Good day, everyone. My name is Ryland, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Second Quarter 2021 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session I will now turn the call over to Mr. John Moten. Mr. Moten, you may begin your conference.

Hello, and thank you for joining us on our call. 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, at envistaco.com. The audio portion of this call will be archived on the Investors Relation section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. 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, all references in these remarks and supplemental materials to company’s specific financial metrics relate to second quarter of 2021 and all references to period-to-period increases or decreases in financial metrics year-over-year. We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals are available only in certain markets. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will 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 they are made and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'll turn the call over to Amir.

Thanks, John and welcome everyone to Envista's second quarter 2021 earnings call. I want to begin by thanking our employees for an outstanding quarter. The dedication and passion our employees show for our customers inspires confidence and drives continued innovation in all our products and services. After a strong start in the first quarter, it delivered another record quarter by -- driven by continued recovery in the dental market and solid execution across our portfolio. For the second quarter, core revenue growth was 102% compared to the COVID-impacted second quarter of 2021. More importantly, our second quarter 2021 core growth -- core revenue growth was above pre-pandemic levels increasing 5.6% compared to the same period in 2019. The focus on our three long-term strategic priorities of accelerating organic growth, expanding our operating margins and building a stronger portfolio continues to have an impact and drive both our short-term and long-term performance. Before I turn it over to Howard to provide more detail on our second quarter financial results and our segment performance, I wanted to take this opportunity to discuss our progress in these areas. Our focus on the Envista business system and continuous improvement are helping us to drive long-term sustainable performance. Our smart business continues to accelerate as we focus on supporting our orthodontic customers. This quarter, we enhanced the onboarding of new customers and improved service and turnaround times. Our smart capacity increased by over 30% this year and we continue to invest for future growth. The adoption of Spark, Spark continues to expand with sequential revenue growth over 40% compared to the first quarter of 2021. Our core bracket and wire business performed exceptionally well outgrowing the market. The Ormco team is focused on driving a strong commercial execution, while leveraging new innovations, including the Damon…

Thanks, Amir. Second quarter sales increased 104.4% to $740 million. Sales were positively impacted by 4% due to foreign exchange rates and negatively impacted 1.9% from discontinued products. Core sales growth was 102.3% compared to second quarter 2020 and up 5.6% over the same period in 2019. As Amir discussed, our year-over-year growth reflects a strong recovery in demand across the dental market and solid execution across our portfolio. Geographically, North America and Western Europe sales grew more than 100% as business conditions rebounded from the pandemic lows in Q2 of 2020. While patient volumes have improved to pre-pandemic levels in our major markets, we continue to see inconsistent rollouts of vaccines and spikes in COVID-19 variant infections in several geographic areas, including Western Europe and parts of the United States. Overall, we are mindful of the pandemic-related risks but remain optimistic for a continued recovery throughout the balance of 2021. In the emerging markets, China grew by double-digits with strength from our Specialty Products & Technologies segment. We continue to see durable growth in our premium implant business in China and are pleased with the progress we are making in orthodontics. However, the return to pre-pandemic demand levels in the public sector is slower due to fiscal budget restrictions and the pace of vaccine rollouts. Outside of China, other emerging markets rebounded from pandemic lows but we remain cautious due to low vaccination rates and the continued spread of COVID-19 variance. Our second quarter gross margin of 56% increased by 1,400 basis points from the pandemic low point due to higher volume, favorable product mix and productivity initiatives. Our adjusted EBITDA margin was 19%, primarily driven by a better product mix, structural cost savings and temporarily reduced spending. Profitability increased significantly compared to the prior year, with an adjusted…

Thanks, Howard. We are pleased with our performance in the second quarter and remain optimistic about the future of the dental industry and its recovery from the pandemic. While vaccination rates are increasing every day, we are mindful of the risk related to COVID-19 variance, continue to monitor reopening of economies and acknowledge that vaccination rollout worldwide at different stages. However, we believe that patient demand will sustain at pre-pandemic levels, due to the industry's enhanced sanitation measures. We have continued to focus on our three strategic priorities of accelerating organic growth, expanding operating margins and optimizing our business portfolio. We're building a better Envista, for our customers, our employees and our shareholders. Our culture based on our circle, values of customer centricity, innovation, respect, continuous improvement and leadership makes us more competitive and enables us to shape the future of the dental industry. We're designing products and solutions that allow our customer, to be more productive and create more predictable outcomes for their patients. We will accomplish this through personalization, digitization and democratization of those dental solutions. A role in the future of dentistry has helped our customers, move their practice focus from pain management to preventative care and ultimately, to predictive care through a digitally-enabled workflow-oriented practice. Digitally integrated diagnostic treatment planning and more efficient execution will allow more access to oral care for more patients around the world. We expect to deliver core sales growth in mid-20 range. And expect adjusted EBITDA margins to be in the high-teens for 2021. We are well-positioned to meet the evolving needs of the dental industry for the future. We have a complete portfolio of brands designed to meet our customers' needs a winning culture and a team grounded in EBS and continuous improvement with a focus to drive our portfolio to higher growth and profitability. We're proud of our progress in the quarter. And look forward to our continued growth journey in 2021 and beyond.

Operator, we're now ready for questions.

We will take our first question from Nathan Rich at Goldman Sachs. Please go ahead. Your line is open.

Thanks so much. Amir and Howard, Good afternoon and thanks for the question, Howard maybe starting with the guidance, if I think about the back half of the year guidance seems to imply a pretty wide range for margins. I think you guys just did about 20% in the first half of the year. I think there's still around $30 million of investment that's going to be made in the back half and some of the temporary cost savings need to be back. But could you maybe just help us think about, the cadence of margins, that you're expecting over the balance of the year?

Sure. Sure Nate. Thanks for the question. Yeah, I mean, as a reminder, I mean, we had talked about high-teens EBITDA as a, guidance. And we think that's a good baseline to evaluate our improved profitability. What that implies is more than 25% EBITDA growth and somewhere in the 300 basis points to 400 basis points of margin expansion from our 2019 starting point. So -- and this is all while we continue to fund our growth initiatives. So -- and consistent with what we've discussed previously, we expect higher operating expenses in the second half, as we invest in our growth initiatives. And you're right Nate that contemplates about $30 million, largely on the specialty and technology side of our business that's fueling Spark, N1 premium implants as well. And we also think that there's going to be a return of some of the operating expenses that were held down during the pandemic largely around customer-facing. This would include travel as well as some of the marketing which we postponed during the pandemic. And so overall we think that that mid -- or the high-teens EBITDA puts us in a good place and consistent with what we anticipate here.

Okay, great. And then, I apologize if I missed it earlier on the call, but did you give what Spark and N1 contributed to revenue growth in the quarter? And Amir, I think you had mentioned the adoption of N1 accelerating in Europe. Could you maybe just go into a little bit more detail on where you're seeing the uptake and what you see as the opportunity for that product?

Of course. Thanks Nate. The N1 ramp continues. But as we have talked about before, this is a totally new procedure that requires hands-on face-to-face training and implementation. It's a completely different process. So not only the doctor itself, but they need to change their workflow completely. But we have seen those that have been trained coming up to speed very quickly. If you recall when we did the Spark ramp-up, we followed a similar procedure. A small number of people, we started, we trained them, we got them up to speed got up to a point that they can repeat the step -- and repeat and then we add out the cohort and expand it going forward. We have seen repeat orders coming from existing customers and we continue to educate and train more dentists as we go forward. We think this is going to be an important part of our growth trajectory in 2022 and after that. Our current commercial execution should get us to that mid single digit growth that we have been after on the premium implant. And new innovation hopefully will get us to high single-digit growth over time.

Great. And Howard did you have the contribution for the quarter for those two products?

I think it's in the 300 basis points -- 200 to 300 basis point range Nate.

Okay. Thank you very much.

You're welcome.

And our next question will come from John Kreger at William Blair. Please go ahead. Your line is open.

Hi, thanks very much. Amir, I think I heard you say that the premium implant growth was accelerating in the quarter, which sounds great. Could you maybe just take a step back and give us your sense about the implant market? What kind of growth is happening there? And are you still seeing in the market a migration from premium to value, or has that stabilized? And I guess what I'm getting at is are you -- do you feel like you're growing with the market at this point above, or still giving up a little bit of share? Thanks.

Yeah. Thanks John. We are really encouraged with what we are seeing sequentially year-over-year and also versus 2019. As you recall, we have made a significant amount of changes in our go-to-market strategy geography by geography. We are pretty confident that we are performing better than market in China and in Europe. Our performance in North America has accelerated. And every quarter we are able to demonstrate and see that and there is a whole lot of proxies out there that indicates the performance of the premium players. And we have seen that every quarter our performance has improved moving forward due to commercial execution, investment that we have done in various places, the customer intimacy model that we have put in place, as well as the innovations that we have introduced in various geographies. So now to the question of transition of value to premium? We're not seeing that. We are not seeing a radical shift of taking the values -- premium to value. We think the value market continues to outperform the premium. We have seen that in various geographies, but the premium business we have been watching that very carefully for many years and we've not seen a radical change as originally maybe that has been expected many, many years ago. Now to the last part of your question. We have work to do in here. We think on the premium side, we are keeping track. But on the value side, which is a much smaller portion of our portfolio, we still have work to do. We exited some geographies. We have scaled down. In our core US market, we're gaining momentum, but we have some additional opportunities through a disciplined commercial execution and essentially potentially inorganic activities to get our overall implant business to perform at the minimum within the market and over time perform above market in the coming quarter and years.

Very helpful. Thanks. And maybe just one quick follow-up. I think you said wire and brackets is growing double digits way above what we think the market is growing. Can you just dig into that a little bit more? Is that more of a developed or developing market driver behind it? Thanks.

Yes. Happy to do it, John. So, let's just take a step back and take a look at our overall orthodontic business. In Q2, compared to 2019, that business grew 30%. So, the combination of bracket and wire as well as the clear aligner. Our bracket and wire is differentiated. And then, the combination of a solution that we have puts us in a really good position. We focus on the same customers. We're going to market with the same team and they are dealing with the company, who has been focused on that segment of the market for decades. Now, let me answer the bracket and wire question. That market has been growing mid-single digits for many, many years I'm sorry, low-single-digit for many, many years and we have proven and shown that our business continue to take share. We used to perform pre-pandemic mid-single-digit. In the last ever quarter that business has been growing double-digit. And the driver behind that focus is three areas, the driver behind that performance: One is innovation. We continue to innovate in this space. The Ultima system that we introduced at the bank at the end of Q4 in the past six months has taken significant momentum as people see the finish, touches and the capabilities that they offer, they continue to use that system. Education training as well as the network that we have, people follow their coach and mentors and they follow what is the best practices in this market. Orthodontists, who are well known in the industry, that demonstrate better finish, better performance and they teach it to others, not only in the United States but across the world. And we are fortunate to have a network of a capable orthodontists that they're really committed to patient and taking care of the patient giving them the best possible solution. And last but not least, the diversified business that we have. 70% of our business is outside the United States. In the past quarter, our developed market performed a lot better than emerging market. But the fact that we have a diversified business in different geographies really helps us continue to see momentum in that business. Now add clear aligner on top of it, I think we've got a differentiated product and capabilities in here that makes sustainable growth in reality for us to come for years in a double-digit format.

Excellent. Thanks for all the detail.

Of course.

And our next question will come from Jeff Johnson from Baird. Please go ahead. Your line is open.

Thank you. Good afternoon, guys. Maybe a clarifying question on guidance and then an equipment question. So, Howard you guys have done $288 million in adjusted EBITDA now through the first half. And if I go back at least in 2018 and 2019, and I know it's a short window, but typically that's about -- first half is about 45% of EBITDA. So, if I gross up that $288 million, I get well over $600 million. I know you're talking about $40 million -- or $30 million in incremental investments plus travel and other marketing costs coming back. But can you really spend that all the way down to the $500 million in EBITDA. I think you were talking about last quarter, or is there a little flex in that $500 million that you were talking about last quarter at this point? Thanks.

Yes. Sure, Jeff. I think that -- yes, we continue to outperform and we saw that here in the second quarter as well. And so, we anticipate that our EBITDA margins will be in the high-teens. And you did call out properly that we have some pretty substantial growth investments that we're contemplating here in the second half to ensure that we have sustainable growth long-term. We are going to increase a lot more of the customer-facing activities whether it be the training and education sessions that Amir has talked about, as well as more of the marketing activities broadly. And then, we do see a little bit of seasonality certainly in the third quarter something to bear in mind as Europe and parts of the US also go on holidays. And so, we'll see a little bit of softer revenues and associated EBITDA in the third quarter. And then, it'll step back up here in the fourth quarter where we do typically have robust sales and one of the highest quarter of EBITDA margin. And so -- we feel good about our positioning. Again, a reminder here Jeff is that, we are looking to go ahead and drive that EBITDA, 300-plus basis points from where we were in 2019, and so we feel good about the progress we're making. And as Amir indicated, we're not going to put any ceiling on this thing. We'll continue to drive efficiencies and greater profitability as well as we look to 50 to 75 basis points on a year-over basis consistently.

Yes. Understood. Thank you. And maybe Amir a bigger picture question for you. On the equipment side, we've heard some mixed checks or we've had some mix checks over the last quarter or so on supply constraints Schein today, obviously, on their call was saying that's mainly basic equipment. We had picked up from a couple of distributor reps we talked to maybe some shortfalls in inventory and a couple of KaVo imaging lines. I don't know if that's chip shortage or maybe it's not even a shortage at all. So, anything you could address there? And can dentists who might be loyal to KaVo imaging unit if they wanted to another if there are those supply constraints. So, anything we should think about maybe over the next couple of quarters would be helpful? Thank you.

Yes. Thanks Jeff. Simple answer we haven't seen the shortages that people have referred to. Our supply chain is fairly solid. Our delivery continues to be exactly as what we promised. And in fact, we have made significant progress again use of EBS, specifically around lean going to our cell modification and taking waste solid to system. Our procurement team has done a just outstanding job diversifying our supply chain. We haven't seen it. We haven't seen it. We are committed on delivering and customers want those products and we continue to work with our distributors to make sure that they have proper inventory in the channel. Inventories you mentioned that Jeff are in the best possible position that we have seen and we have talked about it for a long period of time. And in the past several quarters, the sell-in and sell-out matches, we have real good visibility of what's going on in the inventory, and we have been able to manage through that and get ourselves in a far better place going forward. So, that's from a distribution as well as a supply chain perspective. Our equipment has performed far better honestly as we had expected. Only 12 months ago, we thought that this is going to be a challenging business, but that has not been the case as Howard described by each segment, we have seen good growth in here. And we are optimistic that we can maintain that as we go through the second half.

That’s great to hear. Thank you

Our next question will come from Jon Block from Stifel. Please go ahead, your line is open.

Great. Thank. Good afternoon guys. The first one maybe just on N1, I don't know if I heard specifically but is the late 2021 timeline for US approval still intact? And then when you guys talk about a hands-on environment needed to ramp with this product I'm just curious does the current selling environment allow for that in the US? In other words, if the product were to come and get approved, is this an environment that would allow you enable you to ramp considering that hands-on component that you guys alluded to? And then I just got a follow-up.

Yes, of course. Thank you, Jon. So, we're in the midst of discussion with FDA going through that process and answering question as it comes our way. This is a completely different procedure and protocol as I mentioned. We have gotten a lot of approval in various products in the past six months or so. But since we are going through a completely different set of product categories, the expectation is that this is going to take longer and we have assumed that end of 2021 beginning of 2022, this product would be available to us going forward. We remain optimistic that we may get that sooner. But now the answer to the question of training. When we talk about training and we have done that now enough in Europe that we have a good track record. We have a small group of people about 30 of them that they were part of development process and these individuals they're really familiar with the product, they can teach it, they can coach it, and all we need is a group of 10, in some places, five people. They come to the training and we walk through that and somebody places it. And the coach and the mentor overseas it and teach them and make sure that they are going about the protocol correctly. And then we stay informed our team as well as that small group of people who have been part of the process, continue to teach them going forward. We did a very similar process with -- again, I'll remind you all for Spark, we started with a group of five and then we extended. At some point, the cohort became up to about 30 people. So as soon as we get that approval, we are now geared up to be able to do that. We have people signed up, and Howard talked about investment. We have chip-building capacity and investment not only on the CapEx side, but also on commercial activities training opportunities for us to be able to do this in a very rapid format. And get the five, 10 people up to speed and continue to add that every week another five or 10 people. We think that approach with the volume of those oral surgeon placement would be sufficient enough to expand our position in the market very quickly. As we have said all on, we are not really counting on N1 to have an impact in 2021 in North America. We think that approach will put us in a very good position to get to mid single-digit performance and eventually to high single-digit performance on our premium implant over time.

Okay. Great. That was great color. Thanks. And maybe shifting Howard maybe more for you on the capital deployment side. Obviously, the balance sheet is in a very different place for you guys than 12 months ago. So just help us with what the environment or the ask is like out there? And our checks keep on identifying the scanner as by far the most desired product among dentists, you had huge iTero sales in 2Q, Schein this morning called out the standalone scanner. You talk to us if you're pleased with the current structure that you have with partnerships, or more broadly speaking could this be an area that could be bulked up with some M&A activity? Thanks guys.

Yes, Jon maybe I'll start with regards to kind of our balance sheet and the strength of our balance sheet and then turn it over to Amir to talk a little bit about targeting and the like potential M&A activity. You're right. We clearly are in a really strong position here. Our net debt down below $900 million our leverage ratio at two times. And certainly, even with regard to some of the financing changes that we've done position us well with the equipped revolver as well. And so that being said, we'll be prudent about the process as it relates to making sure that we make acquisitions that make sense for us. And we'll continue to look at things like attractiveness of the market segment, strategic fit and then making sure that the valuation hurdles that we have are met as well as it relates to any of the M&A activity. And what that means for us is really a path to get to cash-on-cash returns in the double-digits in the near term and beyond that in the longer term. And so we remain focused there as well.

Jon, I'd like to answer it by addressing three specific categories. First, a few years ago we took a step back and said, we have to protect our core business: imaging, equipment, instrument, consumables, implants, Ormco ortho business. Yes. $2.5 billion to $3 billion worth of businesses that needed to make sure that that core business performs, it's competitive, make sure that we are able to compete on a product-by-product category. So we put -- as we have said, almost $500 million over a three-year time period to make sure that the product categories are up to speed. When we went through that process, we recognize if the core is not in good place, it would not be prudent for us to start looking at adjacent markets and categories that we are not in. As soon as we got that in a good place and you have seen the outcome and result of that, we sort of look at how do we get to market as quickly as possible. That's the second-prong approach that we took and signed a series of agreement with a couple of suppliers, and we started offering those in various geographies. We have it today. It can do with relationship with 3Shape as well as with Medit. And we are offering a two-pronged approach in various places to make sure that at least we are not handicapped dealing in segments that we are competing on implant and ortho part. Those products are available. We are integrating them with DTX and making sure that our sales force has ability to offer in every geography. Our third approach is we are going to have our own product, a product that we control roadmap and eventually is part of our portfolio and we're looking at all alternatives. Early investment, partnership, collaboration, as well as essentially other approaches -- inorganic approaches to get that product in our portfolio, because as you mentioned it is an important part of the diagnostics workflow and we want to make sure to give our customer differentiated product and solutions.

Thanks for the color.

Thanks Jon.

Our next question will come from Elizabeth Anderson at Evercore. Please go ahead. Your line is open.

Hi guys. Thanks so much for the question. How are you thinking about the growth in infection control in the back half of the year? We've heard a variety of things from different players, but you guys also have a slightly different offering in that category and a slightly different client mix. So, if you could talk about what you see and what you think about in terms of the back half of the year that would be helpful?

Of course. Thank you, Elizabeth. So first it would be good to talk about what we offer versus I'm sure you're hearing a lot from other people in a different segment of this market. We're not focused on consumable business. We are a professional med tech company offering product specifically even on infection prevention to professionals to the dental industry, to the medical industry to the point of care. We have never been in the consumable segment. And that's -- you see a lot of volatilities in that segment for good reason. We have talked about three things that make our product categories differentiated. The first part of this was we have over 50% market share in dental and there is significant opportunity for us to expand that because 80% of that business in North America. So we have a series of initiatives in Europe other geographies to get our standard product expanded. So opening a new front expanding in different geographies. Medical. We have less than 10% market share in a market that is a lot bigger than Dental. CaviWipes too gives us an opportunity to really participate in that segment demonstrate the efficacy of our product tell the go-to-market strategy that is differentiated and provide professional med tech solution. And this is an area that we have plenty of runway. And last but not least this is about innovation. We continue to innovate in this space get products through approval process geography by geography state by state. So we expect the growth to continue. However, we have said that before Howard mentioned it as well that eventually this is going to get a slowdown to a more of a mid-single-digit approach over time. We have had a really good first half. Our capacity is in place. Demand is coming back. But we are optimistic. We're optimistic that -- as you recall we had about $170 million business in this segment in 2019 and we said that we want to add $100 million over the next couple of years, replacing the products that they were not growing they didn't have the right margin and we are on track to be able to do that over the next year or 2.

That's super helpful. And then in terms of the back half of the year can you talk to us a little bit more about what your COVID assumptions are in terms of returning volumes or however you best think about that? I know the situation is fluctuating but it would just be helpful in terms of framing the guidance?

Yes. Sure Elizabeth. This is Howard. So yes, I think our expectations going into the second half is that we're obviously monitoring all these new variants with regards to the delta and the impact that it's having. And we get updates regularly from all of our geographies to let us know exactly how things are working their way out. That said we're still generally optimistic about the environment. We think that volumes in terms of patient volumes have improved to pre-pandemic levels and particularly in the developed markets and in China. And while we see pockets and emerging markets probably coming online a bit slower, we have seen some pickup and rebound from the pandemic lows of Q2. And so we anticipate that trajectory to continue to improve here in the second half. And that is some of the reason why we do provide a broader range even in terms of our revenue between the $2.8 billion and the $2.9 billion for the full year.

Thanks. That’s helpful.

And I will turn the call back over to the speakers.

Thanks Amir and thank you for joining us on the call today. This concludes our formal comments and we look forward to speaking to you soon.

This concludes today's program. Thank you for your participation and you may disconnect at any time.