark. In addition to Spark, our traditional Brand wire business and also growing and outgrowing the market delivering mid-single-digit growth globally. We continue to gain traction with our new Damon Altima system that provides Orthodontics more control for faster and more precise finishing. Our solution for implant-based tooth replacements grew mid-single digits in the quarter as we continue to improve our commercial execution and accelerate sales of our premium implants and regenerative solutions. We remain focused on delivering margin expansion while investing in our long-term growth initiatives. In Q3 2020, we achieved an adjusted EBITDA margin of 20.2%. This represents a 60 basis point of our margin improvement versus Q3 2021. In the quarter, we delivered 40 basis points of adjusted gross margin improvement driven by productivity improvements and 160 basis points of net pricing offset by meaningful inflation. We also took steps to strengthen our supply chain and add more flexibility across our businesses. In the spread of continuous improvement, we focus on streamlining our organization to both protect and expand margins while speeding up decision making. As we move forward throughout the balance of the year and into 2023 we will intensify efforts to further optimize our organizational structure to improve the customer experience while creating more flexibility to deal with uncertainties in the macro environment. The transformation of our portfolio continues as we emphasize our most differentiated solutions by making additional investments to our fast-growing specialty businesses and continue to add to our digital capabilities. In our traditional imaging business, we have made a strategic decision to focus on key geographies where we have a sustainable competitive advantage. This allows us to reduce structural costs while further optimizing our portfolio, leading to both accelerating growth and improving margins over the long term. In the third quarter, we took steps to set this business up for lasting growth. We have now fully rebranded the intraoral scanner to DEXIS and are expanding our customer reach and optimizing our global distribution. DEXIS portfolio offers a full range of intraoral scanners that are coupled with a powerful and intuitive software solution that enables accurate digital impressions, improve scanning procedures and speeds and flexible workflows. While the DEXIS is a scanner, a software and configured as an open and a stand-alone system, they also now work closely with our DTX Studio clinic software, providing clinicians the opportunity to bring all X-ray images, photos, 2D, 3D and extra oral and intraoral imaging formats into one clear comprehensive view, thus simplifying the diagnostics, workflows and increasing confidence in interaction with patients. CTX Studio Clinic includes assisted intelligence features like Smart Fusion, which automatically aligns the digital surface models from the DEXIS intraoral scanner with any CBCT scan and is a unique and powerful tool for efficient implant planning. We're honored that DEXIS DTX Studio software suite, which includes DTX Studio clinic has been awarded the Celeron best-of-class technology award for the second consecutive year selected by a distinguished panel of dental technology expert, Celeron award winners are recognized for groundbreaking technology that expands possibilities for the world of dentistry. In addition to our focus on digital workflows, we continue to expand our capabilities in implant-based tooth replacements. As previously announced, because the acquisition of Osteogenics' BioMedical, a U.S.-based manufacturer of regenerative solution in early Q3. Bone regenerative therapies are increasingly an important part of an implant-based tooth replacement procedure. By providing clinicians with the best-in-class solutions, we can better support them and delivering the best possible patient care while also capturing more value from each implant procedure. This business is off to a strong start. Within Envista, we are excited about it's ability to create lasting value for patients, clinicians and our shareholders. As we make progress in our journey to digitize, personalize and democratized Intercare, it's important to also keep sustainability initiatives top of mind. To that end, I'm proud of our recently released sustainability report. This report continues an all-time our progress in embedding environmental, social and governance principles in our strategic approach. While we are still relatively new as an independent company, we have made solid progress in quantifying our environmental footprint, addressing climate-related risks and opportunities and fostering a diverse and inclusive workplace for our employees. Some of our progress includes achieving 99% gender ethnic equity in the United States, ensuring an efficient and stable supply chain through proactive supplier management that reflects our values and support business continuity. Incorporating the task force and climate-related financial disclosures recommendation, identifying relevant climate related risk and opportunities and integrating oversight into our existing enterprise risk management processes, analyzing eight environmental metrics, including the Scope 1 and 2 greenhouse gas emissions, water consumption and waste generation. By investing in our ability to offer it sustainably, we intend to secure the success of our communities, employees, customers and shareholders. We're building upon the ESG initiatives that we have undertaken as a new newly public company. I'm pleased with our achievements today, and I look forward to further progress in our journey to partner with dental professionals to digitize, personalize and democratize dental care. I will now turn the call over to Howard to go through our third quarter financials and provide more details on our segment performance.

Thanks, Amir. Before we begin, I would like to remind you that our third quarter results are compared against prior year based on continuing operations, reflecting the sale of our Cabo treatment unit and instrument business as discontinued operations. On a reported basis, third quarter sales increased 3.9% to $631.1 million. Sales in the quarter were negatively impacted 4.1% due to foreign currency exchange rates. Acquisitions contributed 3.1% of growth on a reported basis. Core sales growth was 4.9% compared to the third quarter of 2021. Our year-over-year core sales growth reflects solid performance in our Specialty Products & Technologies segment offset by weakness in our Equipment and Consumables segment. On a geographic basis, Western Europe delivered core sales growth of over 9%, while North America was flat as that region was weighed down by its higher exposure to traditional imaging equipment. Our business in China was up 9.2% versus prior year, reflecting the expected ramp-up in activity after the reopening of Shanghai late in the second quarter. Outside of China, emerging markets continue to grow nicely from pandemic lows, up over 15% versus Q3 of 2021. Our third quarter adjusted gross margin was 59.2%, increasing by 40 basis points compared to the prior year due to higher volume, pricing actions and productivity improvements partially offset by the impact of inflation and continued investment in our long-term growth initiatives. The adjusted EBITDA margin was 20.2%, which is approximately 60 basis points higher than Q3 of 2021 and was sequentially about 50 basis points higher than Q2 of 2022. Considering the uncertain macro environment, we took actions in the quarter to further streamline our organization to ensure that we can continue to expand our margins while investing for growth. Our third quarter adjusted EPS was $0.47 compared to $0.45 in the comparable period of the prior year. Our Specialty Products & Technologies segment core revenue increased by 11.3% compared to the third quarter of 2021, driven by strong growth in our premium implant business above-market growth in our core brackets and wires business and continued impressive growth from Spark. In the third quarter, our combined orthodontic business grew over 20% versus prior year. with brackets and wires growing mid-single digits and our Spark revenue continuing to accelerate rapidly. Despite a more challenging macro environment, we remain confident that our Spark business has a meaningful opportunity to grow and we are continuing to invest to capitalize on this opportunity. Our implant-based tooth replacement business grew mid-single digit in Q3 2022 versus Q3 of the prior year driven by high single-digit growth in premium implants and strong growth across our emerging markets. In addition to the growth in core implants, our regenerative business, including the newly acquired business of Osteogenics continues to accelerate. Our Specialty Products & Technologies segment adjusted operating profit was 20.8% in the third quarter. This is down 250 basis points from Q3 2021, primarily due to significant increase in investments to drive long-term growth as well as increasing customer-facing activities we participated in during the quarter. Our third quarter equipment and consumables segment core sales decreased by 4.7% compared to Q3 of 2021. This decline was driven by a slowdown in equipment business volumes, offset by solid growth in price and volumes in our consumables business. Our traditional imaging business declined double digits in the quarter with lower volumes across most geographies. The lower volume was partially attributable to strong performance in the second half of 2021 and as well as macro headwinds, including inflation, rising interest rates and uncertain geopolitical environment caused by the conflict in Ukraine and the Zero COVID policy in China. As Amir indicated, we have made the decision to focus our efforts on key geographies where we have a sustainable competitive advantage. This will help us to accelerate both growth and margins over the long run. In developed markets, we also experienced weaker commercial performance as well as some supply chain challenges related to certain chips, both of which negatively impacted our revenue in the quarter. We continue to make investments in our new iOS business and are focused on setting up this business for enduring success as we quickly expand our reach and optimize our global distribution. Clinicians are very interested in investing in iOS solutions to help them improve their overall workflow. The DEXIS iOS solution is well positioned to outperform the market. We are taking steps to address our commercial execution in North America and Europe and are focused on accelerating the performance across our full imaging portfolio, including iOS. On the consumables side, our Restorative & Endodontics business grew more than 7% in Q3, benefiting from solid underlying demand, increased prices and normalized volumes in the channel. As you recall, this business did see a modest destocking in North America in the second quarter. Geographically, we saw solid growth in North America, a very modest decline in Western Europe and strong double-digit growth in the emerging markets. As expected, sales of our infection prevention solutions increased double digits in Q3 compared to a softer Q3 of 2021. We believe that our infection prevention business is normalizing now that total inventory both in the channel and at clinician's offices are returning to standard levels. Additionally, we are seeing more balanced sell-in and sellout figures, suggesting that this business should return to a more stable, normalized long-term growth rate. Equipment & Consumables adjusted operating profit margin was 26.1% in the third quarter of 2022 versus 20.8% in Q3 of 2021. Our strong margin improvement was driven by favorable sales mix, our actions to increase overall productivity and price increases, partially offset by cost increases related to the inflationary pressure on commodities and materials that impacted our businesses. Overall, the inclusion of the iOS business supports our belief that our equipment and consumables business will grow faster and be more profitable as we move forward. In the third quarter, we generated $19.7 million of free cash flow and ended the quarter with over $500 million in cash. Our free cash flow in Q3 2022 was lower than prior year, in part due to the elimination of free cash flow associated with our discontinued operations as well as cash payments for onetime transaction costs, restructuring investments and tax payments. We also continue to make long-term capital investments in Spark that will support our growth and improve our margins through automation. Despite the lower free cash flow in the short term, we remain focused on the midterm goal of delivering free cash flow in excess of net income and expect to see significant improvements in free cash flow in the fourth quarter and into 2023. Overall, our balance sheet is strong, and we have ample liquidity and flexibility to pursue appropriate long-term investments. Turning to our full year outlook. Despite the continued challenges in the macro environment, including persistent inflation, continued supply chain issues, geopolitical risk and a potential energy crisis in Europe we are reiterating our guidance for core growth and profitability and expect to deliver mid-single-digit core growth for full year 2022, along with adjusted EBITDA margin of 20% for the full year. We further expect our acquisitions to add greater than $40 million in sales for full year 2022. This acquisition forecast is down modestly, reflecting a likely slower growth in Europe and China the impact of currency as well as the impact and timing of the DEXIS iOS rebranding and repositioning. Ultimately, we expect our acquisitions to deliver more than 75 basis points of annual growth within three years. While we do anticipate a more challenging operating environment in Q4 and in 2023, we remain confident in the future of the dental market as well as the resilience of our reshaped portfolio. Our strategic differentiation, coupled with our proven track record of execution gives us confidence that we can continue to accelerate growth while driving consistent margin expansion. I'll now turn it over to Amir, for some final thoughts.

Thanks, Howard. Moving forward, our priorities remain the same: accelerate growth, expand our operating margins and continue to further transform our portfolio through active and disciplined capital deployment. Our intention is to partner with dental professionals to improve lives. Our diversified and comprehensive portfolio positions us as the partner of choice for clinicians globally. In orthodontics, we will continue to provide a differentiated and integrated suite of treatment options, including brackets and wires and clear aligners that empowers the specialists to provide the best personalized treatment for each patient in our implant-based tooth replacement business, we will leverage our diagnostic and digital capabilities to provide clinicians with a complete implant workflow solutions, including regenerative and prosthetic offerings. This solution for everyday dental, we will broaden access to our highly profitable and differentiated consumable business. We will leverage our strength in imaging and diagnostics to build seamless open and digitally integrated workflows from diagnostics to personalized treatment planning to execution for our clinical partners. Finally, we continue to draw upon our EBS heritage to drive a balance of growth and margin expansion across the economic cycle. We have a strong committed and capable team, and I'm proud of our culture focused on customer centricity, innovation, respect, continuous improvement and leadership. As we continue to digitize, personalize and democratize dental care, we're excited about the future of dentistry. We're strategically differentiated and have a proven track record of execution. Even in a more challenging economic environment, we see significant opportunity to accelerate growth, improve margins and create long-term value for patients, customers employees and shareholders.

Thanks, Amir. That concludes our formal comments. We are now ready for questions.

[Operator Instructions] We'll take our first question from Elizabeth Anderson with Evercore ISI. Your line is now open.

Hi guys, thanks so much for the question. Thanks for all the color on the sort of your thoughts on what you saw in the quarter, and I appreciate in context of the changing dynamics. Can you guys sort of extend that out and sort of maybe talk about what you're seeing currently as we sort of both gotten through the first month in the fourth quarter? And then also to the extent I understand that you're not - formally guiding this evening, but that you can sort of help us to narrow down sort of the wide spectrum of opportunities as you're seeing them for 2023 right now. Could you - is there anything you can say on that, that could be helpful on that front? Thanks.

Yes, of course. Thank you, Elizabeth. What we have seen in - so far in Q4 is very consistent with what we saw in Q3 so not a major change in here - the situation remains a little bit uncertain when it comes to specific geographies. So for example in Russia, we had some challenges in Q2 in getting products into Russia, but we saw a double-digit growth in Q3 after a mid-single-digit decline in Q2. In China, despite the fact that we had almost low single-digit decline in the first half, we saw a step up in Q3 because of the robust need that came in place. So given the uncertainties on the ground, we remain confident that the guidance that we have provided remains intact, and we're not changing that. But taking a step back a little bit, looking at the macro environment. I can tell you that this year, I've been on the road, eight weeks have had eight weeks of customer visit stop in multiple cities. And I've talked to hundreds of individual practitioners, group practices, DSOs, distributors, university. And there is a common trend that we hear over and over across these visits. If I took the macro aside, the patient's volume, remain stable. The specialty on the specialty business, majority of the specialties that have scheduled book for the next months or two, resources continue to be a major challenge and inflation in here impacting CapEx. And the third factor is, we hear over and over the need for digital transformation. You pull all of that together, come back, the simple answer that I can tell you is the need for productivity is higher than it has ever been. This is where we shine the EBS has a competitive advantage that we can talk about asset utilization. We can talk about what we can do leveraging the capabilities that exist in order to help the industry to move forward. The traditional business models that exist makes it more difficult for this transformation, but there is - in the past two years, we have seen an innovative way disruption, innovative disruption to move industry forward. It's going to be rocky a little bit in the short-term. But we are confident that this industry is ripe for growth, and we are well positioned in order to really lead it a variety of segments by giving people what they need in order to get that maximum productivity of the assets that they have in place.

And we will take our next question from Michael Cherny with Bank of America. Your line is open.

Good afternoon, thank you for taking the question. You spent some time obviously talking about the now of China. Let's talk about the next in China and again, against the vein of not necessarily providing guidance. But can you fill us in a little bit about what's going on, on the VBP side in terms of your communications across China and how you think about positioning the business to best succeed or manage through any pricing headwinds that you're expected to see, especially among the difference between your public and private hospital exposure?

Yes, happy to do, Michael. As I mentioned, in Q3, China business grew high single-digit, almost 9%. While we had a mid-single-digit decline in the first half. Obviously, a lot of that had to do with the Shanghai lockdown and a slowing macro environment by China's Zero COVID policy. Despite of all of that, and the quality economic outlook, we expect continued growth in our specialty business in China. Imaging business is expected to have softer performance that doctor assess macroeconomic environment. But now let's talk about the VBP. On the implant side, the VBP is already underway, and we expect to see some results, hopefully, by end of November. As we have discussed before, we think that in a public sector the prices would come down materially, maybe over 50%. The price decline will come - mostly come - in return we will see a volume increase for those that they are going to be the winning bidders. And it was going to be primarily driven by given volume and more access to care in remainder of the 2023 - remainder of 2022 and 2023. What we have offered this is a risk-adjusted for 2022, the guidance that we have provided. We need to see how this volume and price dynamic plays out before we can provide any guidance in 2023. And - to answer your question, China is a self-paid to a large degree, patient process. Over 70% of our business in the implant side comes from the public - I'm sorry, private sector. We have been shifting our business to continue to the private sector on the premium side of that - and I think we have a really good position in there, and we're going to continue to build capabilities in that space and the private side is growing a lot faster. On the auto side - this is still nothing official. This is going to most likely is going to come in place piece-by-piece, and it's not only going to be on the clear aligners. We expect that the traditional bracket on wire is going to be impacted as well, but the details are still in flux. It's difficult to comment on impact for 2023, but we are considering various scenarios in here to make sure that we are able to manage through uncertainty. And continue - have that long-term view that we have communicated earlier in the year and by 2026, and to be a high single-digit, plus high single-digit growth and 22.5% and above margin. We think regardless of what we see in the short-term in China, we were going to be able to deliver on that commitment in the long-term.

We will take our next question from Jeff Johnson with Baird. Your line is open.

Thank you, good afternoon guys. Can you hear me okay?

Yes, we can hear you, Jeff.

All right, thanks Howard. So I guess two questions here for me. Just - and they're both still kind of trying to look at 2023, again, respecting that you're not giving guidance. But Howard, I guess help us understand that European core growth at 9.3% of Western European and the emerging markets at 15% - where are we in kind of the easy comps from last year because shutdowns and other kind of factors going on? How should we think about those two markets, especially, which really helped this quarter kind of normalizing and are comps starting to normalize a little bit over the next quarter or two, so it's really going to be kind of driven by end market pull-through and not comps, the growth going forward? Thanks.

Yes sure, sure, Jeff. Yes, so I do think that we've had some pretty sizable swings one way or the other because of those comps. We talked about it primarily in the North America context of infection prevention, for example, where we had off of COVID peaks. And as we've kind of lapped some of those highs here in the second half as we anticipated, we would see some growth. And so things are more normalized, both in the channel as well as in the clinician's offices. And so, we feel comfortable about that. I think more broadly, as it relates to Europe, there are some macro concerns there the energy crisis potentially looms a little bit there. And until we get some better clarity on the macros, I think that we feel even better about the consistency of that business being able to grow. But as it relates to our iOS business, for example, we feel really good about the prospects for growth. Over 70% of that business is sales driven outside of the U.S. And so, we continue to feel very bullish about that and expect to outperform the market. I think Spark is another example Jeff, where Europe has just been an incredible frontier for us as it relates to super adoption and fast growth. As Amir as indicated in previous calls that ramp-up in Europe is quickly surpassed the growth that we've seen in any other region so, we're excited about that as well.

Thanks that's all helpful thanks. And then, Amir, maybe just as a follow-up, where is your pricing on kind of a net basis so far this year? And maybe just remind us how that compares to past years. But more importantly, I think, philosophically, just how do you think about price going into next year when you've got obviously rising cost yourself that you need to try to cover? But the flip side is you've got dentists who probably are feeling a little less optimistic about their own business, not seeing their reimbursement rates go up, maybe get a little frustrated with some of the price increases they've seen across the dental industry here over the past six to 12 to 18 months. So just how do you think about going to market from a pricing standpoint next year as we get deeper into kind of this inflationary environment? Thanks.

Sure, Jeff. So maybe I'll take that one as well. With regards to pricing, we're encouraged. I know that historically, we've seen price degradation until probably 2021, the second half of 2021, when we started to see some pricing traction. We continue to see that here in 2022 as well as recently in the third quarter, as Amir indicated, over 150 basis points of that growth coming from pricing. We anticipate that, that tailwind is going to continue certainly here in the fourth quarter. And what we're trying to do is build much more around a systematic approach of getting pricing. And so even when things as it relates to inflation and the like moderate some, we still anticipate that we'll get some modest pricing. The one thing to keep in mind here is that in the long-term, we've always viewed that it's innovation that helps us win the day as it relates to ASP increases as well as profitability. And so you can see that in our implants with regards to the move from TiUnite to TiUltra and deal surface technology. You also see that in our brackets and wires business as we move from Damon [Clear] to Damon Ultima. And so again, for long-term, that is what we hold dear as it relates to being able to expand margins, drive growth and higher ASPs as well.

All right that $150 million, Howard, that was for this quarter, I must have missed that in the prepared remarks, I apologize for that but that 150 is the net price company-wide this quarter?

That's right. It's north of 150 basis points for Q3.

Thank you.

Sure.

And we'll take our next question from Jon Block with Stifel. Your line is open.

Great, thanks guys good afternoon. Maybe to start on SP&T with Spark, where are you in regards to tapping into, call it, like your core 2,000 or so Ormco orthos versus bringing on new non-Ormco orthos into the Spark equation. Just any color would be really helpful. And then maybe just to tack on to that, we haven't heard anything on N1 for a little while within SP&T? And I think implants, I believe, up mid-single and premium. I think you guys might have mentioned how it went up high single on the premium side? Was anyone a tailwind to that or what should we expect for that product into 2023? And then I'll ask my follow-up?

Yes, thank you, Jon. I'm happy to answer that. So we are seeing, as we mentioned, it's double-digit growth on the number of customers, active customers that they are coming and using Spark. Our target has always been specialist. We have focus on specialists. And as you clearly articulated, we started with Ormco Damon customers. And we started using that by offering a, complete solution to them by letting them know that the same company. The same salary sources and capabilities with training, education, and see expert in the market can provide the best possible solution. That's how we got it started, and we started making that expanded from geography-to-geography. .What has been a really interesting dynamic that we have seen in the recent time that actually as far allows us to expand our bracket-wire business now because by having this combination by being able to give people a choice that they can use either a clear liner or bracket and wire. They are able to provide the best possible solution and the same price from the same company. So simple answer, we still have plenty of room to work with the traditional Damon customers, but we have branched out. We are going after traditional orthodontists that may not even have been a Damon customers, but they have provided clear aligner, and this has given us opportunity to demonstrate not as far as the purely best product in the market, but a combination of solution and seeing that transformation and transition to take place. Results that you've seen is a clear indication of the number of cases, the number of new doctors as well as the performance of the business going forward. And we think the commitment that we made to triple the size of this business over three years still remains intact. Now answering your N1 question, combination of Spark and N1 has given us over 250 basis points of growth year-over-year. N1 follows a very similar process as a Spark. We started in Spark, Group of five and then we extended, we put critical success team on the ground to teach, to show and the transition. We are doing exactly the same thing with N1. We take Group 5 or 10, taken for 48 hours, 72 hours, they are able to place five implants under supervision. We go to their offices teach them how to do that and then transition in piece-by-piece extending that as what we learned in Europe implementing it in North America. N1 is going to be an important part of our growth over time combination of commercial execution, new innovation has really improved our premium implant performance to high single-digit, and we think there is plenty of room for growth and expansion in different geographies for our tooth placement implant base in the long run.

Got it, very helpful thanks. And maybe just to go in a different direction. I know we're not going to get detailed '23 guidance, but I think you mentioned E&C should get better from here. SP&T seems to have a lot of solid momentum. On the other side of the equation, you've got some VBP headwinds likely in '23. So maybe just to take a step back, at a high level, are you guys comfortable with, call it, modestly accelerating revenue growth in '23 off sort of this mid-single-digit number in 2022 when we try to - roll up all the moving parts as we head into next year? Thanks guys.

Jon, it's really difficult at this point to call 2023. We're focused on delivering Q4, continuing to invest in our long-term growth. We think because significant opportunities on a Spark orthodontic solution, implant-based tooth replacement, iOS, broader imaging, diagnostic solution. And we're going to be really thoughtful about a disciplined approach to inorganic activities going forward. What I can tell you is, we're not moving away from the commitment that we've made, the long-term guidance that we have provided. Our core sales growth is going to go to mid-single digit plus, high single-digit, our EBITDA over 22.5%, EPS growth over 10%. That's the goal that we indicated that we want to get to 2026, and we are not moving away from it. In short-term, we may have some challenges we need to deal with and hopefully, you have seen that we have a proven track record. We have been able to manage this balance of growth and margin, and we're going to continue to do that moving forward despite some of the challenges that you indicated, VBP, Russia and other places.

Fair enough, thanks for the color guys.

We'll take our next question from Erin Wright with Morgan Stanley. Your line is now open.

Great, thanks. How would you characterize the current traction you're seeing across Carestream and the iOS business? I think you mentioned strength overseas. But how is the integration efforts and how - are things playing out according to - or relative to plan here just given the macro environment that we're in? Thanks.

Yes, of course. Thanks, Erin. So when we started the process, we looked at three work streams. The first one was operational. We wanted to make sure that we secure the supply. Operationally, we are able to produce that, obviously, coming out of COVID zero COVID lockdown in Shanghai. We have been able to really ramp that up as quickly as possible. I think the operational integration is going extremely well. We have been able to rebrand it. We have been able to put significant capabilities around that. And we think there is opportunity for further opportunity for continuous improvement, margin expansion over time. Second work stream was around innovation and innovation step one over in this process was the software, software integration, the DTX, despite the fact that the product is a standalone product, and we can sell it as it stands today. We want to have ability to really any great to the workflow, both on auto as well as implant - we have the first rev of that done is available now. We think by end of the year, we will have a fully Integrated DEXIS iOS with DTX for an end-to-end solution that we can put it in place for our ortho business as well as for our implant business. The third work stream was around go-to-market. And in the go-to-market, what we wanted to do, we wanted to expand the distribution. We wanted to make sure that we are able to position this in different geographies and leverage the capabilities that existed today. We have been working through the channel inventories, we've been working through, take a look at the previous Carestream product, replacing it as the DEXIS going forward. So we've got some work to do in here. And we feel really strong and good about it in the long run. But there is more work to be done to improve our commercial execution in various geographies. And we're confident we're going to be able to move that forward. Our commitment to this business to this set of product hasn't changed at all. In fact, if anything, the more we see the product, the more confident we are that it is a really good product, has a tremendous amount of potential and participation. And you take a look at the number of offices that they do have an iOS. This is underpenetrated, significantly underpenetrated. We've got a good product at the right price and there is nothing but upside as we move through 2023 and 2024. One thing to keep in mind is 70% of this business is going to be outside the United States. So we've got to optimize our global distribution. We've got to make sure that manage some of the business that was sold to distributors. And - but we are working through that, and we're confident that we can get this on the right track. To give you some numbers, in Q2, even though we only owned the business for about two months, we sold about $5.5 million of it. In Q3, that was $10 million. So as you saw looking at the progression of this, we think we're going to be in a really good place by 2024 - 2023 and 2024.

Okay, thank you. And just a quick one on Spark, how should we think about it about when, I guess, you would potentially more meaningfully enter the GP category there? Thanks.

Yes, our primary focus hasn't changed, and we are primarily focusing on a specialist. We are a premium medtech company. Our goal is to make sure those that they place implant that they do a large volume of those that they do and - those that they do also they have the best possible solution in their hands. Our focus are specialists, and we're going to continue to focus there. On the other hand, we're not stopping people if they want to push this product. We're more than happy to provide to them. One thing to note is, and maybe that may clarify a little bit of a partnership with some of DSOs. Majority of these companies Spark DSOs, they have a model that is called hub and spoke. Large DSOs, they have orthodontists inside their organization. We work with those orthodontists, they are able to teach and train their GPs, and they can transition over time, use this product. The product is just outstanding, and this is based on what we hear priced properly. Software is really up to-date. It has the clarity of it and service and support the key experts. So there is a tremendous amount of energy around it and people are beginning to really transition geography-by-geography as we get approval in various geographies. So obviously, there is demand for it, but our focus continues to be on a specialist.

Okay, thank you.

We will take our next question from Nathan Rich with Goldman Sachs. Your line is open.

Great, thank you. Amir, how are you thinking about the near-term outlook for traditional imaging? You mentioned two factors: weakness in North America and then the deemphasis of certain geographies. Is the weakness in North America mainly a function of the macro environment? And then can you elaborate on the deemphasis of those geographies, kind of how extensive it is and what impact that might have on sales into next year?

Absolutely thanks, Nate. So let me just paint a picture for you on the Imaging business to begin with, and then I'll answer the question. A couple of key points one-third of our imaging revenue comes from sensors, service contract. And those are fairly stable, even in a downturn environment. Then the other part of that is the DSOs. DSOs are really play an important group practices and DSOs in building new offices. There have been, a positive tailwind for imaging for several quarters. Some of the recent softness is due to supply chain-related issues that we talked about, inflation resource in opening new stores. And they're all feeling that, and we are obviously - we see the impact of it. Some of the macroeconomics in Europe issues in China is also impacting in U.S., that - what you talked about in the U.S. is a combination of DSOs plus proxy compared to last year. What we saw last year compared to this year, as what makes North America a little bit softer than before. But let me answer your question about geographies. Our commitment to imaging and diagnostic has not changed at all. We think it is a sort of every procedures, and we wanted to be really present in there - an acquisition of iOS. It really gives other avenue in here to give practitioners a complete set of solution with DTX as a software end-to-end workflow. But in some geographies, selling that product as a standalone, while it's not differentiated, while it's not connected to the rest of the portfolio, it is really not a good investment in the long run. If you take a look at it, we have done that with our treatment unit as well. If it is any greater to our overall offering, then we would be able to create a competitive advantage and differentiation. If it is not just a stand-alone by itself and the only way to get this product in there is our true price, that's not our business model. Our business model is about differentiation. It's about innovation. It's about end-to-end productivity game. That's why we have decided that we are going to deemphasize some, geographies and start redirecting investment resources where we can create sustainable competitive advantage. That's what we have done. We did that with various parts of our business, and we're going to continue to do that. Portfolio management is a key element of our continuous improvement and EBS. That's how we are able to continue to deliver the margin. You saw the margin on the imaging and equipment and consumable, part of that is intentional. We want to get better margin, better performance. We can invest in a faster growing part of our business. To balance growth versus margin, continue to work through this difficult challenging environment.

Thanks. And on the implant VBP, at this point do you have a view of how much volume has been submitted for a bid or is that still to come? And do you think you'll have visibility on the impact of the program when you give guidance for '23 in February?

Our expectation is by end of November, beginning of December, we would have a decision made on the top two players on the premium side. So that should give us a pretty good feel for what we need to expect what we should expect in 2023. The volume, as I mentioned, we are in current understanding, we can tell you specifically how many, but we know that it's going to impact the public sector. As I mentioned before, about this less than 30% of our business is in the public sector. And again, you got to take a look at it on premium versus value. And a combination of all of that, which should give us a really good feel as we build our 2023 forecast as well as our guidance. We're not there yet, but we are monitoring that pretty tightly, closely, we feel comfortable about Q4. I would adjust as we need to as we enter 2023.

Thank you.

Of course.

We have reached our allotted time for questions today. I would now like to turn the program back over to Mr. Keller for any additional or closing remarks.

Thanks, everyone, for joining. Really appreciate your continued interest in Envista. We look forward to connecting with you in future investor events and then next quarter. Have a great afternoon, great evening. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.