Yahoo Finance Envista Holdings Corp (NVST) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Revenue: $623.6 million, slight decrease year-over-year, core sales growth of 0.4%.
Adjusted Gross Margin: 57.4%, down 70 basis points year-over-year.
Adjusted EBITDA Margin: 14%, down 420 basis points from Q1 2023.
Adjusted Diluted EPS: $0.26, down from $0.38 in Q1 2023.
Free Cash Flow: $29.3 million, significant improvement from Q1 2023.
Orthodontic Business Growth: Low single digits, driven by Spark clear aligners.
Implant Business Performance: Modest decline, strong growth in China offset by weaker demand in Western Europe and North America.
Specialty Products & Technologies Segment: Core revenue up 0.8%, adjusted operating profit 15.1%.
Equipment & Consumables Segment: Core sales down 0.2%, adjusted operating profit margin 21.7%.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Envista Holdings Corp (NYSE:NVST) achieved a core sales growth of 0.4% in Q1 2024.
The orthodontic business, particularly Spark clear aligners, saw over 15% growth, outperforming the market with robust progress in North America, Europe, and emerging markets.
Strong growth in China offset weaker market demand in Western Europe for the implant business, showcasing significant market potential in emerging regions.
Envista Holdings Corp (NYSE:NVST) introduced new leadership with Paul Keel, aiming to leverage his extensive experience to drive future growth and operational improvements.
Continuous improvement actions have significantly reduced production costs per aligner in the Spark business, contributing to long-term profitability improvements.
Negative Points
Envista Holdings Corp (NYSE:NVST) reported a slight decrease in reported sales compared to Q1 2023, with only a modest core sales growth of 0.4%.
Adjusted EBITDA margin declined to 14%, a decrease of 420 basis points from Q1 2023, driven by unfavorable product mix and significant investments in strategic areas.
The implant business in North America underperformed due to commercial execution issues, despite strong growth in China.
Demand for high-end specialty procedures such as adult orthodontic cases and full arch implant restorations remains muted, reflecting cautious spending by clinicians.
The company faces ongoing challenges in the Equipment & Consumables segment, with a slight decline in core sales and continued softness in demand for large equipment.
Q & A Highlights
Q: Can you comment specifically on the guidance for 2024 and for the second quarter? A: Amir Aghdaei - Given the leadership transition, we need to give Paul a chance to assess the situation and build a plan for the balance of the year and long-term outlook. Envista remains focused on accelerating the orthodontic business, expanding Spark margins, and accelerating our implant business, particularly in North America, aiming for market growth by the end of 2024. We also plan to optimize our cost structure to improve our structural cost by over $30 million, with full impact expected in 2025.
Q: Can you discuss the level of spending on investments made in the first quarter and the expected cadence for the second quarter? A: Stephen Keller - We made around $10 million worth of investments in the quarter, including commercial resources, training, education, and partnership programs. About 70% of these investments will continue, with 30% being one-time expenses. These investments are crucial for improving performance, particularly in the North American implant business.
Q: Could you clarify the growth and sequential performance of Spark, and how you are addressing competition in the orthodontic market? A: Amir Aghdaei - Spark grew over 15% year-over-year but did not grow sequentially from Q4 2023 to Q1 2024, which is typical as Q1 is generally slower. We are seeing strong growth in the number of active doctors and primary submissions, indicating continued expansion. Our focus remains on orthodontists, and less than 50% of traditional Ormco specialists are active Spark customers, presenting significant growth opportunities.
Q: What is the expected trajectory of gross margins for the rest of the year? A: Stephen Keller - Gross margins are expected to improve throughout the year, driven by improvements in Spark margins and growth in North American implants. The first quarter's gross margin was a good starting point, and we anticipate continued positive progression.
Q: What are the current trends and expectations for the implant market, particularly in North America? A: Amir Aghdaei - The premium implant market has traditionally grown at a low to mid-single digit rate, while the value implant market has grown faster but with declining prices. Recently, the North American market has been flat, and we aim to close the performance gap by the end of the year. We are not currently seeing significant price erosion in the premium segment.
Q: Can you provide insights into the growth and sustainability of the implant market in China? A: Amir Aghdaei - In Q1, our sales in China increased by over 50%, driven by the closing price gap between premium and value implants and increased acceptance of implants as a viable treatment option. We are bullish about the long-term potential of the implant market in China, which remains underpenetrated.
Q: What is the status of the searches for the new CFO and the leader for Nobel Biocare? A: Amir Aghdaei - Active searches are underway for both positions, with strong candidates being considered. The appointment of Paul as CEO is expected to accelerate these searches, attracting top talent to these key roles.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
