Envista Holdings Corporation (NVST) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining for our next session. My name is Nathan Rich, and I cover the dental space here at Goldman Sachs. We're very pleased to welcome Envista, the second largest dental manufacturer globally to our CEOs unscripted conference today. We're joined by the company's CEO, Amir Aghdaei. Amir, thank you so much for joining us. We really appreciate your time this afternoon. Before we get started, I'd just like to remind the audience that if you would like to submit a question, you can do so through the webcast or by e-mailing me at [email protected].

Amir, definitely a busy end of the year for the company with the acquisition of Carestream's intra-oral scanner business. You finally got the FDA approval of the N1 implant system, completed the KaVo divestiture early in the year here. Maybe to start with the Carestream deal, then we can hit a couple of those other topics as well. But could you maybe just kind of level set us in terms of what attracted you to their intra-oral scanner business. What about their kind of current installed base and kind of positioning in the market made it the right fit for Envista?

Yes. Thank you, Nathan. Thanks for having us. As you said, it was a busy year, last year. But -- Just before I answer the Carestream question, this is a single product category that is growing the fastest in the dental market, outside aligners. It's about a $1 billion market, it's growing almost 10%. And when you look at the penetration, 1.8 million dentists worldwide, the penetration is not even 15%. And the ROI of buying a digital impression thing is becoming more and more viable. And so even if you're not an oral surgeon or a premium orthodontist, using the traditional impression materials and doing a lot of that and then send it to lab, it's tremendous amount of inefficiency in the system. So it's a product category that, by itself, is becoming more of a standard of care in all offices. So that's the first point in here. The second point of why we were interested and we have been at it for the past 4 or 5 years, and specifically, in the past 18 months, with the distribution of [ made it in ] 3Shape is integration of IOS into the implant procedures as well as ortho is becoming a kind of a standard methodology and we were lacking that capability. So we started looking at all our options. We have put some money down a variety of different early investment. We have been looking at various options. We know Carestream extremely well when they put the business into the market in 2016. We looked at it very closely, and we have had a great relationship with them in the past 5 years. The product is 1 of the top 5 products in the market. So from a technology IP perspective, it is very well received. The challenge that it has had is doesn't have the scale, and it hasn't been integrated to these procedures that we talked about. When we looked at it and say, given what we can bring to the table from a EBS perspective, margin improvement, continuous improvement on quality and delivery, integration with our software DTX plus the channel that we have. We have 3,400 salespeople, 1,800 of those are selling direct, significant channel and DSO access. We thought this product would be a great addition to our portfolio, and we can scale that up pretty quickly. That was a rationale behind it. And of course, the deal is not close yet. But so far, all the due diligence, all the work that we have done had validated our hypothesis.

And where do you see the biggest opportunities for the growth of Carestream? I mean, $60 million of revenue on a $1 billion market, mid-single-digit penetration, it seems like it could be a lot higher from that over time. I guess what's the plan to scale that business once the deal closes.

Yes. So first, we've got to look at where do they get that $60 million, the currently installed base. 70% of it is outside U.S. And Carestream go-to-market even outside IOS within imaging has been a kind of direct with the single distributors in the U.S. Our approach has been a kind of a broad distribution. We think the biggest opportunity for growth is to put it through our distribution channel, but also give it in the hands of our direct sales force, and integrate it into what we do on the implant as well as in ortho. And then we have a significant business in DSOs. We think DSOs would be another growth factor for us. Combination of those three plus continued enhancement and investment in the product, I think, is going to make that an important part of our overall portfolio offering as a stand-alone product, but also as the procedures that we are putting in place.

And kind of in that way in, Amir, you've talked about the importance of diagnostics in terms of driving case acceptance in the past, especially for specialty procedures. I guess do you have a sense of like the tools or the offering that you can kind of put together to help practices increase acceptance rates? Because I feel like that would be a key part of what the value proposition of Carestream or kind of a fuller offering it could be.

Nathan, you're absolutely correct. And maybe if I may take a step back and take a look at that impact as a whole. Placing it to you, normally, we think about titanium and screws. But if you click back up, that market is about an $11 billion market, and it's growing double digit. The moment you walk in, the first thing they do is get a 3D panoramic or IOS, then use software, try to kind of plan what the implementation look like. Majority of the DSOs is in a little bit of a sideway is $160 billion, $165 billion would be spend in U.S. 20% of this is going to DSOs, $30 billion to $35 billion of it. The average acceptance of the DSO, some are extremely above norm, but the average is about 25%. But the acceptance is that out of every 4 customers that they walk in, they get a diagnostic, one out to those goes through the procedure, the other three, they walk out. Every percentage improvement is going to have a significant impact, several billion dollars. So how do you get the acceptance to go out? This imaging capability to be able to give you as a dentist, the confidence that the best possible solution is this, and then give you a second opinion. But at the same time, tell you what the torque is, what's [indiscernible] is, what implant took place. And then going back to that $11 billion is a whole set of capabilities that needs to take place, diagnostics, planning, the placement on the implant, the regenerative material and then sending it to lab. If you can really simplify that process, optimize it, you get the acceptance rate to go up, you expand the market significantly. Our goal is to be the #1 player in that end-to-end solution. The IOS is going to do a significant advantage. We have a lot of these pieces in place. We need to do more and more investment organically and inorganically to be the premium supplier in that space.

And it seems like there's a lot of opportunity because I'd have to imagine the overlap between maybe what I'd call like your kind of core implant customer, orthodontic customer, relative to Carestream's user base must be pretty low. And so you'll have a lot of shots that would seem to sell Carestream into these users.

Yes, you're absolutely correct. First of all, the penetration is pretty low, which we are outside the IOS, we're the #1 imaging player worldwide and it's because of the tradition that we have had the product categories as well as the channel that is in place. That gives us an opportunity to sell the product as a stand-alone product through our imaging, the channel, and capabilities but also start putting out part of the procedure with our implant business, with our ortho business, with the Spark, with the aligner business, we can sell those also directly to those customers. And then supporting into our DSO channel. So you got 3 different dimensions that you can go after and try to kind of add this significantly, make that a really important part of the portfolio. but also continue to improve that acceptance rate, continue to show that there is investment has that return on investment pretty quickly for a single dentist or DSOs over time.

And then for the company, what investments do you think need to be made to integrate Carestream with your other products? I guess, how quickly [indiscernible] that can be brought under the Envista umbrella?

So the first part to add, and Howard and the team have been looking at this, and thanks to my due diligence team is about -- it's a codeword. You got to take it out of the [ CD&R ] and like Carestream. So a lot of IT, ERP, manufacturing, kind of a carve-out, about 200 people come in with it. So investment around the carve-out to make sure they can operate independently. Second level of investment is about R&D. What we want to do, we want to be able to integrate it into our DTX capability. So it is a procedure sort of a stuff. The product itself today is a really good product. It has a range of 3,600, 3,700, 3,800 various price points. And then the market, it starts at 15 and goes to 50, we can extend that to be able to buy it as a stand-alone and the rather premium -- premium value and also to integrate it. So put R&D on it to extend it. And last but not least, this is our channel, marketing, channel development, training and education. Those are the 3 areas that we are going to put some significant investment and really build this up as quickly as possible as we integrate it into our current portfolio.

And just lastly on Carestream and then move on to some other topics. But I guess would you expect kind of the growth for the Carestream business once you integrate it to a kind of be at least at the market that double-digit growth that you cited?

Absolutely. And our goal is actually out do better than the market, outperform the market. When we have a set of standards, Nathan, in our own process that we normally measure investment on ROI standard 5-year time period. And we want to see that ROIC, return on invested capital to be at 10% by 5. In order to accomplish that, 2 things got to happen, one, growth got to accelerate and the margin, and we think we can improve the margin. By the way, the product today, EBITDA of the product is better than norm in Envista, it is above fleet average, but we think we can improve the margin. So that's 1 aspect of it. The other part of it is that we haven't yet fully integrated is around integrate into other parts of our business to improve our implant business to improve our ortho, both clear aligners as well as the traditional bracket and wire. I think that's another dimension that we can tap into after we get the basics in place. But our intention is to outpace the market.

Makes sense. The other news, as I mentioned at the tail end of the year was on the N1 approval. And so can you maybe just talk about the plans to start commercialization of N1 in the U.S., now that you do have approval?

Yes. I'm going to refer to Spark, and I tell you why I did that. We started it in Australia. When we got it approved in the U.S. rather than going and doing a big bang launch like iPhone launch, what we decided to do, we're not going to do that. We're not going to take a cohort of a 5 and 10, training them, make sure that they're really comfortable, get them to the third case, go to their office, make sure that everything is lined up. Orthodontics play an important role, but each one on the 7, 8, 10 assistant to make sure that they are onboard and then ramp them up. As you recall, we made a promise that we're going to get to $100 million run rate in 2022. We passed that milestone in November of last year. We got to $100 million run rate through this cohort expansion. And so N1 exactly the same thing. Sign up group of 5, 10, take them to an area that they can place 5 implants themselves because this is a very different than well active, show them the procedure, the protocol is different, the [ bulkman ] integration is different. Do all of that, go to their offices, make sure that everybody in those offices are really comfortable and then extend the next to the next cohort. There's only 1 major challenge in here. This is oral surgery. You got to go to a surgery setup. If it's a one-to-one, it's a bit easier. You want to take 5 or 10 people to an OR, with Omicron and all that, it makes it a little bit more complicated. That's the only factor in here that we've got to manage through. But our launch plan is exactly as I described. We have done that in Europe, has been slower because of the shutdown and open up and all that. We're going to do that in U.S. starting now, sign up the cohorts, train them, and teach him, and then expand it as we go forward.

And are there lessons that you learned maybe outside of COVID from the launch of N1 in Europe that you can apply to the U.S. in terms of like what might have worked that would maybe help the launch kind of take hold a little bit faster?

So there are 2 group of people that is the place impact. I'm talking high volume, not one average. One group is a network referral piece. So I can tell you, in Portland, Oregon, Jay Malmquist is 1 of the best oral surgeon in the world. He has a network. This network of referral, they send a lot of implant to him, but they tell them, what implant he places because they have to get the restorative back. So that's 1 group. The second group, what we call the TSPs, walk in, they have a network, they have -- they can place whatever implant they want because they restore it. And they, originally, we put a lot of energy around that network piece because those are the original Nobel customers. But we recognize that you have to train all these other people, referral come into on. And given the COVID situation, that became really complicated. What we found out that the TSP stores that they are kind of independent, they're ramping up a lot faster because they didn't have that referral network. So the key lesson for us is in a corporate environment, we're better off to start with these group of people. We still need to train this oral surgeon with the best of the best. They got to teach and train. But for ramp, we are better off to start with those TSPs in the COVID environment because we can train them. They can become independent. They can ramp up pretty quickly. And then as environment more stabilizes, go back to the second group. That's a key learning that we learned in Europe purely because of COVID, not because of anything else.

And is there any other, I guess, feedback that you've gotten, having been on the market in Europe, just in terms of as we think about kind of iterations here, any you've gotten back from customers. And also if you could comment on just what the overall response has been to pricing and how you've positioned it because I think N1 was positioned to be a premium product.

It is a premium product. Pricing is higher and interesting is, you wonder why is that? Because the intention is you're going to get a product that is a lot easier to use, right, on 5 or 6 [ drill ] to 1 or 2. I've seen being placed in 10 minutes. And in some places, all that noise, you don't even hear it. And the healing time is a lot faster. So all of that is in place. But you take a look at it and say, what are we hearing? Implant by itself is part of the equation. You need to have all the prosthetics that goes with it. So you've got to be able to not only treat 1 specific placement of 2, you're going to be able to do full math. You got to do all of that. And we are keep adding to the portfolio, keep adding to the portfolio, and that's a really important part of that thing. They want to see the overall portfolio. The other thing that this attachment and the Nobel Active, that attachment is 50% or 60%. In N1 because of the IP protected area is 100%. But you've got to make sure that you have all different, long, short various pieces. So adding the portfolio has been the most important part of this thing. You're going to give me a product that answers everything. Not only 1 specific set up. And we are keep adding to the product portfolio. There's a whole set of launch of a new product that is taking place in Q1. The other part of that, that has been really interesting is services. Xeal and TiUltra. These services now about 30% to 40% of all of our implant now, they have these new services. They are a lot easier for integration, higher penetration, and that has been an important part of launch of N1. Within the time [indiscernible] go with N1, but all the N1 really uses that service, and they are beginning to feel like this combination is a really powerful combination. So we're trying to kind of tie it together as much as we can.

Makes sense. And I guess putting that together, we talked about IOS. We talked about implants, you also have Spark, which I want to get to. But I guess, at a high level, you've laid out a target of mid-single-digit organic growth for the business, potentially even a little bit better than that as you oriented more towards these growth categories. How should investors think about the buildup to that growth rate? And I think if we look at this past years, as an example, innovation, I think, contributed in the neighborhood of 200 to 300 basis points. Does that become a bigger portion of the growth when we think about these 3 categories going forward in terms of how we should think about what innovation or specific to Envista versus what might be market growth within that long-term outlook.

We made a commitment that we want to build a mid-single-digit growth company with a 50 to 75 basis point of a margin improvement. In the past 2 years, since we have come out of Danaher, we have gotten to mid-single-digit growth, and we have over 300 basis point of a margin improvement in less than 2 years. So we have gotten ourself to like a 20% EBITDA, mid-single-digit growth. The year is not closed, we can't tell you what it's going to look like. I am not providing guidance. But what we can tell you is our intention is to every month, every quarter, every year, to improve that as we go forward. We want to build a business that it is totally differentiated and is improving both on the growth as well as the margin, year after year after year. In order to do that, take a step back. So what would it take to do that? First, you got to be in the right market that allows that to happen. I painted a picture of $11 billion of implant per study, it is a $5.5 billion, $6 billion of ortho. We want to be the #1 #2 on both categories. Those -- both of those categories are growing double digit. And we want to be able to make investments this year to set ourself up organically and inorganically, so we can continue to get ourself a single-digit plus high single digit, 50 to 75 basis points. In the next 3 to 6 months, we want to be able to paint a picture for you, what the 2025 of our industry look like? Looking back in the past 2 years, we have done a lot of heavy lifting to shift the portfolio position now. I think now is the time for us to tell investors, tell the market what the future of this company is going to look like. We're pretty bullish about it. We think that the changes that we have done, the team, the culture that we have built has really put us in a position that we can create a differentiated product category solution in this segment that is different than just selling a specific product. Its focus on the customer, its focus on the patient. How do I get specific dentist to treat more patients better at the end of the day to create more value, to be able to make more money to take oral care give better access to people worldwide. And that cause, I think, is coming to focus with the things that we have done now.

Yes. And I guess the other kind of follow-up to that is you talked about pulling forward the 300 basis points of margin expansion. I guess, do you feel like the cost structure and also the capacity that you have to service that growth is in a place where you'll be able to kind of leverage the infrastructure that you've built coming out of Danaher. And so you'll see kind of a nice margin or incremental margin on the top line growth that you get.

I think this is Howard and I constantly having this balance. Do we want to deliver 1 quarter and do really significant thing? Or do you want to build the business for ages. And we normally go to the latter part. This year, we have a significant opportunity to continue. I told you, we just passed the $100 million run rate. How did we do that by getting ahead of investment? We build a whole lot of capacity. We have enough capacity to serve it [ 2020 ]. Now we're beginning to build capacity and manufacturing, but we're going to put tremendous amount of resources on the ground, channel, sales, marketing, digital specialties, and then take Spark to the emerging market, take it to the different geographies, take it to DSOs to really ramp the growth take them in 1 capacity, build capacity, put resources around it to be able to build that over time. The shifts that we have done inside, we took about $120 million cost. We feel really good about where it is, but there is opportunity for investment in the long run. And the challenge is to make the investment now in order to make those growth happening. We are a student of Danaher business model. We have put the head down, steady investment, build it for the long run and then deliver, quarter after quarter after quarter. That's what we want to do. We think that we can make a lot of investment this year purely on growth. Infrastructure is in a really good place. There's always opportunity for improvement. But let me give you 1 example when I say in [indiscernible] what that means. Last year, we built a complete factory in Mexicali. We hired 1,500 people. In 9 months, we built capacity in manufacturing, we got approval. And by November -- by December, we start shipping the first set of Spark [indiscernible] factor. We did all of that in the middle of COVID. And that's the kind of investment that we are talking about, investment that allow us to really build in one, build the IOS piece. In order not to be just a me-too product, a differentiated and R&D continues to improving our margin but it should be a significant growth factor for us in the long run. And there is room for improvement, both on a margin improvement as well as why we are balancing. But 1 of the leverage level that we haven't used as much and now we're in a position to do this acquisition. This is the first one. We think there is a lot more that we can do in 2022.

Yes. Great. And I guess, maybe sticking just with capital deployment since you mentioned it. I think post the Carestream deal and with the proceeds from KaVo, the business will still only be about onetime levered. So to your point, definitely additional capacity to do M&A. Could you maybe just talk about where you feel like some of the white areas are where you think you can kind of complement with that acquisitions?

So let me comment it from 2 different dimensions. Dimension number one, if I look at the fastest-growing categories and where we are under-indexed, IOS was 1, valuing implant is the second one, region is the next one. Last but not this is on software AI. Those are the 4 categories. Now let's go back to that $11 billion of end-to-end. We've got a really good premium implant. We've got a great software. We've got a great diagnostics. We are under-indexed, under value. We're under index in region, we are under index in prosthetic. In order to build those so you can come together. Let's go back to $5.5 billion ortho business. We've got a great bracket and wire. We've got a great diagnostic. We've got a really good product with this Spark, material, AI software, the things that we can add to it. And then emerging market. It took a pause in emerging market in the past 2 years, we were growing really rapidly, the big investment, 70% of our Ormco business is outside U.S. and there is significant opportunities. They're going to come back. Maybe it's going to take a little bit more time. And how do you do that? Through expanded channel development, registration, infrastructure building. And some of these top 20 metropolitan cities in around the world, that's where the money is going to be. As for the young, middle class is going to come together. That's where they're going to invest, but that is to come. And we got to be a little bit that foresight of looking at what the future is going to look like in 2030, and we're going to start building it now. So product categories as well as the infrastructure and capability. That's what we're looking at.

Makes sense. And is there any more pruning to be done? I know that you definitely kind of cleaned up though and reoriented the portfolio more towards growth. I mean are there other categories where you may be looking to prune a little bit from here?

So let me just go back and do a compare and contrast, when we came out of the 50%, 50%. 50% of our business was equipment and consumable, 50% was specialty, and we said that specialty is a 10% higher margin resolved direct. Before the IOS, 60%-40%. Now 60% of our business is specialty, 40% of our businesses with IOS, the KaVo, that's going to continue to shift more and more direct. 85% of our business, Nathan, now is consumable. Even the product that we sell in an imaging, less than 10,000, 15,000, we can ship it directly. We give you a license, you call us IoT, we launch it on a sensor or a handheld product and you're good to go. So we have done that shift completely. Portfolio management for us is an ongoing exercise. We'll look at it continuously with the Level 1 team with President, Howard and I, Stephen constantly looking at it. Where are we advantaged? What's going on in the market? Where can we be differentiated. And if we're not, then we shouldn't be in it because what it does, it really takes resources and energy in a portion of the business that doesn't allow for us to put it in areas that the growth is going to happen. We don't have an immediate target that we're going to go to, but we're looking at it continuously. Wherever we are advantaged, wherever the market is, wherever we can monetize that advantage, we're going to double down on it, similar to Spark and N1. We are not we're probably better off to put in their hands of some other people that they know how to do it and their advantage. We really feel good about the KaVo divestiture because these customers are our customers. We got to keep our head high and feel good about. We put it in the hands of Planmeca, a company that really has the same sort of values that we do. We make sure business is in a great shape, the very last day that we were accountable for. We're going to continue to run it. There are TSAs that we're going to continue to manage, working with them. We're looking at the long run. We're a strategic player where we want to make sure that when we make a commitment, we deliver on it, and not just buying and selling businesses for the long run.

Great. Maybe pivoting to a couple more macro questions. The -- I think the one thing that was surprising in '21 was the speed of the recovery in the dental market. And really with volumes kind of at or near or even above pre-pandemic levels, especially in the U.S. for the bulk of the year. I guess as we look forward, do you see some of the tailwinds that have driven that rebound in the market and sort of dentistry and greater focus on oral health like continuing? And could you maybe just touch on kind of the major geographies? You kind of alluded to emerging markets maybe being a little bit behind. But when we think about U.S., Europe, and then emerging markets, kind of where each of those stand in terms of the recovery and outlook from here?

Let me give you a single answer and then I'll break it down for you. Volume is pre-COVID. And when I mentioned volume is patient volume. There was a little bit of that December. But what we see -- what we hear, what we do a run rate, DSO, is pre-COVID. But I think there is a significant shift to phase 3 in COVID. First, everybody became really, really negative about delta. Nobody is going to go to dentist ever again. And then I recognize hey, this is 1 of the safest places to go to. And then Zoom effect or a lot of us traveling all the time. Now we can take an hour and go see a dentist. And then focus on aesthetics. You're not spending a lot of money traveling and all that. Let me see if I can do some improving my own look and all of that. But outside of all of those, it's as great and valid. I think there is a significant shift that's taking place. And driven by some macro trends. If you take a look at a low body invisible aligner, aligner has done to this market. They've been around for 15 years. Now we have a $3.5 billion, $4 billion market that didn't may exist before. And it's growing double digit, it's growing 20%. So what happened? Education, marketing activities that bring a lot of patient. Things like N1, things like DSOs that bring it, there some of the DSOs that did see 2 million, 3 million patients per year. They are bringing a lot of people to the market. We talked about emerging market as we talk about it. I think this industry has [indiscernible] years to come, and it's going to be a better industry than what we saw pre-2019. One other thing I want to mention, the dental industry is behind from a digitization perspective, the use of the technology. The past 18 months really has closed the gap. And what do I mean by that is there were a slow on a 2D to 3D conversion. They were slow on using some of these remote technologies. I don't want to use digital dentistry. But at the end of the day, just use your iPhone before having a fasciitis in bone and sit in dental office for 45 minutes before they just take a picture and send it. As simple as that, now they have the technology and capabilities in place to really close that gap. What that does to the average orthodontics that used to see 10 or 15 patients, they're seeing 25 to 30 opening after hours, working on regions. I think this industry has a lot of opportunity in the long run. And specifically on the specialty part of this industry, aligners, ortho, bracket and wire, implant, endo, and I think it's going to be more and more available, lower cost, and lower cost, it's not because products are less expensive because they're a lot more efficient, better putting 4 implant per day, doing 5 and then spending a lot of this impression material, all digitized. So you have a lot of raise coming out of the system. Therefore, you see a lot more patients, reducing the overall cost, expanding the market. That's what we expect that is going to happen. We're beginning to see it China. The private segment in China is growing a lot faster than the public. As government has pulled back, putting money on COVID and other places, the private sector is booming. I think that's what we're going to see with the DSO growth in the U.S., hybrid model in Europe. I think this industry has a lot going forth and you're seeing it. The deals that are taking place, money coming in, a lot of new innovation and varies and AI and other places. We are really smack in the middle of a transformation in here. I feel good about macro trends.

And so it seems like that volumes have remained pretty consistent. Even with this recent spike in COVID cases, similar to what they have in pathways, maybe some volatility by markets. But by and large, you're seeing pretty consistent volumes as we kind of exit the year?

Absolutely. So you asked about the geographies. Going back to Europe. For about 3 months, U.K. was just completely locked down. Meanwhile, Spain, Portugal, Italy, was going to the roof. They opened the U.K., there was a demand that was in for 3 months. That picked up quickly while these guys kind of tempered down a little bit. But overall, when you take a step back, it used to back normal. When you look at China, for example, in Xian, you're seeing a significant number of Omicron cases. The Chinese, they don't mess around, 2 weeks they lock everything down, they come down, back up again. So this geography changes that you see in there. And there are still, don't get me wrong in an emerging market, there is still room for that. But we surprised how quickly in India. You remember all those news about India how bad it was. In Q4, India bounced back up and it started growing really quickly. So overall, when you take a look at it. In a global base, back to pre-COVID and I think there is -- we're going to see better performance as Eventually, we learn how to live with this as we go through end of 2022 and 2023. We are excited about it. We're optimistic about what is ahead.

Great. And if I could just follow up on China because I do think there's been a lot of investor focus on that market. Like you said, they have very strict kind of 0 COVID policies. So they -- when they shut down, they kind of fully shut down. I mean you -- it sounds like you see the impact on dental volumes in those cities when that happens, but those shutdowns have been relatively short-lived. And then it bounces back pretty quickly after that. And so to the extent there might be some Omicron cases in a couple of cities there now, you would expect sort of a similar experience to what you laid out?

Exactly. When we have been growing double digit in China, we've got over $250 million worth of business, and we are growing on the premium implant. And we're not seeing anything that changes our view. We think that double-digit growth is here to stay for a long run. There hasn't been any indication whatsoever that there is a radical change in China. In fact, if anything, the private sector is growing a lot faster, and that's where we are really doubled down on training and education, innovation, our 600 to 700 sales people and infrastructure that we have in China has been really helpful for us to be present to handhold and help these people and work with them to get them through the process. People value that, people value that attitude.

And do you have a rough sense of the public-private mix in China? Because the other issue there is the government has looked for ways to control healthcare costs. And one of the ways that they've decided to go about that is with volume-based procurement programs. I don't know that it's impacted, don't know yet, but I think there's the thought that at some point, dental might be 1 area that they look. I'd just be curious to kind of get your thoughts on kind of that relative split between public and private, and just if you have any thoughts on how the government might approach dental care and how they feel for it.

In 2019, if you go back and say, well, what was that mix? It was like a 50-50, 50% of the spending into [ privately ]. And then 2021 that has really has radically changed. A lot more privately that's growing a lot faster than the public, public has been a strong to that. Our business is a lot more private. So -- and one is base purchasing is real, is going to happen in dental, but majority of not maybe all of it is out of pocket. We are in the segment on a premium segment. Majority of these people, they're looking for middle class, high class. We're looking for I'm sorry, Swiss, German, American type of product with that kind of a capability versus you know how that is in China and all that. We don't think it's going to be a major factor for us. In fact, we did hold and I did a little bit of a back on to say, even if it goes in effect, it's less than 1% of our overall impact. So we're not ignoring it, but we don't think it's going to be as big an impact for us, mainly it comes to effect because of other pocket because of the private is because of the premium nature of where we are at. And we're watching it very carefully. We are participating in our kind of surveys and such, but we don't think it's going to be a factor for us.

Great. I appreciate the color there. Maybe I wanted to move over to Spark since we haven't really dug in yet. You mentioned that you hit the $100 million run rate in November, I guess just at a high level, maybe is there the next revenue target for Spark that is in your mind? And when that level could be achieved? And just how we should maybe think about the growth of that product now that you kind of hit that initial milestone.

So we shipped 100,000 cases in November. So I'll just give you a little bit of a feel for 0 to 100,000 case and we know what everybody else has done. We feel really good about how quickly we ramped up. I answered the question, and this intention is not to divert the thing, but I want to paint that picture the same thing that I did on $11 billion. There is a $2 billion bracket and wire business. We have about 20% market share. And there's a $3 billion, $3.5 billion clear aligner, $5.5 billion. That overall is growing double digit. It is not unlikely that, that market is going to be $10 billion by 2025, 2026. We want to be the #2 player in there. #2 we are on that overall piece, and #1 player in the premium segment of this. So how do we go from where I am to that place? I got to grow a lot faster than the market. And in order for us to do that, we've got to make sure that the bracket and wire business continue to take share. That business has been mid-single-digit growth prior to COVID, and continues to operate extremely well, while everybody else is going to [ live-in ] and doing other stuff. We keep doubling down on it. Same group, same sales organization, same software, same capability will give you option. While in bracket, clear aligner, both product, premium product, the best-in-class. I don't think it can be a #2 player in there unless you are at 10% share. And that's our goal in the next 5 years. So that gives you a little bit of a feel for what we see. Is it all going to happen in Q2 of 2022? No. That's why I talked about the investment. We've got it to build the investment capabilities to be able to accomplish that objective. And that's the balance of constantly. Do I want to optimize Q1 and Q2 or do I want to build the business for 2025 that it is continuously building. We go on the latter form. Spill a business that it is sustainable, differentiated, good margin and continue to grow. It is not unfeasible to see us growing high single-digit, double-digit growth in the next 3 to 5 years. And we have made a commitment on a 50 to 75 basis point of margin. We're going to deliver on it. We're going to deliver on it while we continue making those investments. This year, it's going to be a year of investment with IOS integration, Spark ramp and [ long ] ramp. But I think we are going to build a business that is just going to be really different. Our goal is to paint that picture for us in the probably next 5 ways, 3 to 4 months. Tell you what the next 3 to 5 years is going to look like.

And I think that the initial successes, I think, largely come with Damon customers. I mean you maybe talk about like maybe the growth there versus new customers who are new to Envista? And sort of where it is like the uptake of that initial $100 million has been in, if we play that forward, you're talking about very big numbers in a few years from now, like where the incremental opportunity is both in the U.S. but also outside of the U.S. where I imagine there's more geographic expansion to come.

So 3 areas. We started with the Damon customers exactly, as you said, up 2,000 customers in U.S., they're using clear aligner, not give them an option to use a Spark, both as they start expanding as well as shifting their business. Second one, 70% of our core business is outside the U.S. Now we are registering the Spark in every one of those geographies and building infrastructure. In fact, Europe is growing a little bit faster, honestly, in the past probably 3, 6 months in the U.S. because it's new. We're introducing it and ramping it [ pretty quickly ] 3 DSOs. DSOs are going to be a major factor of the growth for Spark in the long run. If it is a standard base, if it's part of your process, everybody uses the same procedure. We've got 2 million to 3 million customer. Just think about 5% of them, they get in clear aligner. That by itself is going to be a significant growth factors. Keep delivering on the Ormco piece, go international, go to the geographies, DSOs. So those 3 factors is going to give us an opportunity to really the next frontier for Spark.

And within that, do you think the brackets business can continue to grow as well. In the context of the broader growth in your ortho portfolio.

The bracket business has grew before '20, before COVID was growing, mid-single digit. We think and during the COVID, we grow double digit. Now we are beginning to see it getting back to normal. Standard is a kind of a mid-single-digit growth. And the market is now growing mid-single digit, Nathan. We've taken share every year, we've taken a 100, 200 basis points of share. We're taking share because of innovation, because of network effect, because of international presence, because of education and training. And we think that momentum is there got an outstanding team, great customer base, a very loyal customer base. They know that we care about their business, and we're not trying to take their business and take it a direct-to-consumer or some other method. This is advantage. This is an advantage that we have, staying with our core customer. Majority of our marketing investment is joint development, joint investment with the orthodontics. We're not spending millions of dollars on ad and other pieces. We're spending our money, making those businesses more productive, more efficient, and making more money for that orthodontist. That's what they value.

Great. I think we are at time with that. So why don't we wrap it up there? Amir, thank you very much for the time. We really appreciate you joining us this afternoon, I mean everyone on the line, thanks so much for tuning in, and have a great day.

Thank you, Nathan.