Envista Holdings Corporation (NVST) Earnings Call Transcript & Summary

Hi, everybody. Good morning, good afternoon, depending on where you are. I'm Elizabeth Anderson, I'm the health care technology and dental analyst here at Evercore. I'm thrilled to be joined by Envista's management team. We have -- as many of you know, we have Amir, CEO in the middle; we have Howard as CFO; and Stephen Keller, IR. We are going to do this as an open fireside chat format. If you guys who are listening have questions, please feel free to drop them into the chat. Happy to incorporate them as we go along. And then I think other than that, we will get started.

Thanks so much guys for joining. It's very -- it's nice to chat with you again. I think in what might be the endless recurring theme of the back half of 2022, everyone's focused on the macroenvironment. I think one thing we would like to -- I'd love to just sort of level set is sort of where product demand stands in sort of different key areas, if we think about consumables and implants and ortho and Spark and equipment? I mean we can go through each of those separately. But I think maybe we'll start there, and yes, we'll go from there.

Thank you, Elizabeth. Thanks for having us. So I'll go about it from a procedure perspective, and then we can talk about a little bit about geography, what we see from a different geography point of view. And for simplicity, we've got 4 key businesses. We've got our Implant business that is purely focused on oral surgeon, [ peer reviews ], very focused on specialists; ortho business, same concept; and hardware business, which is more of an imaging business, capital equipment and the consumable. Let me break those down in each one of the categories and then I'll look at it from a geography point. Demand for implant has not yet slowed down. It just continues to -- when we look at the specialties in North America, patient volume seems to be steady, schedules are in place, they continue to just make progress in there. Indeed, North America does a lot more obvious and apparent. Europe, a little bit of a slowdown, but we haven't seen any erratic on the implant side outside China. And I'll come back and talk about that a little bit from a geography perspective. And the reason that we have this point of view is because of under penetration. We think it is the industry as a whole, it's really under penetrated. We think that in 2021, probably about 24 million implants were placed worldwide, close to about 20 million people. And if you look at the number of people who can use that procedure and improve their quality of life, we think that that penetration is less than 5%. So the more we can digitize things, simplify things, personalize it, the more we can democratize this industry, so it has significant upside opportunity on innovation, training and education and execution. We continue to be very bullish about the implant business, and we have about $1 billion of that business. Also direct, about 75% of that is in North America and Europe, another 10% in -- 10%, 12% in China and the rest of it in other geographies. Ortho, our ortho business is very focused on specialties and orthodontics. We're not stopping other people who want to buy it from buying our product, but you saw our Q3 performance. That market is same concept, about 20-some million installs last year. Despite of all thing that we hear, about 65% to 70% of all the installs continue to be bracket and wire. Despite the fact that market is flat, low single digit on the bracket and wire, we continue to get momentum through innovation, through training, the fact that 70% of our business is outside the U.S. So we feel really good about it. It hasn't slowed down. It hasn't slowed. The number of installs has slowed down, but we continue to make progress in different geographies, and we can get into it in more detail why bracket and wire is still hanging in there. But the beauty of what we have is a combination of the bracket and wire and clear alignment. Spark continues to make significant progress. We see double-digit growth on the number of active doctors. We ended up last year about $70 million. We made a promise to triple the size of that business. We are well on our way. We have the capacity in place already to be able to continue to do that. And we're getting really good momentum because of the quality of the product, demand in different geographies, support that we are putting in place. So -- and that business is also sold directly. And as I mentioned, a big part of that is in the U.S., but geography plays a really important role in momentum in that business. So that's 60% of our business falls into these 2 categories: the implant, ortho. Now the other 40% is sold through distribution, and about 15% of our business is capital equipment. Our definition of capital equipment are the [ pieces ] that you buy and you need it every 3, 4, 5, 6, 7 years. That part has slowed down significantly and it is because of 2 factors coming in place. One, interest rate, the ability for people to go borrow money at 7% interest rate, adding more capacity, adding more capabilities and then a slowdown on new builds, labor costs and a shortage of resources and all of that plays a really important role as well as some very targeted decisions that we have made. We want to be present in some geographies. We want to slow down in order to make sure that we have differentiation. The other part of that, another 20% of our business, 20%, 25% of our business are everyday consumable. That part has been performing extremely well. And the reason -- so if it is a slowdown, why are you not seeing it? Because of innovation, because of education and training that we are putting in place. But in overall, at a macro level, the number of -- if you look at the inventory, the sell-in, the sell-out, you're seeing a slowdown in that segment over time. That said, as a whole, is a low single-digit growth to begin with. And now after the COVID is coming back to that, the normal situation. So you put it all back together. So what have you got in the portfolio? North America, we are seeing a steady growth. DSOs are seeing the number of customers coming through. Average spending has gone down, resources continue to be a major factor in their ability to expand and do these; expansion of the new geography, expansion of the new offices continues to be challenged. Overall, a little bit of a slowdown in North America, but not as pronounced as what we see in Europe. In Europe, there is a distinct slowdown, it's obvious. You can see it on the patient volume, on the spending, on various expansion opportunities. So you add those 2 together, that's about 70%, 75% of our business as a whole. China, very choppy. We really cannot predict what is taking place. We came out of Shanghai lockdown, a ramp in Q3. In the past probably 4, 6 weeks, we have seen a significant slowdown. Various sites are getting closed. You've heard all the things that we are hearing, the riots, slowdown, other places, number of COVID is going up. It's really hard to forecast the realities on the ground in China. And then on top of that, we got the VBP that is hanging in the air and causing everybody to go to a pause situation. Inventory, people are not buying, dealers are sitting and waiting to see what the outcome look like. Nobody is building additional capacity. That combination of what you see on the ground plus the government action has caused China as a whole to come to a more of a pause situation. And obviously, the Russia, anybody's call. We had significant growth in Q1, significant decline in Q2 because we couldn't get any product in, ramp back up in Q3, ramp back down in Q4. And the reason for it is at the moment that they sort of caught in all these reserves, a large number of people has started leaving the country. A lot of these people are affluent people, the people who can afford paying. So the rest who are standing there are watching to see what the next move is going to look at and difficult. So about 14% of our business is in China and Russia, really hard to call it. So the long-term perspective continues to be very positive. We are bullish about it, the short term is really choppy. It's difficult to call it because of this macro elements that I talked about. Hopefully, that gives you a little bit of a broad perspective of where we stand. And then we can do a deeper dive on what are we doing about it and where do we stand, what is the various categories so far.

So it sounds like, based on what you're saying, you have perfect visibility into '23 and are going to give us your revenue guidance, right? Right, Amir? Just kidding. That's super helpful. And I realize you have so many different products and so many different geographies. So it's helpful to get a broader overview. Maybe just to drill down on a couple of those statements. One, maybe on the Europe statement, are you seeing sort of a bifurcation in like sort of higher value procedures like implants versus like base consumables? Or is it sort of across the board? Or like how would you sort of characterize that portion of it?

Yes. We are seeing as a whole overall a slowdown regardless of the categories and all. So you've got a proxy and then you see what's my performance look like. The proxy as a whole is a slowdown across various geographies. We are gaining share. We're performing better than what we have seen on the ground. And where we are gaining share is in ortho, continuing. Spark is growing a lot faster in Europe than any other geography. So you wonder why is that? A whole set of training and education program, network capability building, the clinical success team, they're doing a really nice job in converting a lot of the existing customers. And what they used to do to was start transitioning into Spark. Some large DSOs have made that move, some large operations is going and doing that. So it's not because the environment is growing, it's because of how we execute. The same thing on the implant side. It's not because the environment is going high single digits or better than equipment, we are executing a lot better than the rest. In some other places, we're kind of keeping up with the market. Capital equipment, we are really challenged in that geography. Consumable, we're keeping up with the market, maybe doing a little bit better. But overall, the short asset overall and the slowdown in Europe is very visible.

And can you just remind people who are not as focused on this, can you talk about the Spark rollout in Europe and how it's sort of -- when it started in Europe across this year and how and where that is in terms of geography and sort of penetration?

Well, let me give you a little bit of a background in here and maybe it would be helpful. We -- from 0 to 100,000 cases, it took us over 3 years. From 100 -- case, I mean, patients, patients being treated by Spark, from 100,000 to 200,000 patients, it took us 8 months. From 200,000 to 250,000, about 3 months. So if you take a look at that ramp, I said ramp, why is it ramping that quickly? We started, as you well know, in Australia and New Zealand. We brought it in North America. We have put it in Europe, and we were very thoughtful of how we want to do that. We started in Iberia. We're starting in Spain because we've got a really good capabilities with our oral, ortho business, bracket and wire in Spain. We used some of the key opinion leader in there, started training, we will expand. Went to the next geography. France is really expanding very quickly, very fast. We have started using some like Envista summit and other forum, training people in Eastern Europe. We're in Russia now. We continue one by one geography by geography. We go in, train people, use expert to teach it and then we have a clinical support team come behind it, helping people come up to speed. One of the -- and Europe has been really interesting because we have been experimenting in some places as small as Greece and other spaces. We're now getting in, training people, putting infrastructure in place and experimenting to see what the new and smaller geography look like for us to be able to expand that very rapidly. So we are in Europe in almost every geography. We have the capability to do it, but we are very thoughtful of how to roll this out. So the first experience is the most important thing for patients and for the doctor and the supportive staff. If they're positive about it, it's a lot easier to expand. If that first experience is not a good experience, then you have an uphill battle. So we have been very thoughtful. Rather than doing a big launch, doing a roll out geography by geography, week after week, place by place, city by city, we have it, it's available, but we will not go on everywhere all at once. We're doing it country by country, city by city. And that approach has given us opportunity to see Europe grow a lot faster than what we saw in North America because the process we took, because of the learning that we brought to the place.

Yes. I think -- what is the expression, slow is smooth and smooth is fast, is that sort of like what you're describing there? No, that makes sense. And then in terms of just what the latest on VBP is for both implant updates, I know we're in the any day kind of category at the moment. So if you -- can you sort of tell us where we are in terms of your expectations on the implant side and then sort of currently what you're hearing on the orthodontic side?

Yes. Happy to share that. The latest information that we have is about 3 million, 3.5 million implants placed in China in the past few years. The goal of Chinese government is to up that number to about 5 million. The VBP fundamental driver behind it is if you create a standard processes, if you make sure that there are very few options on the table, then you can expand it a lot quicker, a lot faster. So that's a little bit of a broad point of view. And there are 2 categories, obviously, the premium, and there are few players on the premium side that they are participating and they are trying to make a decision, and a larger number of people on the value side. We don't have any new information. We have made our response. We have put all the information on the ground, but they haven't come back to us, telling us what that looked like. What we have done, as we have done in the past, we have created a set of scenarios that winning, not winning, participating, not participating, what would that look like, and we are prepared to deal with whatever the outcome is. Obviously, we're optimistic about it, but we're not counting that, oh, everything is going to be great, therefore, things are going to go as expected. So we have been working on this counter measuring, making sure that we are risk managing as proper. 15 provinces, they're going to go through the same model on the ortho. They have told us that starting January by Q1, we will have more clarity about it. And we are contemplating that the impact of that will be somewhere in the second half of next year. We think the implant impact would be beginning of next year. But the ortho side on those 15 is going to be more in Q2 and second half of next year, and it's going to have a smaller impact compared to overall implant business. I remind you that we have about $100 million business on implant in China, about 65% to 70% of that is in the private sector. The private sector has been growing a lot faster, and that's where we have been putting all of our energy and resources over the past few years. Not that we don't want the public business, but we wanted to make sure that we have a balanced year as we go forward.

And for those people who are sort of confused on this point, what is your view on why the pricing on the private side, does it leak across to the -- sorry, why the pricing on the public side doesn't leak across to the public -- private side?

Yes. It's not that clear-cut. It's not that black and white thing. But let me explain to you because we have a really good relationship with some of the largest DSOs and have been building, cultivating them for the last 7 or 8 years. So think about the procedure stuff, please don't hang on to this number, right? I'm just going to use any number. Let's say the procedure is $1,000. You've got a base plan and government put a pricing on it and say it's $1,000. Okay. You go to a hospital and get that, and there are 2 choices to put that implant and you're done. Why? What is private is going to do that is really different? A whole other pre-procedures, diagnostic, consultation services and a whole other services after that. Going back, making sure that everything is done correctly. We look at it, the services that they provide radically is different than just going and getting an implant. So the private side thinks because of the capabilities that they have, because of relationship, because of the overall share that they provide, they are able to provide the level of support and service. And then another thing to think about, I don't know, if you have had the chance to go to some of these public hospital, there is one in Beijing, in Shanghai, other places I've gone, they see 700,000 patients per year, 1 hospital, 700,000. Now you go to a private setup, downtown Shanghai, in one of the mall, just you walking into a spa. You walk into a very different environment. So like any other things, are you willing to pay for that service, get that level of intimacy, customer experience? Or do you want to just go through a drive-through implant procedure? I'm exaggerating a little bit.

Yes, but the point is really easy.

That's what we think. And this is not our view, this is the view that you see on the ground. That's what people are thinking about it. But yes, it's going to have an impact, but the level of service you provide, and let's be clear again, 3 million implant, it's 1.4 billion people, 3 million people will get an implant. I'm sure if there are around 3 million people, a large number of them can afford and they want a better service.

Yes. No, that makes sense. As we think about equipment demand, one of the things that sort of come to a question for a lot of people, and I'd just be curious your perspective of this, it seems like, broadly speaking, on the manufacturer side, equipment is slowing, to your point about interest rates, et cetera. But we're still seeing a pretty robust equipment commentary from the distributors. What -- can you help us sort of tie those 2 points together and maybe understand what's going on from a channel perspective?

Absolutely. Absolutely. And so a little bit of that is what we have decided to do. If you recall, you go back 2, 3 years ago, we made a decision that we're going to exit or balance our view in different geographies. For example, we have multiple value implants in Europe. We decide that we're going to go -- and it had an impact on us. For a couple of quarters, we have to really just move customers from one place to another. We have started doing a very similar thing on the imaging side. We have decided that some product categories, some of the specific geographies, it's not competitive, it's not differentiated, it really doesn't hang into that overall digital workflow that we are trying to build. And we have decided -- if you noticed in Q3, our equipment for consumer had a 500 basis point of better margin than our specialty business. This is not by accident. It's not just happening because of them, it's because of the actions that we are taking. We want to shift resources, investment priorities to where there is higher growth, higher margin in the long run. And we have to take some interim decision in order to make -- size that properly, put it in the right format. So yes, you hear a little bit of a different story from one group versus other. And we know exactly where that is, but a good part of that is proxies as well as supply chain, plus what we are doing. So it's not accidental. And we have contemplated that. We know that what we need to do in order to build a sustainable competitive advantage over time. And it's going to have some interim pain that we have to go through, but we have done that before. We grew margin by 500 basis points in the middle of COVID. We built a factory with 2,000 people being hired to build a Spark manufacturing capability. So we did that intentionally. We're doing this as we speak in order to build a different business coming out of this situation.

Yes. No, that makes sense. And maybe that sort of ties into my next question, too. If you think about -- this is obviously not the first macro cycle you've been through with Envista or in general. What are some of the levers that you can pull in terms of protecting the margins as we think about the next sort of 6 to 12 months?

So Elizabeth, maybe I'll jump in here. I think that the beauty of Envista, I think, and Danaher before was that we deploy EBS. And so one of the fundamental tenets of that is continuous improvement. And so regardless of the current climate, we're always going to look to enhance productivity. We're going to look at our cost structure. We continue to look at our facilities footprint. And so we'll deploy those things even as it relates to pricing. I mean, we have an EBS approach to the pricing methodology as well. And so I think regardless of the macros and the climate, we remain committed to improving our operations. And that means expanding our margins. Obviously, we'll be very balanced on our investments as well. As Amir said, long term, it's critical for our success. And so we'll continue to innovate. We'll continue to invest as appropriate, Spark being one of those great examples. And so -- but we feel confident that regardless of the climate that we'll continue to improve our operating margin.

Got it. And if we think about sort of your pricing strategy that you were just referring to at this point, how do we think about sort of where you see pricing going in 2023? We've obviously had a number of competitors should have provided updates in terms of thoughts where they're still being able to get pricing despite the softer demand environment.

Yes. Of course, we'll monitor it closely, but we've taken select pricing increases across different product portfolios for us this year, and we're pleased with the progress overall. I think that we've taken freight surcharges where appropriate as well and then optimized the discount structure. But one of the things that we've talked about in the past is we really see innovation leading the way as it relates to pricing and margin expansion. And so we continue to innovate. When you think about our wire and bracket business, and the Damon Ultima, if you think about our implants and our service technology that we've deployed there, and so those are improvements to pricing and margin overall without being read into the pricing metric per se, year-over-year same SKU sales. And so we've seen -- in Q3, I think we saw north of 160 basis points of pricing, relatively higher on the E&C side that explains some of the margin improvement that Amir talked about. And we'll continue to look at those things. And so we feel good about the EBS structure that we put in there as well. And we won't be blind about pricing increases, but certainly, we will make sure that we continue to look at that as a driver for growth.

So maybe fair to say sort of we should, all else equal, so 2023 should be sort of similar in the 2022 kind of range?

Yes. I think I'd speak to probably Q4 specifically, Elizabeth, and say that we've seen 160 basis points in Q3, we would anticipate roughly around that here in the fourth quarter as well.

Okay. That's helpful. And then, I mean, obviously, to your other points about site consolidation, stuff like that, I remember you were talking about that on like the IPO roadshow. Like, how far through that journey are -- I mean, you obviously talked about continuous improvement. But like is there sort of like an incremental pocket of opportunities now that sort of like not the low-hanging fruit, but maybe like the middle hanging fruit or whatever the metaphor is?

We started in multiple dimension. One was about portfolio management. As you recall, we took about almost 5% of the business in 2020, and we just basically shut it down. So to say, hey, is it deteriorating our margin, is it drag to our growth? Then we saw the [indiscernible] treatment in instrument and then we added 3 acquisitions. So there is -- a portion of that is about portfolio management. Portfolio management, it's just going to continue. We look at it every month, every quarter, continue to do that. We're very, very thoughtful on capital deployment, rigor rather. So #1 in that area. Then we start looking at our footprint. Footprint has been a really important part of our transformation. In 2015, we had 46 manufacturing sites; today, about 20. In an ideal situation, we would probably have about 50. So more and more of a consolidation, it gives us the opportunity to scale up, to take cost out, to put EBS in place. We had 180 to 190 offices. We are below 80 now, and we're going to continue to look for consolidation. It's not only the cost, but the sense of community, identity, being together, scaling up, developing a business culture in those places. Procurement plays an important role. As you probably noticed, we were within [indiscernible] in New York show. We're not going for [ IDS ]. We're not going to Chicago Midwinter. We're not going to some of these shows because the ROI wasn't clear. What are we doing? We have an investment summit in Vienna. We have 1,200 dentists coming in, paying to come to see us. We're going to have one in Australia, so it's 1,500, sold out. So a lot of these internal changes that we are doing about making sure that investment really pays out, use it in the most effective way, training and education, travel, event. And you said, are there other opportunities? Absolutely. This is a little bit of [ history ], I'm going to tell you a quick story. When I was the president of Tektronix, we moved the factory from Beaverton, Oregon, to Pudong. Some of those sales, manufacturing sales, we did a price [ analysis ] every other month. We never stopped improving this and, every time, we took out a couple of percentage of cost, productivity, on-time delivery quality. I was in Mexicali on Monday. If you look at the capability that we have built in this part, we are just at the very beginning of improving productivity, quality, on-time delivery, cost of Spark. With that volume of cases that we are putting out, there's been a significant opportunity for automation or improvement of the standard work, all that will translate into better customer experience, better margin for us over time. We made a commitment, 50 to 75 basis points, 22.5%, and we're going to deliver on it because of -- not because of macro, because of that kind of thing that we just talked about.

Got it. That makes sense. Maybe talk about 2023, I know on sort of like a top line perspective, obviously, with the volatility -- and you'll talk about that in your formal guide. But how do we think about some of the nonoperating lines in your P&L, like interest expense, for example, given the rate environment?

Yes, I think that's a great question, Elizabeth. I think given the climate and interest rates and the like, I think we had interest expense in Q3 of about $11.5 million, $11.6 million. We anticipate that to tick upwards. We would say it's probably approximately $15 million in Q4. And I know we're not talking about 2023, but I would anticipate that even as it relates to interest expense that it will continue to spike higher next year as well, maybe even approximately $70 million of interest expense for that year.

Yes. No, that makes sense. Okay. So if we think about some of the -- hold on, one second. Okay. We have a couple of questions that just came in, too. Maybe I'll just sort of hit upon them super quickly. I think there was some confusion on sort of the EU softness that you talked about. Was that -- my understanding, basically, you said that that was not just capital equipment, it was on the consumable side, too, but there seems to be a couple of people who are confusing that point. So I just want to absolutely clarify for everybody.

Yes, we have seen, overall, a slowdown in Europe.

And that's [indiscernible] equipment?

Across the board. Across the board.

Okay. All right. So that was [indiscernible].

Including some of those proxies, they're going to be performing better than what we see versus those proxies.

Okay. Got it. Okay. Macro [indiscernible]. Okay. Perfect. And then in terms of -- but nothing that you've seen so far in terms of the quarter-to-date performance in 4Q would make you change anything about your like 2022 guidance at this point?

China has been just a rollercoaster. I mentioned that in Q3 ramp-up, somewhat maybe back to normal. In the last 4, 6 weeks, we have seen a radical shift, a complete slowdown, buying and opening things are expanding. So that has been a major change compared to what we saw 4 weeks ago, 6 weeks ago. Russia was choppy, continues to be choppy. Those are kind of the 2 major change that we have seen. We didn't expect Russia to stabilize, it hasn't. So -- and I'm sorry, 15% of our business, 14% of our business is very much up in there, and it's really difficult to forecast what we're going to see happening in the next 4 or 5 weeks.

All right. No, that's fair. And maybe as we think about like just sort of 2023, too, like with the broader strategy of like new product introductions, obviously, the most visible of which is far, can you talk to us about like how you kind of continue to see that evolving? I know you just said you're not going to be at IDS and Chicago Midwinter. We think '23 is a big new -- odd year is a big new product year. So how do we think of sort of where you're focused there and sort of how -- what launches to kind of look forward to in 2023?

So in every one of our categories, we have had a host of new product kind. Damon Ultima, a bracket and wire, is one of the most innovative products that we have put out there, and there's so much room for improvement. And a simple way to describe it, it's a nice name, but it cuts the number of visits to office by half. It gives you better finish. So you pay, you give us, whatever, a couple of hundred dollars, you charge $3,000, $4,000, the difference is the number of visits. If you can cut the number of visits by half, it makes it a lot more profitable for somebody to use that. That's why I really wanted the reason why bracket and wire does not just disappear. We expect that to continue. We just put a new release of Spark out there. N1 continues to be an important part of that equation. IOS, DEXIS IOS integration with DTX is going to be in place, and it's going to be a full blown digital end-to-end acquisition that we have done with Osteogenics where we are getting the momentum, and we have a significant opportunity for growth. In August -- on the consumable, next year would be the first year after 4, 5 years that we have 4 or 5 new product offers. So innovation, alive and well. And we're going to -- I'm going to use the terminology that you use, slow and steady, slow and smooth and fast. That's the methodology that we want to follow. You're going to see a lot more innovation from us in 2023 as well as education and training. And this is the summit in Las Vegas and this is the summit in Quebec with 1,500 dentists, another 1,000 of our employees, to build this momentum and continue to expand it as we go forward.

And just to clarify, too, on the new product portfolio. If I'm an ortho and I switch from like an older Damon to Damon Ultima, like you're not capturing that in the price increases that Howard just talked about, right, because that's like a like-for-like number?

That's right. That's exactly right. And so you have seen a little bit more innovation on the specialty side, Elizabeth, and so when you look at our pricing expansion and metric, you see a disproportionate share on E&C because that does happen year-over-year. We're capturing improved margins and the like on the specialty side because people are moving into newer products, right? So from Damon to Damon Ultima, from TiUnite on the implant side to TiUltra. And so those are not captured in pricing because they're different SKUs.

Got it. That makes sense. And then I think it's been a while since we've heard an update on your DSO strategy. Last one, I think I heard was at a Greater New York conference once upon a time. How do we think about like your strategy there and sort of product uptake at wins? Because I know at some point, like you won deals with DSOs, but then like they don't have to use the product, but it's a great -- obviously, a great opportunity to use the product. So can you just help level set us on those 2 parts?

Yes. So one is what we do, the other one was for DSOs. So what we have done -- starting 2018, we have been really focused on the top 20-30 DSOs in the U.S., the top 10, 15 in Europe, building a personal relationship at exactly the level of procurement and clinical team. That hasn't changed. And we're going to continue to build that to demonstrate that -- what is the top priorities. The top priorities, acceptance, patient acceptance in some place is 25%. For every 4 people they see, 3 walks out. So if you can train and educate them, give them the technology, simulation, software, take the patient acceptance scores up. The second priority is around doing procedures, specialty procedures, so they don't have to refer, and we are really good on both of those, and we are doing a lot of work in making that happen through standard software, through training. So that's what we're doing and going to continue to do that. It has worked really well. The second one, not all DSOs are the same. Some are more about affiliation. They band together from procurement, but every doctor, every office can do whatever they want to do. Some, they create a kind of a GPO model, you're in a formulary. As long as you are there, they can select 1 out of 2 or 3. Some are centrally managed. This is the only set of product that we use. So depending on who you talk to, what DSO -- so it's not a unified DSO model at all. Everyone is different, everyone is creative. And so our job is to make sure we understand that model. We give them the capabilities and then work with the headquarter or the clinical team or at the local level, trying to make that transformation of patient acceptance as well as doing more specialty work. If we do that right, they're going to be more productive. They're going to be more predictable. The retention is going to go up, and they're going to see us as an opportunity as a partner for life and somebody that they can depend on. That's what we have been doing as we pay now and is going to continue to do that going forward.

No, that's very helpful. So then instead of -- okay, so taking stock of all the things that we just said, we're sitting here next year. I don't know if you know the conference next year is going to be in Miami. So that would be exciting. What do you think -- what are you sort of looking forward to? And what do you think the like surprise or what you'll be focused on at that point will be?

I take this back to the March of 2020, even pre-IPO. We came out and said, hey, we're going to improve margin. We're going to build a higher growth business, and we're going to deploy capital very powerfully through the different portfolio. [indiscernible], we're going to do exactly that. When things are really unpredictable, that gives us an opportunity to differentiate ourselves versus everybody else. We have done that in the past 3 years, been independent regardless of what the macroeconomy going to look like in the last 12 -- in the next 12 months. We're going to build a higher growth business. We're going to build a higher margin. We're going to use capital in the most important format. We're going to -- we're not deviating from it. Regardless of what takes place, we're going to be stronger, we're going to be more differentiated, and we have really reinforced our proven track record of execution. That's what you're going to see from us.

Sounds good. Well, I am looking forward to that and as we get through that, and hopefully, we'll have had a back half recovery and we'll be off to the races by that from the macro perspective, too. I want to thank you guys so much for joining us today. It was really nice to talk to you, Amir and Howard and Stephen, and thanks to everybody else who dialed in.

Appreciate it. Thank you.

Thank you, Elizabeth.