Envista Holdings Corporation (NVST) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thanks for joining us. I'm Brandon Couillard. I cover the dental industry here at Jefferies. So I want to thank everyone for joining us virtually this morning. This is our 11th year hosting a dental-focused summit. I hope that they will be productive for everyone on the line, which should be a deep dive on the industry with perspectives from a wide range of leading companies and experts in the field. In terms of the format, while I will lead the discussions for most of the day, the event is really for you, our clients and investors. So please feel free to submit questions online or email either myself or my associate, Matt Stanton directly, and we'll do our best to work those questions into the conversations throughout the day. Now to kick things off, I'm thrilled to have the Envista team with us this morning early on the West Coast. CEO, Amir Aghdaei; CFO, Howard Yu; and Head of IR, Stephen Keller. Gentlemen, thank you so much for being here. I know it's early. It's great to see you. We've got a lot to talk about. But maybe to start off, Amir, just to set the stage, I think it might be helpful. If we think back to the IPO in late 2019, going right into the buzzsaw of COVID, a lot has changed at Envista over that period of time. Maybe just take a minute or 2 and kind of reflect on the progress, the evolution of the portfolio since the IPO.

Yes. Thank you, Brandon, and thanks for having us. So it's been 10 quarters that we have been a publicly traded company separated from Danaher, and we're proud of what we have been able to accomplish since September 18, 2019. But to sum it up, when we were coming out of Danaher, we said you're going to see a company that has higher growth, higher margin and M&A would be used as a two. And as you well know, walking in to COVID. And despite of all the difficulties that, that presented, that gave us a window of opportunity in year 1 in 2020. We exited about 5% of our business that really wasn't growing. It was dragging the portfolio down. It wasn't helping us with the margin. So we proactively decided this is the business we do not want to be in. And as you saw in 2021, we also sold -- divested close to about $400 million of traditional equipment, treatment unit, handpieces, great business. But it wasn't really helping us to put a portfolio together to create a competitive advantage in the long run. So the first thing that we decided to do is to shift the portfolio to higher growth, higher margin and more direct. We started at a 50-50, 50% indirect, 50% direct in 2 different segments, and we ended in 2021 in a 60-40 format, 60% specialty direct and as some 40% equipment and consumables. Next thing we have done is continue to make organic investment in some of the fastest-growing part of the dental industry, putting products out there that is clearly differentiated. You saw the growth of our clear aligner. We have fastest-growing aligner in 2021. We reached $100 million run rate in November of last year. We have added significant capacity. We are now registering that product from category to category, product in every region. So growth initiatives that we did organically has really helped us to change a portfolio that was flat, low single digit, mid-teens EBITDA over a 2-year time period, getting it to a mid-single-digit plus and over 20% EBITDA. That transformation has been really remarkable and thanks to 12,000 or so of our employees that have come along with us and creating a sense of identity culture that we want to make a difference in this industry. Last but not least, we have done a really nice job in creating the capital structure that allows us to put tremendous amount of firepower in adding inorganic activities to accelerate growth. The first of those initiatives was last year, filling the gap in our portfolio with IOS, and we have a lot more to work on as we walk through 2022 and years after that. In summary, I consider the past 2 years a foundation building for us, in building a company that is clearly differentiated in a specialty specifically in ortho and implant. And what you will see us doing is continue to increase our growth trajectory. We guided 6% to 8% this year. That's not a ceiling. We think that we can create a much higher growth company over years to come. We guided over 20% EBITDA. We think that that's a step 1 towards building a company that has higher value creation opportunities, not only for shareholders but also for customers and patients by giving them choices. Proud of what we have done, a lot more to do in here. And I think we are in a pretty good place to be able to continue to execute. EBS is the heritage that we brought from Danaher, and that continuous improvement is really alive and well in Envista. Thank you, Brandon. Let me hand it back to you for any further conversation and discussion.

Look forward to digging into many of those new growth drivers in more detail. Maybe just on the current topic at hand in terms of Omicron. What's your real-time view of office visits right now so far through February. You talked about a somewhat slower 1Q start in part due to Omicron. Where are activity levels today in your view relative to maybe last fall before the latest outbreak?

Yes. October, November, business as usual, to a large degree. 90% of our business in Western Europe, in North America, in China, and we have seen a complete recovery. And that 10% was a slower ramp we saw in Q4 that started coming back on emerging market. The last fall of December, the last 2 weeks of December and the first 2 weeks of January, we saw a significant slowdown on our customer base. And the reason for it was a lot of cancellation, postponement of procedures and then a large number of employees, igneous dentists and others not coming to work because of Omicron. Last 2 weeks of January and the first several weeks in February, business as usual. We are recovering, ramping back up. We see interaction that we have with our key customers, DSOs, they're telling us that they are optimistic. They can recover that slower start in January, and we are beginning to see the consumable usage, which is a really good indicator is back to what we expected. So we're not changing our forecast. We're not changing our current view. Within Q1 is going to be a little bit slower, but it's going to recover as we go throughout the year. And the patient volume as what we tend to see is back to normal.

Great. Maybe shifting gears over to Spark. You mentioned the $100 million run rate milestone in mid fourth quarter a little bit earlier than expected. On the call, you talked about tripling that business over the next 3 years. Help us understand where you're having the most success with that product. And if you could talk maybe some numbers in terms of ordering docs or utilization per doc or percent of recent users. And I'd also be curious in terms of the mix adult versus teens.

Yes, of course, you have been with us, Brandon. You know the history of this product. We started in Australia and New Zealand. We got FDA approval in U.S. We brought it to U.S., and we took a very systematic approach, phased approach. The starting point for us was always going after our current customers. We have over 20% share with our bracket and wire. Ormco has been around for 35 years, tremendous amount of relationship in this Damon franchise in U.S., Europe and other geographies. So -- and if you look at the clear aligner market as a whole, about 1/3 of it is orthodontics. They are the one that they know how to really go through a complete treatment of their customers. They don't just sell you -- you don't just send them an iPhone picture and get some aligners, they go through a complete treatment. And in that case, they really use pyramid. They're using 3D, iOS, try to diagnose exactly the problem that you have and do a complete treatment for you. We are a prime solution providers for these professionals. Medtech professionals that they really truly look at dental care as a holistic approach. So we went after those guys. We started working with them really closely. We put them into the small group of 5 or 10, trying them. The bottom up to speed after they got to about 3 cases, we just set them up. And then we use this group to actually be a pioneer and missionary for us to teach other people and continue to add more and more. So after we did this in U.S. with the Ormco customers, we take this model and we put it in Europe. Let me give you an example, and I'll give you a specific, Brandon, so you know how that actually looks. Spain is now the fastest-growing country for us. After the United States, Spain is the largest smart penetration. And wonder why that is? We had a great relationship with orthodontics in Spain. We have some of the leading orthodontics, not only who's been in Europe, they have converted and they're using Spark. When they do training, 200, 300, 400 people show up in their trainings. We track those -- performance of those individual that participate, 30, 60, 90 days, and we see a conversion. We see conversion of those one after another. So this network effect is key expert in the field is having a direct impact in the Spark ramp. So besides the fact that the product is the best in class, and this is according to what they tell us. I'm not indicating something that not we cannot prove. The product meets all the requirements, and it's the one that has been really answering majority of the needs that these orthodontists have had. They have had series of releases over the past 2 years, listening, responding not only on the software, ease of use, material, continuously improving the product. And then using this group of key opinion leader to create this domino effect. So I'll go back to say, yes, how did we get to $100 million quickly. As you know, we started building capacity in 2020 in the midst of coronavirus, Howard and I made a decision that we're going to make investment. We're going to build capacity. We're going to build a new factory. We built a complete new factory. We hired thousands of people. We expanded the capabilities behind the scene, continue to add it. So turnaround, quality, delivery was never an issue. We did -- we took that out of the equation. And then we put the channel resources in place very thoughtfully step by step. So back to numbers. Every quarter, the number of people who are active dentists. What is the definition of active dentist? Somebody who is placing a chase at least once a month. We like to see that to go up continuously. But at least every 4 weeks, they place one case has been going up 30% every quarter. So that's how we measure that practice continue to move forward. The existing dentists, they just continue to use it and ramp up their capacity and then adding new ones that they're going to go through this rack. So this 30% growth has really impacted to a sustainable growth on its part that we feel really comfortable. That's why we say that 3x multiple in the next 3 years. Because of the ramp that we have done, because of the capacity that exists because of resources we have added. This year alone, we're going to invest significant amount of money in field now. Training capabilities, clinical adviser, case approval team, digital specialists, and we're going to continue to do that. Build those kind of capabilities and register the product from country to country and replicate the model that we sell in Australia, in U.S. and Europe to other geographies, a combination of current Ormco user, some of the cheap DSOs that you have seen signed up with us is going to get us to where we need to go over time. And we think the product and capabilities really offer something truly differentiated than what it exists, what it has existed in the market.

Got you. Okay. What are your plans for the GP channel? Do you have plan to go there? Do you need to? Is that on the table at all in the next 3 years?

Absolutely. People are coming to us now. It's gone to a point that, again, I'm using Spain as an example, not to overemphasize it. A lot of these new customers that they're signing up, they're not necessarily traditional orthodontics. They're the one that they are high-volume users of aligners. They see the level of support that they're getting from us, they see the product working. And again, they have a mentorship process in place. But for really complex cases, they are able to refer to people who have been doing this for decades or so. So GPs are coming to us as well. But let's talk about DSOs a little bit. Take any one of these DSOs with 500 to 1,000 offices. Every one of these DSOs, they also have ortho capabilities inside their own network. So we start with those orthodontics first inside DSOs. They teach it to others, and then we would establish a standard process that all the GPs in this network are able to replicate and do Spark. So we didn't necessarily go after the GPs, but this domino effect is the start taking place. And through DSOs, through the key expert, through the training, we're beginning to see a pool from the GPs in getting a Spark implemented in those geographies. And again, you wonder why that is. Product, training and education, the support capabilities. That combination put together, put this in a really competitive advantage. On top of it, being able to provide the bracket and wire, a software that it is the best in class, put all of that together, it creates a set of capabilities that is truly differentiated than anybody else in that market. Our goal is to be the #2 player in the next 3 to 5 years, and the #1 player in ortho channel and the medtech and the professional on the high end of this. And I think we are well on our way to make that a reality.

That's great. That's great detail. A couple of questions coming over the phone lines. Could you just talk -- speak to your exposure specifically to Eastern Europe, any exposure to Russia sort of given the headlines the last couple of days?

Yes. So Brandon, this is Howard. I think that clearly, we're monitoring the situation. Our business in Russia has been a very positive growth driver for us overall. We continue to look at that business. And as you know, things are very dynamic there. And so we'll continue to monitor that. I think that we've had some interactions with the leadership team, even as recently as this morning. And so we continue to make sure that everyone is doing okay and that the business looks like it stays intact, at least for the very short term here.

Safe to say maybe a couple of percent of revenue ballpark?

Less than 5%...

Yes, it's less than 5%, Brandon.

Okay. All right. That's helpful. Okay. Maybe shifting gears over to just the broader ortho segment. I think it's about $500 million of revenue last year, Spark maybe $75 million, so wires and brackets maybe $400 million plus. Is that the right way to think about it? And why isn't brackets have been a very strong business for you, clearly not going away? What's your share in that market globally?

So what is in bracket? It's about a $2 billion market. So your assessment is correct. We're about 20% market share in that area. But the thing, Brandon, to think about the -- let's go back prior to 2020, that market was low single digits, and most of the growth was coming from outside the United States. So -- and we have been growing -- we used to go mid-single-digit continuously. So taking share in various geographies. 70% of that business is outside U.S. Geographies such as China, such as emerging market is really important. And then incredible training education network in there. You wonder why that is. You wonder why is it that this continue to grow. I want to walk you through a math. In the traditional direct-to-consumer, let's say, a clear aligner is $2,000, just as a reference point. Cost of acquisition a customer today is almost $1,000. So you have $1,000 to play with for product, for delivery for all of that. That's why it's so difficult to be able to do that. And when you go to some of the emerging markets, it's really difficult for somebody to spend $5,000 or $6,000 to get a treatment on a clear aligner. And you look at how much a dentist actually pay for those clear aligners. There is -- yes, they can make money, but the number of people who can get that treatment outside the U.S. in some of the emerging markets, it's a very small number. Now compare that to the bracket and wire, better performance, better compliance, a lot less expensive, in getting that from the suppliers as well as the chair time and the cost of the dentists. So it has tremendous on a runway. It has potential. It addresses a large part of the work needs. And out of the 16 million cases that they were done in 2020, 2021 is still 70% are bracket and wire, case -- difficult cases. All of us have different phase structure, different bonus structure. Doesn't necessarily the same thing addresses everybody. The best-in-class orthodontists, they are able to use the best possible combination of solution to address the need. In emerging markets, bracket and wire continue to have runway. And people have -- like to have choices. And we have been able to given those choices. So about 20% market share. The market is growing low single digits. We continue to grow mid-single digit and better as we have done in the past couple of years. Now that combination to sell about $500 million, that's close to the ballpark. Is growing double digit, is taking share and has the opportunity to really go to different geographies and expand. I made a statement that we're going to be the #2 in this space and #1 on the premium part of it. If you look at the ortho business today, $2 billion bracket and wire, about $3 billion, $3.5 billion of clear aligner. This market in the next 5 years could be up to about a $10 billion. You can't be #2 unless you have a double-digit share in that space. And both of these businesses has to grow, and they have to create a competitive advantage for you to be a major player. That's what we see happening in the next 3 to 5 years. That's why we make this statement of tripling what we got today on Spark. And continue to grow at mid-single digit, high single digit -- mid-single-digit plus under bracket and wire. And that combination is a very profitable, high-margin business for us. We have been investing. We continue to invest ahead of it. But over time, in the next 3 to 5 years, this is going to be an important part of the future of Envista.

Shift gears over to the Carestream IOS acquisition. Granted it hasn't closed yet. But you're paying $600 million for the asset, did $60 million of revenue last year. What's your target ROIC on that business? And why are you a better owner of it than Carestream?

So let me answer that first part. Clearly, Brandon, we -- during our due diligence, we wanted to make sure that we're paying the appropriate amount and that we're going to meet the internal hurdles. I mean, first and foremost, I think you've heard Amir speak about the strategic importance of having an IOS. And so -- and doing our due diligence certainly felt like the product was a high-quality product capable of doing what we needed to do, and marries up nicely with a lot of the product portfolio that we have. As it relates to ROIC, I mean, we look at things at double-digit cash-on-cash returns over the next 5 years. I think that, that's well in the ballpark, and we feel like we have plans to go ahead and make sure that that's a reality.

So we know Carestream very well, Brandon. In 2016, when the business was put out for sale, we spent a tremendous amount of time looking at it. And we dissect their practice management system, the imaging, the intraoral scanner. And it took almost 5 years for us to eventually come to agreement and carve out that business from Carestream. You well know that we have had a gap in our portfolio. We have done a lot of work internally, but we looked at the product. Product meets all of our requirements. We did a tremendous amount of due diligence, talked to a lot of people, starting action. It's a great product. So why it hasn't grown as fast as other competitors because of the scale of the Carestream, because of the go-to-market approach. In the United States, just to give you an example, they have a very small share. This is a $1 billion market that it is really underpenetrated. There is 5 to 10 years runway on digital impression. And in United States, Carestream had a hybrid model of selling direct and only selling through 1 distributor. And in other geographies, the go-to-market was not as clearly articulated. This is not only on the IOS side. On imaging, they have had the same challenge as well. So number one, why we are better owner of it, is channel. We've got 3,400 salespeople in every geography. We've got an incredible distribution network. We have a relationship with and a partnership with some of the largest DSOs in the world. We can take this product and take it to those geographies, those customers. Number two is integration capabilities. Product by itself is a really good product. But what do you do with it? You do implant placement. You do ortho, you make it part of your workflow. We are able to now integrate it into our overall offering, 60% of our business is auto and implant. Those people that have an opportunity now to provide an end-to-end solution to their customers. So this integration is another part of it. And last but not least, I'd say, I was sort of talking about EBS and why is that important. We're able to improve margin quality delivery of this product as we have done with many other products, in fact, to make it more reliable, more dependent, higher margin. And I think this is going to play a really important role in our growth trajectory over time. That's why we are really excited about it. And we think the price we paid for it is well justified, given what exists in the market and the choices that are available.

Got you. Okay. Just in terms of integration with DTX. How fast would you be able to really tie that in to the software ecosystem and kind of the imaging and the other technology buckets? And would that require a significant amount of incremental investment? I think you talked about making some near-term investments post-close. Can you just elaborate on kind of what those are and may be quantify them if possible?

Yes. Let me say one thing, Brandon, and then I'll answered that question. We subscribe to this notion of open architecture. We have always followed that approach. We're not trying to close -- create any kind of close system. We are not forcing people to only use our diagnostic tools in order to place implant or get ortho treatment. We accept file from any suppliers any IOS, any imaging. We integrate it into our system. And if they are using [ a mill ] their central lab on a different system, we are able to pass that information to them. We want to give people choices, but having our infrastructure obviously provide better integration. So we have been receiving file from Medit, 3Shape, everybody else, and we're going to continue to do that. We're going to continue to work with them. So this doesn't mean that we're going to move away from that terminology, this philosophy. DTX integration, first as soon as the deal is closed, we can not even, at this point, contemplate the software capabilities. We know they have a lot of that. But we think in the next probably 2 to 3 quarters, we would be able to work through that and provide a fully integrated solution out there. When we take the resources that come with the Carestream, we have to make investment in 3 areas. We want to ramp up the operational capability of that system. We want to add to the R&D. They have a really awesome road map. We want to make that real, 3600, 3,700, 3,800. We want to ramp it up and build a road map for the next 3 to 5 years. And last but not least is on channel set. We can add lots of resources on the digital and integration capabilities, what we have today with [ DTX Implant ], some of the cath count tool that we have and integrate that as part of the overall package. But I would say 2 to 3 quarters by end of this year, we will have that fully integrated. That's our current plan. That's our best estimate until we get a chance to spend some time with them, work directly with their R&D team and then for the really detailed road map together.

Awesome. I want to shift gears for a minute, just touch on the implant business. You got in one out in the U.S., implants are $1 billion franchise for you, strong #2 market share. Can you help us understand kind of the mix of value and premium within that bucket? Just remind us how the share breaks down. And you've made a lot of changes, I feel like, to the implant business over the last few years. Why are you better positioned today than you've been historically? Where I thought Nobel's execution or performance has just kind of been somewhat spotty, really going back to when Danaher bought it.

Yes. So let me give you some numbers first, and then I answer the question. So Nobel has been in the past 6 quarters, every quarter has performed better than the previous quarter. In Q4 of last year, Nobel was growing double digit, not only versus 2020, but also versus 2019. Beginning to take share and beginning to perform this is without any one, just all the changes that we have done. And then the mix of business premium versus implant -- premium versus value is about almost 85% premium, even a little bit higher, 85% higher is premium. And then value, we are under indexed. We have a small position purely mostly in North America. Now so why is it in a better place going forward? We don't look at the implant as a purely a titanium tool. We look at it as a procedure because from the time that a customer walks in, go through diagnostics, we look at it on the planning side, potentially AI tools to be able to compare and contrast to provide the best solution. We look at it as a planning aspect of it that eventually what is the best implant, organize it, place the implant either through guided surgery, through navigated surgery and eventually robotic. We looked at it as a bone graft buying materials. We look at the lab aspect of this. You look at this end-to-end, that's $11 billion market. Premium value all of that works in that segment. That $11 billion market is growing high single digit. It's going to be about a $15 billion market in the next 5 years. We have every intention to be the #1 player in that space. In order to do that, the pieces has to warp individually. They have to be in the best possible place. We need to have buying material, some of it we have, some of it we've got to do inorganically. Nobel now is in a really good place. We've got to add for our value impact. We got some software capabilities and diagnostics. Now we have everything we need. We got to continue to expand the AI piece, and we need to make sure this prosthetic lab linkages in place and people -- offer people the next generation of chairside as well as potentially 3D printing in office. So we look at that $11 billion, we have most of the capabilities. We are really in a good position. We are trying to integrate it together and accelerate the growth of this from high single digit than it is today to double digit over time. That is a $1 billion -- $1 billion is purely the implant product. You add the imaging that goes in there. The lab, the prosthetic, the biomeds, all of that. You add all of it in there, you would see a very different model. And we intend to put that together and communicate that in the Analyst Day in April 1. So everybody understand the difference of what Envista is offering versus what is out there in various different suppliers. We see ourselves as the #1 player in this 2 replacement. The market is underpenetrated, only 20 million implants were placed last year. Less than 14 million people received implant, we see that potential to be 2 or 3x of what it is over the next 5 to 7 years. We're going to have an impact in making it easier, making it less costly and continue to expand our growth in that segment as we go forward.

Maybe just closing the loop on implants and N1, Amir. When do you think N1 will be kind of $100 million run rate like Spark? And how big can that product be in 3 or 4 years?

So Spark was a new category coming in, opening new front. So it was very easy for us to say, well, where is the starting point? How do we get there? N1 is a combination of replacement. The last product that we had out there, Nobel Active, is almost 15 years old. It's a replacement. So it does some cannibalization with a better product, higher price, ability to really give people more option as well as expansion. We fell combination of N1 plus execution is going to put our premium implant in double-digit growth going forward. So I told you about 85% of that $1 billion is premium implant. We are committed to a double-digit growth over the years. Today, that is performing high single digit. We are really committed to be able to do that. N1 is going to help that business to ramp it up to the next level. And the share position, we think it's going to give us the opportunity to capture share not only on the oral surgeon and the best in class, but also give opportunity to general practitioners, DSO to be able to place impact a lot easier, a lot faster, a lot simpler. Oral care is really different, and that's a new front that we haven't really expanded as much as possible. It's an add-on. It's not a category by itself, but it is an add-on to what we already offer.

Got you. Okay. That's very helpful. Maybe shifting gears over to this pricing environment right now. You took a price hike at the start of the year, you're able to quantify the net ASP tailwind embedded in that 6% to 8% growth outlook for '22? And are you done? Or do you think there's potentially more to come as we move through the year?

So Brandon, we monitor this obviously very closely. And the reality is the world has got some pretty substantial inflationary factors. And so first and foremost, we try to address that deploying our EBS, working with our suppliers and making sure that we gain productivity gains in our production. That said, the reality is that we have instituted some pricing increases. We did that in the second half of last year. We continue to look at that and did some additional pricing increases at the beginning of this year as well. And we'll just continue to monitor it. We give our opco's orthos discretion to maximize both growth as well as profitability and to balance there. And so I think that they understand the importance of utilizing pricing as one of the tools to go ahead and maximize both of those as well. And so we feel good about the actions that we're taking. We continue to monitor the situation overall as it relates to inflation and then pass things on as they do. The one thing maybe to mention here is in this kind of environment overall, we really see our innovation as being the way to go ahead and drive additional ASPs and pricing. If you think about our premium implants and the surface technology with TiUltra and Xeal, those ASPs are higher than the [ TiUnite ] products. And so that's another way for us to capture some of that additional growth in ASP.

Got you. Okay. Let's shift gears over to the E&C segment. Now that you [ Jettison tocabo ]. Can you just help us understand the segment composition there now and the mix between imaging and consumables? And what are some of the growth drivers within E&C that you're most excited about?

So we look at that segment and say, we had said all along our segment is low single-digit growth. Now we take a step back and say, well, what have we done to it. The treatment instrument is out of the equation. We have added the intraoral scanner to that category. We think that by itself is a category that is growing double digit. We are doing a significant change into our infection prevention. But the traditional consumer, infection prevention, restorative, endo, it's a low single-digit growth. High margin low single-digit growth. We have a really good product categories. We think that the access that we have provided to customers, it gives them opportunity to acquire that. It's a good entry for us for many of the offices so we can then position our specialty. But the imaging part through software, through sensors, through nomad, A lot of that today is done remotely, and we can ship it directly with limited involvement. So direct access to customers' ability to integrate that, I think those are some of the competitive advantage that we have in that segment. But our expectation all along has been this segment of the business is low single-digit growth. We have improved the profitability of it significantly, and we are really shifting the portfolio, continue to shift the portfolio on the specialty side, higher margin, more direct, underpenetrated, and we think that's the future and this is going to look at over the next 3 to 5 years while leveraging this access to a lot of offices to our equipment and consumable. One last thing, imaging, diagnostics, we sell it independently as a product by itself -- but our intention is to integrate it more and more into our specialty business as we go forward.

Got you. Okay. Can you just help us with the mix? It's about $1 billion business, and I think pro forma, just the breakdown between imaging and consumables, ballpark?

So 40% of our business is in equipment and consumable. Out of that, I would say, about 40% is imaging diagnostics. That is 60% is consumable. So about 15% is imaging diagnostics and about 20 -- less than 20%.

Less than 20%.

Less than 20% is consumable. 20-some percent is consumable at the overall portfolio.

Got you. super. Okay. Maybe just touching on your DSO business. You recently announced a deal, I think, with Pacific Dental to extend implants and imaging with that relationship. Can you just talk about the ability to drive deeper penetration in your existing DSO partners? And I guess help us kind of understand the runway and opportunity with those more strategic customers.

Yes. It's about 10% of our business. The top 20 DSO is growing almost over 20% for us. Double-digit continue to grow. And it's an outcome of the past 4 or 5 years' work. And it's true partnership that we have built with some of these largest DSOs, with -- you saw Pacific, you've seen Heartland and many others. And the reason for that is yes, we participate in RFPs. But more importantly, we have 3-, 5-, 10-year horizon agreement with them on what they're trying to do, capabilities that they're trying to build. And we try to help them for resources underground. Education is an important part, standardizing. We keep talking about EBS. These are really example of putting the standard processes and diagnostics, putting AI. Doing procedural activities that we can replicate from office to office to get average spending per patient d'Ivoir to improve acceptance rate to go up. Those are the kind of KPIs. Those are the work that we do with these DSOs. They see the benefit of it. Dentists, they see the importance of being able to do more and more interesting work, which is specialties. And patients, they are able to see more of a predictable outcome. That combination helps the DSOs establish themselves, add to the capabilities. It helps us to be a long-term partner with them. We're really proud of what we have done in here. Some of these DSOs are extremely capable and confident. And this notion that they're putting pressure on prices, majority of growth with the DSOs is on specialty, higher margin, they didn't have that business before. And if there are any pressure coming, it's going to be on a distribution and it's going to be on equipment and consumable part. And if they decide to buy directly from us, we'll offer that to them as well. So there's a change in the dynamic of the market. We are helping to make that transformation commission happen as fast as possible.

Got you. Unfortunately, we're out of time. Thank you so much for being here. We'll have to leave it there. A lot to look forward to this year. Amir, Howard, Stephen, great to see you and everyone on the line. Have a great day. Thank you. Thank you.

Thank you, Brandon.

You too, Brandon.