Envista (NVST) Q1 2025 Earnings Call May 01, 2025 05:00 PM ET Company Participants Jim Gustafson - VP - IRPaul Keel - CEOEric Hammes - Chief Financial OfficerJonathan Block - Managing Director Conference Call Participants Jason Bednar - Senior Research AnalystElizabeth Anderson - Senior Managing Director & Research AnalystJeffrey Johnson - Managing Director, Senior Research AnalystAllen Lutz - Senior Equity Research AnalystSteven Valiquette - MD & Senior Equity Research Analyst - Covering Health Care Techno ...

Financial Data and Key Metrics Changes - The company reported Q1 sales of $617 million, with core sales increasing by 20 basis points year over year despite a negative impact of approximately 140 basis points from currency exchange rates [12][14] - Adjusted EBITDA margin was around 12.8%, down 120 basis points from the previous year, primarily due to foreign exchange impacts [14][19] - Adjusted EPS for the quarter was $0.24, slightly above expectations but down $0.02 compared to the same quarter last year [14][22] Business Line Data and Key Metrics Changes - Specialty Products and Technologies segment saw a core revenue decline of 70 basis points year over year, while Equipment and Consumables segment increased by 170 basis points [19][21] - Consumables showed strong growth across most categories and geographies, particularly in North America [12][13] - The orthodontics business experienced growth in Spark and Brackets and Wires outside of China, despite challenges in the Chinese market [20][25] Market Data and Key Metrics Changes - The global dental market remained stable in Q1, with underlying demand similar to the second half of 2024 [9][35] - Positive growth was noted in North America, Japan, and emerging markets, while Europe remained flat [26] - Consumer confidence indices in the U.S. have deteriorated, but this has not yet impacted the company's Q1 results [10][35] Company Strategy and Development Direction - The company is focused on a value creation plan that includes growth in consumables, Nobel, and orthodontics, as well as price capture across its portfolio [25][26] - A tariff task force has been established to manage the impacts of tariffs and optimize supply chain flexibility [31][32] - The company maintains its 2025 guidance of 1% to 3% core growth and adjusted EBITDA margins of approximately 14% [11][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the dental market's long-term stability despite current macroeconomic uncertainties [27][35] - The company is navigating challenges through cost controls and operational improvements, with a focus on maintaining strong customer service levels [10][27] - Future performance is expected to benefit from the unwinding of revenue deferrals in the second half of the year [16][87] Other Important Information - The company has made progress on its $250 million share repurchase program, purchasing $19 million worth of stock in Q1 [22] - Free cash flow was an outflow of $5 million in Q1, typical for the first quarter due to timing of incentive compensation [15][21] Q&A Session Summary Question: Current tariff exposure and mitigation strategies - The company detailed its tariff exposure primarily in U.S. goods imported into China and vice versa, with ongoing efforts to shift supply chains to mitigate impacts [41][42][43] Question: April trends and volume-based dynamics - Management noted that April has started positively, with no significant shifts in procedure types observed [49][50][51] Question: Gross and net impacts from tariffs - The guidance includes current tariff activity, with confidence in mitigating impacts but acknowledging wider error bars compared to previous guidance [56][57][58] Question: Expectations for implants and product launches - The Challenger segment experienced a decline due to fewer billing days, but no change in trajectory is anticipated for the year [91][93][95] Question: Spark average selling price trends - No major change in Spark ASP was reported, with consistent pricing and value capture noted [100][101] Question: Size of the China business and inventory management - The China business represents a high single-digit percentage of total revenue, with inventory held in China and ongoing shipments incurring tariffs [105][106][107]

Financial Data and Key Metrics Changes - In Q1 2025, the company reported sales of $617 million, with core sales increasing by 20 basis points year over year despite a negative impact from currency exchange rates of approximately 140 basis points [12][13] - Adjusted EBITDA margin was around 12.8%, a decrease of 120 basis points compared to the previous year, primarily due to foreign exchange impacts [14][20] - Adjusted EPS for the quarter was $0.24, slightly above expectations but down $0.02 year over year [14][23] Business Line Data and Key Metrics Changes - The Specialty Products and Technologies segment saw a core revenue decline of 70 basis points year over year, while the Equipment and Consumables segment experienced a core sales increase of 170 basis points [20][22] - Consumables showed strong growth across most categories and geographies, particularly in North America [12][13] - The orthodontics business, excluding China, saw positive growth in both Spark and Brackets and Wires [20][21] Market Data and Key Metrics Changes - The global dental market remained stable in Q1 2025, with underlying demand similar to the second half of 2024 [9][35] - Positive growth was noted in North America, Japan, and emerging markets, while Europe remained flat [26] - Consumer confidence indices in the U.S. have deteriorated, but this has not yet affected the company's results [10][35] Company Strategy and Development Direction - The company is focused on a value creation plan that includes growth in consumables, Nobel Biocare, and orthodontics, as well as price capture across most of its portfolio [25][26] - A tariff task force has been established to manage the impacts of tariffs and optimize supply chain flexibility [31][32] - The company maintains its 2025 guidance of 1% to 3% core growth and adjusted EBITDA margins of approximately 14% [11][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the dental market's long-term stability despite current macroeconomic uncertainties [27][35] - The company is navigating geopolitical uncertainties and has implemented cost controls to enhance operational productivity [10][28] - Future performance is expected to benefit from the unwinding of revenue deferrals in the second half of the year [16][39] Other Important Information - The company has made progress on its $250 million share repurchase program, purchasing $19 million worth of stock in Q1 [23] - Free cash flow was an outflow of $5 million in Q1, typical for the first quarter due to timing of incentive compensation [15][22] Q&A Session Summary Question: Can you provide specifics on your current tariff exposure and mitigation strategies? - The company has significant tariff exposure from U.S. goods imported into China and vice versa, with mitigation strategies including shifting supply sources and working with suppliers to manage costs [42][44] Question: What are the trends in April and how do they relate to higher ASP procedures? - April has started positively, with no major shifts in procedure types observed, indicating stability in the market [50][52] Question: Can you quantify the gross impact of tariffs and customer responses? - The company is a net exporter to China, with premium implants being the largest exposure. Mitigation plans are in place, and customer sentiment varies by market segment [56][62] Question: What are the expectations for ortho VBP this year? - The ortho VBP process is progressing as expected, with anticipated benefits in the second half of the year [69][71] Question: How is the company managing pricing power in a tariff environment? - Pricing power varies by market and product category, with higher-end clinicians willing to pay for innovation, while commodity products face more price sensitivity [78][81] Question: What are the expectations for the Challenger and Premium implant businesses? - The Challenger business experienced a dip in Q1 but is expected to maintain a steady growth trajectory throughout the year [94][96]