Envista(NVST) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2022 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights ($ in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $568.5 | $1,073.6 | | Total current assets | $1,366.0 | $1,835.8 | | Goodwill | $3,399.6 | $3,132.0 | | Total assets | $6,411.9 | $6,574.2 | | Liabilities & Equity | | | | Short-term debt | $579.3 | $432.4 | | Total current liabilities | $1,258.3 | $1,208.2 | | Long-term debt | $851.6 | $883.4 | | Total stockholders' equity | $3,957.9 | $4,058.0 | | Total liabilities and stockholders' equity | $6,411.9 | $6,574.2 | - Total assets decreased slightly from $6.6 billion at year-end 2021 to $6.4 billion, primarily due to a significant reduction in cash and cash equivalents, partially offset by an increase in goodwill from acquisitions[12] Condensed Consolidated Statements of Income Statement of Income Highlights ($ in millions, except per share amounts) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Sales | $631.1 | $607.3 | $1,908.3 | $1,857.1 | | Gross Profit | $364.7 | $356.3 | $1,108.6 | $1,083.3 | | Operating Profit | $74.5 | $81.7 | $231.2 | $260.1 | | Net Income | $47.6 | $92.9 | $169.6 | $254.7 | | Diluted EPS from Continuing Operations | $0.28 | $0.45 | $0.92 | $1.25 | - Sales increased for both the three and nine-month periods ended September 30, 2022, compared to the prior year, but operating profit and net income declined, indicating pressure on margins and increased expenses[14] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended ($ in millions) | Activity | Sep 30, 2022 | Oct 1, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $72.4 | $225.6 | | Net cash used in investing activities | $(656.2) | $(25.9) | | Net cash provided by (used in) financing activities | $80.8 | $(467.4) | | Net change in cash and cash equivalents | $(505.1) | $(250.1) | - Cash from operating activities significantly decreased to $72.4 million in the first nine months of 2022 from $225.6 million in the prior year period[22] - Investing activities saw a large cash outflow of $696.2 million for acquisitions[22] Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, business segments, acquisitions, discontinued operations, debt, and segment performance - The company operates in two segments: Specialty Products & Technologies (dental implants, orthodontics) and Equipment & Consumables (digital imaging, restorative materials)[26] - In Q1 2022, COVID-19 lockdowns in China impacted operations, and the Russia-Ukraine conflict poses potential risks to business in the region and the global supply chain[31][33] - On July 5, 2022, the company acquired Osteogenics for approximately $128.2 million; on April 20, 2022, it acquired Carestream Dental's Intraoral Scanner Business for $580.3 million[37][38] - The company completed the sale of its KaVo Treatment Unit and Instrument Business on December 31, 2021, reclassifying its results to discontinued operations for all periods presented[29][42] - As of September 30, 2022, total debt was $1.43 billion, including senior term loans and convertible senior notes, with convertible notes classified as short-term debt due to early conversion conditions being met[75][88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month financial performance, key trends, segment results, liquidity, and cash flow Overview and Key Trends Overview of dental product segments, key performance factors including COVID-19, geopolitical risks, foreign exchange, and acquisitions - The sale of the KaVo Treatment Unit and Instrument business is a strategic shift to focus on higher-growth, higher-margin segments, increasing the revenue mix of the Specialty Products & Technology segment to approximately 60%[123] - COVID-19 related lockdowns in China impacted operations in Q1 2022, and the ongoing zero-COVID policy creates uncertainty[128] - Foreign currency exchange rates negatively impacted reported sales by 4.1% in Q3 2022 and 3.2% in the first nine months of 2022 due to the strength of the U.S. dollar[133] Results of Operations Q3 2022 sales grew, but gross and operating profit margins declined due to foreign exchange, acquisition costs, and inflation Sales and Core Sales Growth vs. Prior Year | Period | Total Sales Growth (GAAP) | Acquisitions Impact | Currency Impact | Core Sales Growth (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Q3 2022 | 3.9% | (3.1)% | 4.1% | 4.9% | | 9 Months 2022 | 2.8% | (1.3)% | 3.2% | 4.7% | - Gross profit margin for Q3 2022 decreased to 57.8% from 58.7% in Q3 2021, primarily due to unfavorable foreign exchange rates, acquisition-related inventory costs, and inflation[147][149] - Operating profit margin for Q3 2022 decreased to 11.8% from 13.5% in the prior year, driven by lower gross margins, higher sales and marketing expenses, and acquisition-related costs[153] Results of Operations - Business Segments Specialty Products & Technologies saw strong sales growth but lower margins; Equipment & Consumables sales declined but margins improved Specialty Products & Technologies Performance (Q3 2022 vs Q3 2021) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Sales | $395.4M | $363.4M | | Sales Growth (GAAP) | 8.8% | - | | Core Sales Growth (Non-GAAP) | 11.3% | - | | Operating Profit Margin | 15.8% | 16.9% | Equipment & Consumables Performance (Q3 2022 vs Q3 2021) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Sales | $235.7M | $243.9M | | Sales Growth (GAAP) | (3.4)% | - | | Core Sales Growth (Non-GAAP) | (4.7)% | - | | Operating Profit Margin | 19.0% | 18.6% | Liquidity and Capital Resources Liquidity changed with decreased operating cash flow and substantial cash used for acquisitions, reducing cash and equivalents - Net cash provided by operating activities decreased to $72.4 million for the nine months ended Sep 30, 2022, compared to $225.6 million for the same period in 2021[181][183] - Cash used in investing activities was $656.2 million, driven by $696.2 million spent on acquisitions, partially offset by proceeds from the KaVo business sale and settlement of derivatives[181][185] - As of September 30, 2022, the company held $568.5 million in cash, with $476.9 million held outside the United States[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures since the 2021 Annual Report on Form 10-K - There were no material changes to the company's quantitative and qualitative disclosures about market risk during the quarter ended September 30, 2022[198] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[199] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2022[200] PART II. OTHER INFORMATION Item 1. Legal Proceedings No material changes to legal proceedings from the 2021 Annual Report on Form 10-K - There have been no material changes to legal proceedings from the company's 2021 10-K[202] Item 1A. Risk Factors Updated risk factors highlight adverse effects of current global economic conditions, including inflation and slowing growth - The company updated its risk factors to emphasize the adverse effects of current global economic conditions, such as sustained inflation, rising interest rates, and slowing economic growth[205] - Economic pressures can reduce demand for products (especially discretionary dental procedures), increase price competition, cause supply interruptions, and increase the difficulty of collecting accounts receivable[205][208] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[207] Item 6. Exhibits Index of exhibits filed with Form 10-Q, including agreement amendments, CEO/CFO certifications, and XBRL data - Exhibits filed include amendments to the Master Sale and Purchase Agreement with Planmeca, CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[213]